<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 21, 1996
REGISTRATION NO. 333-__________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
WORLDCOM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
GEORGIA 4813 58-1521612
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
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)
---------------
BERNARD J. EBBERS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
WORLDCOM, INC.
515 EAST AMITE STREET
JACKSON, MISSISSIPPI 39201-2702
(601) 360-8600
(Name, address, including zip code, and telephone numbers,
including area code, of agent for service)
---------------
COPIES TO:
<TABLE>
<S> <C> <C> <C>
P. BRUCE BORGHARDT, ESQ. R. RANDALL WANG, ESQ. ROBERT S. WIGGINS, ESQ. MARGARET HILL NOTO, ESQ.
GENERAL COUNSEL -- BRYAN CAVE LLP VICE PRESIDENT-CORPORATE SANJIV N. KRIPALANI, ESQ.
CORPORATE DEVELOPMENT ONE METROPOLITAN SQUARE DEVELOPMENT AND STOEL RIVES LLP
WORLDCOM, INC. 211 NORTH BROADWAY GENERAL COUNSEL STANDARD INSURANCE CENTER
10777 SUNSET OFFICE DRIVE, ST. LOUIS, MO 63102 BLT TECHNOLOGIES, INC. 900 SW FIFTH AVENUE, SUITE 2300
SUITE 330 (314) 259-2000 610 ESTHER STREET PORTLAND, OREGON 97204-1268
ST. LOUIS, MO 63127 VANCOUVER, WA 98660 (503) 224-3380
(314) 909-4100 (360) 695-7000
</TABLE>
---------------
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement is declared effective and all
other conditions to the merger (the "Merger") of a subsidiary of the Registrant
with and into BLT Technologies, Inc. ("BLT") pursuant to the Agreement and Plan
of Merger described in the enclosed Proxy Statement/Prospectus have been
satisfied or waived.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
================================================================================================================
Proposed maximum Proposed maximum
Title of each class of Amount to offering price per aggregate offering Amount of
securities to be registered be registered (1) unit (2) price (2) registration fee (3)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share, and
associated preferred stock
purchase rights 3,150,000 shares $0.18 $1,262,592 $383.00
================================================================================================================
</TABLE>
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.
================================================================================
<PAGE> 2
(footnotes from previous page)
(1) Represents the maximum number of shares of common stock, par value $.01
per share, of the Registrant (the "WorldCom Common Stock"), and associated
preferred stock purchase rights, to be issued or offered in exchange for
shares of common stock, par value $ .01, per share of BLT (the "BLT Common
Stock") pursuant to the Merger. Preferred stock purchase rights are
attached to and trade with the WorldCom Common Stock. Value attributable
to such rights, if any, is reflected in the market price of the WorldCom
Common Stock.
(2) Estimated pursuant to Rule 457(f)(1) of the Securities Act of 1933, as
amended (the "Securities Act"), based upon the book value per share of the
shares of BLT Common Stock to be cancelled in the Merger ($0.18 per share,
which is the book value per share of a share of BLT Common Stock on August
31, 1996).
(3) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457(f)(1) of the Securities Act as follows: 1/33 of one
percent of (a) $0.18, the book value of a share of BLT Common Stock on
August 31, 1996, multiplied by (b) 7,014,397, the estimated maximum number
of shares of BLT Common Stock which may be exchanged upon consummation of
the Merger.
<PAGE> 3
BLT TECHNOLOGIES, INC.
610 Esther Street
Vancouver, Washington 98660
November ___, 1996
To the Shareholders of BLT Technologies, Inc.:
Enclosed is a Notice of Special Meeting of Shareholders of BLT
Technologies, Inc. ("BLT") to be held on December 24, 1996 to consider the sale
of BLT to WorldCom, Inc. ("WorldCom") as described in the enclosed Notice and
Proxy Statement/Prospectus. As you are aware, a special meeting of
shareholders of BLT was held on November 9, 1996. The transaction with
WorldCom was not voted on by BLT shareholders at the November special meeting,
and any proxies furnished by BLT shareholders in connection with the November
special meeting cannot be voted at the December special meeting. You can vote
your shares at the December meeting by returning the enclosed proxy or by
attending the December meeting. Whether or not you plan to attend the special
meeting, you are requested to sign, date and mail promptly the enclosed proxy,
which is being solicited on behalf of the BLT Board of Directors. A return
envelope, which requires no postage if mailed in the United States, is enclosed
for that purpose.
Sincerely,
Thomas J. Holce
Chairman and Chief Executive Officer
<PAGE> 4
BLT TECHNOLOGIES, INC.
610 Esther Street
Vancouver, Washington 98660
-----------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 24, 1996
-----------------------------------------
To the Shareholders of BLT Technologies, Inc.:
This is a notice of a special meeting (the "Special Meeting") of the
shareholders of BLT Technologies, Inc., a Washington corporation ("BLT"), to be
held on December 24, 1996, at the offices of Stoel Rives LLP, Standard
Insurance Center, 900 SW Fifth Avenue, Suite 2300, Portland, Oregon 97204,
commencing at 8:00 a.m., local time. The following matters will be considered
at the Special Meeting:
1. Approval of BLT's Agreement and Plan of Merger (the "Merger
Agreement") with WorldCom, Inc. ("WorldCom") dated as of July 26,
1996, the related Plan of Merger dated as of July 26, 1996 by and
between BLT and WC Acquisition, Inc. ("Acquisition Sub"), a
Washington corporation wholly owned by WorldCom, and the transactions
contemplated thereby, including without limitation (a) the merger of
Acquisition Sub with and into BLT, with BLT surviving the merger as a
wholly owned subsidiary of WorldCom (the "Merger"), and (b) the
appointment of Thomas J. Holce as the Shareholder Representative
pursuant to the Escrow Agreement related to the Merger. By virtue of
the Merger, each outstanding share of common stock of BLT ("BLT
Common Stock") will be converted into the right to receive a number
of shares of WorldCom common stock to be determined pursuant to the
Merger Agreement. A copy of the Merger Agreement, the related Plan of
Merger, and the Escrow Agreement are attached as exhibits to the
Proxy Statement/Prospectus accompanying this Notice.
2. To vote upon a proposal to adjourn the Special Meeting to allow for
additional solicitation of shareholder proxies or votes in the event
that the number of proxies or votes sufficient to obtain a quorum or
to approve Proposal 1 has not been received by the date of the
Special Meeting.
3. Any other business that may properly come before the Special Meeting
or any adjournment or postponement thereof.
<PAGE> 5
Only shareholders of record at the close of business on November 22, 1996
are entitled to notice of and to vote at the Special Meeting and any
adjournment or postponement thereof. Each share of BLT Common Stock is entitled
to one vote at the Special Meeting. The affirmative vote of the holders of
two-thirds of the outstanding shares of BLT Common Stock is necessary for
approval and adoption of the Merger Agreement and Plan of Merger. A failure to
vote or return a proxy will have the same effect as a vote against approval and
adoption of the Merger Agreement and Plan of Merger. The proposal to adjourn
the Special Meeting to solicit additional proxies or votes requires the
approval of a majority of the votes represented by the holders of BLT Common
Stock present in person or by proxy at the Special Meeting. The Special Meeting
may be postponed or adjourned from time to time as the shareholders present in
person determine.
Holders of BLT Common Stock who give proper notice and who do not vote in
favor of the Merger will be entitled to assert dissenters' rights under Chapter
23B.13 of the Washington Business Corporation Act. Any shareholder electing to
exercise dissenters' rights must file, prior to the vote at the Special
Meeting, a written notice specifying such holder's intent to demand payment for
such holder's shares if the Merger is effected and must not vote in favor of
the Merger. A copy of Chapter 23B.13 is attached as an exhibit to the
Prospectus/Proxy Statement accompanying this Notice.
Details of the proposed transactions and other important information
concerning BLT and WorldCom are more fully described in the accompanying Proxy
Statement/Prospectus and exhibits thereto, which are incorporated by reference
herein and form a part of this Notice. Please give this material your careful
attention. If you would like to have your shares voted at the Special Meeting
by proxy, please complete, date and sign the proxy and return it in the
enclosed envelope. All valid proxies will be voted at the Special Meeting in
accordance with the shareholder's instructions contained in the proxy. You may
revoke your proxy in the manner described in the accompanying Proxy
Statement/Prospectus at any time before it has been voted at the Special
Meeting. Any shareholder attending the Special Meeting may vote in person even
if he or she has returned a proxy.
By Order of the Board of Directors
Thomas J. Holce
Chairman and Chief Executive Officer
November ____, 1996
Vancouver, Washington
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE REQUESTED TO
SIGN, DATE AND MAIL PROMPTLY THE ENCLOSED PROXY WHICH IS BEING SOLICITED ON
BEHALF OF THE BLT BOARD OF DIRECTORS. A RETURN ENVELOPE WHICH REQUIRES NO
POSTAGE IF MAILED IN THE UNITED STATES IS ENCLOSED FOR THAT PURPOSE.
2
<PAGE> 6
SUBJECT TO COMPLETION, DATED NOVEMBER 21, 1996
BLT TECHNOLOGIES, INC.
PROXY STATEMENT FOR SPECIAL MEETING
OF SHAREHOLDERS TO BE HELD ON DECEMBER 24, 1996
-----------------------------------
WORLDCOM, INC.
PROSPECTUS FOR
UP TO 3,150,000 SHARES OF WORLDCOM COMMON STOCK
-----------------------------------
This Proxy Statement/Prospectus and the accompanying exhibits (the "Proxy
Statement/Prospectus") are being furnished to the shareholders of BLT
Technologies, Inc., a Washington corporation ("BLT"), in connection with a
special meeting of shareholders of BLT to be held on December 24, 1996 and any
adjournment or postponement thereof (the "Special Meeting"). The close of
business on November 22, 1996 (the "Record Date") is the record date for the
Special Meeting to determine the holders of shares of common stock, par value
$.01 per share, of BLT (the "BLT Common Stock") entitled to notice of and to
vote at the Special Meeting and any adjournment or postponement thereof. At the
Special Meeting, holders of BLT Common Stock will be asked to approve and adopt
the Agreement and Plan of Merger (the "Merger Agreement") with WorldCom, Inc.,
a Georgia corporation ("WorldCom"), dated as of July 26, 1996, the related Plan
of Merger dated as of July 26, 1996 by and between BLT and WC Acquisition, Inc.
(the "Acquisition Sub"), a Washington corporation wholly owned by WorldCom, and
the transactions contemplated thereby, including, without limitation (a) the
merger of Acquisition Sub with and into BLT, with BLT surviving the merger as a
wholly owned subsidiary of WorldCom (the "Merger"), and (b) the appointment of
Thomas J. Holce as the Shareholder Representative pursuant to the Escrow
Agreement (hereinafter defined) related to the Merger. A copy of the Merger
Agreement is attached to this Proxy Statement/Prospectus as Exhibit A and
incorporated herein by reference. (Continued on following page)
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
SHAREHOLDER OF BLT TECHNOLOGIES, INC., SEE "RISK FACTORS" BEGINNING ON PAGE 15.
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 PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE
BLT SHAREHOLDERS ARE ADVISED TO OBTAIN CURRENT MARKET QUOTATIONS FOR WORLDCOM
COMMON STOCK. NO ASSURANCE CAN BE GIVEN CONCERNING THE MARKET PRICE FOR
WORLDCOM COMMON STOCK BEFORE OR AFTER THE DATE ON WHICH THE MERGER IS
CONSUMMATED. THE MARKET PRICE FOR WORLDCOM COMMON STOCK WILL FLUCTUATE BETWEEN
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS AND THE DATE ON WHICH THE MERGER IS
CONSUMMATED AND THEREAFTER.
-------------------------
The date of this Proxy Statement/Prospectus is November ___, 1996.
<PAGE> 7
(Continued from previous page)
At the Effective Time (as hereinafter defined) of the Merger, each share
of BLT Common Stock (including BLT Common Stock issued in connection with the
exercise, immediately prior to the Merger, of options (the "BLT Stock Options")
to purchase BLT Common Stock) will be converted into the right to receive that
fraction of a share of common stock, par value $.01 per share, of WorldCom (the
"WorldCom Common Stock") equal to 3,150,000 shares divided by the number of
shares of BLT Common Stock outstanding on a fully diluted basis (0.4491 based
upon 7,014,397 shares of BLT Common Stock outstanding or subject to BLT Stock
Options as of October 31, 1996) (the "Exchange Ratio"), subject to an indemnity
and escrow arrangement covering 10% of the shares of WorldCom Common Stock
issuable in the Merger. The shares subject to the escrow arrangement (the
"Escrow Shares") are subject to disbursement to WorldCom in the event that
WorldCom has claims to indemnification under the Merger Agreement or in certain
other circumstances. See "The Merger Agreement and Plan of Merger -- Indemnity
and Escrow Agreement." Accordingly, former holders of BLT Common Stock may
ultimately receive none (or some or all) of such Escrow Shares. Additionally,
shareholders of BLT are required to bear any expenses in excess of $1.2 million
incurred by BLT in connection with the transactions contemplated by the Merger.
See "The Merger Agreement and Plan of Merger - Expenses." BLT expects that such
expenses will not exceed $1.2 million. This Proxy Statement/Prospectus
constitutes the prospectus of WorldCom with respect to up to 3,150,000 shares
of WorldCom Common Stock to be issued in connection with the Merger.
At the Effective Time, the then outstanding and unexercised BLT Stock
Options will be converted into options exercisable for shares of WorldCom
Common Stock having the same terms as the BLT Stock Options, including such
terms and conditions as may be incorporated by reference into the agreements
evidencing the BLT Stock Options, except that the exercise price and the number
of shares issuable upon exercise will be divided and multiplied, respectively,
by the Exchange Ratio. As a result of the approval of the Merger by the BLT
Board of Directors, all outstanding BLT Stock Options have become fully vested
and exercisable under the terms of BLT's 1994 Stock Option Plan. See "The
Merger Agreement and Plan of Merger -- Treatment of BLT Stock Options."
While BLT and WorldCom intend that the Merger should, under current law,
constitute a tax-free reorganization under Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), no ruling has been sought from
the Internal Revenue Service and no opinion of counsel has been or will be
obtained. Qualification of the Merger as a tax-free reorganization is
contingent, in part, on the BLT shareholders retaining a significant continuing
ownership interest in WorldCom based on their ownership in BLT. Neither BLT nor
WorldCom has received any representations from the management of BLT or the BLT
shareholders regarding their intention to retain or dispose of the WorldCom
Common Stock received in the Merger. If BLT shareholders holding more than 50%
of the outstanding BLT Common Stock before the Merger were to have a present
intention to dispose of the WorldCom Common Stock received in the Merger, and
in fact disposed of such shares following the Merger, the Internal Revenue
Service could assert that the Merger did not qualify as a tax-free
reorganization. If it were ultimately determined that the Merger did not
qualify as a tax-free reorganization, all BLT shareholders would be subject to
tax on the BLT Common Stock surrendered in the Merger whether or not the
WorldCom Common Stock received in the Merger was sold or retained. AS A RESULT,
BLT SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE TAX
CONSEQUENCES OF THE MERGER. See "The Merger -- Certain U.S. Federal Income Tax
Consequences."
WorldCom Common Stock is traded on the Nasdaq National Market under the
symbol "WCOM." The last reported sale price of the WorldCom Common Stock as
reported on the Nasdaq National Market on
ii
<PAGE> 8
November 19, 1996 was $23.75 per share. This Proxy Statement/Prospectus was
first mailed to the holders of BLT Common Stock on or about November 25, 1996.
Any person giving a proxy in the form accompanying this Proxy
Statement/Prospectus has the power to revoke it at any time before its
exercise. The proxy may be revoked by filing with the Secretary of BLT an
instrument of revocation or a duly executed proxy bearing a later date. The
proxy may also be revoked by affirmatively electing to vote in person while
attending the Special Meeting. However, a shareholder who attends the meeting
need not revoke the proxy and vote in person unless the shareholder wishes to
do so. All valid, unrevoked proxies will be voted at the Special Meeting in
accordance with the instructions given.
iii
<PAGE> 9
NO PERSON HAS BEEN AUTHORIZED BY WORLDCOM OR BLT TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY EITHER WORLDCOM OR BLT. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE THE SOLICITATION OF A PROXY OR AN
OFFER OR SOLICITATION TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE SHARES OF WORLDCOM CAPITAL STOCK TO WHICH IT RELATES
OR AN OFFER OR SOLICITATION TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN
OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF THE SECURITIES OFFERED HEREBY
SHALL, UNDER ANY CIRCUMSTANCES, IMPLY OR CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF WORLDCOM OR BLT OR IN THE INFORMATION SET
FORTH OR INCORPORATED BY REFERENCE HEREIN SUBSEQUENT TO THE DATE HEREOF.
AVAILABLE INFORMATION
WorldCom 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 Room 1024, Judiciary
Plaza, 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. 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 Commission maintains an Internet Web site that
contains reports, proxy statements and other materials filed electronically by
WorldCom through the Commission's Electronic Data Gathering, Analysis and
Retrieval (EDGAR) system. This web site can be accessed at http://www.sec.gov.
In addition, material filed by WorldCom can be inspected at the offices of the
National Association of Securities Dealers, Inc. (the "NASD"), at 1735 K
Street, N.W., Washington, DC 20006.
WorldCom has filed with the Commission a Registration Statement on Form
S-4 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the shares of WorldCom Common Stock
offered hereby. This Proxy Statement/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 Proxy
Statement/Prospectus omits certain information contained or incorporated by
reference in the Registration Statement. Statements contained in this Proxy
Statement/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.
As used in this Proxy Statement/Prospectus, the term "BLT" means BLT
Technologies, Inc. and its subsidiaries, and the term "WorldCom" means
WorldCom, Inc. and its subsidiaries. All information contained in this Proxy
Statement/Prospectus relating to BLT was provided by the management and Board
of Directors of BLT. WorldCom assumes no responsibility for the accuracy of
such information. All information
iv
<PAGE> 10
contained or incorporated by reference in this Proxy Statement/Prospectus
relating to WorldCom was provided by the management and Board of Directors of
WorldCom. BLT assumes no responsibility for the accuracy of such information.
INCORPORATION BY REFERENCE
The following documents filed with the Commission by WorldCom (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) WorldCom's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995 (the "1995 Form
10-K"); (2) WorldCom's Report by Issuer of Securities Quoted on NASDAQ on Form
10-C dated July 12, 1996; (3) WorldCom's Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1996, June 30, 1996 and September 30, 1996; (4)
WorldCom's Current Reports on Form 8-K dated August 25, 1996 (filed August 26,
1996) (as amended on Forms 8-K/A filed August 30, 1996, November 4, 1996 and
November 20, 1996); (5) audited financial statements as of December 31, 1994
and 1993 and for the years then ended 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 WorldCom's Current Report on Form 8-K/A dated August 22, 1994 (filed 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 WorldCom'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 WorldCom's Current
Report on Form 8-K/A dated August 25, 1996 (filed November 4, 1996); (8) the
description of WorldCom'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 WorldCom's Annual Report on Form 8-K
dated and filed August 14, 1995; (9) the description of WorldCom's Preferred
Stock Purchase Rights contained in WorldCom's Registration Statement on Form
8-A dated August 26, 1996; and (10) the descriptions of the WorldCom Series A
Preferred Stock, the WorldCom Series B Preferred Stock and the WorldCom
Depository Shares (issuable upon consummation of the MFS Merger (as defined
herein)) contained in WorldCom's Registration Statements on Form 8-A dated
November 13, 1996.
All documents filed by WorldCom 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 Proxy
Statement/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 Proxy
Statement/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 Proxy Statement/Prospectus.
v
<PAGE> 11
THIS PROXY STATEMENT/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 PROXY
STATEMENT/PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST BY SUCH PERSON
TO WORLDCOM, INC., 515 EAST AMITE STREET, JACKSON, MISSISSIPPI 39201-2702,
ATTENTION: STEPHANIE Q. SCOTT, DIRECTOR OF FINANCIAL REPORTING (TELEPHONE:
(601) 360-8600). IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY
REQUEST SHOULD BE MADE BY DECEMBER 17, 1996.
vi
<PAGE> 12
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION ..................................................... iv
INCORPORATION BY REFERENCE ................................................ v
SUMMARY ................................................................... 1
Business of WorldCom ..................................................... 1
Recent Development ....................................................... 2
Business of BLT .......................................................... 3
The Proposed Merger ...................................................... 3
Merger Consideration ................................................... 3
Treatment of BLT Stock Options ......................................... 3
Effective Time ......................................................... 4
Conditions to the Merger; Termination .................................. 4
Indemnification and Escrow Agreement ................................... 4
Noncompete and Confidentiality Agreements .............................. 5
Management and Operations After the Merger ............................. 5
Expenses ............................................................... 5
Accounting Treatment ..................................................... 5
Certain Federal Income Tax Consequences .................................. 5
Reasons for the Merger ................................................... 6
Opinion of Financial Advisor ............................................. 6
Recommendation of the BLT Board of Directors ............................. 6
The Special Meeting ...................................................... 7
Record Date; Outstanding Shares; Quorum .................................. 7
Interests of Certain Persons in the Merger ............................... 7
Regulatory Filings and Approvals ......................................... 8
Dissenters' Rights ....................................................... 8
Comparison of Shareholder Rights ......................................... 8
Risk Factors ............................................................. 8
Market Prices ............................................................ 8
Comparative Per Share Data ............................................... 11
Selected Pro Forma Consolidated Financial Information .................... 12
Summary Historical Financial Data ........................................ 13
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS ................. 15
RISK FACTORS .............................................................. 15
Risks Related to the Merger .............................................. 15
Possibility of Taxability of the Merger ................................ 15
The Effect of Stock Price Fluctuations on the Consideration to be
Received by the Holders of BLT Common Stock in the Merger .............. 16
Integration of the Companies ........................................... 16
Substantial Dilution of Ownership Interest in WorldCom of Current
BLT Shareholders Resulting from MFS Merger ............................. 16
Shares Eligible for Future Sale ........................................ 16
Risks Related to WorldCom and the Combined Company ....................... 17
Risks Associated with Failure to Obtain Consents of Certain
Governmental Authorities ............................................... 17
Integration of WorldCom and MFS ........................................ 17
Risks Associated with the Repurchase of MFS Senior Notes ............... 17
Acquisition Strategy ................................................... 17
Operating Losses ....................................................... 18
Significant Capital Requirements ....................................... 18
Risks of Financial Leverage; Debt Service, Interest Rate Fluctuations,
Possible Reduction in Liquidity, Dividend Restrictions, and Other
Restrictive Covenants .................................................. 19
Regulation ............................................................. 19
</TABLE>
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<TABLE>
<S> <C>
Competition -- Traditional Telecommunications Services ................. 21
Competition -- Internet-Related Services ............................... 22
Competition -- Network Systems Integration Services .................... 23
Risks of Expansion and Implementation .................................. 24
Dependence on Availability of Transmission Facilities .................. 24
Rapid Technological Changes; Dependence Upon Product Development ....... 24
Dependence on Key Personnel ............................................ 25
Contingent Liabilities ................................................. 25
Potential Liability of On-line Service Providers ....................... 26
Dependence upon Network Infrastructure; Risk of System
Failure; Security Risks ................................................ 27
Variability of Quarterly Operating Results ............................. 27
Strategic Relationship Between UUNET and Microsoft ..................... 27
UUNET's Dependence upon Suppliers; Sole and Limited Sources
of Supply .............................................................. 28
Anti-Takeover Provisions ............................................... 29
THE MERGER ................................................................ 30
General .................................................................. 30
Background of the Merger ................................................. 30
WorldCom's Reasons for the Merger ........................................ 31
BLT's Reasons for the Merger ............................................. 31
Recommendation of the BLT Board of Directors ............................. 32
Orca Capital Fairness Opinion ............................................ 32
Comparable Transaction Analysis ........................................ 33
Comparable Company Analysis ............................................ 33
Discounted Cash Flow Analysis .......................................... 34
Dissenters' Rights ....................................................... 34
Certain U.S. Federal Income Tax Consequences ............................. 35
Accounting Treatment ..................................................... 36
Status Under Federal Securities Laws ..................................... 36
THE BLT SPECIAL MEETING ................................................... 38
General .................................................................. 38
Date, Time and Place ..................................................... 38
Purpose of the Special Meeting ........................................... 38
Voting at the Special Meeting ............................................ 38
Record Date; Outstanding Shares; Quorum ................................ 38
Votes Required ......................................................... 38
Proxies ................................................................ 39
Solicitation of Proxies .................................................. 39
Adjournment of the Special Meeting ....................................... 39
Discretionary Authority .................................................. 39
INFORMATION CONCERNING WORLDCOM ........................................... 41
Business of WorldCom ..................................................... 41
Recent Development ....................................................... 42
Terms and Conditions of the MFS Merger ................................... 43
Certain Conditions ..................................................... 43
Agreement Not To Solicit Other Offers .................................. 43
Other Covenants ........................................................ 44
Termination of the MFS Merger Agreement ................................ 45
Termination Fees ....................................................... 47
Description of Services Agreement ........................................ 49
Stock Option Agreements .................................................. 51
Management of WorldCom Following the MFS Merger .......................... 54
Business of MFS .......................................................... 62
Acquisition Subsidiary ................................................... 63
</TABLE>
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<TABLE>
<S> <C>
INFORMATION CONCERNING BLT ................................................ 64
Business ................................................................. 64
Products ................................................................. 64
Prepaid Calling Cards .................................................. 64
Other Products ......................................................... 64
Markets .................................................................. 64
Technology ............................................................... 65
Strategy ................................................................. 65
Properties ............................................................... 65
Legal Proceedings ........................................................ 66
Executive Officers and Directors ......................................... 66
Business Experience ...................................................... 67
Security Ownership of Directors, Executive Officers and
Principal Shareholders ................................................... 67
Description of BLT Capital Stock and Options ............................. 69
Common Stock ........................................................... 69
Preferred Stock ........................................................ 69
Option Plan ............................................................ 69
Management's Discussion and Analysis of Results of Operations
and Financial Condition .................................................. 70
Overview ................................................................. 70
Liquidity and Capital Resources .......................................... 70
Common Stock ........................................................... 70
Line of Credit and Term Loans .......................................... 70
Promissory Notes Payable ............................................... 71
Commitments ............................................................ 71
Financial Condition ...................................................... 71
Results of Operations .................................................... 71
Three Months Ended August 31, 1996 Compared With Three Months
Ended August 31, 1995 .................................................... 73
Card Revenue ........................................................... 73
Commissions Earned ..................................................... 73
Cost of Services ....................................................... 73
Selling, General and Administrative Expenses ........................... 73
Interest Expense ....................................................... 73
Income Taxes ........................................................... 74
Fiscal Year Ended May 31, 1996 Compared With Fiscal Year
Ended May 31, 1995 ....................................................... 74
Card Revenue ........................................................... 74
Commissions Earned ..................................................... 74
Long Distance Services Revenue ......................................... 74
Cost of Services ....................................................... 74
Selling, General and Administrative Expenses ........................... 74
Interest Expense ....................................................... 75
Income Taxes ........................................................... 75
Fiscal Year Ended May 31, 1995 Compared With The Seventeen Month
Period Ended May 31, 1994 ................................................ 75
Card Revenue ........................................................... 75
Commission Earned ...................................................... 75
Long Distance Services Revenue ......................................... 75
Cost of Services ....................................................... 76
Selling, General and Administrative Expenses ........................... 76
Interest Expense ....................................................... 76
Income Taxes ........................................................... 76
THE MERGER AGREEMENT AND PLAN OF MERGER ................................... 77
Merger Consideration; Exchange of the Company's Shares ................... 77
Effective Time of Merger ................................................. 77
Management and Operations After the Merger ............................... 77
</TABLE>
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<PAGE> 15
<TABLE>
<S> <C>
Conditions to the Merger ................................................ 78
Exchange of Certificates; Fractional Shares ............................. 78
Treatment of BLT Stock Options .......................................... 78
Certain Other Agreements ................................................ 79
Interests of Certain Persons in the Merger .............................. 79
Indemnity and Escrow Agreement .......................................... 79
Escrow Agreement ...................................................... 81
Noncompete and Confidentiality Agreements ............................... 83
Affiliate Agreements .................................................... 83
Certain Regulatory Filings and Approvals ................................ 83
Amendment; Waiver ....................................................... 83
Termination ............................................................. 84
Expenses ................................................................ 84
DESCRIPTION OF WORLDCOM CAPITAL STOCK .................................... 85
Common Stock ............................................................ 85
Preferred Stock - General ............................................... 85
Series A Preferred Stock ................................................ 86
Dividends ............................................................. 86
Mandatory Conversion of WorldCom Series A Preferred Stock ............. 87
Right to Redeem WorldCom Series A Preferred Stock ..................... 88
Conversion at Option of Holder ........................................ 89
Conversion Adjustment ................................................. 90
Adjustment for Consolidation or Merger ................................ 90
Fractional Shares ..................................................... 91
Notice to Holders of WorldCom Series A Preferred Stock ................ 91
Liquidation Rights .................................................... 92
Voting Rights ......................................................... 92
Reissuance ............................................................ 93
Listing ............................................................... 93
Registrar and Transfer Agent .......................................... 93
Series B Preferred Stock ................................................ 93
Dividends ............................................................. 93
Conversion at Option of Holder ........................................ 94
Conversion Adjustment ................................................. 95
Adjustment for Consolidation or Merger ................................ 95
Right to Redeem WorldCom Series B Preferred Stock ..................... 96
Liquidation Rights .................................................... 96
Notice to Holders of WorldCom Series B Preferred Stock ................ 96
Voting Rights ......................................................... 97
Reissuance ............................................................ 97
No Listing ............................................................ 98
Registrar and Transfer Agent .......................................... 98
Depositary Shares ....................................................... 98
Issuance of Depositary Receipts ....................................... 98
Withdrawal of WorldCom Series A Preferred Stock ....................... 98
Mandatory Conversion, or Call ......................................... 99
Conversion at the Option of Holder .................................... 99
Dividends and Other Distributions ..................................... 100
Record Date ........................................................... 100
Voting of WorldCom Series A Preferred Stock ........................... 100
Amendment and Termination of Deposit Agreement ........................ 100
Charges of Depositary ................................................. 101
General ............................................................... 101
</TABLE>
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<PAGE> 16
<TABLE>
<S> <C> <C>
WorldCom Series 3 Preferred Stock ....................................... 102
Preferred Stock Purchase Rights ......................................... 102
Certain Charter and Bylaw Provisions .................................... 103
Election of Directors ................................................. 104
Special Meetings of Shareholders ...................................... 104
Special Redemption Provisions ......................................... 104
Business Combination Restrictions ..................................... 105
EFFECT OF THE MERGER ON RIGHTS OF SHAREHOLDERS ........................... 107
Rights of Dissenting Shareholders ....................................... 107
Certain Voting Rights ................................................... 107
Election of Directors ................................................... 107
Removal of Directors .................................................... 108
Action By Written Consent ............................................... 108
Amendments to Charter ................................................... 109
Amendments to Bylaws .................................................... 109
Special Meetings of Shareholders ........................................ 109
Vote on Extraordinary Corporate Transactions ............................ 110
Indemnification and Limitation of Liability of Directors and Officers ... 110
Special Redemption Provisions ........................................... 112
EXPERTS .................................................................. 113
INDEX TO BLT FINANCIAL STATEMENTS ........................................ 114
</TABLE>
LIST OF EXHIBITS
Exhibit A Agreement and Plan of Merger
Exhibit B Plan of Merger
Exhibit C Form of Escrow Agreement
Exhibit D Washington Dissenters' Rights Statutes
Exhibit E Orca Capital Fairness Opinion
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<PAGE> 17
SUMMARY
The following is a summary of certain important terms of the proposed
Merger and related information discussed elsewhere in this Proxy
Statement/Prospectus. This summary does not purport to be complete and is
qualified in its entirety by reference to the more detailed information
included in this Proxy Statement/Prospectus and the exhibits hereto, including,
but not limited to, the Merger Agreement set forth as Exhibit A hereto and the
Plan of Merger set forth as Exhibit B hereto. Shareholders of BLT are urged to
read this Proxy Statement/Prospectus and the exhibits hereto in their entirety
and to consider carefully the information set forth under the headings
"Cautionary Statement Regarding Forward-Looking Statements" and "Risk Factors."
BUSINESS OF WORLDCOM
WorldCom, a Georgia corporation which conducts business under the name
"LDDS WorldCom," is one of the four largest long distance telecommunications
companies in the United States, based on 1995 revenues. WorldCom provides long
distance telecommunications services to business, consumer and other carrier
customers through its network of fiber optic cables, digital microwave, and
fixed and transportable satellite earth stations, with service to points
throughout the nation and the world. The products and services provided by
WorldCom include: switched and dedicated long distance products, 800 services,
calling cards, domestic and international private lines, broadband data
services, debit cards, conference calling, advanced billing systems, enhanced
faxed and data connections, television and radio transmission and mobile
satellite communications. Based on Federal Communications Commission ("FCC")
statistics as of December 31, 1995 (the most recent statistics available),
WorldCom's share of total toll service revenues for 1995 was 4.3%.
WorldCom's emphasis on acquisitions has taken WorldCom from a small
regional long distance carrier to one of the largest long distance
telecommunications companies in the industry, serving customers domestically
and internationally. On January 5, 1995, WorldCom completed the acquisition of
the network services operations of WilTel, a subsidiary of The Williams
Companies, Inc., for approximately $2.5 billion in cash (the "WilTel
Acquisition"). Through this purchase, WorldCom acquired a nationwide common
carrier network of approximately 11,000 miles of fiber optic cable and digital
microwave facilities.
On December 30, 1994, WorldCom, through a wholly owned subsidiary, merged
with IDB Communications Group, Inc., a Delaware corporation ("IDB"). IDB
operates a domestic and international communications network providing private
line and public switched long distance telecommunications services, facsimile
and data connections, television and radio transmission services, and mobile
satellite communications capabilities. As a result of this merger (the "IDB
Merger"), each share of common stock of IDB was converted into the right to
receive 0.476879 shares of WorldCom Common Stock, resulting in the issuance of
approximately 71,762,000 shares of WorldCom Common Stock. In addition, WorldCom
assumed, on a subordinated basis, jointly and severally with IDB, the
obligations of IDB to pay the principal of and interest on $195.5 million 5%
convertible subordinated notes due 2003, issued by IDB. On July 15, 1996,
WorldCom announced that it had exercised its option to redeem on August 16,
1996 all of the outstanding IDB notes. Prior to such redemption date, a
majority of the holders of the IDB notes elected convert their notes into
WorldCom Common Stock, resulting in the issuance of approximately 10.3 million
shares of WorldCom Common Stock. The IDB Merger was accounted for as a
pooling-of-interests and, accordingly, the WorldCom financial statements for
the periods prior to the IDB Merger have been restated to include the results
of IDB for all periods presented.
WorldCom follows a four-point growth strategy, consisting of internal
growth, the selective acquisition of smaller long distance companies with
limited geographic service areas and market shares, the consolidation of
certain third tier long distance carriers with larger market shares, and
international expansion.
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<PAGE> 18
A predominant share of WorldCom's total revenues is derived from
commercial customers. Commercial customers typically use higher volumes of
telecommunications services than residential customers and concentrate usage on
weekdays during business hours, when rates are highest. Consequently,
commercial customers, on average, generate higher revenues per account than
residential customers. WorldCom has become a significant participant in the
long distance wholesale market and intends to pursue opportunities, if any, for
continued expansion in this area. While total revenues in the wholesale market
are less than from commercial customers, expenses are generally reduced in
servicing these customers as the result of fewer invoices, fewer customer
service personnel and a smaller sales force.
The enactment of the Telecommunications Act of 1996 (the "Telecom Act") in
early February 1996 has made it possible for WorldCom to participate in both
the local and long distance markets. WorldCom has formed business associations
to provide long distance telecommunications services with certain local
exchange carriers ("LECs"), and WorldCom expects to pursue resale of local
service in those markets where it both economically and technically feasible.
WorldCom's principal executive offices are located at 515 East Amite
Street, Jackson, Mississippi 39201-2702, and its telephone number is (601)
360-8600. See "Information Regarding WorldCom."
RECENT DEVELOPMENT
On August 25, 1996, WorldCom executed an Agreement and Plan of Merger (the
"MFS Merger Agreement"), pursuant to which a wholly owned subsidiary of
WorldCom will be merged (the "MFS Merger") with and into MFS Communications
Company, Inc., a Delaware corporation ("MFS"). Consummation of the MFS Merger
is subject to customary closing conditions and shareholder and regulatory
approvals. It is uncertain whether the MFS Merger will close before or after
the consummation of the Merger with BLT, due to uncertainty regarding the
receipt of regulatory approvals and other closing conditions. No assurance can
be given that the MFS Merger will be consummated.
MFS provides facilities-based telecommunications services and systems to
business and government. MFS is organized as a holding company and operates
through its subsidiaries in two business segments: telecommunications services
and network systems integration. MFS provides telecommunications services
domestically and internationally in the form of: (i) dedicated special access
and private line circuits, local switched service and high speed data
communications to large business customers; (ii) single source integrated local
and long distance switched services, high speed data communications services
and facilities management to medium and small businesses; (iii) local access to
long distance companies; and (iv) local access, asynchronous-transfer-
mode-based ("ATM-based") backbone service and interconnection via Network
Access Points ("NAPs") to Internet service providers.
Based on the capitalization of WorldCom and MFS as of November 13, 1996
and assuming that all shares of MFS preferred stock are converted into shares
of MFS common stock prior to the consummation of the MFS Merger, the
stockholders of MFS immediately prior to the consummation of the MFS Merger
will own securities representing approximately 56% of the outstanding WorldCom
Common Stock on a fully diluted basis following consummation of the MFS Merger,
assuming that all outstanding MFS options and MFS warrants are exercised, and
approximately 54% of the outstanding WorldCom Common Stock on a fully diluted
basis following consummation of the MFS Merger, assuming that no outstanding
MFS options and MFS warrants are exercised, without adjustment in either case
for shares acquired by WorldCom shareholders in their capacities as
stockholders of MFS. See "Information Regarding WorldCom -- Recent
Development," "-- Management of WorldCom Following the MFS Merger" and "--
Business of MFS."
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<PAGE> 19
BUSINESS OF BLT
BLT was incorporated as Bottom Line Telecommunications, Inc. in 1989 and
adopted the name BLT Technologies, Inc. in October 1995. BLT originally was in
the business of reselling long distance telephone service. BLT initially
entered the prepaid calling cards business as a complement to its long distance
resale business. BLT was an early entrant in the prepaid telecard industry,
launching its own brand of prepaid calling cards, TALK 'N TOSS(R), in 1993.
Since 1993, BLT has become a leading developer and marketer of prepaid calling
cards. With the success of its prepaid calling cards, BLT sold its long
distance resale business as of the end of February 1995 in order to focus on
developing prepaid debit card systems. Today, BLT develops and markets a
variety of prepaid services. The most widespread application of BLT's prepaid
service offerings has been in connection with its TALK 'N TOSS(R) prepaid phone
cards. BLT is also developing other debit card applications. These include an
electronic cash card, which will enable cashless purchases at participating
retailers, and a Technical Assistance Support Card ("TASCard(TM)"), which
provides a method for fee-based technical support for hardware and software
providers.
BLT's principal executive offices are located at 610 Esther Street,
Vancouver, Washington 98660 and its telephone number is (360) 695-7000. See
"Information Regarding BLT."
THE PROPOSED MERGER
Merger Consideration. Pursuant to the Merger Agreement and the Merger,
Acquisition Sub will merge with BLT in accordance with the Washington Business
Corporation Act (the "WBCA"), the separate existence of Acquisition Sub will
cease, and BLT, as the surviving corporation in the Merger, will become a
wholly owned subsidiary of WorldCom. Upon consummation of the Merger, each of
the issued and outstanding shares of BLT Common Stock (other than shares as to
which dissenters' rights are perfected under Washington law) will be converted
into the right to receive that fraction of a share of WorldCom Common Stock
equal to 3,150,000 shares divided by the number of shares of BLT Common Stock
outstanding on a fully diluted basis (the "Exchange Ratio") (0.4491 based upon
7,014,397 shares of BLT Common Stock outstanding or subject to BLT Stock
Options as of October 31, 1996), subject to the provisions of an indemnity and
escrow agreement described herein covering 10% of such shares. The shares
subject to the escrow arrangement (the "Escrow Shares") are subject to
disbursement to WorldCom in the event that WorldCom has claims to
indemnification under the Merger Agreement or in certain other circumstances.
See "The Merger Agreement and Plan of Merger -- Merger Consideration; Exchange
of BLT's Shares" and "-- Indemnity and Escrow Agreement." Accordingly, former
shareholders of BLT may ultimately receive none (or some or all) of such Escrow
Shares. Additionally, shareholders of BLT are required to bear any expenses in
excess of $1.2 million incurred by BLT in connection with the transactions
contemplated by the Merger. BLT expects that such expenses will not exceed $1.2
million. See "The Merger Agreement and Plan of Merger -- Expenses."
No fractional shares will be issued in the Merger, and each holder of BLT
Common Stock will receive a cash payment in lieu of such fractional shares
equal to such fraction multiplied by $23.50.
Treatment of BLT Stock Options. At the Effective Time, WorldCom will cause
each holder of a BLT Stock Option to receive an option to purchase shares of
WorldCom Common Stock having substantially the same terms and conditions as the
BLT Stock Option, except that the exercise price and number of shares of
WorldCom Common Stock issuable upon exercise shall be divided and multiplied,
respectively, by the Exchange Ratio. As a result of the approval of the Merger
by the BLT Board of Directors, all outstanding BLT Stock Options have become
fully vested and exercisable under the terms of BLT's 1994 Stock Option Plan.
See "The Merger Agreement and Plan of Merger -- Treatment of BLT Stock
Options."
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<PAGE> 20
Effective Time. The Merger will become effective on the date and time
Articles of Merger are filed with the office of the Secretary of State of the
State of Washington in accordance with the WBCA or such later time and date as
may be specified in the Articles of Merger. The date and time when the Merger
will become effective is referred to herein as the Effective Time. The
Effective Time is expected to occur promptly after the satisfaction or waiver
of all of the conditions to the Merger set forth in the Merger Agreement. See
"The Merger Agreement and Plan of Merger -- Effective Time of the Merger."
Conditions to the Merger; Termination. Consummation of the Merger is
subject to the fulfillment or waiver, at or prior to the Effective Time, of a
number of conditions described in the Merger Agreement, including without
limitation: (a) approval of the Merger by the requisite vote of the holders of
BLT Common Stock, with no more than 5% of BLT's shares being held by Dissenters
(as hereinafter defined); (b) no order, decree or injunction that would prevent
consummation of the Merger; (c) consent or approval by all required
governmental agencies, including approvals by the FCC and applicable state
public utility or service commissions ("PUCs"); (d) delivery to WorldCom of the
Affiliate Agreements, the Escrow Agreement and the Noncompete Agreements (as
herein defined), each duly approved and executed; (e) installation, testing and
operation of BLT's new CTI system, carrying at least 25% of BLT's prepaid phone
card traffic; (f) no material adverse change in the assets, business, condition
or prospects of BLT; and (g) each party's material compliance with all
covenants, agreements and conditions as required by the Merger Agreement prior
to the closing of the Merger. See "The Merger Agreement and Plan of Merger --
Conditions to the Merger."
The Merger Agreement may be terminated at any time prior to the Effective
Time only (a) by the mutual consent of BLT and WorldCom or (b) by either BLT or
WorldCom if the Merger has not been consummated on or before March 31, 1997,
provided that this right to terminate shall not be available to any party whose
breach of the Merger Agreement has been the cause of, or resulted in, the
failure of the Merger to occur before such date, and provided that WorldCom may
extend said date from time to time in the event one or more conditions to the
obligations of the parties under the Merger Agreement has not been satisfied or
waived. See "The Merger Agreement and Plan of Merger -- Termination."
Indemnification and Escrow Agreement. The Merger Agreement provides for
indemnification of WorldCom and certain other parties by each BLT shareholder,
pro rata and to the extent of such shareholder's shares of WorldCom Common
Stock delivered to the Escrow Agent pursuant to the Merger Agreement and the
Escrow Agreement, for and against any losses, costs, expenses, damages and
liabilities, including reasonable attorneys' fees (collectively, "Losses"),
incurred by WorldCom resulting from (a) any inaccuracy in any representation or
warranty or the breach of any covenant of BLT made in the Merger Agreement or
related agreements or instruments, (b) the payment of fair value in connection
with the exercise of dissenters' rights to the extent such payment exceeds
certain amounts (the "Excess Dissenter Amount"), (c) certain liabilities in
connection with BLT's employee benefit plans, or (d) certain other matters
described in the Merger Agreement, including Losses resulting from certain
pending litigation (the "Scheduled Matters"). Accordingly, former holders of
BLT Common Stock may ultimately receive none (or some or all) of such Escrow
Shares. The form of the Escrow Agreement is attached hereto as Exhibit C, the
terms of which are incorporated by reference herein.
BLT's Board recommends that Mr. Thomas J. Holce, BLT's Chairman and Chief
Executive Officer, be appointed as the Shareholder Representative under the
Escrow Agreement, as contemplated in the attached proxy. The Shareholder
Representative is the attorney-in-fact for all BLT shareholders in connection
with the Escrow Agreement, the Escrow Shares and any cash dividends in the
Dividend Account (as hereinafter defined), including without limitation the
acceptance of any claim by an Indemnified Party and the compromise of any
disputes relating to the Escrow Shares, cash dividends or other matters under
the Escrow Agreement. See "The Merger Agreement and Plan of Merger --
Indemnity and Escrow Agreement."
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<PAGE> 21
Noncompete and Confidentiality Agreements. Pursuant to the Merger
Agreement, at or prior to the Effective Time, Robert A. Sternberg and each
member of BLT's Board will enter into a Noncompete Agreement with WorldCom.
Each Noncompete Agreement includes a covenant by each such person not to
compete or interfere with the business conducted by WorldCom at the Effective
Time for a stated period of time, subject to certain exceptions. Each
Noncompete Agreement also contains terms restricting the disclosure and use of
confidential information with respect to the business, properties, and
personnel of BLT and WorldCom. Delivery of the Noncompete Agreements is a
condition to WorldCom's obligation to consummate the Merger. See "The Merger
Agreement and Plan of Merger -- Noncompete and Confidentiality Agreements."
Management and Operations of BLT After the Merger. Pursuant to the Merger
Agreement, as of the Effective Time and until their successors are duly elected
or appointed, the members of the Board of Directors of BLT, as the surviving
corporation, will be Bernard J. Ebbers and Charles T. Cannada. Mr. Ebbers is
the President and Chief Executive Officer and Mr. Cannada is a Senior Vice
President of WorldCom. As of the Effective Time, the officers of BLT will be:
Mr. Ebbers, President; Scott D. Sullivan, Secretary and Treasurer; Mr. Cannada,
Assistant Secretary; and William E. Anderson, Assistant Secretary. Mr. Sullivan
is the Treasurer and Chief Financial Officer and Mr. Anderson is General
Counsel of WorldCom. See "The Merger Agreement and Plan of Merger -- Management
and Operations After the Merger."
Expenses. The Merger Agreement provides that BLT will bear its own
expenses, fees and commissions incurred in connection with the preparation,
negotiation and execution of the Merger Agreement and the consummation of the
transactions contemplated thereby, up to a maximum of $1,200,000, with any
excess over such amount to be borne by the shareholders of BLT. BLT expects
that such expenses will not exceed $1.2 million. If the Merger is not
consummated because of a breach of the Merger Agreement by a party thereto, the
non-breaching party will be entitled to reasonable attorneys' fees and court
costs in connection with any action for damages or specific performance, in
addition to such other rights or remedies to which the non-breaching party may
be entitled under applicable law or in equity. See "The Merger Agreement and
Plan of Merger -- Expenses."
ACCOUNTING TREATMENT
The Merger is intended to qualify as a "pooling of interests" for
accounting and financial reporting purposes. Under this method of accounting,
the recorded assets and liabilities of WorldCom and BLT will be carried forward
to the combined organization at their recorded amounts; income of the combined
organization will include income of WorldCom and BLT for the entire fiscal year
in which the Merger occurs; and the reported income of the separate
corporations for prior periods will be combined and restated as income of the
combined organization. See "The Merger -- Accounting Treatment."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
While BLT and WorldCom intend that the Merger should, under current law,
constitute a tax-free reorganization under Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), no ruling has been sought from
the Internal Revenue Service and no opinion of counsel has been or will be
obtained. Qualification of the Merger as a tax-free reorganization is
contingent, in part, on the BLT shareholders retaining a significant continuing
ownership interest in WorldCom based on their ownership in BLT. Neither BLT nor
WorldCom has received any representations from the management of BLT or the BLT
shareholders regarding their intention to retain or dispose of the WorldCom
Common Stock received in the Merger.
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<PAGE> 22
If BLT shareholders holding more than 50% of the outstanding BLT Common Stock
before the Merger were to have a present intention to dispose of the WorldCom
Common Stock received in the Merger, and in fact disposed of such shares
following the Merger, the Internal Revenue Service could assert that the Merger
did not qualify as a tax-free reorganization. If it were ultimately determined
that the Merger did not qualify as a tax-free reorganization, all BLT
shareholders would be subject to tax on the BLT Common Stock surrendered in the
Merger whether or not the WorldCom Common Stock received in the Merger was sold
or retained. See "Risk Factors--Risks Related to the Merger--Possibility of
Taxability of the Merger." AS A RESULT, BLT SHAREHOLDERS SHOULD CONSULT WITH
THEIR OWN TAX ADVISORS REGARDING THE TAX CONSEQUENCES OF THE MERGER. See "The
Merger -- Certain U.S. Federal Income Tax Consequences."
REASONS FOR THE MERGER
BLT began exploring various strategic options, including an initial public
offering, sale of BLT to a financial investor, and sale of BLT to a strategic
investor, to provide increased financial resources for BLT's continued growth,
to provide liquidity to BLT's shareholders and to increase value to its
shareholders. In considering the Merger, BLT's Board considered numerous
factors, including the price that could be obtained for BLT Common Stock;
anticipated synergies between BLT and WorldCom; potential future appreciation
in the value of WorldCom Common Stock; the business, results of operations,
asset quality and financial condition of WorldCom; the qualification of the
Merger as a tax-free reorganization; and the speed with which the Merger could
potentially be completed. After considering all of these factors, BLT's Board
concluded that the Merger would provide desirable market liquidity, necessary
financial resources for BLT's continued growth and the best prospect for
increasing long-term value for BLT shareholders and that the Merger is in the
best interests of BLT and its shareholders. See "The Merger -- BLT's Reasons
for the Merger."
OPINION OF FINANCIAL ADVISOR
BLT retained Orca Capital Corporation ("Orca Capital") to render its
opinion as to the fairness, from a financial point of view, to the shareholders
of BLT of the consideration to be received in the proposed Merger. Orca
Capital provided BLT's Board with a fairness opinion letter dated July 31,
1996, the date the Merger Agreement was executed. The full text of the
opinion letter of Orca Capital, which sets forth certain assumptions made,
matters considered and limitations on the review performed, is attached as
Exhibit E. The opinion of Orca Capital was based upon market, economic and
other conditions as they existed and could be evaluated as of July 31, 1996 and
therefore did not take into account any subsequent events, including the MFS
Merger (as defined below), which was publicly announced on August 26, 1996.
Such opinion was not updated as of the date hereof nor will such opinion be
updated as of the closing of the Merger. See "The Merger -- Reasons for the
Merger" and "-- Orca Capital Fairness Opinion. "
RECOMMENDATION OF THE BLT BOARD OF DIRECTORS
The BLT Board of Directors believes that the terms of the Merger are fair
to, and in the best interests of, BLT and its shareholders and has unanimously
approved the Merger Agreement, the Merger and the related transactions. BLT'S
BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE MERGER AGREEMENT, THE PLAN
OF MERGER AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING, WITHOUT
LIMITATION, THE MERGER. See "The Merger -- Background of the Merger," "BLT's
Reasons for the Merger" and "-- Recommendations of the BLT Board of Directors"
and "The Merger Agreement and Plan of Merger -- Interests of Certain Persons in
the Merger."
6
<PAGE> 23
THE SPECIAL MEETING
The Special Meeting will be held on December 24, 1996, at 8:00 a.m.,
local time, at the offices of Stoel Rives LLP, Standard Insurance Center, 900
SW Fifth Avenue, Suite 2300, Portland, Oregon 97204. At such meeting, BLT
shareholders will be asked to (i) approve the Merger Agreement and the Merger
and the authorization of the Merger and transactions contemplated by the Merger
Agreement, and the Merger, including the appointment of Thomas J. Holce as
Shareholder Representative pursuant to the Escrow Agreement, and (ii) approve
the proposal regarding adjournment of the Special Meeting to solicit additional
proxies or votes. The BLT Board of Directors knows of no business that will be
presented for consideration at the BLT Special Meeting other than the matters
described in this Proxy Statement/Prospectus.
RECORD DATE; OUTSTANDING SHARES; QUORUM
The date for the determination of the holders of record of the BLT Common
Stock entitled to notice of and to vote at the Special Meeting is November 22,
1996 (the "Record Date"). Accordingly, only holders of record of shares of the
BLT Common Stock as of the close of business on the Record Date will be
entitled to notice of and to vote at the Special Meeting. As of the Record
Date, there were outstanding ____________ shares of the BLT Common Stock
entitled to vote which were held by ______ holders of record. Each holder of
record of shares of the BLT Common Stock on the Record Date is entitled to cast
one vote per share on each proposal properly submitted for the vote of BLT's
shareholders, either in person or by properly executed proxy, at the Special
Meeting. The presence, in person or properly executed proxy, of the holders a
majority of the outstanding shares of the BLT Common Stock entitled to vote at
the Special Meeting is necessary to constitute a quorum at the Special Meeting.
Under Washington law and the Articles of Incorporation of BLT, the Merger
Agreement, the Merger and the transactions contemplated thereby must be
approved by the holders of two-thirds of the issued and outstanding shares of
the BLT Common Stock entitled to vote at the Special Meeting. BLT's
shareholders who do not approve the Merger, and who act appropriately to
protect their rights, may not prevent the Merger if it is approved by the
requisite vote, but may have dissenters' rights as described elsewhere in this
Proxy Statement/Prospectus. See "The Merger - Dissenters' Rights." The
proposal to adjourn the Special Meeting to solicit additional proxies or votes
requires the approval of more votes cast in favor than against the proposal.
As of the Record Date, directors and executive officers of BLT and their
affiliates (as a group) were entitled to vote shares of BLT Common Stock
representing approximately 39.3% of the voting power of BLT Common Stock. All
such persons have indicated their intention to vote their shares for the
approval of the Merger Agreement, the Merger and the transactions contemplated
thereby and for the approval of the proposal to adjourn the Special Meeting to
solicit additional proxies or votes at the Special Meeting. See "The BLT
Special Meeting."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Directors and executive officers of BLT beneficially own approximately
39.3% of the outstanding BLT Common Stock and will receive shares of WorldCom
Common Stock in the Merger on the same basis as other shareholders of BLT. All
options held by directors and executive officers of BLT became immediately
exercisable as a result of the approval of the Merger by the BLT Board of
Directors. See "Information Concerning BLT -- Security Ownership of Directors,
Executive Officers and Principal Shareholders" and "The Merger Agreement and
Plan of Merger -- Interests of Certain Persons in the Merger." The BLT Board of
Directors was aware of these interests when it considered and approved the
Merger and the Merger Agreement. See "The Merger Agreement and Plan of Merger
- -- Interests of Certain Persons in the Merger."
7
<PAGE> 24
REGULATORY FILINGS AND APPROVALS
Consummation of the Merger is contingent upon the receipt of approvals
from the FCC, various PUCs and various municipalities with respect to the
Merger and certain related transactions. WorldCom and BLT have previously made
the necessary filings with these government agencies. The applicable waiting
period under the Hart-Scott-Rodino Act has expired. See "The Merger Agreement
and Plan of Merger -- Certain Regulatory Filings and Approvals."
DISSENTERS' RIGHTS
As described in "The Merger -- Dissenters' Rights," holders of BLT Common
Stock have the right to dissent from the Merger and to demand the fair value of
their shares from BLT. Shareholders of BLT generally have the right to
dissent from and have the fair value of their shares appraised in connection
with certain mergers, sales of assets and other extraordinary transactions for
which shareholder approval is required. See "The Merger -- Dissenters'
Rights." It is a condition to consummation of the Merger that holders of not
more than 5% of the outstanding shares of BLT Common Stock shall have exercised
dissenters' rights with respect to the Merger. WorldCom shareholders will not
have dissenters' rights in connection with the Merger.
COMPARISON OF SHAREHOLDER RIGHTS
The rights of shareholders of BLT are governed by the WBCA and by BLT's
Articles of Incorporation and Bylaws. Upon conversion of BLT Common Stock into
WorldCom Common Stock, the rights of the former holders of BLT Common Stock who
receive WorldCom Common Stock will be governed by the Georgia Business
Corporations Code ("GBCC") and by the Amended and Restated Articles of
Incorporation, as amended, of WorldCom (the "WorldCom Articles") and the
WorldCom Bylaws. See "Effect of Merger on Rights of Shareholders" for a
summary of certain differences between the rights of the holders of BLT Common
Stock and WorldCom Common Stock.
RISK FACTORS
Holders of BLT Common Stock, in voting on the proposals contained herein,
should consider, among other factors, risks related to the following: (i) the
possibility of taxability of the Merger; (ii) the effect of stock price
fluctuations on the consideration to be received by BLT shareholders in the
Merger; (iii) integration of the companies; (iv) substantial dilution of
ownership interest in WorldCom of current BLT shareholders resulting from MFS
Merger; (v) risks associated with the failure to obtain consents of certain
governmental authorities in connection with the MFS Merger; (vi) integration
of WorldCom and MFS; (vii) the repurchase by WorldCom of outstanding MFS Senior
Notes; (viii) WorldCom's and MFS' acquisition strategy; (ix) operating losses
and significant capital expenditures; (x) outstanding debt; (xi) government
regulation; (xii) intense competition; and (xiii) anti-takeover provisions
contained in the WorldCom Articles and Bylaws. See "Risk Factors."
MARKET PRICES
The WorldCom Common Stock is traded on the Nasdaq National Market under
the symbol "WCOM." The following table sets forth the high and low intra-day
sales prices per share of such stock as reported on the Nasdaq National Market
based on published financial sources, for the periods indicated. WorldCom has
never paid any cash dividends on the WorldCom Common Stock. The policy of the
WorldCom Board of Directors has been to retain earnings to provide funds for
the operation and expansion of its business.
8
<PAGE> 25
WorldCom's existing credit facility restricts the payment of cash dividends on
the WorldCom Common Stock without the prior consent of the lenders. The per
share information presented below and elsewhere in this Proxy
Statement/Prospectus has been adjusted to reflect all stock splits and stock
dividends of WorldCom
<TABLE>
<CAPTION>
WORLDCOM
COMMON STOCK
----------------
HIGH LOW
------ ------
<S> <C> <C>
1994:
First Quarter............. $14.75 $11.63
Second Quarter............ 12.63 7.00
Third Quarter............. 12.75 8.25
Fourth Quarter............ 12.19 8.19
1995:
First Quarter............. $13.13 $ 9.56
Second Quarter............ 13.69 11.56
Third Quarter............. 17.06 13.38
Fourth Quarter............ 17.94 14.88
1996:
First Quarter............. $23.31 $16.25
Second Quarter............ 27.72 21.31
Third Quarter............. 28.88 18.38
Fourth Quarter (through
November 19, 1996)........ 25.13 21.38
</TABLE>
WorldCom and BLT entered into the Merger Agreement on July 31, 1996,
effective as of July 26, 1996. The following table sets forth the closing
prices for a share of WorldCom Common Stock, as reported by the Nasdaq National
Market, on July 31, 1996, the last trading day preceding the public
announcement of the execution of the Merger Agreement and the last full trading
day prior to delivery of the Orca Capital fairness opinion, and on November 19
, 1996, the last practicable trading day before the printing of this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
CLOSING PRICE OF
WORLDCOM COMMON
DATE STOCK
------------------------------ ----------------
<S> <C>
July 31, 1996................. $25.875
November 19, 1996............. 23.75
</TABLE>
As of November 13, 1996, there were 410,424,187 shares of WorldCom Common
Stock issued and outstanding held by approximately 6,000 shareholders of
record.
Based on the assumed Exchange Ratio, the pro forma equivalent value of BLT
Common Stock on July 31, 1996 and November 19, 1996 was $11.62 and $10.67
respectively, subject, however, to the provisions of the Indemnity and Escrow
Agreement described herein covering 10% of such shares. The pro forma
equivalent per share of BLT Common Stock on any date based on the assumed
Exchange Ratio equals the closing price of WorldCom Common Stock on such date
multiplied by 0.4491; the Exchange Ratio would be reduced by up to 10% if the
Escrow Shares are not ultimately distributed to BLT shareholders.
There is no established market for BLT Common Stock. BLT has not paid any
cash dividends on BLT Common Stock during the last three years and has no
intention of paying cash dividends in the foreseeable future. As of November
15, 1996, there were 6,396,397 shares of BLT Common Stock issued and
outstanding held by approximately 178 shareholders of record.
9
<PAGE> 26
BLT SHAREHOLDERS ARE ADVISED TO OBTAIN CURRENT MARKET QUOTATIONS FOR
WORLDCOM COMMON STOCK. NO ASSURANCE CAN BE GIVEN CONCERNING THE MARKET PRICE
FOR WORLDCOM COMMON STOCK BEFORE OR AFTER THE DATE ON WHICH THE MERGER IS
CONSUMMATED. THE MARKET PRICE FOR WORLDCOM COMMON STOCK WILL FLUCTUATE BETWEEN
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS AND THE DATE ON WHICH THE MERGER IS
CONSUMMATED AND THEREAFTER. SEE "RISK FACTORS -- RISKS RELATED TO THE MERGER --
THE EFFECT OF STOCK PRICE FLUCTUATIONS ON THE CONSIDERATION TO BE RECEIVED BY
THE HOLDERS OF BLT COMMON STOCK IN THE MERGER."
10
<PAGE> 27
COMPARATIVE PER SHARE DATA
The following table sets forth for WorldCom Common Stock and BLT Common
Stock, for the periods indicated, selected historical per share data and the
corresponding pro forma and pro forma equivalent per share amounts, giving
effect to the proposed Merger. The data presented are based upon the
consolidated financial statements and related notes of each of WorldCom and BLT
either included or incorporated by reference in this Proxy Statement/
Prospectus. This information should be read in conjunction with and is
qualified in its entirety by the historical financial statements and related
notes thereto. These data are not necessarily indicative of the results of the
future operations of the consolidated organization or the actual results that
would have occurred if the Merger had been consummated prior to the periods
indicated. See "Incorporation By Reference."
<TABLE>
<CAPTION>
WORLDCOM/
BLT BLT
WORLDCOM BLT PRO FORMA PRO FORMA
HISTORICAL HISTORICAL (1) COMBINED EQUIVALENT(2)
---------- -------------- -------- -------------
<S> <C> <C> <C> <C>
Book value per common share:
December 31, 1995............................... $ 5.58 $ 0.14 $ 5.54 $ 2.49
September 30, 1996.............................. 5.98 0.18 5.94 2.67
Cash dividends per common share:
Year ended December 31, 1995.................... -- -- -- --
Year ended December 31, 1994.................... -- -- -- --
Year ended December 31, 1993.................... -- -- -- --
Nine months ended September 30, 1996............... -- -- -- --
Nine months ended September 30, 1995............ -- -- -- --
Income (loss) per common share from continuing
operations:
Primary:
Year ended December 31, 1995.................... 0.65 0.11 0.65 0.29
Year ended December 31, 1994.................... (0.48) 0.01 (0.48) (0.22)
Year ended December 31, 1993.................... 0.41 (0.22) 0.41 0.18
Nine months ended September 30, 1996............ (0.12) 0.04 (0.12) (0.05)
Nine months ended September 30, 1995............ 0.44 0.02 0.44 0.20
Fully Diluted:
Year ended December 31, 1995.................... 0.64 0.10 0.64 0.29
Year ended December 31, 1994.................... (0.48) 0.00 (0.48) (0.22)
Year ended December 31, 1993.................... 0.40 (0.22) 0.40 0.18
Nine months ended September 30, 1996............ (0.12) 0.04 (0.12) (0.05)
Nine months ended September 30, 1995............ 0.44 0.02 0.44 0.20
</TABLE>
(1) BLT reports results based upon a May 31 fiscal year-end. The amounts as of
and for the years ended December 31, 1995, 1994 and 1993, reflect BLT's
historical results of operations for the years ended May 31, 1996 and 1995
and the seventeen month period ended May 31, 1994, respectively.
Furthermore, the amounts as of and for the nine months ended September 30,
1996 and 1995 reflect BLT's historical results of operations for their
most recent interim period, the three months ended August 31, 1996 and
1995, respectively.
(2) The BLT pro forma equivalent represents the WorldCom/BLT pro forma
combined book value dividends and income (loss) per common share
multiplied by the assumed Exchange Ratio of 0.4491 shares of WorldCom
Common Stock for each share of BLT Common stock so that the BLT pro forma
equivalent amounts represent the respective values of one share of BLT
Common Stock.
11
<PAGE> 28
SELECTED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following selected unaudited pro forma financial information of
WorldCom illustrates the effect of the proposed MFS Merger as if the MFS Merger
had occurred at the beginning of the earliest period presented. The pro forma
information is not necessarily indicative of the results of operations or the
financial condition that would have been reported by WorldCom had the MFS
Merger been in effect during those periods, or as of those dates, or that may
be reported in the future. Pro forma combined per share data of WorldCom and
MFS give effect to the exchange of each share of MFS common stock for 2.1
shares of WorldCom Common Stock, and the exchange of each share of MFS Series A
Preferred Stock (as hereinafter defined) and MFS Series B Preferred Stock (as
hereinafter defined) for one share of WorldCom Series A Preferred Stock and
WorldCom Series B Preferred Stock, respectively. See "Information Regarding
WorldCom -- Recent Development."
This information should be read in conjunction with, and is qualified in
its entirety by, the consolidated financial statements of each of WorldCom and
MFS, and the related notes thereto, and the related WorldCom Pro Forma
Condensed Combined Financial Statements and the accompanying notes incorporated
by reference herein. See "Available Information," "Incorporation by Reference,"
the pro forma condensed combined financial statements and MFS adjusted
financial statements contained in WorldCom's Current Report on Form 8-K dated
August 25, 1996 (filed August 26, 1996), as amended on Form 8-K/A filed August
30, 1996, November 4, 1996 and November 20, 1996.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
---------------- --------------------
(IN THOUSANDS, EXCEPT PER SHARE
AND RATIO DATA)
<S> <C> <C>
Revenues................................................. $4,267,024 $ 4,017,853
Income (loss) from continuing operations (after
preferred dividend requirement)
Total................................................. (284,265) (461,213)
Per common share
Primary............................................ (0.39) (0.57)
Fully diluted...................................... (0.39) (0.57)
Dividends per common share............................... -- --
Total assets............................................. 19,064,120
Long-term debt........................................... 4,664,752
Shareholders' investment................................. 12,736,734
Ratio of earnings to combined fixed charges and
preferred stock dividends............................. 0.41:1 N/A
Deficiency of earnings to combined fixed charges and
preferred stock dividends............................. (229,944) (440,382)
</TABLE>
12
<PAGE> 29
SUMMARY HISTORICAL FINANCIAL DATA
The following table presents selected historical financial data of
WorldCom, MFS, UUNET (which MFS acquired on August 12, 1996) and BLT. The
historical data for each of the years in the five-year period ended December
31, 1995 in the case of WorldCom, MFS and UUNET and the three-year period ended
May 31, 1996 in the case of BLT are based on the audited historical financial
statements of the respective company. The selected financial data for WorldCom,
MFS and UUNET for the nine-month periods ended September 30, 1996 and 1995 and
the selected financial data for BLT for the years ended December 31, 1992 and
1991 and the three-month periods ended August 31, 1996 and 1995 have been
obtained from unaudited financial statements and, in the opinion of the
respective managements of WorldCom, MFS and BLT, include all adjustments (of a
normal and recurring nature) which are necessary to present fairly the data for
such periods.
These data should be read in conjunction with and are qualified in their
entirety by the consolidated financial statements of each of WorldCom, MFS,
UUNET and BLT and the related notes thereto, either included or incorporated by
reference herein. See "Available Information," "Incorporation by Reference,"
and "Index to BLT Financial Statements."
SUMMARY HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------------------ ------------------------
1995 1994 1993 1992 1991 1996 1995
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
WORLDCOM - HISTORICAL
Revenues ....................... $3,639,875 $2,220,765 $1,474,257 $ 948,060 $ 719,214 $3,235,552 $2,706,060
Income (loss) from continuing
operations (after preferred
dividend requirement):
Total ........................ 234,469 (149,924) 112,638 6,232 39,592 (48,755) 153,612
Per common share:
Primary .................... 0.65 (0.48) 0.41 0.03 0.19 (0.12) 0.44
Fully diluted ............... 0.64 (0.48) 0.40 0.03 0.19 (0.12) 0.44
Dividends per common share ..... -- -- -- -- -- -- --
Total assets ................... 6,634,571 3,430,192 3,236,718 1,241,278 959,909 6,854,966 6,551,910
Long-term debt ................. 3,389,928(1) 788,005 721,480 440,076 413,335 3,276,641 3,392,357
Shareholders' investment ....... 2,187,286 1,827,170 1,911,800 478,823 347,940 2,442,342 2,084,486
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------------------ ------------------------
1995 1994 1993 1992 1991 1996 1995
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
MFS - HISTORICAL
Revenues ....................... $ 583,194 $ 286,747 $ 141,111 $ 108,707 $ 37,223 $ 724,044 $ 412,062
Income (loss) from continuing
operations (after preferred
dividend requirement):
Total ........................ (282,962) (151,201) (15,769) (13,129) (28,244) (345,036) (203,676)
Per common share:
Primary .................... (2.21) (1.21) (0.15) (0.15) -- (2.34) (1.58)
Fully diluted .............. (2.21) (1.21) (0.15) (0.15) -- (2.34) (1.58)
Dividends per common share ..... -- -- -- -- -- -- --
Total assets ................... 1,867,134 1,584,546 906,937 363,299 204,819 5,816,787 1,783,090
Long-term debt ................. 723,471 548,333 143 169 7,659 1,388,111 609,843
Stockholders' equity ........... 830,332 770,103 811,105 298,516 162,538 3,937,025 900,203
</TABLE>
13
<PAGE> 30
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------------------ ------------------------
1995 1994 1993 1992 1991 1996(2) 1995
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
UUNET- HISTORICAL
Revenues ....................... $ 94,461 $ 33,138 $ 24,019 $ 20,396 $ 14,180 $ 129,047 $ 60,654
Income (loss) from continuing
operations (after preferred
dividend requirement):
Total ......................... (18,257) (7,988) (2,026) 1,074 1,298 (14,373) (6,391)
Per common share:
Primary .................... (0.63) (0.35) -- -- -- (0.42) (0.23)
Fully diluted .............. (0.63) (0.35) -- -- -- (0.42) (0.23)
Dividends per common share ..... -- 0.01 -- 0.08 0.01 -- --
Total assets ................... 137,610 29,625 10,585 8,285 6,499 128,626
Long-term debt ................. 13,686 15,269 3,310 974 696 9,458
Stockholders' investment ....... 80,667 279 425 2,567 1,191 92,267
</TABLE>
<TABLE>
<CAPTION>
SEVENTEEN
MONTH PERIOD THREE MONTHS ENDED
YEAR ENDED MAY 31, ENDED MAY 31, YEAR ENDED DECEMBER 31, AUGUST 31,
-------------------------------------------------------------- -------------------
1996 1995 1994 1992 1991 1996 1995
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BLT - HISTORICAL
Revenues ....................... $ 37,320 $ 20,232 $ 8,451 $ 1,796 $ 187 $ 12,297 $ 7,225
Income (loss) from continuing
operations
Total ......................... 632 35 (1,191) 209 (618) 232 122
Per common share:(3)
Primary ..................... 0.11 0.01 (0.22) 0.04 (0.13) 0.04 0.02
Fully diluted ............... 0.10 0.00 (0.22) 0.04 (0.13) 0.04 0.02
Dividends per common share ..... -- -- -- -- -- -- --
Total assets ................... 16,905 8,927 4,045 434 112 19,531 8,829
Long-term debt ................. 1,308 -- -- -- -- 2,692 --
Shareholders' investment ....... 813 181 (854) (292) (618) 1,044 303
</TABLE>
(1) 1995 amount of long-term debt of WorldCom historical includes $1.1 billion
related to WorldCom's previous credit facilities which were classified as
a current maturity on the December 31, 1995 balance sheet. In June 1996,
WorldCom replaced its then existing $3.41 billion credit facilities with a
new $3.75 billion revolving credit facility with no reduction of principal
for five years.
(2) MFS' acquisition of UUNET closed on August 12, 1996. Therefore, this
column represents UUNET's results of operations for the period from
January 1, 1996 through August 12, 1996 and includes one-time merger
related costs of $15.7 million. UUNET was consolidated with MFS at
September 30, 1996 for balance sheet purposes.
(3) See Note 2 to Notes to BLT Financial Statements for a discussion of BLT
net income (loss) per share and shares used in computing net loss per
share. See "Index to BLT Financial Statements."
14
<PAGE> 31
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in "Risk Factors" and "The Merger -- Reasons
for the Merger" and "-- Orca Capital Fairness Opinion" and certain statements
incorporated by reference from documents filed with the Commission by WorldCom,
including any statements contained herein or incorporated by reference herein
regarding the development of WorldCom's and MFS' businesses, the markets for
WorldCom's and MFS' services and products, anticipated capital expenditures,
regulatory reform and the effects of WorldCom's proposed merger with MFS, and
other statements contained or incorporated by reference herein regarding
matters that are not historical facts, are or may constitute forward-looking
statements (as such term is defined in the Private Securities Litigation Reform
Act of 1995). Because such statements are subject to risks and uncertainties,
actual results may differ materially from those expressed or implied by such
forward-looking statements. Factors that could cause actual results to differ
materially include, but are not limited to, those discussed under "Risk
Factors."
RISK FACTORS
BLT's shareholders should carefully consider the following factors,
together with the other information contained in this Proxy Statement/
Prospectus, and all other available information, in evaluating WorldCom and its
business before completing and returning the proxy accompanying this Proxy
Statement/Prospectus. Certain of the factors discussed below relate to the
proposed merger of a wholly owned subsidiary of WorldCom 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"). It is uncertain whether the MFS
Merger will close before or after the consummation of the Merger, due to
uncertainty regarding regulatory approvals and other closing conditions; there
can be no assurance that the MFS Merger will be consummated. See "Information
Concerning WorldCom -- Recent Development" and " -- Business of MFS." The
factors set forth below are not intended to represent a complete list of the
general or specific risks related to the Merger or to WorldCom, BLT and/or the
combined company.
RISKS RELATED TO THE MERGER
Possibility of Taxability of the Merger. While BLT and WorldCom intend
that the Merger should, under current law, constitute a tax-free reorganization
under Section 368(a) of the Code, no ruling has been sought from the Internal
Revenue Service and no opinion of counsel has been or will be obtained.
Qualification of the Merger as a tax-free reorganization is contingent, in
part, on the BLT shareholders retaining a significant continuing ownership
interest in WorldCom based on their ownership in BLT. Neither BLT nor WorldCom
has received any representations from the management of BLT or the BLT
shareholders regarding their intention to retain or dispose of the WorldCom
Common Stock received in the Merger. If BLT shareholders holding more than 50%
of the outstanding BLT Common Stock before the Merger were to have a present
intention to dispose of the WorldCom Common Stock received in the Merger, and
in fact disposed of such shares following the Merger, the Internal Revenue
Service could assert that the Merger did not qualify as a tax-free
reorganization. If it were ultimately determined that the Merger did not
qualify as a tax-free reorganization, all BLT shareholders would be subject to
tax on the BLT Common Stock surrendered in the Merger whether or not the
WorldCom Common Stock received in the Merger was sold or retained. AS A
RESULT, BLT SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS REGARDING
THE TAX CONSEQUENCES OF THE MERGER.
15
<PAGE> 32
The Effect of Stock Price Fluctuations on the Consideration to be Received
by the Holders of BLT Common Stock in the Merger. The stock price of the
WorldCom Common Stock at the Effective Time may vary significantly from the
closing price as of the date of the fairness opinion of Orca Capital and on
which the Merger Agreement was executed ($25.88 - see "The Merger -- Orca
Capital Fairness Opinion"), the date as of which the Merger Agreement was
executed ($23.25), the date hereof, or the date on which BLT shareholders vote
on the Merger and the transactions contemplated thereby. Since the announcement
of the MFS Merger Agreement on August 26, 1996, the market price of WorldCom
Common Stock has been subject to significant fluctuation in response to factors
affecting MFS, UUNET Technologies, Inc. ("UUNET"), which MFS recently acquired,
and the telecommunications and Internet industries. For example, between July
26, 1996 and November 19, 1996, the closing sales price of the WorldCom Common
Stock has ranged from a high of $28.88 to a low of $18.38. These variances may
be due to a number of factors, including, without limitation, changes in the
business, operations and prospects of WorldCom or MFS, market assessments of
the likelihood that the MFS Merger will be consummated and the timing thereof,
the effect of any conditions or restrictions imposed on or proposed with
respect to the combined companies by regulatory agencies in connection with or
following consummation of the MFS Merger, perceptions about market conditions
in the telecommunications industry and the effect of general economic
conditions, many of which are unrelated to WorldCom's operating performance.
The Exchange Ratio in this Merger is fixed and will not be adjusted based
on changes in the stock price of the WorldCom Common Stock. 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 WorldCom Common
Stock. Thus, the dollar value of the WorldCom Common Stock to be received by
the holders of BLT Common Stock to be issued in the Merger will not be
determined until the Effective Time, and may be substantially more or less than
the value of the WorldCom Common Stock as of the date of the Orca Capital
fairness opinion, the date of execution of the Merger Agreement, the date
hereof or the date on which BLT shareholders vote on the Merger and the
transactions contemplated thereby. The Orca Capital fairness opinion was not
updated as of the date herof nor will such opinion be updated as of the closing
of the Merger.
Shareholders should also note that, due to possible delays in receiving
regulatory approvals or in satisfying other conditions to consummation of the
Merger, there may be a significant delay between the date of the Special
Meeting and the date of consummation of the Merger. Accordingly, the market
value of shares of WorldCom Common Stock that holders of BLT Common Stock will
receive upon consummation of the Merger may vary significantly from the market
value of the shares of WorldCom Common Stock that holders of BLT Common Stock
would receive if the Merger were consummated on the date of this Proxy
Statement/Prospectus or the date of the Special Meeting.
Integration of the Companies. WorldCom and BLT have entered into the
Merger Agreement with the expectation that the Merger will result in certain
benefits. Achieving the benefits of the Merger will depend in part upon the
integration of the businesses of WorldCom and BLT in an efficient manner, and
there can be no assurance that this will occur. There can be no assurance that
the combined company will realize any of the anticipated benefits of the
Merger.
Substantial Dilution of Ownership Interest in WorldCom of Current BLT
Shareholders Resulting from MFS Merger. Consummation of the MFS Merger, which,
if consummated, is anticipated to occur after the Merger is consummated, will
result in the substantial dilution of the ownership interest in WorldCom of the
current BLT shareholders.
Shares Eligible for Future Sale. Substantial sales of WorldCom Common
Stock could occur after the MFS Merger. Sales of a substantial number of such
shares of WorldCom Common Stock could adversely
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affect or cause substantial fluctuations in the market price of WorldCom Common
Stock and impair WorldCom's ability to raise additional capital through the
sale of its equity securities.
RISKS RELATED TO WORLDCOM AND THE COMBINED COMPANY
Risks Associated with Failure to Obtain Consents of Certain Governmental
Authorities. Consummation of the MFS Merger is subject to, among others, the
condition that all consents of any governmental authority required for
consummation of the MFS Merger and the transactions contemplated by the MFS
Merger Agreement shall have been obtained by final order except as waived by
WorldCom or MFS or those consents the failure of which to obtain will not have
a Surviving Corporation Material Adverse Effect (as defined therein). If all
requisite consents have not been received at such time as all other material
conditions to the MFS Merger have been satisfied or waived, MFS and WorldCom
may nonetheless determine to consummate the MFS Merger. Although MFS and
WorldCom are seeking such consents, it is uncertain whether such consents will
be obtained in, among others, certain major metropolitan areas. If MFS and
WorldCom determine to consummate the MFS Merger without having obtained such
consents, no assurance can be given that the resulting loss of that portion of
MFS' business to which the consents relate will not have a material adverse
effect on the business, prospects, financial condition or results of operations
of WorldCom and MFS on a combined basis.
Integration of WorldCom and MFS. Although WorldCom 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 WorldCom's operations or that such benefits
anticipated to result from the MFS Merger will materialize. See "Information
Concerning WorldCom -- Recent Development" and "-- Business of MFS."
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 September 30, 1996, the accreted value of the 1994 Notes
was approximately $639.1 million and the accreted value of the 1996 Notes was
approximately $636.7 million.
Pursuant to the terms of the Indentures governing the terms of the MFS
Notes, if the MFS Merger is consummated, WorldCom will be required to give each
holder of the MFS Notes the option to have WorldCom 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 WorldCom
would be required to pay if all holders elect to require WorldCom to repurchase
their MFS Notes would be approximately $1.3 billion. WorldCom 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.
Acquisition Strategy. Both WorldCom and MFS have acquired complementary
businesses as part of their business strategies. WorldCom has recently
acquired and integrated the operations of Williams Telecommunications Group,
Inc. ("WilTel") and IDB Communications Group, Inc. ("IDB"). MFS is in the
process of integrating the operations of UUNET, which it recently acquired.
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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 WorldCom, MFS,
UUNET and BLT. See "-- Risks Related to the Merger -- Integration of the
Companies."
Operating Losses. A substantial portion of the expenditures relating to
the development of MFS' business, the installation and expansion of its
domestic and international networks and the recently proposed linking of these
networks through the acquisition or construction of facilities, if not
reevaluated as a result of the MFS Merger, will be incurred before the
realization of revenues. These expenditures, together with the associated
up-front operating expenses, will result in negative cash flow until an
adequate customer base is established. MFS reported losses from operations of
approximately $31.5 million, $136.1 million and $239.3 million for the years
ended December 31, 1993, 1994 and 1995, respectively, and $272.9 million for
the nine months ended September 30, 1996. In addition, at September 30, 1996,
MFS had an accumulated deficit of approximately $978.3 million. Although its
revenues have increased substantially in each of the last three years and for
the nine months ended September 30, 1996, MFS has incurred significant
increases in expenses associated with the development and expansion of its
fiber optic networks, services and customer base, which expenses are expected
to continue to grow for the foreseeable future.
Significant Capital Requirements. WorldCom has historically utilized cash
flow from operations to finance primary capital expenditures. Primary capital
expenditures include purchases of switching, transmission, communication and
other equipment. WorldCom's current capital expenditures outlook for 1996
approximates $400 million. In addition to this amount, WorldCom has additional
city pair network construction opportunities which could approximate $700
million to $800 million over the next two years.
The development of MFS' businesses and the installation and expansion of
its domestic and international networks require significant capital
expenditures. During the first nine months of 1996, MFS' capital expenditures,
which are primarily for the construction of networks and the purchase of
related equipment, were approximately $533.1 million. On May 7, 1996, MFS
announced that it intends to undertake certain initiatives designed to take
advantage of opportunities created by changes in telecommunications laws and
the rapid development of Internet technology-based communications networks.
These initiatives involve increasing the number of metropolitan areas served,
expanding its networks in existing metropolitan areas, accelerating central
office interconnection, deploying additional switches, providing high-speed
local Internet access and implementing UUNET's plan to expand its international
presence and acquiring complementary businesses, technologies or products.
Certain of these initiatives, including the proposed linking of networks, may
be re-evaluated as a result of the MFS Merger.
Expenditures for the initiatives are subject to MFS' review of a number of
factors, including cost of any additional capital required, technological
developments and market conditions. In addition, each initiative
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may be implemented in whole or in part, and independently of any other
initiative, ensuring that MFS retains maximum financial and operating
flexibility.
MFS anticipates that implementation of these initiatives, including
certain of the Internet-related initiatives, will, together with currently
anticipated expenditures, result in total average annual capital expenditures
of approximately $1.0 billion to $1.3 billion over the period of
implementation, which MFS expects to be up to four years. Since a significant
portion of MFS' capital expenditures are success-based (that is, related
directly to revenue growth), actual capital expenditures may vary significantly
from the above range depending on the level of incremental sales. This range
is also subject to a number of additional factors, including the proposed MFS
Merger, the potential repurchase of the MFS Notes, the pace and extent of
network development, as well as regulatory actions by state, federal and
international authorities, which, individually or in the aggregate, could cause
material changes in capital expenditure requirements. Failure to have access
to sufficient funds for capital expenditures may require MFS to delay or
abandon some of its future expansion or expenditures, which could have a
material adverse effect on the growth of MFS and the combined company.
Risks of Financial Leverage; Debt Service, Interest Rate Fluctuations,
Possible Reduction in Liquidity, Dividend Restrictions, and Other Restrictive
Covenants. At September 30, 1996, WorldCom reported $3.3 billion of long-term
debt (including capital leases and excluding current maturities) and a
long-term debt-to-equity ratio of 1.3 to 1.0. On June 28, 1996, WorldCom
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 0.4 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
WorldCom's control, could impair its ability to service its indebtedness under
the Credit Facility. In addition, the cash flow required to service WorldCom'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 WorldCom's financial
flexibility.
WorldCom 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 WorldCom will achieve its
priority plan.
Regulation. WorldCom is subject to extensive regulation at the federal and
state levels, as well as in various foreign countries in connection with
certain overseas business activities. The regulatory environment varies
substantially by jurisdiction.
The regulation of the telecommunications industry is changing rapidly, and
the regulatory environment varies substantially from state to state. There can
be no assurance that future regulatory changes will not have a material adverse
impact on WorldCom. 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 BOCs'
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
FCC that a petitioning BOC has
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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 WorldCom's line cost expense. WorldCom cannot predict
whether or not the result of such a proceeding will have a material impact upon
WorldCom.
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. WorldCom cannot predict the
effect such legislation or the implementing regulations will have on WorldCom
or the industry. Motions to stay implementation of the FCC Interconnect Order
were filed with the FCC and federal courts of appeal. Appeals challenging,
among other things, the validity of the FCC Interconnect Order were 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. WorldCom 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 WorldCom's international
facilities and services. WorldCom believes that it has all the necessary FCC
authorizations for its current operations. There can be no assurance, however,
that WorldCom will receive all authorizations or licenses necessary for new
communications services or that delays in the licensing process will not
adversely affect WorldCom's business.
WorldCom 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 WorldCom will receive all authorizations or licenses necessary for new
communications services or that delays in the licensing process will not
adversely affect WorldCom'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 WorldCom or MFS.
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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 WorldCom can
predict the effect that the Telecom Act or any future legislation, regulation
or regulatory changes may have on its business.
Competition -- Traditional Telecommunications Services. WorldCom faces
intense competition in providing long distance telecommunications services.
Domestically, WorldCom 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,
WorldCom competes for services with other IXCs, including AT&T, MCI and Sprint.
Certain of these companies have substantially greater market share and
financial resources than WorldCom, and some of them are the source of
communications capacity used by WorldCom to provide its own services. In
overseas markets, WorldCom 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.
WorldCom expects to encounter continued competition from major domestic
and international communications companies, including AT&T, MCI and Sprint. In
addition, WorldCom 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.
For example, even though fiber-optic networks, such as that of WorldCom,
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 WorldCom. WorldCom 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 WorldCom 1995 Form 10-K, which is incorporated by
reference herein.
Virtually all markets for telecommunications services are extremely
competitive, and WorldCom 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 from one or more competitors in
most markets in which it operates, 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
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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. WorldCom 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 and WorldCom. 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.
Competition -- 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 WorldCom
and MFS expect that competition will intensify in the future. WorldCom 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 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.
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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. WorldCom 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.
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.
Competition -- 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.
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Risks of Expansion and Implementation. WorldCom 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 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,
WorldCom 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. WorldCom 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 WorldCom
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 WorldCom or MFS.
Dependence on Availability of Transmission Facilities. The future
profitability of WorldCom 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
WorldCom 1995 Form 10-K, which is incorporated by reference herein.
Rapid Technological Changes; Dependence Upon Product Development. The
telecommunications industry is subject to rapid and significant changes in
technology. While neither WorldCom 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 WorldCom 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. WorldCom's and MFS' businesses are managed
by a number of key executive officers, the loss of certain of whom,
particularly Bernard J. Ebbers, WorldCom'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 WorldCom 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 WorldCom nor MFS has employment agreements with any of its
key executive officers, with certain limited exceptions.
Contingent Liabilities. WorldCom is subject to a number of legal and
regulatory proceedings, including certain legal proceedings pending against IDB
prior to the IDB Merger (as defined herein). While WorldCom believes that the
probable outcome of these matters, or all of them combined, will not have a
material adverse effect on WorldCom'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 WorldCom 1995
Form 10-K and WorldCom's subsequent Quarterly Reports on Form 10-Q, which are
hereby incorporated by reference herein.
In addition to a number of other pending legal proceedings described in
the Form 10-K and Forms 10-Q described above, on May 23, 1994, Deloitte &
Touche LLP ("Deloitte") resigned as IDB's independent auditors. Deloitte has
stated it resigned as a result of events surrounding the release and reporting
of IDB's financial results for the first quarter of 1994. In submitting its
resignation, Deloitte informed IDB management and the Audit Committee of the
IDB Board of Directors that there had been a serious breakdown in IDB's process
of identifying, analyzing and recording IDB's business transactions which
prohibited Deloitte from the satisfactory completion of a quarterly review, and
that Deloitte was no longer willing to rely on IDB management's representations
regarding IDB's interim financial statements. IDB announced Deloitte's
resignation on May 31, 1994. On June 24, 1994, upon the recommendation of the
independent members of IDB's Audit Committee, IDB retained Arthur Andersen LLP
as its new independent auditors. On August 1, 1994, IDB announced that it would
restate its reported financial results for the quarter ended March 31, 1994 to
eliminate approximately $6.0 million of pre-tax income, approximately $5.0
million of which related to a sale of transponder capacity and approximately
$1.0 million of which related to purchase accounting adjustments, and on August
22, 1994, IDB filed Amendment No. 1 on Form 10-Q/A restating its 1994 first
quarter results in order to eliminate previously recorded items. Certain of
these items were among those as to which Deloitte had expressed disagreement.
On November 21, 1994, IDB filed Form 10-Q/A amendments to its reported first
and second quarter financial results making the previously announced changes
and reflecting the effect of IDB's method of accounting for international long
distance traffic, thereby reducing its first quarter net income from $0.12 per
share, as originally reported, to $0.05 per share and, when combined with
adjustments for income tax effects, increasing its second quarter net loss from
$0.20 per share, as originally reported, to $0.27 per share.
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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. WorldCom 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 NASD and other self-regulatory bodies have also made inquiries of IDB
concerning similar matters.
The U.S. Attorney's Office for the Central District of California (the
"U.S. Attorney's Office") issued grand jury subpoenas to IDB and WorldCom in
1994 and 1995 seeking documents relating to IDB's first quarter of 1994
results, the resignation of Deloitte as IDB's auditors, trading in IDB
securities and other matters. In October 1996, the U.S. Attorney's office
entered into an agreement with WorldCom not to criminally prosecute IDB with
respect to IDB's financial reporting on or before January 1, 1995 (including
but not limited to the resignation of Deloitte), trading in IDB securities,
misuse of IDB's assets, attempts to obstruct the proceedings of the Commission
and other matters. The Agreement does not cover potential violations of the
Code and is expressly contingent upon the cooperation of IDB and WorldCom with
the U.S. Attorney's Office, the Federal Bureau of Investigation and any other
federal law enforcement agency, including the Commission.
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 WorldCom 1995 Form 10-K and subsequent WorldCom
Quarterly Reports on Form 10-Q incorporated by reference herein, for more
information regarding the foregoing litigation and investigations, as well as
other pending legal proceedings.
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 any services provided by UUNET should the content or information
transmitted be subject to the statute.
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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 WorldCom 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 WorldCom 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 WorldCom 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
WorldCom or MFS, respectively, 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
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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 40% of
UUNET's consolidated revenues during the year ended December 31, 1995 and the
nine months ended September 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 September 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.
Although UUNET is Microsoft's primary Internet access provider, there can
be no assurance that Microsoft will 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
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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. WorldCom's Amended and Restated Articles of
Incorporation, as amended (the "WorldCom Articles"), a copy of which has been
filed as an exhibit to WorldCom's 1995 Form 10-K and Quarterly Report on Form
10-Q for the period ending June 30, 1996, which are incorporated by reference
herein, 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 of WorldCom (the "WorldCom Board
of Directors") or unless certain minimum price, procedural and other
requirements are met, (b) restricting aggregate beneficial ownership of the
capital stock of WorldCom by foreign shareholders to 20% of the total
outstanding capital stock, and subjecting excess shares to redemption, and (c)
authorizing the WorldCom Board of Directors to issue preferred stock in one or
more classes without any action on the part of shareholders. In addition,
WorldCom has adopted a rights plan (the "WorldCom Rights Plan"), which will
cause substantial dilution to a person or group that attempts to acquire
WorldCom on terms not approved by the WorldCom Board of Directors. Further, the
Bylaws of WorldCom (the "WorldCom Bylaws"), a copy of which has been filed as
an exhibit to WorldCom's Quarterly Report on Form 10-Q for the period ending
June 30, 1996, which is incorporated by reference herein, (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, including the WorldCom Rights Plan, may have an
"anti-takeover" effect. See "Description Of WorldCom Capital Stock".
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THE MERGER
GENERAL
Pursuant to the Merger Agreement and the Plan of Merger, Acquisition Sub
will merge with BLT in accordance with the WBCA, the separate existence of
Acquisition Sub will cease, and BLT, as the surviving corporation in the
Merger, will become a wholly owned subsidiary of WorldCom. See "The Merger
Agreement and Plan of Merger" for a summary of the terms and conditions of the
Merger. Upon consummation of the Merger, each of the issued and outstanding
shares of BLT Common Stock (other than shares as to which dissenters' rights
are perfected under Washington law) will be converted into the right to receive
that fraction of a share of the WorldCom Common Stock equal to 3,150,000 shares
divided by the number of shares of BLT Common Stock outstanding on a fully
diluted basis (0.4491 based upon 7,014,397 shares of BLT Common Stock
outstanding or subject to options to purchase as of November 15, 1996), subject
to the provisions of an indemnity and escrow agreement described herein
covering 10% of such shares. See "The Merger Agreement and Plan of Merger --
Indemnity and Escrow Agreement." Additionally, shareholders of BLT are required
to bear any expenses incurred by BLT in connection with the transactions
contemplated by the Merger in excess of $1.2 million. BLT expects that such
expenses will not exceed $1.2 million. See "The Merger Agreement and Plan of
Merger -- Expenses."
BACKGROUND OF THE MERGER
BLT has been evaluating a number of strategic options to provide resources
to assist in BLT's continued growth. In late 1995 and early 1996, BLT met with
a number of investment bankers and investigated the desirability of an initial
public offering. In February 1996, BLT engaged Orca Capital to assist in
pursuing strategic options, including analyzing an unsolicited offer to acquire
BLT that ultimately was not pursued.
BLT considered the various strategic options and the relative merits of
each approach. These options included remaining independent but obtaining
additional private equity to fund necessary growth; selling BLT to another
company in the industry (a "strategic investor"); selling an interest in BLT to
a financial investor, with a plan of a subsequent initial public offering or
sale of BLT to a strategic investor; and effecting an initial public offering.
Commencing in March 1996, BLT pursued a sale of BLT to either a strategic
investor or a financial investor. These efforts included contacting fifteen
companies that BLT believed might be interested in pursuing a transaction with
BLT; sending an Information Memorandum to ten of these companies that expressed
interest in BLT based on the initial contact; and face-to-face meetings between
members of BLT's management and the respective management of the six potential
investors that expressed further interest based on the Information Memorandum.
As a result of this process, six companies provided BLT with indications of
interest in pursuing the acquisition.
At a meeting on May 30, 1996, BLT's Board considered the proposed
valuations included in the various indications of interest, available
information about the stock of the potential purchasers, and other relevant
information. Orca Capital analyzed the various proposals and reviewed issues
relating to the potential purchasers with the BLT Board. BLT's Board, after
reviewing Orca Capital's presentation and discussing the value to shareholders
and risks associated with each of the strategic options, decided to pursue
further discussions with WorldCom and one other potential strategic investor
with respect to the possible acquisition of BLT. WorldCom and the other company
then conducted detailed due diligence investigations of BLT. WorldCom made a
definitive acquisition offer to BLT in late June. The other company indicated
continued
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interest in an acquisition of BLT, but expressed unwillingness to move forward
on as expeditious a basis as BLT's Board believed was in BLT's best interest.
In late June 1996, officers of BLT and WorldCom entered into negotiations
with respect to the Merger. A draft of the Merger Agreement was delivered to
BLT on June 27, 1996. BLT reviewed the Merger Agreement draft and analyzed key
issues to be raised with WorldCom in a face-to-face meeting. On July 2 and 3,
1996 officers of BLT and WorldCom met in person in Jackson, Mississippi to
discuss the Merger Agreement. Officers of BLT and WorldCom actively negotiated
various provisions of the Merger Agreement, including those related to
representations and warranties, conditions to closing, indemnification and the
operation of BLT during the pendency of the transaction. The Merger Agreement
was revised following the face-to-face meeting and continued to be actively
negotiated for the following two weeks.
By July 17, 1996, negotiation of the principal terms of the Merger
Agreement was substantially complete. On July 17, 1996, BLT's Board of
Directors met and considered the proposed Merger Agreement and the transactions
contemplated thereby. Members of BLT's management and BLT's financial advisors
presented written materials and made presentations to the BLT Board of
Directors and discussed with members of the BLT Board of Directors their views
and analyses of various aspects of the proposed merger. Following the
presentations and discussions described above, the BLT Board of Directors
unanimously voted to approve the Merger with WorldCom. The Merger Agreement was
further refined following the BLT Board Meeting and was executed on July 31,
1996. The Merger Agreement and the Plan of Merger became effective as of July
26, 1996.
WORLDCOM'S REASONS FOR THE MERGER
Numerous factors were taken into consideration by WorldCom in entering
into the Merger Agreement, including (1) the synergies which could potentially
be realized by combining the business of BLT, with its leading position in
distributing prepaid phone cards through retail channels, and the business of
WorldCom, with its prominent position in distributing prepaid phone cards
through promotional and resale markets, (2) the opportunities for expansion of
BLT's business as a result of the greater financial resources of WorldCom, (3)
the marketing and technical expertise of BLT's management and employees, (4)
WorldCom's knowledge of the business, operations, properties, assets, financial
condition and prospects of BLT and (5) current industry, economic and market
conditions.
The WorldCom Board of Directors believed that the Merger was fair to, and
in the best interests of, WorldCom and its shareholders. For the various
reasons discussed above, the WorldCom Board of Directors approved the Merger
Agreement and the transactions contemplated thereby.
BLT'S REASONS FOR THE MERGER
BLT began exploring various strategic options, including an initial public
offering, sale of BLT to a financial investor, and sale of BLT to a strategic
investor, to provide increased financial resources for the Company's continued
growth, to provide liquidity to BLT's shareholders and to increase value to its
shareholders. In considering the Merger, BLT's Board considered numerous
factors, including the price that could be obtained for BLT Common Stock;
anticipated synergies between BLT and WorldCom; potential future appreciation
in the value of WorldCom Common Stock; the business, results of operations,
asset quality and financial condition of WorldCom; the potential qualification
of the Merger as a tax-free reorganization (see, however, "Risk Factors--Risks
Related to the Merger--Possibility of Taxability of the Merger"); and the speed
with which the Merger could potentially be completed. After considering all of
these factors, BLT's Board concluded that the Merger would provide desirable
market liquidity, necessary financial resources for
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BLT's continued growth and the best prospect for increasing long-term value for
BLT shareholders and that the Merger is in the best interests of BLT and its
shareholders.
At present there is no public market for BLT Common Stock. Upon
consummation of the Merger, BLT shareholders (other than "affiliates" of BLT)
will receive freely tradable shares of WorldCom Common Stock, for which there
is an established public market. See "--Status Under Federal Securities Laws".
Accordingly, the Merger is expected to provide liquidity to BLT shareholders
that they do not currently possess.
The Merger is expected to provide BLT with the financial resources it
requires to compete and to continue to grow. In addition, the activities of
BLT and WorldCom are compatible, and the Merger is expected to enhance the
potential of the combined operations of both companies.
The Board of Directors of BLT also believes that the Merger offers its
shareholders an opportunity to obtain stock in a quality company with potential
for future growth and increased value. However, WorldCom's stock has
historically been subject to considerable price volatility, and there is a risk
of negative price movements with respect to WorldCom shares obtained in the
Merger.
Since the announcement of the MFS Merger, the closing sales price for
WorldCom Common Stock has decreased from $26.38 the day before such
announcement to $23.75 on November 19, 1996. Notwithstanding this decrease in
market price, BLT's Board continues to believe that the Merger with WorldCom
provides the best prospect for increasing long-term value for BLT shareholders
and continues to recommend a vote in favor of the Merger.
THERE CAN BE NO ASSURANCE THAT ANY OF THE EXPECTATIONS, EFFICIENCIES OR
OPPORTUNITIES DESCRIBED ABOVE WILL BE ACHIEVED AS A RESULT OF OR FOLLOWING
CONSUMMATION OF THE MERGER. SEE "CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS" AND "RISK FACTORS."
RECOMMENDATION OF THE BLT BOARD OF DIRECTORS
The BLT Board of Directors believes that the terms of the merger are fair
to, and in the best interests of, BLT and its shareholders and has unanimously
approved the Merger Agreement, the merger and the related transactions. BLT'S
BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE MERGER AGREEMENT, THE PLAN
OF MERGER AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING, WITHOUT
LIMITATION, THE MERGER.
ORCA CAPITAL FAIRNESS OPINION
BLT retained Orca Capital Corporation ("Orca Capital") to render its
opinion as to the fairness, from a financial point of view, to the shareholders
of BLT of the consideration to be received in the proposed Merger. Orca
Capital provided BLT's Board with a fairness opinion letter dated July 31,
1996, the date the Merger Agreement was executed. THE FULL TEXT OF THE OPINION
LETTER OF ORCA CAPITAL, WHICH SETS FORTH CERTAIN ASSUMPTIONS MADE, MATTERS
CONSIDERED, AND LIMITATIONS ON THE REVIEW PERFORMED, IS ATTACHED AS EXHIBIT E.
THE SUMMARY OF THE OPINION OF ORCA CAPITAL SET FORTH BELOW IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH OPINION.
In arriving at its opinion, Orca Capital (i) reviewed financial
information on BLT furnished to Orca Capital by BLT including analyses and
forecasts prepared by the management of BLT; (ii) reviewed publicly available
financial information concerning WorldCom, various press releases, various
earnings and other public announcements made by WorldCom, and various equity
analysts reports regarding WorldCom and
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WorldCom's Common Stock; (iii) held discussions with the managements of BLT and
WorldCom concerning the business, operations, and prospects, on an independent
basis and upon consummation of the Merger; (iv) reviewed the Merger Agreement
and Plan of Merger; (v) reviewed the stock price and trading history of
WorldCom Common Stock; (vi) reviewed the valuations of publicly traded
companies Orca Capital deemed comparable to BLT; (vii) compared the financial
terms of the Merger with the financial terms of other transactions which Orca
Capital deemed relevant; (viii) prepared a discounted cash flow analysis of
BLT; (ix) reviewed the results of BLT's efforts to sell BLT, (x) held
discussions with the management of BLT regarding the structure of the
transaction whereby BLT would be acquired by WorldCom in a tax-free exchange
that would be accounted for as a pooling-of-interests and the terms of such a
transaction versus an all-cash taxable transaction; and (xi) made such other
studies and inquiries as Orca Capital deemed relevant.
Orca Capital did not independently verify the accuracy and/or the
completeness of the financial and other information reviewed in rendering its
opinion. Orca Capital relied upon such information being complete and accurate
in all material respects. In conducting its analyses, Orca Capital relied upon
financial projections that were prepared by the management of BLT. With respect
to the financial forecasts, Orca Capital assumed they were prepared based upon
reasonable assumptions and expectations of BLT management as to the future
performance of BLT. Orca Capital did not make an independent appraisal of the
value or the condition of any of the assets of BLT.
The forecasts or projections furnished to Orca Capital for BLT were
prepared by the management of BLT. As a matter of policy, BLT does not
publicly disclose internal management forecasts, projections or estimates of
the type furnished to Orca Capital in connection with its analysis of the
Merger, and such forecasts, projections and estimates were not prepared with a
view towards public disclosure. These forecasts, projections and estimates
were based on numerous variables and assumptions which are inherently uncertain
and which may not be within the control of management, including, without
limitation, factors related to the integration of WorldCom and BLT and general
economic, regulatory and competitive conditions. Accordingly, actual results
could vary materially from those set forth in such forecasts, projections and
estimates. See "Cautionary Statement Regarding Forward-Looking Statement" and
"Risk Factors."
The opinion of Orca Capital was based upon market, economic, and other
conditions as they existed and could be evaluated as of July 31, 1996 and
therefore did not take into account any subsequent events, including the MFS
Merger, which was publicly announced on August 26, 1996. Such opinion was not
updated as of the date hereof nor will such opinion be updated as of the
closing of the Merger.
The following paragraphs describe the quantitative analyses Orca Capital
performed in arriving at its fairness opinion. These analyses were based upon
financial information and stock price information that was available as of July
31, 1996, the date that the Merger Agreement was executed.
Comparable Transaction Analysis. Orca Capital reviewed the consideration
paid in other acquisitions of and investments in similar telecommunications
companies and prepaid telecard companies. These transactions included the sale
of Global Link Telco to Global Telecom Solutions in March 1996; an investment
by Summit Partners in SmarTel Communications in November 1995; and the sale of
TeleDebit/TeleWorld to Interactive Telecard Services in November 1995. This
analysis produced a benchmark multiple of 1.4 times annualized revenues, which
when applied to BLT's estimated revenues of $50 million resulted in an implied
value of approximately $70 million.
Comparable Company Analysis. Orca Capital reviewed the financial and
market performance of a group of publicly traded telecommunications and prepaid
calling card companies deemed comparable to BLT. The chief consideration in
selecting the comparable group of companies was the estimated monthly volume of
prepaid calling card minutes processed by these companies. The companies
selected
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were large facilities based carriers and RBOCs who have a significant prepaid
calling card volume. The comparable group of companies included AT&T
Corporation, LCI International, WorldCom, MCI Communications Corporation,
Sprint, U.S. Long Distance Company, Ameritech, Bell Atlantic, Pacific Telesis,
U.S. West, Citizens Utilities, Frontier Corporation, and GTE. The comparable
group traded for a multiple of 1.5 to 2.0 times 1996 revenues. The results of
this analysis when applied to BLT yielded an implied value range of $75 million
to $100 million. (BLT revenues of $50 million times 1.5 - 2.0 equals $75
million to $100 million).
Discounted Cash Flow Analysis. Orca Capital produced a discounted cash
flow analysis for BLT to estimate the present value of future cash flows based
on projections of earnings for the year 1997 through 2001 if BLT were to remain
a stand-alone entity. The discounted cash flow analysis was performed for 50%,
75%, and 100% of projected net income. The analysis assumed no dividends or
distributions would be paid for the years 1997 - 2000 because all earnings
would be reinvested in the business to fund its projected rapid growth. Hence,
the analysis did not value interim cash flows for the years 1997 - 2000.
Instead, the analysis was based upon computing a terminal value of BLT's
earnings in the year 2001, discounted back at a range of 20% to 40%. A range of
terminal values was estimated by applying terminal multiples of 15, 20, and 25x
to BLT's projected net income for the year 2001 at 50%, 75% and 100% of plan.
The range of discount rates and terminal multiples reflected Orca Capital's
judgment as to an appropriate range. The discounted cash flow analysis yielded
a valuation range of $41 million (40% discount rate at 50% of projected
earnings) to $172 million (20% discount rate at 100% of projected earnings).
Using a terminal multiple of 20x applied to net income at 75% of plan yielded
an implied benchmark valuation range of $80 to $100 million.
The summary set forth above does not purport to be a complete description
of the analyses performed by Orca Capital in arriving at its opinion. In
performing these various analyses, Orca Capital made assumptions with respect
to industry performance and general economic and business conditions. Estimates
contained in these analyses are not necessarily indicative of actual values or
predictive of future results. Further, while Orca Capital selected the
comparable companies and transactions used in these analyses based upon
similarities to BLT and the markets it serves, no company used in the analysis
of comparable publicly traded companies, nor any of the transactions used in
the comparable transaction analysis is identical to BLT.
Based upon and subject to the foregoing, Orca Capital's experience as
investment bankers, the work as described above and other factors Orca Capital
deemed relevant, Orca Capital was of the opinion that as of July 31, 1996, the
consideration from a financial point of view to be offered under the Merger
Agreement to the shareholders of BLT was fair.
Orca Capital has been engaged to render financial advisory services to BLT
in connection with the Merger and will receive a fee for its services, paid by
BLT, of an amount not exceeding $965,000, substantially all of which is
contingent upon the consummation of the Merger.
DISSENTERS' RIGHTS
Pursuant to Sections 23B.13.010 to 23B.13.310 of the WBCA, any BLT
shareholder who gives proper notice and who does not vote in favor of the
Merger will, upon proper demand, have the right under Washington law to obtain
payment of the fair value of his or her shares of BLT Common Stock. For the
purpose of dissenters' rights, the fair value of such shares will be their
value immediately prior to the Merger, excluding any appreciation or
depreciation in anticipation of the Merger unless exclusion would be
inequitable. Any shareholder electing to exercise dissenters' rights must file
a written notice specifying this
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intent with BLT, to the attention of the Secretary, at 610 Esther Street,
Vancouver, Washington 98660, prior to the vote at the Special Meeting, and must
not vote his or her shares in favor of the Merger. A VOTE IN FAVOR OF THE
MERGER WILL CONSTITUTE A WAIVER OF DISSENTERS' RIGHTS. A VOTE AGAINST THE
MERGER WILL NOT BE REGARDED AS A WRITTEN NOTICE FOR PURPOSES OF ASSERTING
DISSENTERS' RIGHTS.
Within ten days following the closing of the Merger, BLT will mail a
notice to each shareholder who gave the Company due notice of his or her
intention to demand payment and who did not vote in favor of the Merger, which
notice will inform the shareholder when, where and how to make demand for
payment and to deposit share certificates. A shareholder who fails to make
demand for payment or to deposit certificates in accordance with the notice
will forfeit his or her dissenters' rights.
Upon the receipt of a demand for payment, BLT will remit to shareholders
who made proper demand an amount BLT estimates to be the fair value of their
BLT shares plus accrued interest and will provide to shareholders certain
additional information, including an explanation of how BLT estimated the fair
value of the shares. If BLT fails so to remit, or if the dissenting shareholder
believes the amount remitted is less than the fair value of such shareholder's
shares, the dissenter may send BLT his or her own estimate of the fair value of
the shares and demand payment of the deficiency. The dissenters' estimate must
be filed within 30 days after the date BLT mails its remittance, if any. If BLT
and the dissenting shareholder are unable to agree on a fair value within 60
days after the receipt of a demand for payment of a deficiency, BLT will
petition that the fair value of the shares and interest thereon be determined
by an appropriate court. The court will determine the costs of the proceeding
and assess such costs against BLT, except that costs may be assessed against
the dissenters if the court finds that the dissenters acted arbitrarily,
vexatiously or not in good faith in demanding payment. The court may also
assess fees and expenses of counsel and experts for the respective parties, in
amounts the court finds equitable.
BLT may elect to withhold payment from a dissenter unless the dissenter
was the beneficial owner of the shares before the date of the first
announcement to news media or to shareholders of the terms of the Merger.
The foregoing summary does not purport to be a complete statement of
dissenters' rights and is qualified in its entirety by reference to Sections
23B.13.010 to 23B.13.310 of the WBCA, which are attached hereto as Exhibit D.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
While BLT and WorldCom intend that the Merger should, under current law,
constitute a tax-free reorganization under Section 368(a) of the Code, no
ruling has been sought from the Internal Revenue Service and no opinion of
counsel has been or will be obtained. Qualification of the Merger as a tax-free
reorganization is contingent, in part, on the BLT shareholders retaining a
significant continuing ownership interest in WorldCom based on their ownership
in BLT. Neither BLT nor WorldCom has received any representations from the
management of BLT or the BLT shareholders regarding their intention to retain
or dispose of the WorldCom Common Stock received in the Merger. If BLT
shareholders holding more than 50% of the outstanding BLT Common Stock before
the Merger were to have a present intention to dispose of the WorldCom Common
Stock received in the Merger, and in fact disposed of such shares following the
Merger, the Internal Revenue Service could assert that the Merger did not
qualify as a tax-free reorganization. If it were ultimately determined that the
Merger did not qualify as a tax-free reorganization, all BLT shareholders would
be subject to tax on the BLT Common Stock surrendered in the Merger whether or
not the WorldCom Common Stock received in the Merger was sold or retained. See
"Risk Factors--Risks Related to
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the Merger--Possibility of Taxability of the Merger." AS A RESULT, BLT
SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE TAX
CONSEQUENCES OF THE MERGER.
If the Merger were to qualify as a tax-free reorganization, it would have
the following federal income tax consequences for BLT shareholders:
(1) No gain or loss would be recognized by the shareholders of BLT
upon the exchange of all of their BLT Common Stock for WorldCom Common
Stock (including fractional share interests).
(2) Each shareholder of BLT receiving cash in lieu of a fractional
share interest in WorldCom Common Stock in the Merger would be treated as
if such shareholder actually received the fractional share interest and
the fractional share interest was subsequently redeemed by WorldCom.
Gain or loss would be measured by the difference between the amount of
cash received and the basis of the BLT Common Stock surrendered therefor,
properly allocated to the fractional share interest.
(3) The tax basis of WorldCom Common Stock (including WorldCom
Common Stock considered as received in respect of any fractional share
interest) to be received by a shareholder of BLT in the Merger would be
the same as the basis of the BLT Common Stock surrendered in exchange
therefor.
(4) The holding period of WorldCom Common Stock (including WorldCom
Common Stock considered as received in respect of any fractional share
interest) to be received by a shareholder of BLT in the Merger would
include the period during which the BLT Common Stock exchanged for such
WorldCom Common Stock was held by such shareholder of BLT.
THE MERGER WILL HAVE IMPORTANT TAX CONSEQUENCES THAT SHOULD BE CONSIDERED
BY EACH SHAREHOLDER. EACH SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX
ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO HIM OR HER OF THE MERGER,
INCLUDING THE APPLICABILITY AND EFFECT OF FEDERAL, FOREIGN, STATE, LOCAL AND
OTHER TAX LAWS.
ACCOUNTING TREATMENT
The Merger is intended to qualify as a "pooling of interests" for
accounting and financial reporting purposes. Under this method of accounting,
the recorded assets and liabilities of WorldCom and BLT will be carried forward
to the combined organization at their recorded amounts; income of the combined
organization will include income of WorldCom and BLT for the entire fiscal year
in which the Merger occurs; and the reported income of the separate
corporations for prior periods will be combined and restated as income of the
combined organization. Among the conditions to pooling of interests accounting
treatment of the Merger is the requirement that WorldCom issue WorldCom Common
Stock in exchange for at least 90% of the BLT Common Stock outstanding on the
date the Merger is consummated.
Certain shareholders of BLT that may be "affiliates" (as defined in the
rules under the Securities Act) have agreed that they will not transfer any
shares of WorldCom Common Stock received in the Merger until WorldCom has
published financial statements containing at least 30 days of combined results
of operations after the Effective Time. Such restriction on transfer is
necessary to account for the Merger as a pooling of interests. See "-- Status
Under Federal Securities Laws."
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STATUS UNDER FEDERAL SECURITIES LAWS
The WorldCom shares to be issued to shareholders of BLT pursuant to the
Merger Agreement have been registered under the Securities Act, thereby
allowing such shares to be freely traded without registration by persons who
will not be "affiliates" of WorldCom after the Merger or who were not
"affiliates" of BLT on the date of the Special Meeting. All directors and
certain officers and shareholders of BLT may be deemed to have been
"affiliates" of BLT within the meaning of such rules. Any such person may
resell the WorldCom shares received by him or her in the Merger only if such
shares are registered under the Securities Act or an exemption from
registration under the Securities Act is available. Such persons may be able
to effect resales under the safe harbor provision of Rule 145 under the
Securities Act (or Rule 144 in the case of such persons who become "affiliates"
of WorldCom) or as otherwise permitted under the Securities Act. Persons who
may be deemed affiliates of WorldCom or BLT generally include individuals or
entities that control, are controlled by, or are under common control with,
such party, and may include certain officers and directors of such party as
well as principal shareholders of such party. It is recommended that any such
person obtain advice of securities counsel prior to effecting any resales.
The Merger Agreement requires, as a condition to closing, each director,
officer or greater than 5% shareholder to execute a written agreement to the
effect that such person will not offer or sell or otherwise dispose of any of
the WorldCom shares received in the Merger (i) in violation of the Securities
Act or the rules and regulations thereunder and (ii) in any event, until the
time that financial results covering at least 30 days of post-Merger combined
operations of WorldCom and BLT have been published in accordance with the
accounting policies of the Commission relating to pooling of interests. See
"The Merger Agreement And Plan Of Merger -- Affiliate Agreements."
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THE BLT SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus is furnished to the shareholders of BLT in
connection with the solicitation of proxies by the Board of Directors of BLT
for use at the Special Meeting which concerns the merger of BLT with a
subsidiary of WorldCom pursuant to the terms and conditions of the Merger
Agreement and the related Plan of Merger.
DATE, TIME AND PLACE
The Special Meeting is scheduled to be held on December 24, 1996, at the
offices of Stoel Rives LLP, Standard Insurance Center, 900 SW Fifth Avenue,
Suite 2300, Portland, Oregon 97204, commencing at 8:00 a.m. local time.
PURPOSE OF THE SPECIAL MEETING
The purpose of the Special Meeting is to consider and vote upon certain
proposals recommended by the BLT Board of Directors to approve (i) the Merger
Agreement, the Plan of Merger and the transactions contemplated thereby,
including, without limitation, the Merger and the appointment of Thomas J.
Holce as Shareholder Representative pursuant to the Escrow Agreement; (ii) a
proposal to adjourn the Special Meeting to allow for additional solicitation of
shareholder proxies or votes in the event that the number of proxies or votes
sufficient to obtain a quorum or to approve the first proposal has not been
received by the date of the Special Meeting; and (iii) any other business that
may properly come before the Special Meeting.
THE BLT BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT
AND RECOMMENDS A VOTE IN FAVOR OF THE MERGER AGREEMENT, THE PLAN OF MERGER AND
THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING, WITHOUT LIMITATION, THE
MERGER.
VOTING AT THE SPECIAL MEETING
Record Date; Outstanding Shares; Quorum. The date for the determination
of the holders of record of the BLT Common Stock entitled to notice of and to
vote at the Special Meeting is November 22, 1996 (the "Record Date").
Accordingly, only holders of record of shares of the BLT Common Stock as of the
close of business on the Record Date will be entitled to notice of and to vote
at the Special Meeting. As of the Record Date, there were outstanding
_______________ shares of the BLT Common Stock entitled to vote and held by
_______ holders of record. Each holder of record of shares of the BLT Common
Stock on the Record Date is entitled to cast one vote per share on each
proposal properly submitted for the vote of the Company's shareholders, either
in person or by properly executed proxy, at the Special Meeting. The presence,
in person or by properly executed proxy, of the holders a majority of the
outstanding shares of the BLT Common Stock entitled to vote at the Special
Meeting, is necessary to constitute a quorum at the Special Meeting.
Votes Required. Under Washington law and the Articles of Incorporation of
BLT, the Merger Agreement, the Plan of Merger and the transactions contemplated
thereby must be approved by the holders of two-thirds of the issued and
outstanding shares of the BLT Common Stock entitled to vote at the Special
Meeting. BLT's shareholders who do not approve the Merger, and who act
appropriately to protect their rights, may not prevent the Merger if it is
approved by the requisite vote, but may have dissenters' rights as described
elsewhere in this Proxy Statement. See "The Merger - Dissenters' Rights."
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Since the affirmative vote of two-thirds of the votes entitled to be cast
by the holders of all outstanding shares of BLT Common Stock is required to
approve and adopt the Merger Agreement and related transactions, abstentions
will have the effect of a vote against the approval of the Merger Agreement and
related transactions. The proposal to adjourn the Special Meeting to solicit
additional proxies or votes requires more votes cast in favor than against the
proposal. Abstentions have no effect on the outcome of the vote to adjourn the
meeting.
As of the Record Date, directors and executive officers of BLT and their
affiliates (as a group) were entitled to vote shares of BLT Common Stock
representing approximately 39.3% of the voting power of BLT Common Stock. All
such persons have indicated their intention to vote their shares for the
approval of the Merger Agreement, the Merger and the transactions contemplated
thereby and for the approval of the proposal to adjourn the Special Meeting to
solicit additional proxies or votes at the Special Meeting.
Proxies. BLT's shareholders as of the Record Date set forth above may
attend the Special Meeting and vote in person or may appoint Thomas J. Holce
and Robert A. Sternberg proxy by filling out the attached proxy card and
returning it to BLT. UNLESS OTHERWISE INDICATED ON THE RETURNED PROXY CARD,
DULY EXECUTED PROXIES RECEIVED BY BLT PRIOR TO THE SPECIAL MEETING WILL BE
VOTED IN FAVOR OF THE MERGER, AND IN FAVOR OF THE PROPOSAL TO ADJOURN THE
SPECIAL MEETING TO SOLICIT ADDITIONAL PROXIES OR VOTES.
Shareholders may revoke a proxy at any time prior to the Special Meeting
by appropriate written notice that reaches BLT prior to the Special Meeting or
may attend the Special Meeting and vote in person whether or not they have
earlier delivered a proxy card to BLT. A vote in person at the Special Meeting
will be deemed to revoke any proxy theretofore granted by the voting
shareholder.
SOLICITATION OF PROXIES
BLT will bear its own cost of solicitation of proxies. In addition to the
use of the mails, proxies may be solicited by the directors, officers and other
selected employees of BLT by personal interview, telephone, telegram or e-mail.
Such directors and officers will not receive additional compensation for such
solicitation but may be reimbursed for out-of-pocket expenses incurred in
connection therewith.
ADJOURNMENT OF THE SPECIAL MEETING
A vote (i) in person by a shareholder for adjournment of the Special
Meeting or (ii) for the second proposal on the proxy card of BLT authorizing
the named proxies to vote the shares covered by such proxy to adjourn the
Special Meeting would allow for additional solicitation of shareholder votes in
order to obtain a quorum or in order to obtain more votes in favor of the
Merger Agreement. Consequently, it is not likely to be in the interest of
shareholders who intend to vote against the Merger Agreement to vote in person
to adjourn the Special Meeting or to vote for the second proposal on the proxy
card.
The BLT Board of Directors unanimously recommends that the BLT
shareholders vote in favor of any adjournment of the Special Meeting suggested
by the Board in order to solicit additional votes in order to obtain a quorum
or to obtain more votes in favor of the Merger Agreement and related
transactions, or in favor of the second proposal on the proxy card.
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DISCRETIONARY AUTHORITY
The Notice of Special Meeting of Shareholders provides for transaction of
any business that properly comes before the meeting. The BLT Board of Directors
has no knowledge, however, of any matters to be presented at the Special
Meeting other than those referred to in this Proxy Statement/ Prospectus. The
enclosed proxy gives discretionary authority if any other matters are properly
presented.
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INFORMATION CONCERNING WORLDCOM
Information regarding WorldCom is contained in its filings with the
Commission pursuant to the Exchange Act. See "Available Information" and
"Incorporation By Reference."
BUSINESS OF WORLDCOM
WorldCom, a Georgia corporation which conducts business under the name
"LDDS WorldCom," is one of the four largest long distance telecommunications
companies in the United States, based on 1995 revenues. WorldCom provides long
distance telecommunications services to business, consumer and other carrier
customers through its network of fiber optic cables, digital microwave, and
fixed and transportable satellite earth stations, with service to points
throughout the nation and the world. The products and services provided by
WorldCom include: switched and dedicated long distance products; 800 services;
calling cards; domestic and international private lines; broadband data
services; debit cards; conference calling; advanced billing systems; enhanced
faxed and data connections; television and radio transmission and mobile
satellite communications. Based on FCC statistics as of December 31, 1995 (the
most recent statistics available), WorldCom's share of total toll service
revenues for 1995 was 4.3%.
WorldCom's emphasis on acquisitions has taken WorldCom from a small
regional long distance carrier to one of the largest long distance
telecommunications companies in the industry, serving customers domestically
and internationally. On January 5, 1995, WorldCom completed the acquisition of
the network services operations of WilTel, a subsidiary of The Williams
Companies, Inc., for approximately $2.5 billion in cash. Through this
purchase, WorldCom acquired a nationwide common carrier network of
approximately 11,000 miles of fiber optic cable and digital microwave
facilities.
On December 30, 1994, WorldCom, through a wholly owned subsidiary, merged
with IDB, which operates a domestic and international communications network
providing private line and public switched long distance telecommunications
services, facsimile and data connections, television and radio transmission
services, and mobile satellite communications capabilities. As a result of the
IDB Merger, each share of common stock of IDB was converted into the right to
receive 0.476879 shares of WorldCom Common Stock, resulting in the issuance of
approximately 71,762,000 shares of WorldCom Common Stock. In addition,
WorldCom assumed, on a subordinated basis, jointly and severally with IDB, the
obligations of IDB to pay the principal of and interest on $195.5 million 5%
convertible subordinated notes due 2003, issued by IDB. On July 15, 1996,
WorldCom announced that it had exercised its option to redeem on August 16,
1996 all of the outstanding IDB notes. Prior to such redemption date, a
majority of the holders of the IDB notes elected to convert their notes into
WorldCom Common Stock, resulting in the issuance of approximately 10.3 million
shares of WorldCom Common Stock. The IDB Merger was accounted for as a pooling
of interests and, accordingly, the WorldCom financial statements for the
periods prior to the IDB Merger have been restated to include the results of
IDB for all periods presented.
WorldCom follows a four-point growth strategy, consisting of internal
growth, the selective acquisition of smaller long distance companies with
limited geographic service areas and market shares, the consolidation of
certain third tier long distance carriers with larger market shares, and
international expansion.
A predominant share of WorldCom's total revenues is derived from
commercial customers. Commercial customers typically use higher volumes of
telecommunications services than residential customers and concentrate usage on
weekdays during business hours, when rates are highest. Consequently,
commercial customers, on average, generate higher revenues per account than
residential customers. WorldCom has become a significant participant in the
long distance wholesale market and intends to pursue opportunities, if any, for
continued expansion in this area. While total revenues in the wholesale market
are
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less than from commercial customers, expenses are generally reduced in
servicing these customers as the result of fewer invoices, fewer customer
service personnel and a smaller sales force.
The enactment of the Telecom Act in early February 1996 has made it
possible for WorldCom to participate in both the local and long distance
markets. WorldCom has formed business associations to provide long distance
telecommunications services with certain LECs, and WorldCom expects to pursue
resale of local service in those markets where it is both economically and
technically feasible.
WorldCom's principal executive offices are located at 515 East Amite
Street, Jackson, Mississippi 39201-2702, and its telephone number is (601)
360-8600.
RECENT DEVELOPMENT
On August 25, 1996, WorldCom executed the MFS Merger Agreement, pursuant
to which a wholly owned subsidiary of WorldCom 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 "MFS Common Stock") will be converted into
the right to receive 2.1 shares of WorldCom Common Stock (the "MFS Common
Exchange Ratio") (ii) each share of Series A 8% Cumulative Convertible
Preferred Stock, par value $.01 per share, of MFS (the "MFS 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
WorldCom (the "WorldCom 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 WorldCom (the "WorldCom 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 WorldCom Series A Preferred Stock (the
"WorldCom Depositary Shares"). In addition, 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
WorldCom 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) holders of certain options will be instead
entitled to receive the value of such options in accordance with the terms
thereof. As of November 13, 1996, the merger consideration for MFS stock to be
converted in the MFS Merger (the "MFS Capital Stock") is approximately $12.3
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
WorldCom Common Stock, MFS Common Stock and MFS Depositary Shares as of
November 13, 1996.
WorldCom and MFS hope to complete the MFS Merger within [three to seven]
months from date of execution of the Merger Agreement. 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 Act.
BLT shareholders are advised to obtain current market information with
respect to the possible effects of the MFS Merger on WorldCom. No assurance
can be given concerning the market price for WorldCom Common Stock or the
financial condition or results of operations of WorldCom before or after the
date on which the MFS Merger is consummated.
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TERMS AND CONDITIONS OF THE MFS MERGER
The following is a summary of the primary terms and conditions of the MFS
Merger Agreement, which also contains certain customary representations and
warranties by MFS and WorldCom. This summary does not purport to be complete
and is qualified in its entirety by reference to the MFS Merger Agreement, a
copy of which has been filed as an exhibit to WorldCom's Current Report on Form
8-K dated August 25, 1996 (filed August 26, 1996), which is incorporated by
reference herein.
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
transactions contemplated thereby by the stockholders of MFS and the requisite
approval by WorldCom shareholders of the issuance of the WorldCom capital stock
in the MFS Merger and the transactions contemplated thereby and the proposed
amendment to the WorldCom Articles; (ii) receipt by WorldCom and MFS of
opinions from their respective tax counsel regarding certain tax matters; (iii)
approval of the shares of WorldCom 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 WorldCom 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.
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The MFS Merger Agreement additionally provides that neither the Board of
Directors of MFS (the "MFS Board of Directors") or the WorldCom Board of
Directors nor any committee thereof shall (i) withdraw or modify in a manner
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 WorldCom, 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 WorldCom 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 WorldCom 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 WorldCom 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, WorldCom has agreed after
the MFS Closing Date, to arrange for each employee participating in any benefit
plans of MFS or a subsidiary of MFS in effect on August 25, 1996 to participate
in any counterpart benefit plans of WorldCom 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
WorldCom on terms no less favorable than those offered by WorldCom to similarly
situated employees of WorldCom; and (c) WorldCom 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. WorldCom 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 of any
such plans and agreements which relate to a change in control, including the
accelerated vesting and/or payment of equity-based awards. WorldCom 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
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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, WorldCom 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.
WorldCom 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, WorldCom shall purchase as much coverage as possible
for such amount.
Pursuant to the terms of the MFS Merger Agreement, and subject to the
consummation of the MFS Merger, WorldCom has agreed to cause the WorldCom 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
WorldCom. As of the date hereof, the WorldCom Board of Directors is composed of
12 directors. It is anticipated that as of the MFS Closing Date the WorldCom
Board of Directors will be composed of 15 directors and that Carl J. Aycock,
Max E. Bobbitt, Bernard J. Ebbers, Francesco Galesi, Stiles A. Kellett, Jr.,
John A. Porter, and Scott D. Sullivan will continue to serve, and that Clyda
Stokes Rent will be appointed to serve, as directors of WorldCom. MFS has
announced its intent to designate R. Douglas Bradbury, James Q. Crowe, Richard
R. Jaros, David C. McCourt, Walter Scott, Jr., John W. Sidgmore, and Michael B.
Yanney as directors of WorldCom. The MFS Merger Agreement also provides that
membership on the compensation and stock option, audit and nominating
committees of the WorldCom Board of Directors will initially consist of an
equal number of designees of WorldCom and MFS. See "--Management of WorldCom
Following the MFS Merger."
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 WorldCom, by the
mutual consent of MFS and WorldCom.
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 WorldCom, by either MFS or WorldCom 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 WorldCom
is not obtained at the special meetings of the WorldCom or MFS shareholders or
at any
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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 WorldCom, by WorldCom 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 WorldCom 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 WorldCom'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 WorldCom 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 WorldCom Common Stock and WorldCom
preferred stock then outstanding or all or substantially all of the assets of
WorldCom and otherwise on terms which the WorldCom 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
WorldCom'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
WorldCom Board of Directors, is capable of being financed by such third party
(a "WorldCom Superior Proposal"), specifying the material terms and conditions
of such WorldCom Superior Proposal and identifying the party making such
WorldCom Superior Proposal; provided that WorldCom 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 WorldCom, 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 WorldCom 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 WorldCom its approval or recommendation of the
MFS Merger and the MFS Merger Agreement, (II) failed to reconfirm its
recommendation within fifteen business days after a written request from
WorldCom 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 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 WorldCom, by MFS if (i) WorldCom 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 WorldCom; (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
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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
WorldCom of written notice advising WorldCom 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 WorldCom in connection therewith; (iii) WorldCom (a)
shall have breached in any material respect, and WorldCom 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 WorldCom not to continue discussions relating to, or to solicit
any, Takeover Proposals relating to WorldCom (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
WorldCom, 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 WorldCom 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 within fifteen business days after a written
request from MFS to do so, or (III) approved or recommended any Takeover
Proposal with respect to WorldCom or (b) shall have resolved to take any of the
actions described in clause (iv)(a) above; (v) WorldCom or any of its officers,
directors, employees, representatives or agents shall have furnished
information with respect to WorldCom to any person pursuant to a customary
confidentiality agreement or participated in negotiations regarding a Takeover
Proposal relating to WorldCom in response to a Takeover Proposal which was not
solicited subsequent to August 25, 1996, which the WorldCom 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
WorldCom 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 WorldCom.
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 WorldCom 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 WorldCom 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 WorldCom 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 WorldCom 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
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Agreement," or (y) by WorldCom 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 WorldCom, 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 WorldCom 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 WorldCom its approval or recommendation with respect to the
MFS Merger Agreement or failed to reconfirm its recommendation after a request
from WorldCom, 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 WorldCom pursuant to a termination by
WorldCom 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 WorldCom 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, WorldCom
commences a suit which results in a judgment against MFS for the Termination
Fee. If WorldCom terminates pursuant to clause (iii)(y)(III) above, MFS shall
promptly pay, upon WorldCom's request, all out-of-pocket charges and expenses
incurred by WorldCom 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 WorldCom 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 WorldCom because the shareholders of WorldCom shall not have approved
the MFS Merger and the MFS Merger Agreement at the special meeting of WorldCom
shareholders; (ii) a bona fide Takeover Proposal relating to WorldCom shall
have been made known to WorldCom 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 WorldCom and
such Takeover Proposal or announced intention shall not have been withdrawn and
thereafter the MFS Merger Agreement is terminated by either MFS or WorldCom
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 WorldCom
because the WorldCom 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 WorldCom under
applicable law, after 10 business days notice to MFS of the material terms of
and identity of the third party making a WorldCom Superior Proposal, as
described above under "-- Termination of the MFS Merger Agreement," or (y) by
MFS pursuant to its right to terminate because (I) WorldCom 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 WorldCom 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 WorldCom, (II) the WorldCom
Board of Directors shall have withdrawn or modified in a manner adverse to MFS
its approval or recommendation
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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 WorldCom, or shall have resolved to take
any of the foregoing actions, or (III) WorldCom or any of its officers,
directors, employees, representatives or agents shall have furnished
information with respect to WorldCom to any person pursuant to a customary
confidentiality agreement or participated in negotiations regarding a Takeover
Proposal relating to WorldCom in response to a Takeover Proposal which was not
solicited subsequent to August 25, 1996, which the WorldCom 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
WorldCom 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 WorldCom; 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,
WorldCom or any of its subsidiaries enters into an acquisition agreement with a
third party or consummates any Takeover Proposal. WorldCom 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 WorldCom fails to promptly pay the Termination Fee and, in
order to obtain such payment, MFS commences a suit which results in a judgment
against WorldCom for the Termination Fee. If MFS terminates pursuant to clause
(iii)(y)(III) above, WorldCom 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 WorldCom 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 WorldCom 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 dated as of August 25, 1996 (the "Services
Agreement"). This summary does not purport to be complete and is qualified in
its entirety by reference to the Services Agreement, a copy of which has been
filed as an exhibit to WorldCom's Current Report on Form 8-K dated August 25,
1996 (filed August 26, 1996), which is incorporated by reference herein.
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.
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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
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 one-third 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
50
<PAGE> 67
Party will be liable to the Terminating Party for liquidated damages equal to
the value of one-half 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.
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
WorldCom 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 WorldCom which had a value greater than the
expected value of the shares of WorldCom Common Stock upon consummation of the
MFS Merger.
STOCK OPTION AGREEMENTS
As an inducement to the other party to enter into the MFS Merger
Agreement, each of MFS and WorldCom entered into the Option Agreements in favor
of the other party as described herein. This summary does not purport to be
complete and is qualified in its entirety by reference to the Option
Agreements, copies of which have been filed as exhibits to WorldCom's Current
Report on Form 8-K dated August 25, 1996 (filed August 26, 1996), which is
incorporated by reference herein.
MFS (as issuer) entered into a Stock Option Agreement (the "MFS Stock
Option Agreement") dated as of August 25, 1996 with WorldCom (as grantee),
pursuant to which MFS granted the irrevocable option (the "MFS Stock Option")
to WorldCom 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 WorldCom Common Stock on August 23,
1996, the last trading day preceding announcement of the MFS Merger.
WorldCom (as issuer) entered into a Stock Option Agreement (the "WorldCom
Stock Option Agreement") dated as of August 25, 1996 with MFS (as grantee),
pursuant to which WorldCom granted the irrevocable option (the "WorldCom Stock
Option"; collectively with the MFS Stock Option, the "MFS Merger Stock
Options") to MFS to purchase from WorldCom up to 81,224,137 shares of WorldCom
Common Stock (subject to adjustment in certain circumstances, and which
represented 19.9% of the then outstanding shares of WorldCom 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
WorldCom Common Stock on August 23, 1996, the last trading day preceding
announcement of the MFS Merger.
51
<PAGE> 68
In the following discussion, the "Issuer" shall mean MFS with respect to
the MFS Stock Option Agreement and WorldCom with respect to the WorldCom Stock
Option Agreement, and the "Grantee" shall mean WorldCom with respect to the MFS
Stock Option Agreement and MFS with respect to the WorldCom 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 WorldCom 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 WorldCom Common
Stock with respect to WorldCom as Issuer);
Provided that the MFS Merger Stock Options 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
WorldCom 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 transactions contemplated thereby
(or failed to reconfirm the same upon request so to do) or (G) the officers,
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.
52
<PAGE> 69
To the knowledge of WorldCom, no Purchase Event has occurred as of the
date of this Proxy Statement.
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 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
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 (a "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 Selling
Shareholder upon exercise of the MFS Merger Stock Options in accordance with
the intended method of sale or other disposition stated by the 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 Selling Shareholder also
has the right,
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<PAGE> 70
subject to certain conditions, as described in the Option Agreements, to
include the 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 Selling Shareholder, and each
underwriter thereof, including each person who controls such 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 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 would have a higher current market price than the shares of WorldCom
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
WorldCom which would have a value greater than the value of the shares of
WorldCom Common Stock upon consummation of the MFS Merger.
MANAGEMENT OF WORLDCOM FOLLOWING THE MFS MERGER
Pursuant to the terms of the MFS Merger Agreement, and subject to the
consummation of the MFS Merger, WorldCom has agreed to cause the WorldCom 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
WorldCom. As of the date hereof, WorldCom's Board of Directors is composed of
12 directors. It is anticipated that as of the MFS Closing Date the WorldCom
Board of Directors will be composed of 15 directors and that Carl J. Aycock,
Max E. Bobbitt, Bernard J. Ebbers, Francesco Galesi, Stiles A. Kellett, Jr.,
John A. Porter, and Scott D. Sullivan will continue to serve, and that Clyda
Stokes Rent will be appointed to serve, as directors of WorldCom. MFS has
announced its intent to designate R. Douglas Bradbury, James Q. Crowe, Richard
R. Jaros, David C. McCourt, Walter Scott, Jr., John W. Sidgmore and Michael B.
Yanney as directors of WorldCom. If, prior to MFS Closing Date, any of the
persons named by either WorldCom or MFS to serve on the Board of Directors as
of the MFS Closing Date declines or is unable to serve as a director, the party
that designated such individual may name a replacement to become a director.
The directors of WorldCom will be elected annually.
The following table sets forth information as to the persons who are
expected to serve as directors of WorldCom following the MFS Merger:
54
<PAGE> 71
<TABLE>
<CAPTION>
NAME AND YEAR FIRST BECAME A DIRECTOR BUSINESS EXPERIENCE DURING
OF WORLDCOM OR MFS, AS APPLICABLE AGE PAST FIVE YEARS AND OTHER INFORMATION
- ------------------------------------- --- -------------------------------------
<S> <C> <C>
Carl J. Aycock, 1983 47 Director of WorldCom since 1983.
Mr. Aycock served as Secretary of
WorldCom from 1987 to 1995 and was
the Secretary and Chief Financial
Officer of Master Corporation, a
motel management and ownership
company, from 1989 until 1992.
Subsequent to 1992, Mr. Aycock has
been self employed as a financial
administrator.
Max E. Bobbitt, 1992 51 Director of WorldCom since December
1992. Mr. Bobbitt was a director of
Advanced Telecommunications
Corporation ("ATC") until its merger
with WorldCom in December 1992 (the
"ATC Merger"). Mr. Bobbitt held
various positions including
President and Chief Operating
Officer and director of ALLTEL
Corporation, a telecommunications
company, from 1970 until his
retirement in January 1995.
R. Douglas Bradbury, 1994 45 Chief Financial Officer of MFS since
January 1992, Executive Vice
President since August 1995, Senior
Vice President from September 1992
to August 1996 and a Director since
August 1994. Previously, Mr.
Bradbury was Senior Vice President -
Corporate Affairs for MFS Telecom,
Inc. ("MFS Telecom"). Before
joining MFS in 1988, he was
Executive Vice President and Chief
Operating Officer at American
Pioneer Telephone, Inc., a regional
long-distance carrier based in
Orlando, Florida, and a Vice
President of Manufacturers Hanover
Trust Company New York City and
Milan, Italy. As of June 21, 1996,
Mr. Bradbury reported beneficial
ownership of 278,609 shares of MFS
Common Stock (including 259,210
shares purchasable upon exercise of
stock options) and 3,537 shares of
MFS Series B Preferred Stock.
</TABLE>
55
<PAGE> 72
<TABLE>
<CAPTION>
NAME AND YEAR FIRST BECAME A DIRECTOR BUSINESS EXPERIENCE DURING
OF WORLDCOM OR MFS, AS APPLICABLE AGE PAST FIVE YEARS AND OTHER INFORMATION
- ------------------------------------- --- -------------------------------------
<S> <C> <C>
James Q. Crowe, 1988 46 Chief Executive Officer and Chairman
of the Board of MFS. Mr. Crowe has
been the Chief Executive Officer of
MFS since its inception, has served
as Chairman of the Board of MFS
since 1988 and Chief Executive
Officer since November 1991 and was
President of MFS (January 1988 -
June 1989 and April 1990 - January
1992). As of June 21, 1996, Mr.
Crowe reported beneficial ownership
of 1,464,846 shares of MFS Common
Stock (including 997,220 shares
purchasable upon exercise of stock
options and 83 shares held in trusts
for family members) and 87,389
shares of MFS Series B Preferred
Stock.
Bernard J. Ebbers, 1983 55 Chief Executive Officer and
President of WorldCom. Mr. Ebbers
has been President and Chief
Executive Officer since April 1985
and has served as director of
WorldCom since 1983.
Francesco Galesi, 1992 66 Director of WorldCom since December
1992. Mr. Galesi was a director of
ATC until the ATC Merger. He is the
Chairman and Chief Executive Officer
of the Galesi Group, which includes
companies engaged in distribution,
manufacturing, real estate and
telecommunications.
</TABLE>
56
<PAGE> 73
<TABLE>
<CAPTION>
NAME AND YEAR FIRST BECAME A DIRECTOR BUSINESS EXPERIENCE DURING
OF WORLDCOM OR MFS, AS APPLICABLE AGE PAST FIVE YEARS AND OTHER INFORMATION
- ------------------------------------- --- -------------------------------------
<S> <C> <C>
Richard R. Jaros, 1992 44 Director of MFS since January 1992.
He was the Chairman of the Board of
CalEnergy Company, Inc. ("CEC"), a
geothermal energy producer, from
April 1993 to April 1994, and the
President and Chief Operating
Officer from January 1992 until
April 1993. Mr. Jaros has been an
Executive Vice President of Peter
Kiewit Sons', Inc. ("PKS") since
June 1993 and Chief Financial
Officer since September 1995, and
was a Vice President of PKS from
September 1990 to August 1992. Mr.
Jaros has been President of Kiewit
Diversified Group Inc. ("KDG") since
July 1996 and was a Vice President
from 1986 to 1990. Mr. Jaros is
director of PKS, KDG, RCN
Corporation, a wholly owned
subsidiary of KDG ("RCN"), CEC,
C-TEC Corporation ("C-TEC"), United
Infrastructure Company and Megacable
S.A. de C.V. As of June 21, 1996,
Mr. Jaros reported beneficial
ownership of 355,760 shares of MFS
Common Stock and 67,522 shares of
MFS Series B Preferred Stock
(including 5,483 shares of MFS
Common Stock and 1,303 shares of MFS
Series B Preferred Stock held in
trusts for children).
Stiles A. Kellett, Jr., 1981 52 Director of WorldCom since 1981.
From 1978 to January 1996, Mr.
Kellett served as Chairman of the
Board of Directors of Convalescent
Services, Inc., a long-term health
care company in Atlanta, Georgia.
He serves as director of Frederica
Bank & Trust Company, St. Simons
Island, Georgia and Mariner Health
Group, Inc., New London,
Connecticut.
David C. McCourt, 1992 39 Director of MFS since January 1992
and Chairman of the Board and Chief
Executive Officer of C-TEC since
October 1993. Mr. McCourt is also
the President and Chief Executive
Officer, as well as a director of
RCN. He has been a director of MFS
Telecom from July 1990 to October
1992 and a director and President of
Metropolitan Fiber Systems/McCourt,
Inc., a subsidiary of MFS Telecom,
since 1988. As of June 21, 1996,
Mr. McCourt reported beneficial
ownership of 21,808 shares of MFS
Common Stock (including 5,000 shares
by his spouse) and 977 shares of MFS
Series B Preferred Stock.
</TABLE>
57
<PAGE> 74
<TABLE>
<CAPTION>
NAME AND YEAR FIRST BECAME A DIRECTOR BUSINESS EXPERIENCE DURING
OF WORLDCOM OR MFS, AS APPLICABLE AGE PAST FIVE YEARS AND OTHER INFORMATION
- ------------------------------------- --- -------------------------------------
<S> <C> <C>
John A. Porter, 1988 52 Vice Chairman of the Board of
WorldCom since September 1993.
Served as Chairman of the Board of
Directors of WorldCom from 1988
until September 1993. From May 1995
to the present, Mr. Porter has
served as Chairman of the Board of
Directors and Chief Executive
Officer of Industrial Electric
Manufacturing, Inc., a manufacturer
of electrical power distribution
products. Mr. Porter also serves as
Chairman of the Board of Directors
of Phillips & Brooks/Gladwin, Inc.,
a manufacturer of pay telephone
enclosures and equipment and is also
a director of Uniroyal Technology
Corporation and Intelligent
Electronics, Inc. Mr. Porter is
President and sole shareholder of
P.M. Restaurant Group, Inc., which
filed for protection under Chapter
11 of the U.S. Bankruptcy Code in
March 1995.
Clyda Stokes Rent, Ph.D. 54 President of Mississippi University
for Women since 1989. Dr. Rent is a
director of Trustmark National Bank
and the American Association of
State Colleges and Universities.
Walter Scott, Jr., 1992 65 Director of MFS since January 1992.
He has been the Chairman of the
Board and President of PKS for more
than the last five years. He also
is a director of Berkshire Hathaway,
Inc., Burlington Resources Inc.,
CEC, ConAgra, Inc., First Bank
System, Inc. and Valmont Industries,
Inc. Mr. Scott is also a director
of KDG, RCN, and C-TEC. As of June
21, 1996, Mr. Scott reported
beneficial ownership of 9,458,548
shares of MFS Common Stock and
1,772,173 shares of Series B
Preferred Stock (including 34,772
shares of MFS Common Stock and
12,991 shares of MFS Series B
Preferred Stock held in trust).
</TABLE>
58
<PAGE> 75
<TABLE>
<CAPTION>
NAME AND YEAR FIRST BECAME A DIRECTOR BUSINESS EXPERIENCE DURING
OF WORLDCOM OR MFS, AS APPLICABLE AGE PAST FIVE YEARS AND OTHER INFORMATION
- ------------------------------------- --- -------------------------------------
<S> <C> <C>
John W. Sidgmore, 1996 45 President and Chief Operating
Officer of MFS since August 1996 and
a director of MFS since October
1996. Mr. Sidgmore was President,
Chief Executive Officer and a
director of UUNET from June 1994
through August 1996. Mr. Sidgmore
has been Chief Executive Officer and
a director of UUNET since August
1996. From 1989 to 1994, Mr.
Sidgmore was President and Chief
Executive Officer of CSC Intelicom,
a telecommunications software
company. Mr. Sidgmore is a director
of Saville Systems PLC, a provider
of billing software for the
telecommunications industry. As of
June 21, 1996, Mr. Sidgmore reported
beneficial ownership of 2,037,541
shares of MFS Common Stock
(including 386,848 shares subject to
right of repurchase, which expires
as to 13,165 such shares ratably on
a monthly basis through June 30,
1999, and 80,334 shares held in
trust; also includes 16,845 shares
purchasable upon exercise of stock
options).
Scott D. Sullivan, 1996 35 Chief Financial Officer and
Secretary of WorldCom since December
1994 and a director of WorldCom
since March 1996. From 1992 until
December 1994, Mr. Sullivan served
as Vice President and Assistant
Treasurer of WorldCom. From 1989
until 1992, Mr. Sullivan served as
an executive officer of two
long-distance companies, including
ATC. From 1983 to 1989, Mr.
Sullivan served in various
capacities with KPMG Peat Marwick
LLP.
Michael B. Yanney, 1993 61 Director of MFS since March 1993.
Mr. Yanney has been the Chairman and
Chief Executive Officer of America
First Companies L.L.C., Omaha,
Nebraska, since 1984. Mr. Yanney
also serves as a director of
Burlington Northern Santa Fe
Corporation, C-TEC, Lozier
Corporation, Forest Oil Corporation,
Freedom Communications, Inc.,
Mid-America Apartment Communities,
Inc., and PKS Information Services,
Inc. and was formerly a director of
Freddie Mac and Durham Resources,
Inc. As of June 21, 1996, Mr.
Yanney reported beneficial ownership
of 10,146 shares of MFS Common Stock
(including 704 shares by his spouse
and 2,000 shares indirectly owned by
an affiliated company).
</TABLE>
59
<PAGE> 76
Dr. Rent beneficially owned 400 shares of WorldCom Common Stock as of
November 13, 1996. None of the director designees of MFS beneficially owned
any shares of WorldCom Common Stock as of such date. Additional information
about such persons, other than Dr. Rent, is contained in WorldCom's Proxy
Statement for its 1996 Annual Meeting, relevant portions of which are
incorporated by reference in this Proxy Statement/Prospectus pursuant to
WorldCom's Annual Report on Form 10-K for the year ended December 31, 1995 and
MFS' Annual Report on Form 10-K, as amended, for the year ended December 31,
1995. See "Incorporation of Documents by Reference" and "Available
Information."
The following information is provided with respect to John W. Sidgmore,
the Chief Executive Officer of UUNET Technologies, Inc. ("UUNET"), a wholly
owned subsidiary of MFS which was acquired by MFS in August 1996 through the
merger of a wholly owned subsidiary of MFS with and into UUNET (the "Merger").
In May 1994, UUNET entered into an employment agreement with Mr. Sidgmore.
Pursuant to the terms of the agreement, Mr. Sidgmore's base salary is $220,000
per year, plus a bonus targeted at $130,000 per year. Mr. Sidgmore received a
$200,000 signing bonus in 1994, a $150,00 bonus in July 1995 for the period
July 1, 1994 through June 30, 1995, and a bonus of $82,500 in February 1996 for
the period July 1 through December 31, 1995. If UUNET terminates Mr.
Sidgmore's employment without cause, he will receive severance payments
totaling $300,000. UUNET granted to Mr. Sidgmore options to purchase at $0.16
per share 1,244 shares of UUNET Common Stock pursuant to the employment
agreement (which options were exercised and certain of the shares issued remain
subject to a right of repurchase, which right lapses over time). In the event
of a change in control of UUNET (and subsequently, MFS) or an involuntary
termination other than for cause of Mr. Sidgmore's employment by UUNET, UUNET's
(and subsequently, MFS') right of repurchase lapses with respect to 50 percent
of any of the shares subject to a right of repurchase at the time and such
right also lapses over time (the "Repurchase Right").
Pursuant to option and stock purchase agreements between each of various
officers and UUNET, upon consummation of the Merger, the vesting and lapse of
repurchase rights accelerated with respect to 50% of (a) unvested options and
(b) outstanding shares issued upon option exercise subject to a right of
repurchase, in each case, as of the effective date of the UUNET Merger (the
"Effective Date"). If as a result of such acceleration, any officer of UUNET
incurred an excise tax pursuant to Section 4999 of the Internal Revenue Code of
1986 or corresponding provisions of applicable state law, UUNET paid such
officer when due to the applicable tax authority an amount (the "Transfer)
sufficient to pay (i) the excise tax and (ii) any and all federal, state and
local taxes payable with respect to the receipt of the Transfer. The total
amount that UUNET paid in connection with all Transfers was approximately $3.6
million. Of such amount, Mr. Sidgmore received a payment from UUNET of
$2,182,654.
In addition, MFS agreed to, or to cause UUNET to, honor in accordance with
their terms, all employment, severance and similar agreements to which UUNET or
any of its subsidiaries is a party and all provisions for vested benefits or
other vested amounts earned or accrued through the Effective Date under UUNET's
benefit plans.
As of November 6, 1996 and as a result of the UUNET Merger, Mr. Sidgmore
beneficially owned 1,984,495 shares of MFS Common Stock, which includes 44,131
of MFS Common Stock held by a trust of which Mr. Sidgmore is the sole trustee,
with sole voting and disposition control. Of the 1,984,495 shares of MFS
Common Stock, 421,282 shares of MFS Common Stock are held subject to the
Repurchase Right, which lapses with respect to 13,164 shares of MFS Common
Stock on the last day of each calendar month. In addition, Mr. Sidgmore has an
option to purchase 9,776 shares of MFS Common Stock (with an exercise price of
$3.38 per share) and an option to purchase 7,067 shares of MFS Common Stock
(with an exercise price of $21.80). The option to acquire the 9,776 shares of
MFS Common Stock is currently exerciseable and the option to acquire 7,067
shares of MFS Common Stock is exerciseable as of December 31, 2002; provided,
however, that if certain performance goals are met, the option will become
exerciseable on March 31, 1997.
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Pursuant to the MFS Merger Agreement, following consummation of the MFS
Merger, WorldCom will arrange for each employee participating in any benefit
plans of MFS or a subsidiary of MFS as in effect on August 25, 1996 to
participate in any counterpart benefit plans of WorldCom in accordance with the
eligibility criteria of such plans, 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 eligiblity, vesting
and, to the extent not duplicative of benefits received under such MFS benefits
plans, the amount of benefits, (b) such participants will participate in the
WorldCom benefit plans on terms no less favorable than those offered by
WorldCom to similarly situated employees of WorldCom, and (c) WorldCom will
cause any and all pre-existing condition limitations (to the extent such
limitations did not apply to a pre-existing conditions 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.
WorldCom and MFS have also 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 of any such plans and agreements which relate to
a change in control, including the accelerated vesting and/or payment of
equity-based awards. Pursuant to the employment agreement of John W. Sidgmore,
President and Chief Operating Officer of MFS, approximately 200,000 restricted
shares of MFS Common Stock will fully vest as a result of the MFS Merger.
WorldCom has agreed, and has agreed to cause its subsidiaries to agree, to take
the position that none of the execution of the Merger Agreement, the approval
of the Merger Agreement by MFS stockholders or the consummation of the 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 Merger any amounts in respect
of the excise tax described in Setion 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.
Certain members of the MFS Board of Directors who are also executive
officers of MFS and other executive officers of MFS are the holders of MFS
Outperformance Options. The members of the MFS Board of Directors were aware
that the MFS Outperformance Options, as well as the other MFS Options held by
these individuals, could appreciate in value as a result of the announcement of
the execution of the Merger Agreement. As of November 11, 1996, Messrs.
Bradbury, Crowe and Sidgmore held 52,500, 200,000 and 25,000 MFS Outperformance
Options, respectively. Such options that are not previously exercised will be
cancelled and paid out in the MFS Merger. The value of such options is highly
variable, due to the formula by which their value is determined; however, as of
November 11, 1996, the value of such options was approximately $6.7 million,
$21.3 million and $1.1 million, respectively. The value of such options was
approximately $73.6 million for all MFS executive officers and directors as a
group.
WorldCom and MFS are parties to certain interconnection or other services
agreements entered into with each other and certain of their affiliates in the
ordinary course of their businesses. In fiscal 1995 and the nine months ended
September 30, 1996, WorldCom received revenues from MFS of $31.6 million and
$31.5 million, respectively, and from UUNET of $7.6 million and $20.6 million,
respectively. In fiscal 1994, WorldCom received revenues from MFS of $14.7
million and from UJNET of $0.06 million. In fiscal 1993, it is believed that
WorldCom received revenues from MFS of approximately $5.0 million. Each of
WorldCom, MFS and UUNET believe that the terms and conditions of such
interconnection or other services agreements were no less favorable to
WorldCom, MFC or UUNET than those that would have been available to WorldCom,
MFS or UUNET in comparable, arm's-length transactions at the date of such
agreements.
Pursuant to the MFS Merger Agreement, WorldCom and MFS have agreed that it
is the intent of the parties that membership on the compensation and stock
option, audit and nominating committees of the
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WorldCom Board of Directors, after the MFS Closing Date, will initially consist
of an equal number of designees of WorldCom and MFS.
The WorldCom Board of Directors has determined to take appropriate action
so that as of the MFS Closing Date, Mr. Crowe will be Chairman of the WorldCom
Board of Directors and Mr. Ebbers will continue as President and Chief
Executive Officer of WorldCom.
BUSINESS OF MFS
MFS provides facilities-based telecommunications services and systems to
business and government. MFS is organized as a holding company and operates
through its subsidiaries in two business segments: telecommunications services
and network systems integration. MFS provides telecommunications services
domestically and internationally in the form of: (i) dedicated special access
and private line circuits, local switched service and high speed data
communications to large business customers; (ii) single source integrated local
and long distance switched services, high speed data communications services
and facilities management to medium and small businesses; (iii) local access to
long distance companies; and (iv) local access, asynchronous-transfer-
mode-based ("ATM-based") backbone service and interconnection via Network
Access Points ("NAPs") to Internet service providers.
MFS provides telecommunications services by utilizing its international
network platform, which consists of MFS-owned transmission and switching
facilities and network capacity leased from other carriers primarily in the
United States and Western Europe.
On August 12, 1996, MFS acquired UUNET through a merger of a subsidiary of
MFS with and into UUNET. UUNET is a leading worldwide provider of a
comprehensive range of Internet access options, applications, and consulting
services to businesses, professionals and on-line services providers. UUNET
provides both dedicated and dial-up Internet access, and other applications and
services which include Web server hosting and integration services, client
software and security products, training, and network integration and
consulting services. MFS estimates that UUNET's customer base included over
35,000 business and professional accounts as of September 30, 1996.
UUNET makes available to customers a variety of products and services,
including Web server hosting and content development services, client software
and security products, and training, all of which can be integrated by UUNET
through its network integration and consulting services, through a single
source. UUNET's products and services are supported by a technical staff
that is highly experienced in Internet operations and services. UUNET's
network operations center monitors traffic across UUNET's network 24 hours per
day, seven days per week.
MFS has contacted 21 LECs to initiate the process of implementing the
"co-carrier" provisions of the Telecom Act and has established a co-carrier
task force consisting of approximately 100 personnel dedicated to facilitate
the negotiation and implementation of co-carrier arrangements with the LECs.
Beginning on May 22, 1996, MFS has entered into comprehensive co-carrier
agreements with each of Ameritech Corp., Southwestern Bell, Bell Atlantic,
NYNEX and Bell South which involve the networks of those companies in the
marketing regions within the respective BOC operating territories in which MFS
offers telecommunications services. These agreements include, among other
items, minimum points of interconnection, an equal, identical and reciprocal
rate for termination of local calls, interim number portability with
pass-through of terminating compensation, and terms for the availability of
unbundled loops. Certain of these agreements also contemplate that loop rates
will be set by state regulators through binding arbitration according to a
schedule and costing standards defined by the Telecom Act. Interim loop rates
have been
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established in a number of states in arbitration decisions issued in early
November 1996. Further proceedings will establish permanent loop rates.
Initially created to design and build MFS' networks in a high quality and
cost-effective manner, MFS Network Technologies provides network systems
integration for MFS and third parties which desire to deploy sophisticated
networks, including intelligent transportation systems, voice and data
networks, interactive distance learning networks, security systems and combined
cable television-telephone networks.
The principal executive offices of MFS are located at 11808 Miracle Hills
Drive, Omaha, Nebraska 68154, and its telephone number is (402) 231-3000.
ACQUISITION SUBSIDIARY
Acquisition Sub is a Washington corporation and a wholly owned subsidiary
of WorldCom formed solely for the purpose of consummating the Merger and has
engaged in no business activity unrelated to the Merger. The principal
executive offices of Acquisition Sub are located at 515 East Amite Street,
Jackson, Mississippi 39201-2702.
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INFORMATION CONCERNING BLT
BUSINESS
BLT was incorporated as Bottom Line Telecommunications, Inc. in 1989 and
adopted the name BLT Technologies, Inc. in October 1995. BLT originally was in
the business of reselling long distance telephone service. BLT initially
entered the prepaid calling cards business as a complement to its long distance
resale business. BLT was an early entrant in the prepaid telecard industry,
launching its own brand of prepaid calling cards, TALK 'N TOSS(R), in 1993.
Since 1993, BLT has become a leading developer and marketer of prepaid calling
cards. With the success of its prepaid calling cards, BLT sold its long
distance resale business as of the end of February 1995 in order to focus on
developing prepaid debit card systems.
Today, BLT develops and markets a variety of prepaid services. The most
widespread application of BLT's prepaid service offerings has been in
connection with its TALK 'N TOSS(R) prepaid phone cards. BLT is also
developing other debit card applications. These include an electronic cash
card, which will enable cashless purchases at participating retailers, and a
Technical Assistance Support Card ("TASCard(TM)"), which provides a method for
fee-based technical support for hardware and software providers.
PRODUCTS
Prepaid Calling Cards. Prepaid calling cards are an alternative to using
coins, collect calls or credit cards to make a long distance call. BLT's TALK
'N TOSS(R) prepaid phone cards provide end users with significant savings and
convenience over other long distance calling methods when away from the home or
office. BLT's telecards are available in approximately 21,000 locations
nationwide. The telecards can be used from any touch tone phone. All cards
feature a flat per-minute rate for domestic calls, with no surcharge and no
price differential based on calling distance or time of day. The cards also
can be used to make calls from the U.S. to approximately 200 foreign countries.
The cards are available in private label designs, generic designs and
collectors designs. BLT works with major retail accounts to develop private
label prepaid calling cards. BLT provides private label calling cards for
retailers such as Circle K, 7-Eleven, Food Lion, ARCO/am-pm, Sinclair Oil,
Thrifty-Payless, Albertsons, Safeway, Revco and many others.
Other Products. BLT intends to introduce its electronic cash card in
1997. This card can be used by customers of major retail chains to make
cashless purchases and long-distance calls. BLT will receive a per-transaction
fee-based on each usage of a card and will be compensated for long distance
usage. Another product, the TASCard(TM), provides a method for software and
hardware manufacturers to automate caller identification and customer
entitlement with respect to technical support services for their products. At
this point, BLT provides TASCard services to two companies.
MARKETS
While prepaid phone cards have been available in Europe since 1975, the
first U.S. prepaid phone cards were introduced by AT&T in 1992. In 1993, BLT
issued prepaid phone cards for general usage. There are today approximately
400 to 500 providers of prepaid phone cards in the United States. The
overwhelming majority of these companies are small operations. BLT believes
that only about ten companies process more than 10,000 calls per day and that
only four (MCI, Sprint, WorldCom and BLT) currently process more than 100,000
calls per day.
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The wholesale prepaid phone card industry has grown in the U.S. from an
estimated $12 million in 1992 to a projected $700 million in calendar 1996.
The total U.S. long distance telephone market represents about $65 billion of
long distance calls. The large long distance carriers such as AT&T, MCI,
Sprint and WorldCom dominate this market. About 20% of the overall market
consists of calls with surcharges: calling card calls, hotel-billed calls,
collect calls and direct dialed calls from pay phones. Prepaid calling cards
offer end-users substantial savings in long-distance charges as compared to
calls with surcharges.
Demand for prepaid calling cards is driven by end-users who either lack
access to alternative methods of long distance calling or recognize the cost
savings and convenience offered by prepaid calling cards. BLT has identified
the following groups as some of the users of its prepaid calling cards:
business and vacation travelers, truck drivers, college students, military
personnel and low income persons who have limited access to long distance
services from residential phones.
TECHNOLOGY
BLT provides its services through databases that reside on BLT's computer
systems. These databases are accessible via telephone or high speed data
networks and are capable of simultaneously updating large volumes of
transactions on a real-time basis.
BLT is investing approximately $3,000,000 in an extensive upgrade to its
current technology platform. BLT's new computer system will merge computer
telephony integration ("CTI"), interactive voice response, and remote database
processing techniques. The new technology platform will provide increased
capacity and improved operation support for BLT's delivery of its services. The
new CTI system was originally scheduled for operation in June 1996, but BLT
experienced a number of delays in the system's implementation. The
installation, testing and operation of BLT's new CTI system, with the new
system carrying at least 25% of BLT's prepaid phone card traffic, is a
condition to WorldCom's obligations under the Merger Agreement to consummate
the Merger. BLT believes that this condition will be satisfied in November
1996.
STRATEGY
BLT's strategy has been to dominate retail distribution for prepaid
calling cards by maintaining a strong retail focus, aggressively pursuing wide
distribution through major retail accounts, mid-sized to small retailers,
vending machines and financial institutions. BLT intends to improve current
prepaid calling card services by adding enhanced services such as voice and fax
mail and other gateway processing services which allow users to access
informational services such as weather reports and stock quotes. BLT also
intends to develop new service applications for its prepaid service technology,
beginning with the electronic cash card and TASCard applications.
PROPERTIES
BLT's headquarters are located in offices of approximately 12,000 square
feet at 610 Esther Street, Vancouver, Washington. BLT leases the space from a
shareholder and director of BLT pursuant to a written memorandum of lease. The
lease expires March 31, 1997 and there are four six-month renewal options.
BLT's warehousing and shipping/receiving functions are located in approximately
15,000 square feet of space that BLT leases at 615 W. 6th Street, Vancouver,
Washington. The lease expires in October 1998 and there is a three-year
renewal option. BLT's information technology organization and customer service
staff are located in approximately 11,000 square feet of a building owned by
BLT located at 11035 NE Sandy Boulevard, Portland, Oregon. The property is
subject to a first mortgage lien in favor of Western Bank and Western Service
Co.
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LEGAL PROCEEDINGS
In March 1996, two complaints were filed in California Superior Court
concerning the manner in which BLT and other prepaid phone card providers
subtract time from prepaid calling cards. The complaints allege that the
practice of phone card companies rounding up each call on a card to the nearest
minute should be disclosed in the cards, packaging and that failure to fully
disclose this practice amounts to an "unfair or fraudulent business practice."
The complaints were filed by residents of California as "private attorneys
general" under a provision of the California Business and Professions Code. In
one complaint, BLT and Southland Corporation were named as defendants, and BLT
has agreed to indemnify Southland in respect of costs and losses in the case.
In the other complaint, BLT was not named as a defendant, but BLT has agreed to
indemnify the defendant, Longs Drug Stores, in respect of costs and losses in
the case. Both complaints seek equitable relief requiring the defendants to
revise their packaging, conduct an information campaign concerning the rounding
practice and disgorge profits. The two cases were consolidated on June 4,
1996. In October 1996, a ruling dismissing the case was issued by the
California Superior Court. However, the plaintiffs have filed a motion for
reconsideration of the ruling. The motion for reconsideration is still
pending.
In April 1996, SmartTel Communications, Inc. filed a complaint in
Massachusetts Superior Court alleging among other things, breach of contract in
connection with a promotion done with Philip Morris in 1993. This action has
been removed to U.S. District Court for the District of Massachusetts. BLT
believes that it has meritorious defenses to the plaintiff's claims and intends
to defend the litigation vigorously.
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of BLT, their respective ages and
positions held are as follows:
Name Age Position with Company
- ---- --- ---------------------
Thomas J. Holce 67 Chairman, Chief Executive Officer and Director
Edward Pietz 75 Director
William E. Colson 55 Director
John Skimas 65 Director
Gary R. Maffei 51 Director
Robert A. Sternberg 53 President and Chief Operating Officer
Milton D. Mittelstedt 54 Vice President of Finance and Chief Financial
Officer
Robert S. Wiggins 38 Vice President of Corporate Development and General
Counsel
Steven D. Martin 48 Vice President of Information Technology and
Operations
William M. Schultz 47 Vice President of Sales & Marketing -- Financial
Division
Edward Koppen 61 Vice President and President, Automatic
Merchandising Group
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BUSINESS EXPERIENCE
Thomas J. Holce is BLT's Chairman and Chief Executive Officer. Mr. Holce
became the Chief Executive Officer of BLT in June 1994. Prior to joining BLT,
Mr. Holce ran Holce Investments.
Edward Pietz is President and owner of E.P. Enterprises, a real estate
development and holding company. Mr. Pietz is a founder and former operator of
the Red Lion Hotels, Inc. (formerly Red Lion Inns, Inc.).
William E. Colson is the President of Holiday Retirement Corporation,
which is the largest operator in America of rental retirement housing.
John Skimas was appointed to the Washington State Superior Court in 1971
and retired in 1992. He is currently engaged in an arbitration and mediation
practice.
Gary R. Maffei is Vice President of Merlo Corporation and Vice President
of the Harry A. Merlo Foundation.
Robert A. Sternberg has served as President and Chief Operating Officer of
BLT since 1993. Prior to joining BLT, Mr. Sternberg was President and CEO of
TRT Communications, Inc.
Milton D. Mittelstedt has served as BLT's Vice President of Finance and
Chief Financial Officer since 1995. Prior to joining BLT, Mr. Mittelstedt was
a partner at Deloitte & Touche LLP.
Robert S. Wiggins has served as Vice President and General Counsel of BLT
since January 1996. From 1989 until joining BLT, Mr. Wiggins practiced
corporate law as a partner of Stoel Rives LLP in Portland, Oregon.
Steven D. Martin has been Vice President of Information Technology and
Operations of BLT since March 1994. Prior to joining BLT, Mr. Martin was
acting Director of Product Marketing at Sequent Computer Systems. From January
1983 to June 1986 Mr. Martin was Vice President of Research and Development for
Automated Data Processing.
William M. Schultz has served as BLT's Vice President of Sales and
Marketing -- Financial Institutions Group since July 1995. Prior to joining
BLT, Mr. Schultz was Senior Vice President of National City Processing Company.
From 1980 to 1983 Mr. Schultz was Vice President of U.S. Banking at First
National Bank of Louisville, Kentucky.
Edward Koppen is BLT's Vice President and President of Automatic
Merchandising Group. Before joining BLT in March 1994, Mr. Koppen was Group
Vice President at Estey Corporation.
SECURITY OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of BLT Common Stock as of November 15, 1996 by (i) each
current director and executive officer of BLT, (ii) all current directors and
executive officers of BLT as a group and (iii) each person or group of persons
known by BLT to beneficially own more than 5% of the outstanding shares of BLT
Common Stock.
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<TABLE>
<CAPTION>
NAME SHARES(1) PERCENT
- ---- --------- -------
<S> <C> <C>
Thomas J. Holce 1,361,000(2) 21.4
Edward Pietz 698,250(3) 11.2
William E. Colson 46,675(4) *
John Skimas 22,500 *
Gary R. Maffei 40,000 *
Robert A. Sternberg 212,500(5) 3.3
Milton Mittelstedt 50,000(6) *
Robert S. Wiggins 50,000(7) *
Steven D. Martin 89,000(8) 1.4
William M. Schultz 50,000(9) *
Edward Koppen 76,500(10) 1.2
All directors and executive officers 2,696,425(11) 39.3
of the Company as a group (12 persons)
Henry Hilman, Jr. 500,000 7.8
1331 NW 17th Ave.
Portland, OR 97209
</TABLE>
- ---------
* Less than 1%
(1) To the knowledge of BLT, shares are held directly with sole voting and
dispositive power except as otherwise indicated. Shares issuable pursuant
to outstanding stock options that are currently exercisable or become
exercisable within 60 days of the date of this table are considered
outstanding for the purpose of calculating the percentage of BLT Common
Stock owned by such person, but not for the purpose of calculating the
percentage of BLT Common Stock owned by any other person.
(2) Does not include 39,850 shares of BLT Common Stock held by members of Mr.
Holce's family, as to which Mr. Holce disclaims beneficial ownership.
(3) Does not include 322,500 shares of BLT Common Stock held by members of
Mr. Pietz' family, as to which Mr. Pietz disclaims beneficial ownership.
(4) Includes 10,000 shares subject to options that are currently exercisable.
(5) Includes 187,500 shares subject to options that are currently
exercisable.
(6) Includes 50,000 shares subject to options that are currently exercisable.
(7) Includes 25,000 shares subject to options that are currently exercisable.
(8) Includes 74,000 shares subject to options that are currently exercisable.
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(9) Includes 50,000 shares subject to options that are currently exercisable.
(10) Includes 74,000 shares subject to options that are currently exercisable.
(11) Includes 470,500 shares subject to options that are currently
exercisable.
DESCRIPTION OF BLT CAPITAL STOCK AND OPTIONS
The authorized capital stock of BLT consists of 40,000,000 shares of
Common Stock, par value $.01 per share, and 5,000,000 shares of Preferred
Stock, par value $.01 per share.
Common Stock. As of November 15, 1996 there were 6,396,397 shares of BLT
Common Stock outstanding held of record by approximately 178 shareholders.
There is no public trading market for BLT Common Stock. Holders of BLT Common
Stock are entitled to one vote per share on all matters submitted to a vote of
shareholders and may not cumulate votes for the election of directors. Holders
of BLT Common Stock are also entitled to receive ratably such dividends as may
be declared by the Board of Directors of BLT out of funds legally available
therefor, subject to preferences that may be applicable to any outstanding
Preferred Stock. BLT has not paid any cash dividends on the BLT Common Stock
during the last three years. BLT's existing credit facility prohibits the
payment of cash dividends on the BLT Common Stock without the prior consent of
the lender. It is the current policy of the Board of Directors of BLT to
retain any earnings for operations and to expand its business.
In the event of the liquidation, dissolution or winding up of BLT, holders
of Common Stock are entitled to share ratably in all assets remaining after
payment of liabilities and the liquidation preference of any outstanding BLT
Preferred Stock. Holders of BLT Common Stock have no preemptive, subscription,
redemption or conversion rights. All the outstanding shares of BLT Common
Stock are fully paid and nonassessable.
Preferred Stock. The BLT Board of Directors has the authority, without
further action by the shareholders, to issue up to 5,000,000 shares of BLT
Preferred Stock in one or more series and to fix the powers, designations,
preferences and relative, participating, optional or other rights thereof,
including dividend rights, conversion rights, voting rights, redemption terms,
liquidation preferences, sinking fund terms and the number of shares
constituting any series. The potential issuance of BLT Preferred Stock may
adversely affect the market price of, and the voting and other rights of the
holders of BLT Common Stock. There is no BLT Preferred Stock outstanding, and
BLT has no plans to issue shares of Preferred Stock.
Option Plan. BLT's 1994 Stock Option Plan (the "Plan") provides for the
issuance of up to 1,250,000 shares of BLT Common Stock. The Plan permits grants
of incentive stock options and nonqualified stock options. Incentive stock
options may be granted only to individuals who, at the time the option is
granted, are employees of BLT. Nonqualified stock options may be granted to
employees, officers and directors of BLT. The Plan is administered by the audit
committee of the Board of Directors of BLT. Options are granted at exercise
prices of not less than fair market value of BLT Common Stock on the date of
grant as determined by the BLT Board of Directors or the audit committee.
Subject to certain exceptions, and unless a shorter time is specified, options
under the Plan have a term of 10 years and vest 1/3 at a time at the end of
each of the first three years after the date of grant. The Plan provides for
termination of options upon termination of an optionee's relationship with BLT
or a related company, subject to certain rights to exercise vested options in
the event that termination is for other than cause. Options to purchase 798,000
shares of BLT Common Stock were outstanding as of October 31, 1996. As a result
of approval of the Merger by the BLT Board of Directors, all outstanding
options have become fully vested and exercisable under the terms of
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the Plan.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
The following discussion should be read in conjunction with BLT's
Financial Statements and the related Notes thereto included elsewhere in this
Proxy Statement/Prospectus. See "Index to BLT Financial Statements."
OVERVIEW
BLT was incorporated as Bottom Line Telecommunications, Inc. in 1989 and
adopted the name BLT Technologies, Inc. in October 1995. Prior to March 1993
BLT's main business was to attract customers to a network service program it
had developed with the Hertz Corporation ("The Hertz Program"). In March 1993
BLT expanded its business to include the development of a prepaid phone card
product to complement its long distance resale business. BLT was an early
entrant in the prepaid telecard industry, launching its own brand of prepaid
calling cards, TALK 'N TOSS(R) in 1993. Since 1993, BLT has become a leading
developer and marketer of prepaid calling cards. BLT sold its long distance
resale business in early 1995 to focus on developing prepaid debit card systems
and marketing prepaid calling cards.
LIQUIDITY AND CAPITAL RESOURCES
BLT has funded operations primarily from cash generated by operations,
issuance of common stock and borrowings under its debt agreements. BLT's
operating activities generated net cash of $3,522,218 in the fiscal year ended
May 31, 1996, used net cash of $4,359 in the fiscal year ended May 31, 1995 and
generated net cash of $801,070 in the seventeen month period ended May 31,
1994. The Hertz Program was a high profit business and enabled BLT to finance
the development of the prepaid phone card product during the seventeen month
period ended May 31, 1994, as it generated gross profit of $2,693,333.
Common Stock. In September 1996 certain holders of BLT stock options
elected to exercise their options and BLT obtained an equity infusion of
$1,414,500, plus a non-cash associated tax benefit of $191,622. BLT issued
common stock to shareholders for cash of $968,750 and $719,000 during the
fiscal year ending May 31, 1995 and the seventeen month period ended May 31,
1994.
Line of Credit and Term Loans. In October 1995, BLT entered into a Loan
and Security Agreement ("the Agreement") with Silicon Valley Bank. As of August
31, 1996, the Agreement, as amended, comprises a line of credit facility ("Line
of Credit") of $1,500,000 and term loan facilities of $3,000,000. Any amounts
outstanding under the Agreement are collateralized by all current and future
accounts, inventory, equipment and intangibles of BLT.
As of August 31, 1996, there were no amounts outstanding under the Line of
Credit. Amounts borrowed under the Line of Credit bear interest at prime plus
1.5% (9.75%).
As of August 31, 1996, the amount outstanding under the term loan
facilities was $1,815,834. The term loan facilities bear annual interest at
prime plus 1.5%-2% (9.75%-10.25%) and are repayable in monthly installments
over a four year period.
BLT has negotiated a commitment from Silicon Valley Bank for a new line of
credit facility for $6,000,000 and an additional term loan for $2,000,000.
Interest rates under the commitment will be prime plus 1%. The line of credit
will expire October 6, 1997 and the term loan will mature April 2001.
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Promissory Notes Payable. In December 1995, BLT entered into a Business
Loan Agreement ("the Loan Agreement") with Western Bank and its affiliate,
Western Services Co. to finance the purchase of land and a building in
Portland, Oregon. As of August 31, 1996, the Loan Agreement, as amended,
comprises two promissory notes. BLT has borrowed $880,000 for the land and
building purchase and $150,000 for improvements under the Loan Agreement as of
August 31, 1996. The amounts outstanding under the Loan Agreement are
collateralized by a deed of trust, a second mortgage and an assignment of all
rents on the property.
At August 31, 1996 the amounts outstanding under the mortgage and
improvement loan were $874,770 and $147,500, respectively. Amounts borrowed
under the Loan Agreement bear interest at 8% and prime plus 1/2% for the land
and building note and improvement loan, respectively; amounts borrowed will be
repaid over a five year period with a final balloon payment on maturity.
Commitments. In 1996, BLT contracted with NorTel to develop a new system
for processing its customers' long distance calls and other applications. This
Computer Telephony Integrated system ("the CTI System") began processing calls
in October 1996. BLT has an obligation to pay the supplier approximately
$1,200,000 upon acceptance of the CTI System, subject to downward adjustments
for changes in the contracted delivery dates. BLT will also continue to incur
other expenditures to continue the development and further enhancements of the
CTI System.
In April 1995, BLT entered into a service contract with its primary access
carrier, MCI Telecommunications Corporation (MCI). BLT has agreed for the
first 24 months to use MCI to carry 80 percent of its long distance and
committed to monthly usage of $1 million of service, with additional
subcommitments for specific services offered by MCI. The agreement is
effective for 36 months. If BLT terminates the agreement or if termination of
the agreement is due to BLT's material breach, BLT must pay MCI 15 percent of
the difference between BLT's remaining actual monthly usage and the total of
all monthly commitments. BLT may terminate the agreement without termination
charges once BLT's cumulative monthly billings under the agreement equal or
exceed $50 million.
BLT has entered into a commitment with IMCO Manufacturing Inc. to acquire
additional vending machines for the use in the distribution of its TALK 'N
TOSS(R) prepaid phone cards in various customer locations. During the three
month period ended August 31, 1996, BLT acquired vending machines at a cost of
approximately $203,000. BLT is committed to acquire additional vending
machines at a total remaining cost of approximately $1,000,000 as of August 31,
1996.
FINANCIAL CONDITION
Prior to the fiscal year ended May 31, 1995, BLT had experienced financial
difficulties and numerous organizational changes, which limited its ability to
raise the necessary capital to fully develop its telephone network and
additional markets of its prepaid phone card product. The equity infusions
discussed previously and the positive net income posted in the fiscal year
ended May 31, 1996 enabled BLT to turn its shareholders' deficit of $853,633 as
of May 31, 1994 into shareholders' equity of $1,044,234 as of August 31, 1996.
BLT believes that the funds anticipated to be generated from operations
and the Silicon Valley Bank financing, will be sufficient to finance BLT's
operations for the next 18 months.
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RESULTS OF OPERATIONS
Since BLT's entry into the prepaid calling card market in 1993, revenues
have continued to increase. Since the period ended May 31, 1994 TALK 'N
TOSS(R) card revenues have increased over 10 times from $3,504,402 to
$36,723,826 for the latest fiscal year ended May 31, 1996. BLT believes this
growth is attributable to customers' acceptance of BLT's services and products,
management's marketing strategy and a strong retail distribution channel.
BLT's TALK 'N TOSS(R) card revenues originates from BLT and co-branded
phone card sales through grocery stores, convenience stores, drug stores,
vending machine locations and other retail outlets.
Under sales agreements with the majority of retailers, BLT sells cards to
the retailer at a set price with normal credit terms. BLT generally invoices
the retailer upon shipment, recognizing deferred revenue. BLT recognizes
revenue and reduces the deferred revenue account as the customers utilize
calling time. BLT believes that its policy of recognizing revenue at the time
its products and services are used by the customer rather than upon sale to
retailers is a conservative method of revenue recognition.
BLT learned that one customer will not renew its contract in December
1996. The loss of sales, starting in January 1997, is expected to have a
material impact on future card revenues. BLT expects in the normal course of
business to replace the lost customer with new accounts.
BLT's cost of services consists primarily of the cost of providing the
long distance service, telecommunication taxes, commissions due agents and the
cost of manufacturing and delivering the cards. The cost of providing long
distance service represents access charges to the carriers that provide minutes
of long distance over their networks and the services associated with BLT's
product. BLT expects its cost of revenue as a percentage of sales to decrease
in the future due to the development of the CTI System which will enable BLT to
deploy "least cost routing" and take advantage of more economical carrier rates
for certain calling traffic. Telecommunication taxes are incurred based on
customer usage of long distance minutes which are processed through BLT's
systems. BLT pays commissions to its agents based on sales to retailers.
These commissions are deferred and amortized into expense based on minutes used
by the customer.
Selling, general and administrative expenses consist primarily of salaries
and related benefits, advertising costs and professional fees. Advertising
costs consist primarily of co-op advertising and Manufacturers Development
Funds ("MDF"). Under the typical co-op advertising program, BLT matches
advertising expenditures by retailers to promote sales of BLT services. The
amount of funds BLT matches through its co-op advertising program is based on a
percentage of sales of BLT services by retailers. MDF consists of promotional
and marketing programs to access shelf space and to promote the retailer's
sales of BLT's cards. Advertising expense includes trade advertising, trade
show expenses, promotional goods and the costs of providing to retailers BLT's
point of purchase merchandising supplies. BLT expects sales and marketing
expenses to increase in the future, but expects that sales and marketing
expenses as a percentage of revenue will decrease. BLT includes in general and
administrative expenses the costs related to the development of BLT's
proprietary application and processing software, primarily incurred through
outside computer software consulting fees. Other general expenses include
occupancy, insurance and other operating expenses. BLT expects general and
administrative expenses to increase in the future as it adds the personnel and
infrastructure necessary to meet its planned growth in sales, but expects that
general and administrative expenses as a percentage of revenue will decrease.
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Three Months Ended August 31, 1996 Compared With Three Months Ended August 31,
1995
Card Revenue. Card revenue increased to $12,214,341 for the three months
ended August 31, 1996 from $7,030,452 for the three months ended August 31,
1995. The substantial increase in revenue reflects an increase in usage of BLT
services by users of the TALK 'N TOSS(R) card as well as co-branded retail
cards, as a result of an increase in the number of retail storefronts and
vending locations in which BLT's product is distributed and greater brand
awareness and consumer acceptance.
Commissions Earned. Commissions generated from the Hertz program decreased
to $82,872 for the three months ended August 31, 1996 from $194,417 for the
three months ended August 31, 1995. BLT expects this revenue source to continue
to decrease as the number of customers using the Hertz program decreases. BLT
is not actively pursuing new customers as the program no longer has competitive
pricing in the long distance market place. The Hertz program contributed gross
profit of $53,249 for the three months ended August 31, 1996 and $99,622 for
the three months ended August 31, 1995.
Cost of Services. Cost of services increased to $8,525,473 for the three
months ended August 31, 1996 from $5,206,845 for the three months ended August
31, 1995. The increase was primarily attributable to greater use of BLT's
services, which increased access costs, commissions, telecommunication taxes
and card costs. The gross profit percentage for the three months ended August
31, 1996 was 31% as compared to 28% for the three months ended August 31, 1995.
Gross margin increased primarily due to a decrease in access charges. Access
costs comprised approximately 77% of cost of service for the three months ended
August 31, 1996 compared to approximately 81% for the three months ended August
31, 1995, the decrease is mainly due to better rates obtained from the
underlying carrier due to the traffic volume increases experienced by BLT.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $2,951,141 (or 24% of total revenues) for
the three months ended August 31, 1996 from $1,636,998 (or 23% of total
revenues) for the three months ended August 31, 1995. The increase is primarily
due to increased personnel and related costs to handle the increased sales
activity, as well as the continued expansion of BLT's marketing activities,
which include co-op advertising, MDF and free promotional goods and for
computer consulting services incurred to develop software associated with BLT's
new CTI System. The increase as a percentage of revenue was due to BLT's
continued emphasis on revenue growth through aggressive marketing activities.
Salaries and related costs were 45% of selling, general and administrative
expenses for the three months ended August 31, 1996 as compared to 49% for the
three months ended August 31, 1995. The increase in dollar amount was primarily
due to the addition of personnel and costs associated with the growth in BLT's
business. The decrease as a percentage of revenue was due to increased revenue
growth in 1996.
Expenses for promotional activities, including co-op advertising, MDF and
free promotional goods, were 22% of selling, general and administrative
expenses for the three months ended August 31, 1996 as compared to 21% for the
three months ended August 31, 1995. BLT expects that these expenses will
continue to grow to achieve its revenue projections and continue to effectively
compete in the industry.
Legal, accounting and consulting costs as a percentage of total selling,
general and administrative expenses increased to 17% for the three months ended
August 31, 1996 from 14% for the 1995 period reflecting BLT's development of
the CTI System which involved an extensive effort by outside technical
consultants and application programmers.
Interest Expense. Interest expense increased to $62,092 for the three
months ended August 31, 1996 from $25,542 for the three months ended August 31,
1995. The increase in interest expense was attributable
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to BLT's external debt financing funded in October 1995 and December 1995. See
"-- Liquidity and Capital Resources."
Income Taxes. BLT provided income taxes at a rate of 37% and 35% and
income tax expenses of $136,250 and $65,500, for the fiscal quarters ended
August 31, 1996 and 1995, respectively.
Fiscal Year Ended May 31, 1996 Compared With Fiscal Year Ended May 31, 1995
Card Revenue. Card revenue increased to $36,723,826 for the fiscal year
ended May 31, 1996 from $16,633,104 for the fiscal year ended May 31, 1995. The
substantial increase in revenue reflects an increase in usage of BLT services
by users of the TALK 'N TOSS(R) card as well as co-branded retail cards, an
increase in the number of retail storefronts and vending locations in which
BLT's product is distributed and greater brand awareness and consumer
acceptance.
Commissions Earned. Commissions generated from the Hertz program decreased
to $596,549 for the fiscal year ended May 31, 1996 from $1,311,859 for the
fiscal year ended May 31, 1995. The decrease in these revenues is due to a
decrease in the number of customers using the Hertz program. BLT has not
actively pursued new customers for this program since it began developing the
TALK 'N TOSS(R) prepaid calling program in 1993. The Hertz program contributed
gross profit of $357,405 for the fiscal year ended May 31, 1996 and $683,772
for the fiscal year ended May 31, 1995.
Long Distance Services Revenue. The Company was engaged as a switchless
reseller of a long distance company services (the WilTel program). BLT sold its
rights to customers and sales agents from the WilTel program in March 1995. The
WilTel program generated revenues of $2,287,328 and gross profit of $304,371 in
the fiscal year ended May 31, 1995.
Cost of Services. Cost of services attributed to card revenues increased
to $25,570,842 for the fiscal year ended May 31, 1996 from $11,945,975 for the
fiscal year ended May 31, 1995. The increase was primarily attributable to
greater use of BLT's services, which increased access costs, commissions,
telecommunication taxes and card costs. The gross profit percentage for the
fiscal year ended May 31, 1996 was 30% as compared to 28% for the fiscal year
ended May 31, 1995. Gross margin increased primarily due to a reduction in
commissions as 'house' accounts made up more of BLT's sales and lower card and
material printing costs were incurred due to higher volumes of print runs
offset by an increase in access costs. Access costs comprised approximately 76%
of cost of services for the fiscal year ended May 31, 1996 compared to
approximately 74% for the fiscal year ended May 31, 1995, the increase is
mainly due to more dedicated circuits to increase BLT's processing volumes,
additional intrastate access charges, offset by better rates due to the traffic
volume increases experienced by BLT.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $9,291,047 (or 25% of total revenues) for
the fiscal year ended May 31, 1996 from $6,550,719 (or 32% of total revenues)
for the fiscal year ended May 31, 1995. The increase in dollars spent is
primarily due to increased personnel and related costs to handle the increased
sales activity, as well as the continued expansion of BLT's marketing
activities, which include co-op advertising, MDF and free promotional goods.
The decrease as a percentage of revenue was due to BLT's ability to take
advantage of economies of scale.
Salaries and related costs remained at 45% of selling, general and
administrative expenses for the fiscal years ended May 31, 1996 and 1995. The
increase in dollar amount was primarily due to the addition of personnel and
costs associated with the growth in BLT's business.
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Expenses for promotional activities, including co-op advertising, MDF and
free promotional goods, were 21% of selling, general and administrative
expenses for the fiscal year ended May 31, 1996 as compared to 14% for the
fiscal year ended May 31, 1995. The large increase in these costs is mainly
due to the increased spending on MDF and co-op advertising that BLT incurred in
fiscal 1996 to achieve its revenue growth and effectively compete in the
industry.
Legal, accounting, consulting costs and billing services as a percentage
of total selling, general and administrative expenses decreased to 16% for the
fiscal year ended May 31, 1996 from 23% for the 1995 period. The reduction as
a percentage of total selling, general and administrative expenses was due to
high legal costs incurred in fiscal 1995 to handle remaining organization
changes and the growth in spending in the sales and marketing areas.
Interest Expense. Interest expense decreased to $76,743 for the fiscal
year ended May 31, 1996 from $171,994 for the fiscal year ended May 31, 1995.
The decrease in interest expense was attributable to BLT's ability to generate
cash from operations and rely less heavily on external financing in fiscal 1996
as compared to fiscal 1995.
Income Taxes. BLT provided income taxes at a rate of 37% for the fiscal
year ended May 31, 1996 and income tax expense was $331,000. BLT eliminated the
remaining valuation reserve in the fiscal year ended May 31, 1996 due to the
continued improvement in operating performance. In the fiscal year ended May
31, 1995 BLT estimated that it would be able to realize some portion of its
deferred tax asset related to the tax net operating loss carryforward and
recognized a reduction in the valuation allowance and a tax benefit of
$500,000.
Fiscal Year Ended May 31, 1995 Compared With The Seventeen Month Period Ended
May 31, 1994
Card Revenue. Card revenue increased to $16,633,104 for the fiscal year
ended May 31, 1995 from $3,504,402 for the seventeen month period ended May 31,
1994. The substantial increase in revenue reflects an increase in usage of BLT
services by users of the TALK 'N TOSS(R) card as well as co-branded retail
cards, an increase in the number of retail storefronts and vending locations in
which BLT's product is distributed and greater brand awareness and consumer
acceptance.
Commission Earned. Commissions generated from the Hertz program decreased
to $1,311,859 for the fiscal year ended May 31, 1995 from $4,237,974
($2,991,511 on an annualized basis) for the seventeen month period ended May
31, 1994. The decrease in these revenues is due to a decrease in the number of
customers using the Hertz program. BLT has not actively pursued new customers
for this program since it began developing the TALK 'N TOSS(R) prepaid calling
program in 1993. The Hertz program contributed gross profit of $683,772 for
the fiscal year ended May 31, 1995 and $2,693,333 ($1,901,176 on an annualized
basis) for the seventeen month period ended May 31, 1994.
Long Distance Services Revenue. BLT was engaged as a switchless reseller
of a long distance company services (the WilTel program). BLT began to develop
this program in January 1994 and then sold its rights to customers and sales
agents from the WilTel program in March 1995. The WilTel program generated
revenues of $2,287,328 in the fiscal year ended May 31, 1995 and $708,835 in
the seventeen month period ended May 31, 1994. The WilTel program contributed
gross profit of $304,371 in the fiscal year ended May 31, 1995 and $9,104 in
the seventeen month period ended May 31, 1994.
BLT had a substantial nonrecurring promotional sale in September 1993
which generated sales of approximately $1,539,000 and a substantial gross
profit of approximately $938,000 (after access costs of $346,000, commissions
of $220,000 and other costs of $35,000). In the seventeen month period ended
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May 31, 1994 approximately 75% of the promotional sale was recognized as
revenue, with the balance recognized in the fiscal year ended May 31, 1995.
Cost of Services. Cost of services attributed to card revenues increased
to $11,945,975 for the fiscal year ended May 31, 1995 from $2,762,323 for the
seventeen month period ended May 31, 1994. The increase was primarily
attributable to greater use of BLT's services, which increased access costs,
commissions, telecommunication taxes and card costs. The gross profit
percentage for the fiscal year ended May 31, 1995 was 28% as compared to 21%
for the seventeen month period ended May 31, 1994. When the large promotional
sale is taken into consideration, gross margin for the period ended May 31,
1994 would only be approximately 1%. Gross margin increased primarily due to a
decrease in access charges due to better rates obtained by BLT.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $6,550,719 (or 32% of total revenues) for
the fiscal year ended May 31, 1995 from $4,494,997 (or 53% of total revenues)
for the seventeen month period ended May 31, 1994. The dollar amount increase
is primarily due to increased personnel and related costs to handle the
increased sales activity, as well as the continued expansion of BLT's marketing
activities. The decrease as a percentage of revenue was primarily due to the
significant increase in revenues that BLT experienced in this period.
Salaries and related costs were 45% of selling, general and administrative
expenses for the fiscal year ended May 31, 1995 as compared to 50% for the
seventeen month period ended May 31, 1994. The decrease as a percentage of
revenue was due to increased revenue growth in 1995.
Expenses for promotional activities, including co-op advertising, MDF and
free promotional goods, were 14% of selling, general and administrative
expenses for the fiscal year ended May 31, 1995 as compared to 21% for the
seventeen month period ended May 31, 1994.
Legal, accounting and consulting costs as a percentage of total selling,
general and administrative expenses increased to 23% for the fiscal year ended
May 31, 1995 from 11% for the 1994 period reflecting the increased professional
fees incurred in fiscal 1995 to handle the growth in BLT's business,
organization changes and enhancements in BLT's systems.
Interest Expense. Interest expense increased to $171,994 for the fiscal
year ended May 31, 1995 from $70,683 for the seventeen month period ended May
31, 1994. The increase in interest expense was a result of additional outside
financing needed to handle the revenue growth and system expansion in fiscal
1995.
Income Taxes. BLT estimated in the fiscal year ended May 31, 1995 that
due to overall improvements in operating performance, that it was likely that
BLT would be able to realize some portion of its deferred tax asset related to
the tax net operating loss carryforward. Therefore, BLT recognized a reduction
in the valuation allowance and a tax benefit of $500,000 for that portion it
deemed likely to be realized. BLT provided income taxes at a rate of 34%. In
the seventeen month period ended May 31, 1994, BLT had losses for tax purposes
and determined that the net deferred tax asset did not satisfy the recognition
criteria set forth in Statement of Financial Accounting Standards No. 109,
accordingly, there was no provision or benefit for income taxes.
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THE MERGER AGREEMENT AND PLAN OF MERGER
The following paragraphs summarize, among other things, the material terms
of the Merger Agreement, the Plan of Merger, and the Escrow Agreement, which
are attached to this Proxy Statement as Exhibits A, B and C, respectively, and
are incorporated by reference herein. The information regarding the Merger
Agreement, the Plan of Merger and the Escrow Agreement in this Proxy
Statement/Prospectus does not purport to be complete and is qualified in its
entirety by reference to the full texts thereof. Holders of BLT Common Stock
are urged to read the Merger Agreement, the Plan of Merger and the Escrow
Agreement in their entirety for a more complete description of the Merger and
related transactions. Capitalized terms used below but not defined herein have
the meanings given to them in the Merger Agreement.
MERGER CONSIDERATION; EXCHANGE OF BLT'S SHARES
The Merger Agreement and the Plan of Merger provide that subject to the
satisfaction or waiver of certain conditions described below, Acquisition Sub
will be merged with and into BLT, with BLT surviving the Merger as a wholly
owned subsidiary of WorldCom. Upon consummation of the Merger, each issued and
outstanding share of BLT Common Stock will be converted into the right to
receive that fraction of a share of WorldCom Common Stock equal to 3,150,000
shares divided by the number of shares of BLT Common Stock outstanding at the
Effective Time on a fully diluted basis (0.4491 based on 7,014,397 shares
outstanding or subject to options as of November 15, 1996), subject to the
provisions of an indemnity and escrow agreement described herein, covering 10%
of such shares. See "--Indemnity and Escrow Agreement". Additionally,
shareholders of BLT are required to bear any expenses incurred by BLT in
connection with the transactions contemplated by the Merger in excess of $1.2
million. BLT expects that such expenses will not exceed $1.2 million. See
"The Merger Agreement and Plan of Merger -- Expenses."
No fractional shares will be issued in the Merger, and each holder of BLT
Common Stock will receive a cash payment in lieu of such fractional shares
equal to such fraction multiplied by $23.50.
EFFECTIVE TIME OF MERGER
The Merger will become effective on the date and time Articles of Merger
are filed with the office of the Secretary of State of the State of Washington
in accordance with the WBCA or such later time and date as may be specified in
the Articles of Merger. The date and time when the Merger will become
effective is referred to herein as the "Effective Time." The Effective Time is
expected to occur promptly after the satisfaction or waiver of all of the
conditions to the Merger set forth in the Merger Agreement.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
Pursuant to the Merger Agreement, as of the Effective Time and until their
successors are duly elected or appointed, the members of the Board of Directors
of BLT, as the surviving corporation, will be Bernard J. Ebbers and Charles T.
Cannada. Mr. Ebbers is the President and Chief Executive Officer and Mr.
Cannada is a Senior Vice President of WorldCom. As of the Effective Time, the
officers of BLT will be: Mr. Ebbers, President; Scott D. Sullivan, Secretary
and Treasurer; Mr. Cannada, Assistant Secretary; and William E. Anderson,
Assistant Secretary. Mr. Sullivan is the Treasurer and Chief Financial Officer
and Mr. Anderson is General Counsel of WorldCom.
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CONDITIONS TO THE MERGER
Consummation of the Merger Agreement is subject to the fulfillment or
waiver, at or prior to the Effective Time, of a number of conditions described
in the Merger Agreement, including without limitation: (a) approval of the
Merger by the requisite vote of the holders of BLT Common Stock, with no more
than 5% of BLT's shares being held by Dissenters; (b) no order, decree or
injunction that would prevent consummation of the Merger; (c) consent or
approval by all required governmental agencies, including necessary approvals
by the FCC and applicable PUC's; (d) delivery to WorldCom of the Affiliate
Agreements, the Escrow Agreement and the Noncompete Agreements, each duly
approved and executed; (e) installation, testing and operation of BLT's new CTI
system, carrying at least 25% of BLT's prepaid phone card traffic; (f) no
material adverse change in the assets, business, condition or prospects of BLT;
and (g) each party's material compliance with all covenants, agreements and
conditions as required by the Merger Agreement prior to the closing of the
Merger.
EXCHANGE OF CERTIFICATES; FRACTIONAL SHARES
As soon as practicable after the Effective Time, each BLT shareholder will
be provided a form letter of transmittal and instructions for use in
surrendering the certificates that immediately prior to the Effective Time
represented shares of BLT Common Stock (the "BLT Stock Certificates"). Upon
surrender to WorldCom of a BLT Stock Certificate, together with a duly executed
Transmittal Letter and any other required documents, the holder of such BLT
Stock Certificate will be entitled to receive in exchange therefor a
certificate for the number of whole shares of WorldCom Common Stock (and cash
in lieu of fractional shares thereof) to which such holder is entitled, less
10% of such number of shares of WorldCom Common Stock which shall be delivered
to the Escrow Agent under the terms of the Escrow Agreement. See "The Merger
Agreement And Plan Of Merger -- Indemnity And Escrow Agreement." The BLT
Stock Certificates will be cancelled upon surrender to WorldCom.
The Transmittal Letter will provide, among other things, that each BLT
shareholder releases and discharges BLT and its officers and directors from any
claims, damages, losses, liabilities which the shareholder now or may have
arising out of or relating to the formation, financing, management or
operations of BLT, the issuance, holding or repurchase of securities of BLT, or
the shareholder's status as a shareholder, officer, director or employee of
BLT. A form of the Transmittal Letter is included as Exhibit 1.5-1 to the
Merger Agreement attached hereto as Exhibit A, and such description is
qualified in its entirety by such reference.
From and after the Effective Time, the holders of BLT Stock Certificates
evidencing ownership of shares of BLT Common Stock outstanding immediately
prior to the Effective Time will cease to have any rights with respect to such
shares of BLT Common Stock except as otherwise provided in the Merger Agreement
or by applicable law. No dividends or other distributions, if any, in respect
of the shares of WorldCom Common Stock, declared after the Effective Time and
payable to holders of record after the Effective Time, shall be paid to the
holders of any unsurrendered BLT Stock Certificates until such BLT Stock
Certificates are surrendered and delivered as provided herein and no interest
shall be paid on the amount of any cash. Holders of any unsurrendered BLT
Stock Certificates shall not be entitled to vote the WorldCom Common Stock
involved until such BLT Stock Certificates are exchanged pursuant to the Merger
Agreement.
TREATMENT OF BLT STOCK OPTIONS
At the Effective Time, WorldCom will cause each holder of a Stock Option
(as defined in the Merger Agreement) to receive an option to purchase shares of
WorldCom Common Stock having substantially the same terms and conditions as the
BLT Stock Options, except that the exercise price and number of shares of
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WorldCom Common Stock issuable upon exercise shall be divided and multiplied,
respectively, by the Exchange Ratio. As a result of approval of the Merger by
the BLT Board of Directors, all outstanding options have become fully vested
and exercisable under the terms of BLT's 1994 Stock Option Plan.
CERTAIN OTHER AGREEMENTS
Pursuant to the Merger Agreement, BLT has agreed, among other things, that
during the period from the date of the Merger Agreement until the Effective
Time, except as contemplated by the Merger Agreement or as otherwise consented
to by WorldCom, it will conduct its business and engage in transactions only in
the ordinary and usual course of business and maintain existing relationships
with suppliers, customers, employees and other business associates. Further,
BLT has agreed that, other than with respect to shareholder approval of certain
identified stock options, it will not authorize for issuance and will not, nor
propose to, issue, grant or sell any shares of capital stock or other
securities of BLT, including but not limited to any securities convertible into
or exchangeable for shares of stock of any class of BLT, except for the
issuance of shares of BLT Common Stock pursuant to the exercise of outstanding
stock options granted under BLT's 1994 Stock Option Plan. In addition, BLT has
agreed to certain other substantial restrictions on the conduct of its business
and other matters pending the Merger, as described in Sections 4.1 through 4.17
of the Merger Agreement, which are incorporated herein by reference.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Directors and executive officers of BLT beneficially own approximately
39.3% of the outstanding BLT Common Stock and will receive WorldCom Common
Stock in the Merger for their outstanding BLT Common Stock on the same basis as
other shareholders of BLT. See "Information Concerning BLT - Security
Ownership of Directors, Executive Officers and Principal Shareholders." All
options to purchase BLT Common Stock held by directors and executive officers
of BLT became immediately exercisable as a result of the approval of the Merger
by the Board of Directors of BLT. Any options to purchase BLT Common Stock
that are not exercised prior to the Effective Time will become options to
purchase shares of WorldCom Common Stock having substantially the same terms
and conditions as the BLT stock options, except that the exercise price and
number of shares issuable upon exercise shall be divided and multiplied,
respectively, by the Exchange Ratio. The following table indicates the number
of shares subject to options to purchase BLT Common Stock held by directors and
executive officers of BLT at November 15, 1996 and the weighted average
exercise prices of such options.
<TABLE>
<CAPTION>
NUMBER OF AVERAGE
NAME BLT COMMON SHARES EXERCISE PRICE PER SHARE
---- ----------------- ------------------------
<S> <C> <C>
William E. Colson 10,000 $5.00
Robert A. Sternberg 187,500 $3.46
Milton D. Mittelstedt 50,000 $3.50
Robert S. Wiggins 25,000 $4.00
Steven D. Martin 74,000 $3.72
William M. Schultz 50,000 $3.50
Edward Koppen 74,000 $3.72
</TABLE>
INDEMNITY AND ESCROW AGREEMENT
Indemnity Agreement. Pursuant to the Escrow Agreement (as hereinafter
defined) and as described below, the Merger Agreement provides that the BLT
shareholders will indemnify WorldCom, its affiliates and
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their respective directors, officers, shareholders, employees, agents,
successors and assigns (collectively, the "Indemnified Party") against, and
hold each harmless from any and all damages, losses, claims, liabilities,
charges, suits, penalties, costs or expenses, whether accrued, absolute or
contingent, including court costs and attorneys' fees arising after the
Effective Time (collectively, the "Losses"), which any of the foregoing may
incur or to which any of the foregoing may be subjected, arising out of or
otherwise based upon any of the following:
1. Any misrepresentation or breach of warranty or representation
by BLT or any breach or default by BLT of or under any of the
covenants or other provisions of the Merger Agreement or any other
agreement or instrument relating to or contemplated by the Merger
Agreement to which WorldCom or any affiliate is a party or which is
in favor of WorldCom or any affiliate.
2. The failure of any Employee Benefit Plan (as defined in the
Merger Agreement) to meet benefit commitments accrued as of the
Closing, the failure by BLT to meet any minimum funding requirement
with respect to any Employee Benefit Plan on or before the Closing
Date, retroactive disqualification of any Employee Benefit Plan by
the Internal Revenue Service for any act or omission occurring on or
before the Closing Date, the occurrence of any "prohibited
transaction" on or before the Closing Date by BLT or any fiduciary
or administrator relative to any Employee Benefit Plan, or any
unfunded benefit obligations, claims or payments accrued as of the
Closing;
3. Any exercise of dissenters' rights incident to the Merger
including, without limitation, the payment of the fair value and
other amounts with respect to the shares of BLT Common Stock held by
any Dissenter to the extent the same exceeds $23.50 multiplied by
the Exchange Ratio times the number of shares of BLT Common Stock
involved (any such excess being the "Excess Dissenter Amount"); or
4. The matters set forth in Exhibit 4.8 to the Merger Agreement,
namely: Losses in excess of $850,000 in the aggregate with respect
to (i) certain specified litigation proceedings; (ii) provision of
uncertificated intrastate service in certain specified
jurisdictions; (iii) any breach of the second or third sentence of
Section 3.3 of the Merger Agreement; and (iv) a certain indemnity
agreement dated September 26, 1994 (collectively, the "Scheduled
Matters")
Any Indemnified Party intending to seek indemnification from another
person or entity (the "Indemnifying Party") pursuant to the Merger Agreement
and the Escrow Agreement is required to give the Shareholder Representative
under the Escrow Agreement (the "Shareholder Representative") prompt written
notice thereof. The failure of the Indemnified Party to give such notice will
not relieve the Indemnifying Party of any indemnity obligation pursuant to the
Merger Agreement and the Escrow Agreement except to the extent such failure
prejudices the rights of the Indemnifying Party. If such matter involves the
assertion of a claim by a third party in an amount not in excess of $10 million
less the amount of other Losses or potential Losses incurred to date, the
Indemnified Party will give the Shareholder Representative the opportunity to
undertake the defense thereof through reputable legal counsel selected by the
Shareholder Representative which is reasonably satisfactory to the Indemnified
Party. The Shareholder Representative will have the right to so assume the
defense of such matter by (i) giving the Indemnified Party written notice
thereof within 20 days after the giving of notice of the matter by the
Indemnified Party or such shorter period as may be required to avoid any
prejudice to the rights of the Indemnified Party, and (ii) thereafter
diligently and timely defending the same. Such a matter may be settled with
the claimant on terms and conditions acceptable to the Shareholder
Representative and the Indemnified Party, which acceptance will not be
unreasonably withheld or delayed. If the Shareholder Representative so assumes
the defense of such matter, the Indemnified Party will have the right to employ
his or its own counsel, at his or its expense, and participate in the defense
or
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<PAGE> 97
settlement thereof, provided if the Shareholder Representative does not provide
assurances satisfactory to the Indemnified Party as to the defense and payment
of any indemnity obligation, then the counsel of the Indemnified Party will
have the right to assume the defense at the expense of the Indemnifying Party.
In the event the Shareholder Representative does not so assume the defense of
such matter, the Indemnified Party may engage counsel and defend or settle the
same on such terms and conditions as the Indemnified Party may determine in his
or its reasonable discretion.
The obligations in the two preceding paragraphs will expire one year after
the Closing Date other than with respect to the following, as to which said
obligations will survive the Closing without time limitation other than as may
be provided by applicable law:
1. matters as to which a claim for Losses exists and
notice of which has been given to the Shareholder
Representative on or before said expiration date;
2. the Excess Dissenter Amount; or
3. the Scheduled Matters.
Notwithstanding anything to the contrary, other than with respect to an
intentional misrepresentation, breach or default, as to which such limitations
will not apply, an Indemnified Party will be entitled to indemnification only
if a Loss or the aggregate Losses claimed to date by all Indemnified Parties
exceed $500,000, in which event the Indemnified Party will be entitled to
recover the amount of such Losses in excess of $500,000, and the maximum
indemnity obligation of each BLT shareholder thereunder will not exceed the
amount held in escrow pursuant to the Escrow Agreement.
Escrow Agreement. The form of the Escrow Agreement is attached hereto as
Exhibit C, the terms of which are incorporated by reference herein. Holders of
BLT Common Stock are urged to read the Escrow Agreement in its entirety.
Capitalized terms used with respect to the Escrow Agreement but not defined
herein have the meanings given to them in the Escrow Agreement.
Consummation of the Merger is conditioned upon execution and delivery of
an Escrow Agreement as of the Closing among WorldCom, the Shareholder
Representative and Trustmark National Bank, as escrow agent. At the Closing,
10% of the number of shares of WorldCom Common Stock otherwise issuable under
the Merger Agreement to the BLT shareholders (the "Escrow Shares") will be
delivered to the Escrow Agent. The Escrow Shares will be deemed to have been
contributed into escrow by the BLT shareholders in the same proportion to the
WorldCom Common Stock to be received by each BLT shareholder pursuant to the
Merger Agreement.
In the event an Indemnified Party claims that it is entitled to
indemnification pursuant to the Merger Agreement, such Indemnified Party will
give written notice of such claim to the Shareholder Representative and the
Escrow Agent. Subject to compliance with the indemnification provisions of the
Merger Agreement, the amount of such claim will be paid to the Indemnified
Party out of the Escrow Shares, unless the Shareholder Representative contests
the right of the Indemnified Party to such payment by delivering written notice
within 15 days after such Indemnified Party has delivered written notice to the
Shareholder Representative of such claim. In such event, no payment will be
made under the Escrow Agreement until the dispute has been finally settled by
agreement of such Indemnified Party and the Shareholder Representative or, in
the absence of such agreement, by a binding and final arbitration award if
arbitration has been agreed to, or otherwise by a binding and final judgment,
order or decree of a court of competent jurisdiction.
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<PAGE> 98
Payments to an Indemnified Party will be made by cancellation of the
number of whole shares of the Escrow Shares, allocated pro rata among the BLT
shareholders, having an aggregate value nearest to the amount payable to such
Indemnified Party, such value to be $23.50 per share (the "WorldCom Stock
Value") as adjusted to take into account any stock split, stock dividend or
recapitalization subsequent to the Effective Time and not reflected in such
WorldCom Stock Value (the "Share Value"). In addition, upon the cancellation
of such Escrow Shares, a proportionate distribution of any cash dividends in
the dividend account will be made to such Indemnified Party. Notwithstanding
the foregoing, a BLT shareholder may elect, by so notifying the Indemnified
Party involved prior to such cancellation, to satisfy such payment obligation
by paying to such Indemnified Party when such payment is due cash based upon
such Share Value. Upon such payment, that number of whole shares of the Escrow
Shares having an aggregate value (based upon the Share Value) equal to the
amount of such payment plus the related dividend account amount will be
distributed to such shareholder.
Upon the expiration of the one-year escrow period, the Escrow Shares and
accrued cash dividends, if any, will be distributed to the Shareholder
Representative for distribution to the BLT shareholders, subject to retention
of certain shares as hereinafter described. If any claims pending at the end
of the one-year escrow period remain unresolved, a number of whole shares of
the Escrow Shares having an aggregate value (based on the Share Value) nearest
to the amount of the claim of such date (the "Retained Escrow Shares"), plus a
proportionate amount of accrued cash dividends, will be retained in escrow
until such claims are paid or finally determined to be without merit. In
addition to any Retained Escrow Shares and cash dividends, the lesser of (a)
the Escrow Shares then remaining in escrow plus related cash dividends and (b)
such number of Escrow Shares as the parties agree to at the Closing, provided
that if the Scheduled Matters have been resolved at or prior to Closing and
there is no Excess Dissenter Amount, such number will be zero, plus a
proportionate amount of accrued cash dividends (the "Special Matters
Retention") will be retained in escrow for use in satisfaction of any claims,
subject to the indemnification provisions of the Merger Agreement, arising out
of any Scheduled Matters or the Excess Dissenter Amount (the "Special Matters")
not then resolved. Such amounts shall be retained in escrow until all Special
Matters are finally resolved or until the applicable statutes of limitation
expire with respect to the Special Matters. Shares subject to the Special
Matters Retention will be distributed to a BLT shareholder, however, if the
shareholder delivers to the Indemnified Party an undertaking reasonably
satisfactory to the Indemnified Party in an amount equal to the amount of the
Special Matters Retention applicable to such shareholder. Any distribution of
Escrow Shares shall be net of any required tax or other withholding or
deduction.
All cash dividends on the Escrow Shares will be deposited directly into an
escrow account maintained by the Escrow Agent. Shares resulting from stock
dividends, stock splits and other shares or securities issued in respect of the
Escrow Shares will be held by the Escrow Agent, subject to the provisions of
the Escrow Agreement. The interests of the BLT shareholders in the Escrow
Shares and the rights and obligations of the BLT shareholders under the Escrow
Agreement may not be transferred except by will, the laws of descent and
distribution or by other operation of law.
BLT's Board recommends that Mr. Thomas J. Holce, BLT's Chairman and Chief
Executive Officer, be appointed as the Shareholder Representative under the
Escrow Agreement, as contemplated in the attached proxy. The Shareholder
Representative is the attorney-in-fact for all BLT shareholders in connection
with the Escrow Agreement, the Escrow Shares and any cash dividends in the
Dividend Account, including without limitation the acceptance of any claim by
an Indemnified Party and the compromise of any disputes relating to the Escrow
Shares, cash dividends or other matters under the Escrow Agreement.
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NONCOMPETE AND CONFIDENTIALITY AGREEMENTS
Pursuant to the Merger Agreement, at or prior to the Effective Time,
Robert A. Sternberg and each member of BLT's board will enter into a Noncompete
and Confidentiality Agreement (a "Noncompete Agreement") with WorldCom. Each
Noncompete Agreement includes a covenant by each such person not to compete or
interfere with the business conducted by WorldCom at the Effective Time for a
stated period of time, subject to certain exceptions. Each Noncompete
Agreement also contains terms restricting the disclosure and use of
confidential information with respect to the business, properties, and
personnel of BLT and WorldCom. Delivery of the Noncompete Agreements is a
condition to WorldCom's obligation to consummate the Merger. Forms of such
Noncompete Agreements are included as Exhibit 4.12 to the Merger Agreement
attached as Exhibit A, and such description is qualified in its entirety by
such reference.
AFFILIATE AGREEMENTS
Another condition of WorldCom's obligation to consummate the Merger is
that the officers, directors and 5% or greater shareholders ("Affiliates") of
BLT will have delivered at or prior to the Effective Time agreements confirming
their understanding and agreement that they will not, among other things, sell,
transfer or otherwise reduce their interest in the shares of WorldCom Common
Stock they receive in the Merger or reduce their risk relating thereto until
after WorldCom has published financial results covering at least the 30 days of
combined operations occurring after the Closing Date. Each Affiliate of BLT
also will represent and warrant prior to the Effective Date that it has not
made or completed any sales of shares of stock of BLT during the 30-day period
immediately preceding the date of the Affiliate Agreement executed by such
person nor will it engage in any such sale prior to the consummation of the
Merger. A form of such Affiliate Agreement is included as Exhibit 4.15 to the
Merger Agreement attached as Exhibit A, and such description is qualified in
its entirety by such reference.
CERTAIN REGULATORY FILINGS AND APPROVALS
Consummation of the Merger is contingent upon the receipt of approvals
from the FCC with respect to the transfer of control of BLT to WorldCom and
certain related transactions. All of the applications necessary to obtain FCC
approval have been filed and the FCC granted approval. Consummation of the
Merger is also contingent upon notification to and/or approval by various state
PUCs. All of the notifications and/or requests for approval of the transfer of
control of BLT to WorldCom have been filed with the relevant PUCs and all
approvals have been obtained, except for the approval of one state, which is
expected prior to Closing.
Under the Hart-Scott-Rodino Act and applicable rules, the Merger may not
be consummated until notifications have been given and certain information has
been furnished to the Federal Trade Commission and the Antitrust Division of
the Department of Justice and specified waiting periods have expired. The
required waiting periods for such filings expired. However, at any time before
or after the Effective Time of the Merger, and notwithstanding expiration of
such waiting period, the FTC, the Antitrust Division or any state could take
such action under the antitrust laws as it deems necessary or desirable in the
public interest.
AMENDMENT; WAIVER
The Merger Agreement provides that BLT and WorldCom may not amend the
Merger Agreement except by a writing by the party to be charged. The Merger
Agreement provides that either party to the Merger Agreement may at any time
before the Effective Time waive the conditions to such party's obligations to
consummate the Merger.
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TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time only (a) by the mutual consent of BLT and WorldCom; or (b) by either BLT
or WorldCom if the Merger has not been consummated on or before March 31, 1997,
provided that this right to terminate shall not be available to any party whose
breach of the Merger Agreement has been the cause of, or resulted in, the
failure of the Merger to occur before such date, and provided that WorldCom may
extend said date from time to time in the event one or more conditions to the
obligations of the parties under the Merger Agreement has not been satisfied or
waived.
EXPENSES
The Merger Agreement provides that BLT will bear its own expenses, fees
and commissions incurred in connection with the preparation, negotiation and
execution of the Merger Agreement and the consummation of the transactions
contemplated thereby, up to a maximum of $1.2 million, with any excess over
such amount to be borne by the shareholders of BLT. BLT expects that such
expenses will not exceed $1.2 million. If the Merger is not consummated
because of a breach of the Merger Agreement by a party thereto, the
non-breaching party will be entitled to reasonable attorneys' fees and court
costs in connection with any action for damages or specific performance, in
addition to such other rights or remedies to which the non-breaching party may
be entitled under applicable law or in equity.
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DESCRIPTION OF WORLDCOM CAPITAL STOCK
The following summary does not purport to be complete and is subject in
all respects to the applicable provisions of the Georgia Business Corporation
Code, the WorldCom Articles, and the WorldCom Rights Agreement (referred to
below). In connection with the MFS Merger, if consummated, WorldCom will file
Articles of Amendment to the WorldCom Articles with the Secretary of State of
the State of Georgia at or prior to the effective time of the MFS Merger to
establish the WorldCom Series A Preferred Stock and the WorldCom Series B
Preferred Stock as series of WorldCom preferred stock. The WorldCom Board of
Directors also intends to file with the Secretary of State of the State of
Georgia, at or prior to the closing of the MFS Merger, an amendment to its
Articles of Amendment previously establishing the Series 3 Junior Participating
Preferred Stock (as described in "-- Preferred Stock Purchase Rights" below) in
order to increase the number of shares of such preferred stock issuable upon
exercise of the rights associated with the WorldCom Common Stock.
The authorized capital stock of WorldCom consists of 750,000,000 shares of
common stock, par value $.01 per share, and 50,000,000 shares of preferred
stock, par value $.01 per share. Prior and subject to consummation of the MFS
Merger, the WorldCom Articles will be amended to increase the number of
authorized shares of WorldCom Common Stock to 2,500,000,000.
COMMON STOCK
All of the outstanding shares of WorldCom Common Stock are fully paid and
nonassessable. Subject to the prior rights of the holders of preferred stock
which may be issued and outstanding, the holders of WorldCom Common Stock are
entitled to receive dividends as and when declared by the WorldCom Board of
Directors out of funds legally available therefor, and, in the event of
liquidation, dissolution or winding up of WorldCom, to share ratably in all
assets remaining after payment of liabilities. Subject to the prior rights of
the holders of preferred stock, each holder of WorldCom Common Stock is
entitled to one vote for each share held of record on all matters presented to
a vote of shareholders, including the election of directors. Holders of
WorldCom Common Stock have no cumulative voting rights or preemptive rights to
purchase or subscribe for any stock or other securities and there are no
conversion rights or redemption or sinking fund provisions with respect to such
stock. Additional shares of authorized WorldCom Common Stock may be issued
without shareholder approval.
The transfer agent and registrar for the WorldCom Common Stock is The Bank
of New York, 101 Barclay Street -- 12W, New York, NY 10286.
PREFERRED STOCK - GENERAL
Subject to the satisfaction of the terms and conditions set forth in the
MFS Merger Agreement, the MFS Series A Preferred Stock and MFS Series B
Preferred Stock will be exchanged for the WorldCom Series A Preferred Stock and
WorldCom Series B Preferred Stock, respectively. Below is a discussion of the
terms of each series of WorldCom preferred stock.
The authorized but unissued preferred stock of WorldCom is available for
issuance from time to time at the discretion of the WorldCom Board of Directors
without shareholder approval. The WorldCom Board of Directors has the authority
to prescribe for each series of preferred stock it establishes the number,
designation, preferences, limitations and relative rights of the shares of such
series, subject to applicable law and the provisions of any outstanding series
of preferred stock. The terms of any series of preferred stock including, but
not limited to, dividend rate, redemption price, liquidation rights, sinking
fund provisions, conversion rights and voting rights, and any corresponding
effect on other shareholders, will be dependent largely on
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factors existing at the time of issuance. Such terms and effects could include
restrictions on dividends on the WorldCom Common Stock if dividends on the
preferred stock are in arrears, dilution of the voting power of other
shareholders to the extent a series of the preferred stock has voting rights,
and reduction of amounts available on liquidation as a result of any
liquidation preference granted to any series of preferred stock.
SERIES A PREFERRED STOCK
The following description of WorldCom Series A Preferred Stock represented
by the WorldCom Depositary Shares does not purport to be complete and is
subject to, and qualified in its entirety by, the provisions of the WorldCom
Articles and the Articles of Amendment creating the WorldCom Series A Preferred
Stock (the "Series A Articles of Amendment"), the terms of which are
incorporated by reference as an exhibit to the Registration Statement. Based
on the number of shares of MFS Series A Preferred Stock outstanding as of
November 13, 1996, a total of 94,992 shares of the WorldCom Series A Preferred
Stock will be issued at the effective time of the MFS Merger along with
9,499,200 WorldCom Depositary Shares. Each of the WorldCom Depositary Shares
will represent a one one-hundredth interest in a share of WorldCom Series A
Preferred Stock and entitles the owner to such proportion of all the rights,
preferences and privileges of the shares of WorldCom Series A Preferred Stock
represented thereby. See "-- WorldCom Depositary Shares" below.
Dividends. The holders of WorldCom Series A Preferred Stock are entitled
to receive, when, as and if dividends on the WorldCom Series A Preferred Stock
are declared by the Board of Directors out of funds legally available therefor,
cumulative preferential dividends from the issue date of the WorldCom Series A
Preferred Stock, accruing at the rate per share of $268.00 per annum or $67.00
per quarter (equivalent to $2.68 per annum or $.67 per quarter for each
WorldCom Depositary Share), payable quarterly in arrears on each February 28,
May 31, August 31 and November 30 or, if any such date is not a business day,
on the next succeeding business day; provided, however, that with respect to
any dividend period during which a redemption occurs, WorldCom may, at its
option, declare accrued dividends to, and pay such dividends on, the date fixed
for redemption, in which case such dividends would be payable in shares of
WorldCom Common Stock to the holders of WorldCom Series A Preferred Stock as of
the record date for such dividend payment and would not be included in the
calculation of the related Call Price as set forth below. If the MFS Merger is
consummated prior to the record date for the February 28, 1997 payment date,
then the first dividend payment of $67.00 will be for the period from the issue
date of the WorldCom Series A Preferred Stock to and including February 27,
1997 and will be payable on February 28, 1997. Dividends (or amounts equal to
accrued and unpaid dividends) payable on the WorldCom Series A Preferred Stock
for any period other than a quarterly dividend period will be computed on the
basis of a 360-day year of twelve 30-day months. Dividends are payable in cash
or in shares of WorldCom Common Stock, at the election of the WorldCom Board of
Directors. WorldCom intends to pay dividends in shares of WorldCom Common Stock
on each dividend payment date to the extent that it is unable to pay dividends
in cash. If the dividends are paid in shares of WorldCom Common Stock, the
number of shares of WorldCom Common Stock to be issued on each dividend payment
date will be determined by dividing the total dividend to be paid on each
WorldCom Depositary Share by 90% of the average of the average of the high and
low sales prices of the WorldCom Common Stock as reported by the Nasdaq
National Market or any national securities exchange upon which the WorldCom
Common Stock is then listed, for each of the ten consecutive trading days
immediately preceding the fifth business day preceding the record date for such
dividend (the "Average Stock Price"). If the Average Stock Price is greater
than 11.1% higher than the market value for the WorldCom Common Stock on the
dividend payment date and the holder sells such shares of WorldCom Common Stock
received in payment of the dividend on the WorldCom Series A Preferred Stock at
such lower price on such date, then the holder's actual dividend yield would be
lower than the stated dividend yield on the WorldCom Series A Preferred Stock.
In addition, the holder is likely to incur commissions and other transaction
costs in connection with the sale of such WorldCom Common Stock.
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The following example is provided to illustrate the calculation of the
number of shares of WorldCom Common Stock a holder of WorldCom Depositary
Shares would receive if the WorldCom Board of Directors declares a dividend
payable in shares of WorldCom Common Stock: Assume that an investor owns 100
WorldCom Depositary Shares (that is, one share of WorldCom Series A Preferred
Stock) and the Board of Directors declares a dividend of $268 per share of
WorldCom Series A Preferred Stock, payable in shares of WorldCom Common Stock.
Assume also that the Average Stock price is $40. In such event, the investor
would be entitled to receive 7.444 shares of WorldCom Common Stock ($268
divided by $36 (90% of $40)). However, since fractional shares will not be
issued, the investor will be entitled to receive 7 shares of WorldCom Common
Stock and cash in lieu of the fractional share.
Dividends on the WorldCom Series A Preferred Stock will accrue, whether or
not WorldCom has earnings, whether or not there are funds legally available for
the payment of such dividends and whether or not such dividends are declared,
on a daily basis from the previous dividend payment date. Dividends accumulate
to the extent they are not paid on the dividend payment date for the quarter
for which they accrue ("Accumulated Unpaid Dividends"). Accumulated Unpaid
Dividends will not bear interest.
No dividend whatsoever shall be declared or paid upon, or any sum set
apart for the payment of dividends upon, any outstanding share of the WorldCom
Series A Preferred Stock or any shares of any other series of WorldCom
preferred stock of equal rank for any dividend period unless all dividends for
all past dividend periods have been declared and paid upon, or declared and a
sufficient sum set apart for the payment of such dividend upon, all outstanding
shares of the WorldCom Series A Preferred Stock and all outstanding shares of
all other series of WorldCom preferred stock of equal rank other than the
WorldCom Series B Preferred Stock. Unless full cumulative dividends on all
outstanding shares of the WorldCom Series A Preferred Stock and (to the extent
that the amount thereof shall have become determinable) any outstanding shares
of any other series of WorldCom preferred stock of equal rank due for all past
dividend periods shall have been declared and paid, or declared and a
sufficient sum for the payment thereof set apart, then, subject to the rights
of holders of shares of previously issued series of WorldCom preferred stock:
(i) no dividend (other than a dividend payable solely in shares of any class of
stock ranking junior to the WorldCom Series A Preferred Stock as to the payment
of dividends or as to rights in liquidation, dissolution, or winding up of the
affairs of WorldCom ("Junior Stock")) shall be declared or paid upon, or any
sum set apart for the payment of dividends upon, any shares of Junior Stock;
(ii) no other distribution shall be made upon any shares of Junior Stock; (iii)
no shares of Junior Stock or any series of WorldCom preferred stock shall be
purchased, redeemed, or otherwise acquired for cash or other property
(excluding Junior Stock or the WorldCom Series B Preferred Stock) by WorldCom
or any of its subsidiaries; and (iv) no monies shall be paid into or set apart
or made available for a sinking or other like fund for the purchase, redemption
or other acquisition for value of any shares of Junior Stock by WorldCom or any
of its subsidiaries. The Series A Articles of Amendment do not restrict
WorldCom's ability to repurchase or redeem on and after the Initial Redemption
Date (as defined below) any shares of the WorldCom Series A Preferred Stock
while there is an arrearage in the payment of dividends. Holders of shares of
WorldCom Series A Preferred Stock shall not be entitled to any dividends,
whether payable in cash, property or stock, in excess of full cumulative
dividends, as herein described.
Mandatory Conversion of WorldCom Series A Preferred Stock. On May 31, 1999
("the Mandatory Conversion Date"), each outstanding share of WorldCom Series A
Preferred Stock (and the related WorldCom Depositary Shares) will convert
automatically into shares of WorldCom Common Stock at the Common Equivalent
Rate (as defined below) in effect on such date and the right to receive, out of
funds legally available therefor, an amount equal to all accrued and unpaid
dividends on such WorldCom Series A Preferred Stock to the Mandatory Conversion
Date, whether or not declared (payable in cash or in shares of WorldCom Common
Stock on the same basis as that used to determine dividends), subject to the
right of WorldCom to redeem the WorldCom Series A Preferred Stock on or after
the Initial Redemption Date (as defined below)
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and prior to the Mandatory Conversion Date, as described below, and subject to
the conversion of the WorldCom Series A Preferred Stock (and the related
WorldCom Depositary Shares) at the option of the holder at any time prior to
the Mandatory Conversion Date. Notwithstanding the foregoing, if the Mandatory
Conversion Date occurs after a record date for a quarterly dividend and before
the corresponding payment date, such dividend shall be paid, out of funds
legally available therefor, on the payment date rather than on the Mandatory
Conversion Date. The "Common Equivalent Rate" is initially four hundred twenty
shares (420) of WorldCom Common Stock for each share of WorldCom Series A
Preferred Stock (equivalent to 4.2 shares of WorldCom Common Stock for each
WorldCom Depositary Share), subject to adjustment as described below.
Because the price of the WorldCom Common Stock is subject to market
fluctuations, the value of the WorldCom Common Stock received by a holder of
WorldCom Depositary Shares upon Mandatory Conversion may be more or less than
the value of the consideration exchanged for the WorldCom Depositary Shares.
Dividends will cease to accrue on the Mandatory Conversion Date in respect of
the WorldCom Series A Preferred Stock (and related WorldCom Depositary Shares)
then outstanding.
Right to Redeem WorldCom Series A Preferred Stock. The WorldCom Series A
Preferred Stock (and the related WorldCom Depositary Shares) are not redeemable
by WorldCom prior to May 31, 1998 (the "Initial Redemption Date"). At any time
and from time to time on or after the Initial Redemption Date and prior to the
Mandatory Conversion Date, WorldCom may redeem the outstanding shares of
WorldCom Series A Preferred Stock (and thereby the WorldCom Depositary Shares),
in whole or in part. Upon any such redemption, the holder of record of shares
of WorldCom Series A Preferred Stock will receive, in exchange for each
WorldCom Series A Preferred Stock so called, a number of shares of WorldCom
Common Stock equal to the call price of the WorldCom Series A Preferred Stock
in effect on the date of redemption (the "Call Price") divided by the Current
Market Price of the WorldCom Common Stock determined as of the date which is
one trading day prior to the public announcement of the call for redemption.
The Call Price of each WorldCom Series A Preferred Stock is an amount equal to
the sum of (i) $3,417.00 ($34.170 per WorldCom Depositary Share) on and after
the Initial Redemption Date through August 30, 1998, $3,400.25 ($34.003 per
WorldCom Depositary Share) on and after August 31, 1998 through November 29,
1998, $3,383.50 ($33.835 per WorldCom Depositary Share) on and after November
30, 1998 through February 27, 1999, $3,366.75 ($33.668 per WorldCom Depositary
Share) on and after February 28, 1999 through April 29, 1999, and $3,350.00
($33.500 per WorldCom Depositary Share) on and after April 30, 1999 until the
Mandatory Conversion Date, plus (ii) all accrued and unpaid dividends thereon
to the date fixed for redemption. Notwithstanding the foregoing, if the date
fixed for redemption occurs after a record date for a quarterly dividend and
prior to the corresponding payment date, such dividend shall be paid, out of
funds legally available therefor, on the payment date, and the Call Price shall
not include the amount of the dividend to be so paid. A public announcement of
any call for redemption shall be made before the mailing of the notice of such
call to holders of the WorldCom Series A Preferred Stock as described below.
Dividends will cease to accrue on the WorldCom Series A Preferred Stock on the
date fixed for their redemption. If fewer than all of the outstanding shares of
the WorldCom Series A Preferred Stock are to be redeemed, the shares to be
redeemed will be selected by lot, pro-rata or in such other manner as the
WorldCom Board of Directors may determine to be fair and proper.
The term "Current Market Price" per share of the WorldCom Common Stock on
any date of determination means the lesser of (x) the average of the average of
the high and low sales prices of the WorldCom Common Stock as reported on the
Nasdaq National Market or any national securities exchange upon which the
WorldCom Common Stock is then listed, for each of the ten consecutive trading
days ending on and including such date of determination and (y) the closing
sale price of the WorldCom Common Stock as reported on the Nasdaq National
market or any national securities exchange upon which the WorldCom Common Stock
is then listed, for such date of determination; provided, however, that, with
respect to any
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redemption of the WorldCom Series A Preferred Stock, if any event that results
in an adjustment of the Common Equivalent Rate occurs during the period
beginning on the first day of such ten-day period and ending on the applicable
redemption date, the Current Market Price as determined pursuant to the
foregoing will be appropriately adjusted to reflect the occurrence of such
event.
The opportunity for equity appreciation afforded by an investment in the
WorldCom Series A Preferred Stock is less substantial than the opportunity for
equity appreciation afforded by an investment in the WorldCom Common Stock
because WorldCom may, at its option, call for redemption the WorldCom Series A
Preferred Stock at any time on or after the Initial Redemption Date and before
the Mandatory Conversion Date, and may be expected to do so before the
Mandatory Conversion Date if the Current Market Price of the WorldCom Common
Stock exceeds the conversion price. In such event, holders of the WorldCom
Series A Preferred Stock will receive less than four hundred twenty (420)
shares of WorldCom Common Stock for each share of WorldCom Series A Preferred
Stock (equivalent to less than 4.2 shares of WorldCom Common Stock for each
WorldCom Depositary Share). Holders of WorldCom Series A Preferred Stock called
for redemption, however, will have the option to surrender WorldCom Series A
Preferred Stock for conversion at the conversion price up to the close of
business on the redemption date (and may be expected to do so if the Current
Market Price of the WorldCom Common Stock exceeds the conversion price). A
holder of WorldCom Series A Preferred Stock that elects to convert will receive
344.274 shares of WorldCom Common Stock for each share of WorldCom Series A
Preferred Stock (equivalent to 3.443 shares of WorldCom Common Stock for each
WorldCom Depositary Share). In no event will a holder of WorldCom Depositary
Shares receive less than 3.443 shares of WorldCom Common Stock (equivalent to a
conversion price of $9.73 per share of WorldCom Common Stock). Because the
number of shares of WorldCom Common Stock to be delivered in payment of the
Call Price will be determined on the basis of the Current Market Price, the
value per share of the shares of WorldCom Common Stock to be delivered may be
more or less than the Call Price on the date of delivery.
Conversion at Option of Holder. The WorldCom Series A Preferred Stock (and
thereby the WorldCom Depositary Shares) are convertible, in whole or in part,
at the option of the holder thereof, at any time prior to the Mandatory
Conversion Date, unless previously redeemed, into shares of WorldCom Common
Stock at a rate of 344.274 shares of WorldCom Common Stock for each WorldCom
Series A Preferred Stock (equivalent to 3.443 shares of WorldCom Common Stock
for each WorldCom Depositary Share and equivalent to a conversion price of
$9.73 per share of WorldCom Common Stock), subject to adjustment as described
below (the "Optional Conversion Rate"). The right to convert WorldCom Series A
Preferred Stock called for redemption will terminate at the close of business
on the redemption date.
Conversion of WorldCom Series A Preferred Stock (and thereby the related
WorldCom Depositary Shares) may be effected by delivering certificates
evidencing such WorldCom Series A Preferred Stock (or the Depositary Receipts
evidencing such WorldCom Depositary Shares), together with written notice of
conversion and a proper assignment of such certificates to WorldCom or in
blank, to the office or agency to be maintained by WorldCom for that purpose,
and otherwise in accordance with conversion procedures established by WorldCom.
Each conversion shall be deemed to have been effected immediately prior to the
close of business on the date on which the foregoing requirements shall have
been satisfied. The conversion shall be at the Optional Conversion Rate in
effect at such time and on such date.
Holders of WorldCom Series A Preferred Stock at the close of business on a
record date for any payment of dividends will be entitled to receive the
dividend payable on such WorldCom Series A Preferred Stock on the corresponding
dividend payment date notwithstanding the optional conversion of such WorldCom
Series A Preferred Stock following such record date and prior to such dividend
payment date. WorldCom will make no other payment or allowance for unpaid
dividends, whether or not in arrears, on converted WorldCom Series A Preferred
Stock or for dividends or distributions on the shares of WorldCom
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Common Stock issued upon such conversion.
Conversion Adjustment. The Common Equivalent Rate and the Optional
Conversion Rate are subject to adjustment if WorldCom shall (i) pay a dividend
or make a distribution with respect to WorldCom Common Stock in shares of such
stock, (ii) subdivide or split its outstanding shares of WorldCom Common Stock
into a greater number of shares, (iii) combine its outstanding shares of
WorldCom Common Stock into a smaller number of shares, (iv) issue by
reclassification of its shares of WorldCom Common Stock any shares of common
stock of WorldCom, (v) issue rights or warrants to all holders of its WorldCom
Common Stock entitling them (for a period not exceeding 45 days from the date
of such issuance) to subscribe for or purchase shares of WorldCom Common Stock
at a price per share less than the market price of the WorldCom Common Stock or
(vi) pay a dividend or make a distribution to all holders of the WorldCom
Common Stock of evidence of its indebtedness, securities of a subsidiary, or
other assets (excluding any dividends or distributions referred to in clause
(i) above or any cash dividends (other than Extraordinary Cash Distributions,
as defined below)) or issue to all holders of its WorldCom Common Stock rights
or warrants to subscribe for or purchase any of its securities (other than
those referred to in clause (v) above). WorldCom will also be entitled to make
upward adjustments in the Common Equivalent Rate, the Optional Conversion Rate
and the Call Price, as the WorldCom Board of Directors in its good faith
discretion shall determine to be advisable, so that any stock dividends,
subdivision of shares, distribution of rights to purchase stock or securities,
or distribution of securities convertible into or exchangeable for stock (or
any transaction which could be treated as any of the foregoing transactions
pursuant to Section 305 of the Code) hereafter made by WorldCom to its
shareholders will not be taxable. "Extraordinary Cash Distributions" means,
with respect to any cash dividend or distribution paid on any date, the amount,
if any, by which all cash dividends and cash distributions on the WorldCom
Common Stock paid during the consecutive 12-month period ending on and
including such date (other than cash dividends and cash distributions for which
an adjustment to the Common Equivalent Rate and the Optional Conversion Rate
was previously made) exceeds, on a per share of WorldCom Common Stock basis, 10
percent of the average daily closing sales price of the WorldCom Common Stock
over such 12-month period. All adjustments to the Common Equivalent Rate and
the Optional Conversion Rate will be calculated to the nearest 1/1000th of a
share of WorldCom Common Stock or if there is not a nearest 1/1000th of a share
to the next lower 1/1000th of a share. No adjustment in the Common Equivalent
Rate and the Optional Conversion Rate shall be required unless such adjustment
would require an increase or decrease of at least one percent therein;
provided, however, that any adjustments which by reason of the foregoing are
not required to be made be carried forward and taken into account in any
subsequent adjustment.
Adjustment for Consolidation or Merger. In case of any consolidation or
merger to which WorldCom is a party (other than a merger or consolidation in
which WorldCom is the continuing corporation and in which the WorldCom Common
Stock outstanding immediately prior to the merger or consolidation remains
unchanged), or in case of any sale or transfer to another corporation of the
property of WorldCom as an entirety or substantially as an entirety, or in case
of any statutory exchange of securities with another corporation (other than in
connection with a merger or acquisition), proper provision shall be made so
that each share of WorldCom Series A Preferred Stock shall, after consummation
of such transaction, be subject to (i) conversion at the option of the holder
into the kind and amount of securities, cash or other property receivable upon
consummation of such transaction by a holder of the number of shares of
WorldCom Common Stock into which such WorldCom Series A Preferred Stock might
have been converted immediately before consummation of such transaction, (ii)
conversion on the Mandatory Conversion Date into the kind and amount of
securities, cash or other property receivable upon consummation of such
transaction by a holder of the number of shares of WorldCom Common Stock into
which such WorldCom Series A Preferred Stock would have been converted if the
conversion on the Mandatory Conversion Date had occurred immediately prior to
the date of consummation of such transaction and (iii) redemption on any
redemption date in exchange for the kind and amount of securities, cash or
other property receivable upon consummation of such transaction by a holder of
the number of shares of WorldCom Common Stock that would have been issuable at
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the Call Price in effect on such redemption date upon a redemption of such
shares immediately prior to consummation of such transaction, assuming that the
public announcement of such redemption had been made on the last possible date
permitted by the terms of the WorldCom Series A Preferred Stock and applicable
law; assuming in each case that such holder of WorldCom Series A Preferred
Stock failed to exercise rights of election, if any, as to the kind or amount
of securities, cash or other property receivable upon consummation of such
transaction (provided that if the kind or amount of securities, cash or other
property receivable upon consummation of such transaction is not the same for
each non-electing share, then the kind and amount of securities, cash or other
property receivable upon consummation of such transaction for each non-electing
share shall be deemed to be the kind and amount so receivable per share by a
plurality of the non-electing shares). The kind and amount of securities into
which the WorldCom Series A Preferred Stock shall be convertible after the
consummation of such transaction shall be subject to adjustment as described in
the immediately preceding paragraph following the date of consummation of such
transaction. WorldCom shall not, without the affirmative vote of more than the
holders of two-thirds of all the outstanding shares of the WorldCom Series A
Preferred Stock, become a party to any such transaction unless the terms
thereof are consistent with the foregoing.
Fractional Shares. No fractional shares of WorldCom Common Stock will be
issued upon redemption or conversion of the WorldCom Series A Preferred Stock
or in respect of any dividend paid in shares of WorldCom Common Stock. In lieu
of any fractional share otherwise issuable in respect of all shares of WorldCom
Series A Preferred Stock of any holder which are redeemed or converted on any
redemption date or upon Mandatory Conversion or any optional conversion or in
respect of any stock dividend, WorldCom will, in its discretion, either (i)
aggregate such fractional shares and will sell such shares in the public market
to provide funds to be distributed to the holders of WorldCom Series A
Preferred Stock that would otherwise receive fractional shares, net of any
discounts, commissions, fees or expenses associated with such sale, or (ii) pay
to the holders of WorldCom Series A Preferred Stock that would otherwise
receive fractional shares an amount in cash equal to the current value of such
fraction, calculated to the nearest one-hundredth (1/100th) of a share.
Notice to Holders of WorldCom Series A Preferred Stock. WorldCom will
provide notice of any call for redemption of the WorldCom Series A Preferred
Stock to holders of record of the WorldCom Series A Preferred Stock (and
thereby the WorldCom Depositary Shares) to be called for redemption not less
than 15 nor more than 60 days before the date fixed for redemption. Such notice
shall be provided by mailing notice of such redemption to the holders of record
of the WorldCom Series A Preferred Stock to be called for redemption. Each
holder of WorldCom Series A Preferred Stock to be called for redemption shall
surrender the certificate evidencing such WorldCom Series A Preferred Stock to
WorldCom at the place designated in such notice and shall be entitled to
receive certificates for shares of WorldCom Common Stock following such
surrender and the date of such redemption.
In the event that (1) WorldCom declares a dividend (or any other
distribution) on the WorldCom Common Stock, excluding cash dividends, (2)
WorldCom authorizes the issuance to all holders of WorldCom Common Stock of
rights or warrants to subscribe for or purchase shares of WorldCom Common Stock
or of any other subscription rights or warrants, (3) WorldCom authorizes any
reclassification of WorldCom Common Stock (other than a subdivision or
combination thereof) or of any consolidation or merger to which WorldCom is a
party and for which approval of any WorldCom shareholders is required (subject
to certain exceptions), or of the sale or transfer of all or substantially all
of the assets of WorldCom, or (4) a voluntary or involuntary dissolution,
liquidation or winding up of WorldCom is commenced, then in accordance with
such event WorldCom shall give to the holders of shares of WorldCom Series A
Preferred Stock, at least ten days notice of:
(i) the date on which a record is to be taken for the purpose of such
dividend, distribution, rights or
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warrants, or if a record is not to be taken, the date as of which the
holders of WorldCom Common Stock of record to be entitled to such
dividend, distribution, rights or warrants are to be determined; or
(ii) the date on which any such reclassification, consolidation, merger,
sale, transfer, dissolution, liquidation or winding up is expected to
become effective, and the date as of which it is expected that holders of
WorldCom Common Stock of record shall be entitled to exchange their
WorldCom Common Stock for securities or other property (including cash),
if any, deliverable upon such reclassifications, consolidation, merger,
sale, transfer, dissolution, liquidation or winding up.
For a description of notices to holders of WorldCom Depositary Shares, see
"-- WorldCom Depositary Shares -- Record Date" below.
Liquidation Rights. In the event of the liquidation, dissolution, or
winding up of the business of WorldCom, whether voluntary or involuntary, the
holders of WorldCom Series A Preferred Stock, after payment or provision for
payment of the debts and other liabilities of WorldCom and the payment or
provision for payment of any distribution on any shares of WorldCom's capital
stock having a preference and priority over the WorldCom Series A Preferred
Stock on liquidation, and before any distribution to the holders of the
WorldCom Common Stock, or any other stock ranking junior to the WorldCom Series
A Preferred Stock with respect to distributions upon liquidation, dissolution
or winding up, will be entitled to receive for each share of WorldCom Series A
Preferred Stock an amount equal to the greater of (i) the sum of (a) $3,350 and
(b) all accrued and unpaid dividends thereon to the date of liquidation,
dissolution or winding up and (ii) the value of the shares of WorldCom Common
Stock into which such shares of WorldCom Series A Preferred Stock are
convertible on the date of such liquidation, dissolution or winding up. If the
assets of WorldCom available for distribution to the holders of the WorldCom
Series A Preferred Stock upon a dissolution, liquidation or winding up of
WorldCom shall be insufficient to pay in full the liquidation payments payable
to the holders of outstanding WorldCom Series A Preferred Stock and any shares
of WorldCom capital stock ranking on a parity with the WorldCom Series A
Preferred Stock upon liquidation, then the holders of all such WorldCom Series
A Preferred Stock and such shares shall share ratably in such distribution of
assets in accordance with the amount which would be payable on such
distribution if the amounts to which the holders of outstanding shares of
WorldCom Series A Preferred Stock and the holders of outstanding shares of
WorldCom preferred stock ranking on a parity with the WorldCom Series A
Preferred Stock upon liquidation are entitled were paid in full.
Voting Rights. Each share of WorldCom Series A Preferred Stock is entitled
to ten votes (equivalent to 0.1 of a vote for each WorldCom Depositary Share)
with respect to all matters. The holders of the WorldCom Series A Preferred
Stock and the holders of WorldCom Common Stock will vote together as a single
class, unless otherwise provided by law or the WorldCom Articles. The approval
of more than two-thirds of the votes entitled to be cast by the holders of
issued and outstanding shares of WorldCom Series A Preferred Stock is required
for any amendment to the WorldCom Articles that materially adversely changes
the rights, preferences or privileges of the WorldCom Series A Preferred Stock.
The holders of the outstanding shares of WorldCom Series A Preferred Stock
shall also have the right, voting together with the holders of any other
outstanding shares of Voting Preferred Stock (as hereinafter defined) as a
separate voting group, to elect two members of the WorldCom Board of Directors
at any time six or more quarterly dividends on any shares of Voting Preferred
Stock shall be in arrears and unpaid, in whole or in part, whether or not
declared and whether or not any funds shall be or have been legally available
for payment thereof. For this purpose, "Voting Preferred Stock" shall mean the
shares of WorldCom Series A Preferred Stock and each other series of WorldCom
preferred stock which shall have substantially similar voting rights (including
voting as one voting group with other shares of Voting Preferred Stock) with
respect to the election of directors upon substantially similar arrearages of
dividends. In such event, the number of directors of WorldCom shall be
increased by two, and, unless a regular meeting of the shareholders of WorldCom
is to be held within 60 days thereof for
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the purpose of electing directors, within 30 days thereafter, WorldCom shall
call a special meeting of the holders of the outstanding shares of Voting
Preferred Stock for the purpose of electing such directors to take place at the
time specified in the notice of the meeting, to be not more than 60 days after
such holders become so entitled to elect two directors and not less than 10
days nor more than 50 days after the date on which such notice is mailed. If
such special meeting shall not have been so called by WorldCom, or such regular
meeting shall not be so held, a special meeting may be called for such purpose
at the expense of WorldCom by the holders of not less than 10% of the
outstanding shares of any series of Voting Preferred Stock; and notice of any
such special meeting shall be given by the person or persons calling the same
to the holders of the outstanding shares of the Voting Preferred Stock. At any
such special meeting the holders of the outstanding shares of Voting Preferred
Stock (voting separately as a class with each share having one vote) shall
elect two members of the WorldCom Board of Directors. If a regular meeting of
the shareholders of WorldCom for the purpose of electing directors is to be
held within 60 days after the time the holders of the outstanding shares of
Voting Preferred Stock become so entitled to elect two directors, then at such
regular meeting, the holders of the outstanding shares of Voting Preferred
Stock (voting separately as a class with each share having one vote) shall
elect two members of the Board of Directors. The right of the holders of the
Voting Preferred Stock (voting separately as a class) to elect two members of
the WorldCom Board of Directors shall continue until such time as no dividends
on any outstanding shares of Voting Preferred Stock are in arrears and unpaid,
in whole or in part, at which time (i) the voting power of the holders of the
outstanding shares of Voting Preferred Stock so to elect two directors shall
cease, but always subject to the vesting of such voting power upon the
occurrence of each and every like arrearage of dividends, and (ii) the term of
office of each member of the Board of Directors who was elected pursuant to
this provision shall automatically expire.
Reissuance. Shares of WorldCom Series A Preferred Stock redeemed for or
converted into WorldCom Common Stock or otherwise acquired by WorldCom will
assume the status of authorized but unissued WorldCom preferred stock
undesignated as to series and may thereafter be redesignated or reissued in the
same manner as other authorized but unissued WorldCom preferred stock.
Listing. WorldCom intends to apply to list the WorldCom Depositary Shares
on the Nasdaq National Market under the symbol "WCOMP" (provided there are a
sufficient number of holders and available market makers to meet applicable
requirements).
Registrar and Transfer Agent. The Bank of New York will serve as registrar
and transfer agent for the WorldCom Series A Preferred Stock (and the WorldCom
Depositary Shares).
SERIES B PREFERRED STOCK
The following description of WorldCom Series B Preferred Stock does not
purport to be complete and is subject to, and qualified in its entirety by, the
provisions of the WorldCom Articles and the Articles of Amendment creating the
WorldCom Series B Preferred Stock (the "Series B Articles of Amendment"), the
terms of which are incorporated by reference as an exhibit hereto. Based on
the number of shares of MFS Series B Preferred Stock outstanding as of November
13, 1996, a total of 13,680,011 shares of the WorldCom Series B Preferred Stock
will be issued at the effective time of the MFS Merger.
Dividends. The holders of WorldCom Series B Preferred Stock are entitled
to receive, when and as declared out of funds legally available therefor,
dividends from the issue date of the WorldCom Series B Preferred Stock,
accruing at the rate per share of $.0775 per annum, payable when and as the
WorldCom Board of Directors may determine in cash, before any dividends shall
be set apart for or paid upon the WorldCom Common Stock or any other stock
ranking as to dividends junior to the Series B Preferred Stock in any year. All
dividends declared upon WorldCom Series B Preferred Stock will be pro rata per
share and will be payable to holders of record as they appear on the stock
books of WorldCom on such record dates as shall
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be fixed by the WorldCom Board of Directors. Notwithstanding the foregoing,
WorldCom may declare, set apart and pay dividends on shares of the WorldCom
Series A Preferred Stock whether or not dividends have been declared, set apart
or paid on the shares of WorldCom Series B Preferred Stock. The WorldCom Board
of Directors is not required to declare any dividends on the WorldCom Series B
Preferred Stock, and the failure to declare any such dividends will not
constitute a default or otherwise vest the holders of shares of WorldCom Series
B Preferred Stock with any right, other than the right to receive amounts in
respect of accrued but unpaid dividends. Dividends (or amounts equal to accrued
and unpaid dividends) payable on the WorldCom Series B Preferred Stock will be
computed on the basis of a 360-day year of twelve 30-day months. Dividends are
only payable in cash, except for payment of accrued but unpaid dividends upon
conversion, redemption or liquidation of the WorldCom Series B Preferred Stock,
as the case may be, as described below.
Dividends on the WorldCom Series B Preferred Stock are cumulative and will
accrue on a daily basis whether or not WorldCom has net profits or surplus
available for the payment of dividends in such fiscal year. Dividends
accumulate as against the holders of any stock ranking junior as to dividends
to the WorldCom Series B Preferred Stock to the extent they are not paid in
any fiscal year or years for which they accrue. Accrued but unpaid dividends
will not bear interest.
WorldCom is not permitted to set apart for or pay upon the WorldCom Common
Stock any Extraordinary Cash Dividend (as defined below) unless, at the same
time, WorldCom shall have set apart for or paid upon all shares of WorldCom
Series B Preferred Stock an amount of cash per share of WorldCom Series B
Preferred Stock equal to the Extraordinary Cash Dividend that would have been
paid in respect of such share if the holder of such share of WorldCom Series B
Preferred Stock had converted such share into shares of WorldCom Common Stock
immediately prior to the record date for such Extraordinary Cash Dividend. The
term "Extraordinary Cash Dividend" means, with respect to any cash dividend or
distribution paid on any date, the amount, if any, by which all cash dividends
and cash distributions on the WorldCom Common Stock paid during the consecutive
12-month period ending on and including such date exceeds, on a per share of
WorldCom Common Stock basis, 10% of the average daily closing price of the
WorldCom Common Stock over such 12-month period.
Conversion at Option of Holder. The shares of WorldCom Series B Preferred
Stock are convertible, in whole or in part, at the option of the holder
thereof, at any time, unless previously redeemed, into shares of WorldCom
Common Stock at a rate of 0.0973912 shares of WorldCom Common Stock for each
share of WorldCom Series B Preferred Stock (equivalent to an initial conversion
price of $10.268 per share of WorldCom Common Stock), subject to adjustment as
described below (the "Series B Conversion Rate"). Shares of WorldCom Series B
Preferred Stock may not be converted after the close of business on the
business day preceding the date fixed for redemption of such shares.
No fractional shares of WorldCom Common Stock will be issued upon
conversion of WorldCom Series B Preferred Stock or scrip in lieu thereof. If
any fraction of a share of WorldCom Common Stock would be issuable upon
conversion of any WorldCom Series B Preferred Stock, WorldCom will, at its
election, either (i) sell such fractional share and distribute the proceeds of
such sale to the person entitled to same, net of any discounts, commissions,
fees or expenses associated with such sale or (ii) pay to the person entitled
thereto an amount in cash equal to the current value of such fraction,
calculated to the nearest one-hundredth (1/100th) of a share.
Conversion of WorldCom Series B Preferred Stock may be effected by
surrendering certificates evidencing such WorldCom Series B Preferred Stock,
together with written notice of conversion and a proper assignment of such
certificates to WorldCom in form satisfactory to WorldCom, to the principal
office of the transfer agent for the WorldCom Series B Preferred Stock and
otherwise in accordance with conversion procedures established by WorldCom.
Each conversion shall be deemed to have been effected on the date on
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which the foregoing requirements shall have been satisfied (the "Conversion
Date"). The conversion shall be at the Series B Conversion Rate in effect at
such time and on such date. As soon as practicable after receipt of such notice
and the surrender of the certificate or certificates representing shares of the
WorldCom Series B Preferred Stock as aforesaid, WorldCom will issue and deliver
to such holder a certificate or certificates for the number of full shares of
WorldCom Common Stock issuable on such conversion and cash in lieu of any
fractional shares of WorldCom Common Stock otherwise issuable upon such
conversion.
Upon any such conversion, WorldCom shall pay, out of funds legally
available therefor, to the person entitled thereto an amount equal to all
accrued but unpaid dividends to, but not including, the Conversion Date in
respect of the shares of WorldCom Series B Preferred Stock surrendered for
conversion, which amount shall be payable, at the election of WorldCom, in cash
or shares of WorldCom Common Stock. In the event WorldCom elects to pay such
amount in shares of WorldCom Common Stock, the number of shares of WorldCom
Common Stock to be issued in respect of unpaid dividends on each share of
WorldCom Series B Preferred Stock surrendered for conversion will be determined
by dividing (x) the total amount of accrued but unpaid dividends, to be paid on
each such share of WorldCom Series B Preferred Stock by (y) the Fair Market
Value of a share of WorldCom Common Stock. The term "Fair Market Value" means
(i) if the WorldCom Common Stock is listed on any national securities exchange
or the Nasdaq National Market, the average of the last sales price (or the
quoted closing bid price if there shall have been no sales) of the WorldCom
Common Stock on such exchange or the Nasdaq National Market (as the case may
be) for a period of 30 trading days prior to the Conversion Date, or (ii) if
the WorldCom Common Stock is not so listed, on the basis of the average of the
mean between the closing bid and asked prices for the WorldCom Common Stock for
each day in the 30 trading day period prior to the Conversion Date, as reported
by Nasdaq, or its successor, or (iii) if the WorldCom Common Stock is not so
listed and if there are no such closing bid and asked prices, on the basis of
the fair market value per share as determined by the WorldCom Board of
Directors.
Conversion Adjustment. In case WorldCom shall at any time (x) subdivide
(whether by stock dividend, stock split or otherwise) its outstanding shares of
WorldCom Common Stock into a greater number of shares or (y) combine its
outstanding shares of WorldCom Common Stock into a smaller number of shares,
the Series B Conversion Rate in effect immediately prior thereto will be
proportionately adjusted so that the holder of any shares of WorldCom Series B
Preferred Stock thereafter surrendered for conversion will be entitled to
receive the number of shares of WorldCom capital stock which the holder would
have owned or have been entitled to receive after the happening of any of the
events described above had such shares of WorldCom Series B Preferred Stock
been converted immediately prior to the happening of such event.
Adjustment for Consolidation or Merger. In case of any capital
reorganization or reclassification of the capital stock of WorldCom, or
consolidation or merger of WorldCom with another company, or the sale of all or
substantially all of its assets to another company shall be effected in such a
way that holders of WorldCom Common Stock are entitled to receive stock,
securities, cash or other property with respect to or in exchange for WorldCom
Common Stock, then, as a condition of such reorganization, reclassification,
consolidation, merger or sale, lawful and adequate provision will be made
whereby the holders of the WorldCom Series B Preferred Stock shall have the
right to acquire and receive upon conversion of the WorldCom Series B Preferred
Stock, which right shall be prior to the rights of the holders of stock ranking
junior to the WorldCom Series B Preferred Stock (but after and subject to the
rights of holders of preferred stock, if any, ranking senior to the WorldCom
Series B Preferred Stock and on parity with the rights of holders of WorldCom
Series A Preferred Stock), such shares of stock, securities, cash or other
property issuable or payable (as part of the reorganization, reclassification,
consolidation, merger or sale) with respect to or in exchange for such number
of outstanding shares of WorldCom Common Stock as would have been received upon
conversion of the WorldCom Series B Preferred Stock at the Series B Conversion
Rate then in effect. WorldCom will not effect any such consolidation, merger or
sale, unless prior to the consummation thereof the successor company (if other
than WorldCom) resulting from such consolidation or merger or the company
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purchasing such assets assumes, by written instrument, the obligation to
deliver to each holder of shares of WorldCom Series B Preferred Stock such
shares of stock, securities, cash or other property as such holder may be
entitled to purchase.
Right to Redeem WorldCom Series B Preferred Stock. The WorldCom Series B
Preferred Stock is not redeemable by WorldCom prior to September 30, 2001.
Thereafter, WorldCom has the right, at its sole option and election, out of
funds legally available therefor, to redeem the shares of WorldCom Series B
Preferred Stock, in whole or in part, at any time and from time to time at a
redemption price of $1.00 per share plus an amount equal to all accrued and
unpaid dividends thereon (the "Redemption Price"), whether or not declared, to
the redemption date; provided, that any amount due in respect of all or any
portion of the Redemption Price, including accrued dividends, may be paid in
cash or shares of WorldCom Common Stock as determined by the WorldCom Board of
Directors. In the event the WorldCom Board of Directors elects to pay any
portion of the Redemption Price in shares of WorldCom Common Stock, the number
of shares of WorldCom Common Stock to be issued will be determined in the same
manner as provided for in the event of an optional conversion as described
above. If less than all of the outstanding shares of WorldCom Series B
Preferred Stock are to be redeemed, the shares to be redeemed will be selected
by lot, pro-rata or in such other manner as the WorldCom Board of Directors may
determine to be fair and proper. In order to facilitate the redemption of the
WorldCom Series B Preferred Stock, the WorldCom Board of Directors may fix a
record date for the determination of holders of WorldCom Series B Preferred
Stock to be redeemed, or may cause the transfer books of WorldCom to be closed
for the transfer of the WorldCom Series B Preferred Stock, not more than 60
days prior to the date fixed for such redemption.
Liquidation Rights. In the event of the liquidation, dissolution, or
winding up of the business of WorldCom, whether voluntary or involuntary, the
holders of WorldCom Series B Preferred Stock, after payment or provision for
payment of the debts and other liabilities of WorldCom and the payment or
provision for payment of any distribution on any shares of WorldCom's capital
stock having a preference and priority over the WorldCom Series B Preferred
Stock on liquidation, and before any distribution to the holders of the
WorldCom Common Stock, or any other stock ranking junior to the WorldCom Series
B Preferred Stock with respect to distributions upon liquidation, dissolution
or winding up, will be entitled to receive for each share of WorldCom Series B
Preferred Stock an amount equal to the sum of $1.00 plus all accrued and unpaid
dividends thereon to the date of liquidation, dissolution or winding up. If the
assets of WorldCom available for distribution to the holders of the WorldCom
Series B Preferred Stock upon a dissolution, liquidation or winding up of
WorldCom shall be insufficient to pay in full the liquidation payments payable
to the holders of outstanding WorldCom Series B Preferred Stock and any shares
of WorldCom capital stock ranking on a parity with the WorldCom Series B
Preferred Stock upon liquidation, then the holders of all such WorldCom Series
B Preferred Stock and such shares of WorldCom capital stock ranking on a parity
with the WorldCom Series B Preferred Stock shall share ratably in such
distribution of assets in accordance with the amount which would be payable on
such distribution if the amounts to which the holders of outstanding shares of
WorldCom Series B Preferred Stock and the holders of outstanding shares of
WorldCom preferred stock ranking on a parity with the WorldCom Series B
Preferred Stock upon liquidation are entitled were paid in full. The WorldCom
Series A Preferred Stock ranks on a parity with the WorldCom Series B Preferred
Stock upon liquidation.
Notice to Holders of WorldCom Series B Preferred Stock. WorldCom will
provide notice of any call for redemption of the WorldCom Series B Preferred
Stock (including notice of whether such redemption shall be paid in cash or
shares of WorldCom Common Stock) to holders of the WorldCom Series B Preferred
Stock to be called for redemption not less than 30 nor more than 60 days before
the date fixed for redemption.
In the event that (1) WorldCom declares any dividend upon its WorldCom
Common Stock payable in stock or makes any special dividend or other
distribution to the holders of WorldCom Common Stock; (2)
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there is any capital reorganization or reclassification of the WorldCom capital
stock, including any subdivision or combination of its outstanding shares of
WorldCom Common Stock, or consolidation or merger of WorldCom with, or sale of
all or substantially all of its assets to, another company; or (3) there is a
voluntary or involuntary dissolution, liquidation or winding up of WorldCom,
then, in accordance with such event, WorldCom shall give to the holders of
shares of WorldCom Series B Preferred Stock:
(i) at least twenty (20) days prior written notice of the date on which
the books of WorldCom shall close or a record shall be taken for such
dividend or distribution or for determining rights to vote in respect of
any such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up; and
(ii) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at
least twenty (20) days prior written notice of the date when the same
shall take place.
A notice in accordance with the foregoing clause (i) shall also specify,
in the case of any such dividend or distribution, the date on which the holders
of WorldCom Common Stock shall be entitled thereto, and a notice in accordance
with the foregoing clause (ii) shall also specify the date on which the holders
of WorldCom Common Stock shall be entitled to exchange their WorldCom Common
Stock for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be. Each such written notice will be sent by mail,
first class, postage prepaid, addressed to the holders of the WorldCom Series B
Preferred Stock at the address of each such holder as shown on the books of
WorldCom.
Notice of any redemption of the WorldCom Series B Preferred Stock
(including notice of whether such redemption will be paid in cash or shares of
WorldCom Common Stock) will be mailed at least 30 days, but not more than 60
days prior to the date fixed for redemption to each holder of WorldCom Series B
Preferred Stock to be redeemed, at such holder's address as it appears on the
books of WorldCom.
Voting Rights. Each share of WorldCom Series B Preferred Stock is entitled
to one vote per share with respect to all matters. The holders of the WorldCom
Series B Preferred Stock and the holders of WorldCom Common Stock (and WorldCom
Series A Preferred Stock) will vote together as a single class, unless
otherwise provided by law or the WorldCom Articles. The approval of at least a
majority of the votes entitled to be cast by the holders of issued and
outstanding shares of WorldCom Series B Preferred Stock is required to
adversely change the rights, preferences or privileges of the WorldCom Series B
Preferred Stock. For this purpose, the authorization or issuance of any series
of preferred stock with a preference or priority over, or being on a parity
with, the Series B Preferred Stock as to the right to receive either dividends
or amounts distributable upon liquidation, dissolution or winding up of
WorldCom shall not be deemed to adversely affect the Series B Preferred Stock.
In case WorldCom shall at any time prior to March 23, 1999 subdivide (whether
by stock dividend, stock split or otherwise) its outstanding shares of WorldCom
Common Stock into a greater number of shares (each a "Subdivision"), the voting
rights of each share of WorldCom Series B Preferred Stock will be adjusted to
provide that the percentage of the aggregate voting power of the WorldCom
Common Stock represented by the WorldCom Series B Preferred Stock, shall be the
same as such percentage immediately prior to such Subdivision, with the holder
of each share of WorldCom Series B Preferred Stock being entitled to the number
of votes proportionate to such adjustment. Such adjustments made pursuant to a
Subdivision will become effective immediately after the effective date of the
Subdivision.
Reissuance. Shares of WorldCom Series B Preferred Stock redeemed for or
converted into WorldCom Common Stock or otherwise acquired by WorldCom will be
retired and canceled and will not be reissued, and WorldCom may from time to
time take such appropriate action as may be necessary to reduce
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the authorized WorldCom Series B Preferred Stock accordingly.
No Listing. WorldCom does not intend to apply to list the WorldCom Series
B Preferred Stock on the Nasdaq National Market or any other established
securities market.
Registrar and Transfer Agent. The Bank of New York will serve as registrar
and transfer agent for the WorldCom Series B Preferred Stock.
DEPOSITARY SHARES
Pursuant to the MFS Merger, each MFS Depositary Share will be exchanged
for one WorldCom Depositary Share, resulting in a total of 9,499,200 WorldCom
Depositary Shares outstanding as of the closing of the MFS Merger, based on the
number of MFS Depositary Shares outstanding as of the MFS Record Date. Each
WorldCom Depositary Share will represent a one-hundredth interest in a share of
WorldCom Series A Preferred Stock deposited under the Deposit Agreement
("Deposit Agreement"), to be entered into among WorldCom, The Bank of New York,
as Depositary ("Depositary"), and the holders from time to time of Depositary
Receipts issued thereunder. Subject to the terms of the Deposit Agreement, each
owner of a WorldCom Depositary Share is entitled proportionately to all of the
rights and preferences of the shares of WorldCom Series A Preferred Stock
represented thereby (including dividend, voting, redemption and liquidation
rights) contained in the WorldCom Articles and summarized above under "--
Series A Preferred Stock." WorldCom does not expect that there will be any
public trading market for the WorldCom Series A Preferred Stock except as
represented by the WorldCom Depositary Shares.
The WorldCom Depositary Shares will be evidenced by depositary receipts
issued pursuant to the Deposit Agreement ("Depositary Receipts"). The following
description of WorldCom Depositary Shares does not purport to be complete and
is subject to, and qualified in its entirety by, the provisions of the Deposit
Agreement (which contains the form of Depositary Receipt), a copy of which is
incorporated by reference as an exhibit hereto.
Issuance of Depositary Receipts. Immediately following the issuance of the
WorldCom Series A Preferred Stock, WorldCom will deposit the WorldCom Series A
Preferred Stock with the Depositary. Each holder of MFS Depositary Shares upon
surrender, to the Exchange Agent, of a depositary receipt or receipts
representing such shares together with the transmittal letter provided by the
Exchange Agent duly completed and executed by such holder, will then be issued
Depositary Receipts representing the number of WorldCom Depositary Shares to
which such holder is entitled. Depositary Receipts will be issued evidencing
only whole WorldCom Depositary Shares.
Withdrawal of WorldCom Series A Preferred Stock. Upon surrender of the
WorldCom Depositary Receipts at the Corporate Trust Office of the Depositary,
the owner of the WorldCom Depositary Shares evidenced thereby is entitled to
delivery at such office the number of whole shares of WorldCom Series A
Preferred Stock represented by such WorldCom Depositary Shares. Owners of
WorldCom Depositary Shares will be entitled to receive only whole shares of
WorldCom Series A Preferred Stock on the basis of one share of WorldCom Series
A Preferred Stock for one hundred WorldCom Depositary Shares. In no event will
fractional shares of WorldCom Series A Preferred Stock (or cash in lieu
thereof) be distributed by the Depositary. If the Depositary Receipts delivered
by the holder evidence a number of WorldCom Depositary Shares in excess of the
number of WorldCom Depositary Shares representing the number of whole shares of
WorldCom Series A Preferred Stock to be withdrawn, the Depositary will deliver
to such holder at the same time a new Depositary Receipt evidencing such excess
number of WorldCom Depositary Shares.
The WorldCom Series A Preferred Stock will not be qualified for inclusion
in the Nasdaq National
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Market or in any other exchange or organized trading market. Accordingly, there
may be significant disadvantages to holding WorldCom Series A Preferred Stock
rather than the WorldCom Depositary Shares.
Mandatory Conversion, or Call. As described under "-- Series A Preferred
Stock," the WorldCom Series A Preferred Stock is subject to mandatory
conversion into shares of WorldCom Common Stock on the Mandatory Conversion
Date, and to the right of WorldCom to call the WorldCom Series A Preferred
Stock at WorldCom's option, for redemption on or after the Initial Redemption
Date and before the Mandatory Conversion Date. The WorldCom Depositary Shares
are subject to mandatory conversion or call upon substantially the same terms
and conditions (including as to notice to the owners of WorldCom Depositary
Shares) as the WorldCom Series A Preferred Stock, except that the number of
shares of Common Stock received upon mandatory conversion or redemption of each
WorldCom Depositary Share will be equal to the number of shares of WorldCom
Common Stock received upon mandatory conversion or redemption of each share of
WorldCom Series A Preferred Stock divided by one hundred.
If fewer than all of the WorldCom Depositary Shares are to be redeemed,
the WorldCom Depositary Shares to be redeemed will be selected by lot or pro
rata or by any other equitable method determined by the Depositary to be
consistent with the method determined by the WorldCom Board of Directors with
respect to the WorldCom Series A Preferred Stock. If fewer than all of the
WorldCom Depositary Shares evidenced by a Depositary Receipt are called for
redemption, the Depositary will deliver to the holder of such Depositary
Receipt upon its surrender to the Depositary, together with the redemption
consideration, a new Depositary Receipt evidencing the WorldCom Depositary
Shares evidenced by such prior Depositary Receipt and not called for
redemption.
Conversion at the Option of Holder. As described under "-- Series A
Preferred Stock," the WorldCom Series A Preferred Stock may be converted, in
whole or in part, into shares of WorldCom Common Stock at the option of the
holders of WorldCom Series A Preferred Stock at any time before the Mandatory
Conversion Date, unless previously redeemed. The WorldCom Depositary Shares
may, at the option of holders thereof, be converted into shares of WorldCom
Common Stock delivering upon the same terms and conditions as the WorldCom
Series A Preferred Stock, except that the number of shares of WorldCom Common
Stock received upon conversion of each WorldCom Depositary Share will be equal
to the number of shares of WorldCom Common Stock received upon conversion of
each share of WorldCom Series A Preferred Stock divided by one hundred. To
effect such an optional conversion, a holder of WorldCom Depositary Shares must
deliver Depositary Receipts evidencing the WorldCom Depositary shares to be
converted, together with a written notice of conversion and a proper assignment
of the Depositary Receipts to WorldCom or in blank, to the Depositary or its
agent. Each optional conversion of WorldCom Depositary Shares shall be deemed
to have been effected immediately before the close of business on the date on
which the foregoing requirements shall have been satisfied. The conversion
shall be at the Optional Conversion Rate in effect at such time shall and on
such date, adjusted to reflect the fact that one hundred WorldCom Depositary
Shares are the equivalent of one WorldCom Series A Preferred Stock.
If only a portion of the WorldCom Depositary Shares evidenced by a
Depositary Receipt is to be converted, a new Depositary Receipt or Receipts
will be issued for any WorldCom Depositary Shares not converted. No fractional
shares of WorldCom Common Stock will be issued upon conversion or redemption of
WorldCom Depositary Shares or upon payment of stock dividends or distributions,
and, if such conversion, redemption, dividend or distribution would otherwise
result in a fractional share of WorldCom Common Stock being issued, the
Depositary will sell the total number of shares of WorldCom Common Stock that
would have been represented by such fractional shares at public or private sale
at such place or places and upon such terms it deems proper and the Depositary
shall distribute the net proceeds of such sale after deduction of applicable
expenses and taxes to the record holders entitled to such fractional shares, as
set forth in the Deposit Agreement.
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After the date fixed for conversion or redemption, the WorldCom Depositary
Shares so converted or called for redemption will no longer be deemed to be
outstanding, and all rights of the holders of such WorldCom Depositary Shares
will cease, except the redemption and any money or other property to which the
holders of such WorldCom Depositary Shares were entitled upon such conversion
or redemption, upon surrender to the Depositary of the Depositary Receipt or
Receipts evidencing such WorldCom Depositary Shares.
Dividends and Other Distributions. The Depositary will distribute all
dividends or other distributions in respect of the WorldCom Series A Preferred
Stock to the record holders of Depositary Receipts in proportion to the number
of WorldCom Depositary Shares owned by such holders.
No fractional shares of WorldCom Common Stock will be issued in respect of
any stock dividend paid in respect of the WorldCom Series A Preferred Stock. If
such stock dividend would otherwise result in a fractional share of WorldCom
Common Stock being issued, an amount will be paid in cash in lieu thereof as
described in "-- Series A Preferred Stock" and as set forth in the Deposit
Agreement.
The amount distributed in any of the foregoing cases will be reduced by
any amount required to be withheld by WorldCom or the Depositary on account of
taxes.
Record Date. Whenever (i) any cash dividend or other cash distribution
shall become payable, any distribution other than cash shall be made, or any
rights, preferences or privileges shall be offered with respect to the WorldCom
Series A Preferred Stock, or (ii) the Depositary shall receive notice of any
meeting at which holders of WorldCom Series A Preferred Stock are entitled to
vote or of which holders of WorldCom Series A Preferred Stock are entitled to
notice, or of any election on the part of WorldCom to call for redemption any
WorldCom Series A Preferred Stock, the Depositary shall in each such instance
fix a record date (which shall be the same date as the record date for the
WorldCom Series A Preferred Stock) for the determination of the holders of
Depositary Receipts (x) who shall be entitled to receive such dividend,
distribution, rights, preferences or privileges or the net proceeds of the sale
thereof, (y) who shall be entitled to give instructions for the exercise of
voting rights at any such meeting or to receive notice of such meeting or (z)
who shall be subject to such redemption, subject to the provisions of the
Deposit Agreement.
Voting of WorldCom Series A Preferred Stock. Upon receipt of notice of any
meeting at which holders of WorldCom Series A Preferred Stock are entitled to
vote, the Depositary will mail the information contained in such notice of
meeting to the record holders of Depositary Receipts. Each record holder of
Depositary Receipts on the record date (which will be the same date as the
record date for the WorldCom Series A Preferred Stock) will be entitled to
instruct the Depositary as to the exercise of the voting rights pertaining to
the number of WorldCom Series A Preferred Stock represented by such holder's
WorldCom Depositary Shares. The Depositary will endeavor, insofar as
practicable, to vote the number of WorldCom Series A Preferred Stock
represented by such WorldCom Depositary Shares in accordance with such
instructions, and WorldCom has agreed to take all reasonable action which may
be deemed necessary by the Depositary in order to enable the Depositary to do
so. The Depositary will abstain from voting WorldCom Series A Preferred Stock
to the extent it does not receive specific written voting instructions from the
holders of Depositary Receipts representing such WorldCom Series A Preferred
Stock. To the extent any such instructions request the voting of a fraction of
a share of WorldCom Series A Preferred Stock, the Depositary shall aggregate
such fraction with all other fractions resulting from requests with the same
voting instructions and shall vote the number of whole shares resulting from
such aggregation in accordance with the instructions received in such requests.
Amendment and Termination of Deposit Agreement. The form of Depositary
Receipts and any
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provision of the Deposit Agreement may at any time be amended by agreement
between WorldCom and the Depositary. However, any amendment that imposes any
fees, taxes or other charges payable by holders of Depositary Receipts (other
than taxes and other governmental charges, fees and other expenses payable by
such holders as stated under "-- Charges of Depositary"), or that otherwise
prejudices any substantial existing right of holders of Depositary Receipts,
will not take effect as to outstanding Depositary Receipts until the expiration
of 90 days after notice of such amendment has been mailed to the record holders
of outstanding Depositary Receipts. Every holder of Depositary Receipts at the
time any such amendment becomes effective will be deemed to consent and agree
to such amendment and to be bound by the Deposit Agreement, as so amended. In
no event may any amendment impair the right of any owner of WorldCom Depositary
Shares, subject to the conditions specified in the Deposit Agreement, upon
surrender of the Depositary Receipts evidencing such WorldCom Depositary Shares
to receive WorldCom Series A Preferred Stock or, upon conversion of the
WorldCom Series A Preferred Stock represented by the Depositary Receipts, to
receive shares of WorldCom Common Stock, and in each case any money or other
property represented thereby, except in order to comply with mandatory
provisions of applicable law.
Whenever so directed by WorldCom, the Depositary will terminate the
Deposit Agreement after mailing notice of such termination to the record
holders of all Depositary Receipts then outstanding at least 30 days before the
date fixed in such notice for such termination. The Depositary may likewise
terminate the Deposit Agreement if at any time 45 days shall have expired after
the Depositary shall have delivered to WorldCom a written notice of its
election to resign and a successor depositary shall not have been appointed and
accepted its appointment. If any Depositary Receipts remain outstanding after
the date of termination, the Depositary thereafter will discontinue the
transfer of Depositary Receipts, will suspend the distribution of dividends to
the holders thereof, and will not give any further notices (other than notice
of such termination) or perform any further acts under the Deposit Agreement
except as provided below and except that the Depositary will continue (i) to
collect dividends on the WorldCom Series A Preferred Stock and any other
distributions with respect thereto and (ii) to deliver the WorldCom Series A
Preferred Stock and any money and other property represented by Depositary
Shares upon surrender thereof by the holders thereof. At any time after the
expiration of two years from the date of termination, the Depositary may sell
the WorldCom Series A Preferred Stock then held by it at public or private
sale, at such places and upon such terms as its deems proper and may thereafter
hold the net proceeds of any such sale, together with any money and other
property then held by it, without liability for interest thereon, for the pro
rata benefit of the holders of Depositary Receipts which have not been
surrendered. The Company does not intend to terminate the Deposit Agreement or
to permit the resignation of the Depositary without appointing a successor
depositary. In the event the Deposit Agreement is terminated, WorldCom agrees
to use its best efforts to list the WorldCom Series A Preferred Stock on the
Nasdaq National Market.
Charges of Depositary. WorldCom will pay all charges of the Depositary
including charges in connection with the initial deposit of the WorldCom Series
A Preferred Stock, the initial execution and delivery of the Depositary
Receipts, the distribution of information to the holders of Depositary Receipts
with respect to matters on which WorldCom Series A Preferred Stock are entitled
to vote, withdrawals of the WorldCom Series A Preferred Stock by the holders of
Depositary Receipts or redemption or conversion of the WorldCom Series A
Preferred Stock, except for taxes (including transfer taxes, if any) and other
governmental charges and such other charges as are provided in the Deposit
Agreement to be at the expense of the holders of Depositary Receipts or persons
depositing WorldCom Series A Preferred Stock.
General. The Depositary will make available for inspection by holders of
Depositary Receipts at its Corporate Office all reports and communications from
WorldCom that are delivered to the Depositary and made generally available to
the holders of the WorldCom Series A Preferred Stock.
Neither the Depositary nor WorldCom will be liable if it is prevented or
delayed by law or by any
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circumstance beyond its control from or in performing its obligations under the
Deposit Agreement.
WORLDCOM SERIES 3 PREFERRED STOCK
In connection with the implementation of the WorldCom Rights Plan, the
WorldCom Board of Directors authorized 750,000 shares of preferred stock to be
issued as Series 3 Junior Participating Preferred Stock (the "WorldCom Series 3
Preferred Stock"), a description of the terms of which is set forth below under
"-- Preferred Stock Purchase Rights." The WorldCom Board of Directors also
intends to file with the Secretary of State of the State of Georgia, at or
prior to the effective time of the MFS Merger, an amendment to its Articles of
Amendment previously establishing the Series 3 Junior Participating Preferred
Stock (as described in "-- Preferred Stock Purchase Rights" below) in order to
increase the number of shares of such preferred stock issuable upon exercise of
the WorldCom Rights associated with the WorldCom Common Stock.
PREFERRED STOCK PURCHASE RIGHTS
On August 25, 1996, WorldCom adopted the WorldCom Rights Plan and in
connection therewith entered into the WorldCom Rights Agreement with The Bank
of New York (the "WorldCom Rights Agreement"). To implement the WorldCom
Rights Plan, the WorldCom Board of Directors authorized the issuance of one
preferred share purchase right (a "WorldCom Right") for each outstanding share
of WorldCom Common Stock outstanding as of September 6, 1996 and issued
thereafter until the Distribution Date (as defined in the WorldCom Rights
Agreement). Each WorldCom Right entitles the registered holder to purchase from
WorldCom one one-thousandth of a share of Series 3 Preferred Stock at an
initial price of $160.00 per one one-thousandth of such share, subject to
adjustment as described in the WorldCom Rights Agreement.
The WorldCom Rights will be evidenced by the WorldCom Common Stock and a
Distribution Date will occur upon the earlier of ten business days following
public disclosure or the date on which WorldCom first determines that certain
persons or groups (an "Acquiring Person") have become the beneficial owner of
15% or more of the outstanding shares of voting stock of WorldCom (the "Stock
Acquisition Date") or ten business days (or such later date as may be
determined by action of the Board of Directors but not later than the Stock
Acquisition Date) following the commencement of a tender offer or exchange
offer that would result in certain persons or groups becoming an Acquiring
Person. The WorldCom Rights are not exercisable until the Distribution Date and
will expire, if not previously exercised, on September 6, 2006, unless such
final expiration date is extended or unless the WorldCom Rights are earlier
redeemed or exchanged by WorldCom.
Upon the occurrence of a Distribution Date, each holder of a WorldCom
Right, except for an Acquiring Person, has the right to acquire, upon exercise
of the WorldCom Right, WorldCom Common Stock having a value equal to two times
the exercise price of the WorldCom Right. If a person becomes an Acquiring
Person and (i) WorldCom is acquired in a merger or other business combination
transaction in which either WorldCom is not the surviving corporation or
WorldCom Common Stock is exchanged or changed, or (ii) 50% or more of
WorldCom's assets or earnings power is sold in one or several transactions,
each holder of a WorldCom Right, except for an Acquiring Person, would acquire,
upon exercise of the WorldCom Right, such number of shares of the acquiring
company's common stock as shall be equal to the result obtained by multiplying
the then current exercise price for a WorldCom Right by the number one
one-thousandths of a share of WorldCom Series 3 Preferred Stock for which a
WorldCom Right is then exercisable and dividing that product by 50% of the then
current market price per share of the common stock of the acquiring company on
the date of such merger or other business combination transaction.
If a certain person or group acquires more than 15% but less than 50% of
the outstanding WorldCom Common Stock, WorldCom can exchange each WorldCom
Right, except those held by such persons, for one share of WorldCom Common
Stock.
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The WorldCom Series 3 Preferred Stock will be nonredeemable and junior to
any other series of WorldCom preferred stock (unless otherwise provided in the
terms of such WorldCom preferred stock). Each share of WorldCom Series 3
Preferred Stock will have a preferential dividend in an amount equal to 1,000
times any dividend declared on each share of WorldCom Common Stock. In the
event of liquidation, the holders of the WorldCom Series 3 Preferred Stock will
receive a preferred liquidation payment equal to the greater of $1,000 or 1,000
times the payment made per share of WorldCom Common Stock. Each share of
WorldCom Series 3 Preferred Stock will have 1,000 votes, voting together with
the WorldCom Common Stock. In the event of any merger, consolidation or other
transaction in which shares of WorldCom Common Stock are converted or
exchanged, each share of WorldCom Series 3 Preferred Stock will be entitled to
receive 1,000 times the amount and type of consideration received per share of
WorldCom Common Stock. The rights of the WorldCom Series 3 Preferred Stock as
to dividends, liquidation and voting, and in the event of mergers and
consolidations, are protected by customary antidilution provisions.
At any time prior to the time an Acquiring Person becomes such, WorldCom
may redeem the WorldCom Rights in whole, but not in part, at a price of $.01
per WorldCom Right. The redemption of the WorldCom Rights may be made effective
at such time, on such basis and with such conditions as the WorldCom Board of
Directors, in its sole discretion, may establish. Immediately upon any
redemption of the WorldCom Rights, the right to exercise the WorldCom Rights
will terminate and the only right of the holders of WorldCom Rights will be to
receive the redemption price.
The terms of the WorldCom Rights may be amended by the WorldCom Board of
Directors without the consent of the holders of the WorldCom Rights, including
an amendment to lower certain thresholds described above to not less than the
greater of (i) any percentage greater than the largest percentage of the voting
power of all securities of WorldCom then known to WorldCom to be beneficially
owned by certain persons or groups and (ii) 10%, except that from and after
such time as any person or group of affiliated or associated persons becomes an
Acquiring Person no such amendment may adversely affect the interests of the
holders of the WorldCom Rights.
The WorldCom Rights Agreement provides that the execution of the MFS
Merger Agreement and the Option Agreement between WorldCom and MFS and the
consummation of the transactions contemplated thereby will not result in the
occurrence of a Distribution Date or the WorldCom Rights becoming exercisable.
The WorldCom Rights have certain anti-takeover effects. The WorldCom
Rights will cause substantial dilution to a person or group that attempts to
acquire or merge with WorldCom in certain circumstances. Accordingly, the
existence of the WorldCom Rights may deter certain potential acquirors from
making certain takeover proposals or tender offers. The WorldCom Rights should
not interfere with any merger or other business combination approved by the
WorldCom Board of Directors since WorldCom may redeem the WorldCom Rights as
described above.
CERTAIN CHARTER AND BYLAW PROVISIONS
In addition to the WorldCom Rights Agreement described above, the WorldCom
Articles and the WorldCom Bylaws contain certain provisions, which are referred
to below and which may have the effect of discouraging certain types of
transactions that involve an actual or threatened change of control of
WorldCom. See "Risk Factors -- Risks Related to WorldCom, MFS and the Combined
Company -- Anti-Takeover Provisions." In addition, one of the effects of the
existence of unissued and unreserved WorldCom Common Stock and preferred stock
may be to enable the WorldCom Board of Directors to issue shares to persons
friendly to current management, which could render more difficult or discourage
an attempt to obtain control of WorldCom by means of a merger, tender offer,
proxy contest or otherwise, and thereby protect the
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continuity of WorldCom's management and possibly deprive the shareholders of
opportunities to sell their shares of WorldCom Capital Stock at prices higher
than the prevailing market prices. Such additional shares also could be used to
dilute the stock ownership of persons seeking to obtain control of WorldCom.
Election of Directors. Under Georgia law, directors, unless their terms
are staggered pursuant to the corporation's articles of incorporation or
bylaws, are elected at each annual shareholder meeting under Georgia law, and
vacancies on the board of directors may be filled by the shareholders or
directors, unless the articles of incorporation or a bylaw approved by the
shareholders provides otherwise. The articles of incorporation may authorize
the election of certain directors by one or more classes or series of shares.
The articles of incorporation or the bylaws also may allow the shareholders or
the board of directors to fix or change the number of directors. Currently, the
WorldCom Bylaws provide that the number of members of the WorldCom Board of
Directors shall be fixed by the WorldCom Board of Directors but shall not be
less than three. The WorldCom Articles and the WorldCom Bylaws do not provide
for a staggered board of directors. In accordance with the MFS Merger
Agreement, WorldCom will increase the number of members of its Board of
Directors to 15 persons, eight of whom will be designated by WorldCom prior to
the MFS Closing Date and seven of whom will be designated by MFS prior to the
MFS Closing Date. Subject to certain restrictions, nominations to the WorldCom
Board of Directors may be made by either the Board or shareholders, if
delivered to WorldCom not later than 90 days prior to the anniversary date of
the immediately preceding annual meeting of WorldCom shareholders. Under
Georgia law, shareholders do not have cumulative voting rights for the election
of directors unless the articles of incorporation so provide. The WorldCom
Articles do not provide for cumulative voting.
Special Meetings of Shareholders. Georgia law permits the board of
directors or any person specified in the corporation's articles of
incorporation or bylaws to call special meetings of shareholders. A special
meeting may also be called by at least 25% or such greater or lesser percentage
of all the votes entitled to be cast on any issue proposed to be considered at
the special meeting as is designated in the corporation's articles of
incorporation or bylaws. The WorldCom Bylaws provide that a special meeting may
be called by the WorldCom Board of Directors, the President of WorldCom or the
holders of not less than 40% of all the votes entitled to be cast on the issue
proposed to be considered at the proposed special meeting.
Special Redemption Provisions. The WorldCom Articles contain provisions
permitting WorldCom to redeem shares of its capital stock from certain foreign
shareholders in order to enable it to continue to hold certain common carrier
radio licenses. These provisions are intended to cause WorldCom to remain in
compliance with the Communications Act of 1934, as amended, and the regulations
of the FCC promulgated thereunder.
Under these provisions, at such time as the percentage of capital stock
owned by foreign shareholders or certain affiliates thereof exceeds 20%,
WorldCom has the right to redeem the "excess shares" held by such persons at
the fair market value thereof. Following any determination that such excess
shares exist, such excess shares shall not be deemed outstanding for purposes
of determining the vote required on any matter brought to the attention of the
shareholders of WorldCom and such excess shares shall have no right to receive
any dividends or other distributions, including distributions in liquidation.
If such shares are traded on a national securities exchange or in the
over-the-counter market, such fair market value is the average closing price
for the 45 trading days immediately preceding the date of redemption. If such
shares are not so traded, such fair market value shall be established by the
WorldCom Board of Directors. In the event there is a foreign shareholder who
acquired shares within 120 days of the date of redemption, however, the
redemption price shall not exceed the price per share paid by such shareholder.
At least 30 days notice of redemption must be given, and the redemption price
may be paid in cash, securities or any combination thereof. WorldCom may
require confirmation of citizenship from any record or beneficial owner of
shares of its capital stock, and from any transferee thereof, as a condition to
the registration or transfer of those shares.
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Business Combination Restrictions. Under Georgia law, Georgia corporations
may adopt a provision in their bylaws requiring that "Business Combinations" be
approved by a special vote of the board of directors and/or the shareholders
unless certain fair pricing criteria are met. Georgia corporations may also
adopt a provision in their articles of incorporation or bylaws which requires
that "Business Combinations" with "Interested Shareholders" be approved by a
super majority vote. These provisions, neither of which has been adopted by
WorldCom, are described below. Also described below is the business combination
restriction contained in the WorldCom Articles.
Georgia's "fair price" statute authorizes a corporation to adopt a bylaw
provision which requires special approval by the board of directors and/or
shareholders for "Business Combinations" unless certain "fair price" criteria
are met. Generally, for purposes of this statute, "Business Combination" is
defined to include mergers, sales of assets out of the ordinary course of
business, liquidations, and certain issuances of securities involving the
corporation and any "Interested Shareholder." For purposes of this statute, an
"Interested Shareholder" is defined as a person or entity that is the
beneficial owner of 10% or more of the outstanding shares of the corporation's
voting stock, or a person or entity that is an affiliate of the corporation
and, at any time within the two-year period immediately prior to the date in
question, was the beneficial owner of 10% or more of the then outstanding
shares of the corporation's voting stock. A Business Combination with an
Interested Shareholder must meet one of three criteria: (i) the transaction
must be unanimously approved by the "Continuing Directors" (directors who
served as directors immediately prior to the date the Interested Shareholder
first became an Interested Shareholder and who are not affiliates or associates
of the Interested Shareholder), provided that the Continuing Directors
constitute at least three members of the board of directors at the time of such
approval; (ii) the transaction must be recommended by at least two-thirds of
the Continuing Directors and approved by a majority of the votes entitled to be
cast by holders of voting shares, excluding shares held by the Interested
Shareholder; or (iii) the terms of the transaction must meet fair pricing
criteria and certain other tests intended to assure that all shareholders
receive a fair price and equivalent consideration for their shares regardless
of when they sell to the acquiring party.
Georgia's "business combination" statute authorizes a corporation to adopt
a bylaw provision which prohibits "Business Combinations" with "Interested
Shareholders" occurring within five years of the date a person first becomes an
Interested Shareholder, unless special approval of the transaction is obtained.
For purposes of this statute, "Business Combination" is defined to include
mergers, sales of 10% or more of the corporation's net assets, and certain
issuances of securities involving the corporation and any "Interested
Shareholder." "Interested Shareholder" has the same definition as under the
Georgia "fair price" statute. Any Business Combination with an Interested
Shareholder within five years of the date such person first became an
Interested Shareholder requires approval in one of three ways: (i) prior to
becoming an Interested Shareholder, the corporation's board of directors must
have approved the Business Combination or the transaction which resulted in the
shareholder becoming an Interested Shareholder; (ii) the Interested Shareholder
acquires at least 90% of the outstanding voting stock of the corporation (other
than shares owned by officers, directors and their affiliates and associates)
in the same transaction in which such person becomes an Interested Shareholder;
or (iii) subsequent to becoming an Interested Shareholder, such person acquires
additional shares resulting in ownership of at least 90% of the outstanding
shares (other than shares owned by officers, directors and their affiliates and
associates), and obtains the approval of the Business Combination by the
holders of a majority of the remaining shares.
The WorldCom Articles contain a provision that requires the approval by
the holders of at least 70% of the voting power of the outstanding shares of
any class of stock of WorldCom entitled to vote generally in the election of
directors as a condition for Business Transactions (defined below) involving
WorldCom and a Related Person (defined below) or in which a Related Person has
an interest, unless (a) the Business Transaction is approved by at least a
majority of WorldCom's Continuing Directors (defined below) then
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serving on the Board of Directors, but if the votes of such Continuing
Directors would have been insufficient to constitute an act of the Board of
Directors, then such transaction must have been approved by the unanimous vote
of such Continuing Directors so long as there were at least three such
Continuing Directors serving on the Board of Directors at the time of such
unanimous vote, provided that no such Continuing Director is a Related Person
who has an interest in the Business Transaction (other than a proportionate
interest as a shareholder of WorldCom), or (b) certain minimum price and
procedural requirements are met. A "Business Transaction" is defined to mean:
(i) any merger, share exchange or consolidation involving WorldCom or any of
its subsidiaries; (ii) any sale, lease, exchange, transfer or other disposition
by WorldCom or any of its subsidiaries of more than 20% of its assets; (iii)
any sale, lease, exchange, transfer or disposition of more than 20% of the
assets of an entity to WorldCom or a subsidiary of WorldCom; (iv) the issuance,
sale, exchange, transfer or other disposition by WorldCom or a subsidiary of
WorldCom of any securities of WorldCom or any subsidiary in exchange for cash,
securities or other properties having an aggregate fair market value of $15
million or more; (v) any merger, share exchange or consolidation between
WorldCom and any subsidiary of WorldCom in which WorldCom is not the survivor
and the charter of the surviving corporation does not contain provisions
similar to this provision; (vi) any recapitalization or reorganization of
WorldCom or reclassification of its securities which would have the effect of
increasing the voting power of a Related Person; (vii) any liquidation, spin
off, split off, split up or dissolution of WorldCom; and (viii) any agreement,
contract or other arrangement providing for any of the Business Transactions
defined or having a similar purpose or effect. A "Related Person" is defined to
mean a beneficial owner which, together with its Affiliates and Associates
(defined below), beneficially own 10% or more of WorldCom's outstanding voting
stock or who had such level of beneficial ownership: (a) at the time of
entering into the definitive agreement providing for the Business Transaction;
(b) at the time of adoption by the Board of Directors of a resolution approving
such transaction; or (c) as of the record date for the determination of
shareholders entitled to vote on or consent to the Business Transaction. A
"Continuing Director" is a director of WorldCom who either was a member of the
Board of Directors on September 15, 1993, or who became a director of WorldCom
subsequent to such date and whose election, or nomination for election by the
shareholders, was approved by at least a majority of the Continuing Directors
then on the Board of Directors. If the votes of such Continuing Directors would
have been insufficient to constitute an act of the Board of Directors, then
such election or nomination must have been approved by the unanimous vote of
the Continuing Directors so long as there were at least three such Continuing
Directors on the Board of Directors at the time of such unanimous vote. An
"Affiliate" is defined to mean a person that directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or is under common
control with, such specified person. An "Associate" is defined to mean: (a) any
corporation, partnership or other organization of which such specified person
is an officer or partner; (b) any trust or other estate in which such specified
person has a substantial beneficial interest or as to which such specified
person serves as trustee or in a similar fiduciary capacity; (c) any relative
or spouse of such specified person, or any relative of such spouse, who has the
same home as such specified person or who is a director or officer of WorldCom
or any of its subsidiaries; and (d) any person who is a director, officer or
partner of such specified person or of any corporation (other than WorldCom or
any wholly owned subsidiary of WorldCom), partnership or other entity which is
an Affiliate of such specified person.
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EFFECT OF THE MERGER ON RIGHTS OF SHAREHOLDERS
The rights of shareholders of BLT are governed by the WBCA and by BLT's
Articles of Incorporation and Bylaws. Upon conversion of BLT Common Stock into
WorldCom Common Stock, the rights of the former holders of BLT Common Stock who
receive WorldCom Common Stock will be governed by the GBCC and by the WorldCom
Articles and the WorldCom Bylaws. The following are summaries of certain of
the material differences between the rights of holders of BLT Common Stock and
WorldCom Common Stock.
RIGHTS OF DISSENTING SHAREHOLDERS
As described in "The Merger - Dissenters' Rights," holders of BLT Common
Stock have the right to dissent from the Merger and to demand the fair value of
their shares from BLT. Shareholders of BLT generally have the right to
dissent from and have the fair value of their shares appraised in connection
with certain mergers, sales of assets and other extraordinary transactions for
which shareholder approval is required.
The GBCC also provides dissenters' rights. These rights generally do not
apply, however, with respect to shares registered on a national securities
exchange or quoted on the Nasdaq National Market System. WorldCom Common Stock
is quoted on the Nasdaq National Market, and therefore holders of WorldCom
Common Stock generally do not have dissenters' rights.
CERTAIN VOTING RIGHTS
Under the WBCA, unless the articles of incorporation provide otherwise and
except with respect to certain "Significant business transactions" as defined
in the WBCA, the affirmative vote of two-thirds of the issued and outstanding
shares is required for approval of a merger of a corporation, a sale of all or
substantially all of a corporation's assets, or a voluntary dissolution of a
corporation. An amendment to a corporation's articles of incorporation
generally requires the affirmative vote of two-thirds of the issued and
outstanding shares, although the articles of incorporation may provide for a
lesser percentage.
The GBCC generally provides that such fundamental transactions (other than
certain "Business Combinations" as defined in the GBCC) require approval by the
vote of the holders of a majority of a corporation's outstanding stock entitled
to vote on such fundamental transactions.
ELECTION OF DIRECTORS
Under Washington law, directors are elected at each annual shareholder
meeting unless their terms are staggered. Vacancies on the board may be filled
by the shareholders or directors, unless the articles of incorporation or a
bylaw provide otherwise. The articles of incorporation may authorize the
election of certain directors by one or more classes or series of shares, and
the articles of incorporation, may provide for staggered terms for the
directors. The articles of incorporation or the bylaws also may follow the
shareholders or the board of directors to fix or change the number of
directors, but a corporation must have at least one director. The BLT Board of
Directors, which presently consists of 5 members, had not been established with
staggered terms for directors. Under Washington law, shareholders have
cumulative voting rights unless the articles of incorporation provide
otherwise. The BLT Articles of Incorporation provide that shareholders do not
have cumulative voting.
Upon consummation of the Merger, the former shareholders of BLT will have
rights under Georgia law in the election of directors similar to those provided
by Washington law. Directors, unless their terms are staggered pursuant to the
corporation's articles of incorporation or bylaws, are elected at each annual
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shareholder meeting under Georgia law, and vacancies on the board of directors
may be filled by the shareholders or directors, unless the articles of
incorporation or a bylaw approved by the shareholders provides otherwise. The
articles of incorporation may authorize the election of certain directors by
one or more classes or series of shares. The articles of incorporation or the
bylaws also may allow the shareholders or the board of directors to fix or
change the number of directors. Currently, the WorldCom Bylaws provide that the
number of members of the WorldCom Board of Directors shall be fixed by the
WorldCom Board of Directors but shall not be less than three. The WorldCom
Articles and the WorldCom Bylaws do not provide for a staggered board of
directors. In accordance with the Merger Agreement, WorldCom will increase the
number of members of its Board of Directors to 15 persons, eight of whom will
be designated by WorldCom prior to the MFS Closing Date and seven of whom will
be designated by MFS prior to the MFS Closing Date. See "Information Regarding
WorldCom -- Management of WorldCom Following the MFS Merger." Subject to
certain restrictions, nominations to the WorldCom Board of Directors may be
made by either the Board or shareholders, if delivered to WorldCom not later
than 90 days prior to the anniversary date of the immediately preceding annual
meeting of WorldCom shareholders. Under Georgia law, shareholders do not have
cumulative voting rights for the election of directors unless the articles of
incorporation so provide. The WorldCom Articles do not provide for cumulative
voting.
REMOVAL OF DIRECTORS
Under Washington law, one or more directors may be removed by the
shareholders with or without cause, unless the articles of incorporation
provide that directors may be removed only for cause. The Articles of
Incorporation of BLT do not contain a provision limiting the removal of
directors. A director of a Washington corporation may be removed by the
shareholders only at a special meeting called for the purpose of removing the
director, and the meeting notice must state that the purpose, or one of the
purposes, of the meeting is removal of the director. If a director is elected
by the holders of one or more classes or series of shares, only the holders
those classes or series of shares may participate in the vote to remove that
director. Under Washington law, a director of a corporation that does not have
cumulative voting may be removed only if the votes cast to remove the director
exceed the votes cast against removal of the director. BLT does not have
cumulative voting.
Georgia law provides that, unless director terms are staggered, directors
may be removed with or without cause by a majority of the votes entitled to be
cast, unless the articles of incorporation or a bylaw adopted by the
shareholders provides that directors may be removed only for cause, provided,
however, that if a director is elected by a particular voting class of
shareholders, that director may only be removed by the vote of that voting
group. The WorldCom Articles and the WorldCom Bylaws contain no provisions that
a director may be removed only for cause and, because director terms are not
staggered, directors of WorldCom may be removed with or without cause.
ACTION BY WRITTEN CONSENT
Under Washington law, shareholder action may be taken without a meeting if
written consents setting forth such action are signed by all shareholders
entitled to vote on the action.
Georgia law provides that any action which might be taken by the
shareholders at a meeting may be taken by the shareholders without a meeting if
evidenced by one or more written consents describing the action taken, signed
by all shareholders, or, if the articles of incorporation provide for less than
all shareholders, by the number of shareholders required by the corporation's
articles. The WorldCom Articles do not provide for the consent of a lesser
number of shareholders with respect to an action by written consent, thus the
written consent of all shareholders of WorldCom would be required in order to
take such an action without a meeting of shareholders.
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AMENDMENTS TO CHARTER
Washington law authorizes a corporation's board of directors to make
certain changes to its articles of incorporation without shareholder approval,
including a change of corporate name, a change or elimination of provisions
relating to the par value of its shares, and, if the corporation has only one
class of stock outstanding, a change in the number of outstanding shares in
order to effectuate a stock split or stock dividend in the corporation's own
shares. Any other amendment to the articles of incorporation must be
recommended to the shareholders by the board of directors, unless the board
determines that because of a conflict of interest or other special
circumstances, it should make no recommendation, and for a non-public company
the amendment must be approved by two-thirds of all votes entitled to be cast
by each voting group which has a right to vote on the amendment. Washington law
gives the holders of a class or series of stock the right to vote separately on
an amendment to the articles if the class or series would be aversely affected
by the amendment as specified in the statute, even if such shares are nonvoting
shares under the articles of incorporation.
Georgia law provides that, unless a corporation's articles of
incorporation provide otherwise, directors may only make certain relatively
technical amendments to a corporation's articles of incorporation. Otherwise,
only the affirmative vote of a majority of the votes entitled to be cast on the
amendment by each voting group entitled to vote on the amendment, may amend a
Georgia corporation's articles of incorporation.
AMENDMENTS TO BYLAWS
Washington law provides that, unless a corporation's articles of
incorporation, applicable law or a particular bylaw provides otherwise, either
the corporation's directors or its shareholders may amend that corporation's
bylaws. The BLT Articles of Incorporation allow the directors or shareholders
to amend or repeal the BLT Bylaws, except that the directors may not repeal or
amend any bylaw that the shareholders have provided may not be amended or
repealed by the Board of Directors.
Georgia law provides that, unless a corporation's articles of
incorporation, applicable law or a particular bylaw approved by the
corporation's shareholders provides otherwise, either the corporation's
directors or its shareholders may amend that corporation's bylaws. The WorldCom
Bylaws allow the directors or shareholders to amend or repeal the WorldCom
Bylaws unless the WorldCom Articles or applicable law reserves the power to
amend or repeal a particular bylaw exclusively to the shareholders or unless
the shareholders, in amending or repealing a particular bylaw, provide
expressly that the directors may not amend or repeal that bylaw.
SPECIAL MEETINGS OF SHAREHOLDERS
Washington law provides that special meetings of the shareholders of a
corporation may be called by its board of directors or the person or person
authorized to do so by the articles of incorporation or bylaws, or by the
holders of at least ten percent of all the votes entitled to be cast on any
issue proposed to be considered at the proposed special meeting. The right of
shareholders of a public company to call a special meeting may be limited or
denied to the extend provided in the articles or incorporation. If the
corporation is other than a public company, the articles or bylaws may require
the shareholder demand for a special meeting to be made by a greater
percentage, not in excess of twenty-five percent, of all the votes entitled to
be cast on any issue proposed to be considered at the proposed special meeting.
The BLT Bylaws provide that a special meeting may be called by the Board of
Directors, the Chairman of the Board, the President, a majority of the board of
directors, or any shareholder or shareholders holding in the aggregate 25% of
the voting power of all shareholders.
Georgia law permits the board of directors or any person specified in the
corporation's articles of incorporation or bylaws to call special meetings of
shareholders. A special meeting may also be called by at
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least 25% or such greater or lesser percentage of all the votes entitled to be
cast on any issue proposed to be considered at the special meeting as is
designated in the corporation's articles of incorporation or bylaws. The
WorldCom Bylaws provide that a special meeting may be called by the WorldCom
Board of Directors, the President of WorldCom or the holders of not less than
40% of all the votes entitled to be cast on the issue proposed to be considered
at the proposed special meeting.
VOTE ON EXTRAORDINARY CORPORATE TRANSACTIONS
Under Washington law, certain mergers, certain transactions involving a
sale, lease, exchange or other disposition of substantially all of a
corporation's property other than in the usual and regular course of business,
or the dissolution of a corporation must be approved by the board of directors,
and by two-thirds of all votes entitled to be cast by each voting group of
shareholders entitled to vote as a separate group, unless another proportion is
specified in the articles of incorporation.
Georgia law is similar to Delaware law in that, except as described above
under "Description of WorldCom Capital Stock - Certain Charter and Bylaw
Provisions - Business Combination Restrictions" with respect to "business
combinations," a sale or other disposition of all or substantially all of the
corporation's assets, a merger of the corporation with and into another
corporation, a share exchange involving one or more classes or series of the
corporation's shares or a dissolution of the corporation requires the
affirmative vote of the Board of Directors (except in certain limited
circumstances) plus, with certain exceptions, the affirmative vote of a
majority of all shares of stock entitled to vote thereon.
INDEMNIFICATION AND LIMITATION OF LIABILITY OF DIRECTORS AND OFFICERS
Under Washington law, a corporation's articles of incorporation may
contain a provision eliminating or limiting the personal liability of a
director to the corporation or its shareholders for monetary damages for his or
her conduct as a director. Such a provision cannot eliminate or limit the
liability of a director for: (i) acts or omissions involving intentional
misconduct or a knowing violation of law by a director; (ii) approval of
certain dividends or other distributions contrary to law; or (iii) any
transaction from which the director personally receives a benefit in money,
property or services to which the director is not legally entitled. Washington
law does not contain any provision authorizing the articles of incorporation to
eliminate or limit the personal liability of an officer to the corporation or
its shareholders. The Articles of Incorporation of BLT provide that each of
its directors shall not be liable to the corporation or its shareholders for
monetary damages for his or her conduct as a director, to the fullest extent
permitted by Washington law.
Washington law requires a corporation to indemnify directors and officers,
to the extent that such individual is wholly successful on the merits or
otherwise in the defense of the certain proceedings arising out of his or her
serving in such capacity, or in the defense of any claim, issue or matter in
such proceeding, with such indemnity to cover expenses and attorneys' fees
actually and reasonably incurred in connection with such defense. Washington
law permits the articles of incorporation to limit this obligation. Washington
law allows a corporation to provide certain indemnity to a person who is made a
party to certain proceedings by reason of serving as a director or officer of
the corporation if it is determined that a certain standard of conduct is
satisfied. Under the basic indemnification authority, a distinction is made
between conduct of a director or officer in his or her "official capacity" as a
director or officer, and conduct in any other capacity in which indemnification
is authorized. The basic standard of conduct for indemnification under
Washington law requires that an individual have acted in good faith, and if
acting in an official capacity, that such individual reasonably believed that
his or her conduct was in the best interests of the corporation, or if acting
in any other capacity, that the individual reasonably believed that his or her
conduct was at least not opposed to the best interests of the corporation.
With respect to criminal proceedings, the standard is that the person had no
reasonable cause to believe his or her conduct was unlawful. Under the basic
indemnification authority of Washington law, if it is determined that the
required standard of conduct is satisfied, a corporation generally
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may indemnify a director against judgments, settlements, penalties, fines and
reasonable expenses including attorneys' fees incurred with respect to a
proceeding. However, Washington law provides generally that a corporation may
not indemnify a director in connection with a proceeding brought by or on
behalf of the corporation in which the director was held liable to the
corporation, and that any indemnification provided in a proceeding brought by
or on behalf of the corporation shall be limited to reasonable expenses
incurred in connection with the proceeding. Washington law also provides that a
corporation may not indemnify a director in connection with any other
proceeding if the director is held liable for receipt of an improper personal
benefit. However, any director who is a party to a proceeding may apply to a
court for indemnification, and the court may order such indemnity if the court
finds that the director is fairly and reasonably entitled to indemnification in
view of all the relevant circumstances, even if (i) the director did not meet
the statutory standard of conduct or (ii) the director was held liable to the
corporation or was adjudged liable for receipt of an improper personal benefit,
although in such case the indemnity will be limited to reasonable expenses
incurred, unless otherwise provided in the articles of incorporation or a
bylaw, contract or resolution approved or ratified by the shareholders. Under
Washington law except for certain advances of expenses, and unless ordered by a
court, indemnification must be authorized in each specific case, upon a
determination that indemnification of the director, officer, employee or agent
is proper under the circumstances. Such determination must be made by the
shareholders, by the board of directors by majority vote of a quorum of
directors who are not parties to the proceeding, a committee of the board
consisting solely of two or more directors who are not parties to the action,
or, under certain circumstances, by independent legal counsel in a written
opinion. Shares owned or controlled by parties to the proceeding may not be
voted in any determination by the shareholders as to whether indemnification is
proper. Washington law specifically requires both a determination that a
statutory standard of conduct has been satisfied and an evaluation as to the
reasonableness of expenses. A corporation may pay or reimburse the reasonable
expenses incurred by a director who is a party to a proceeding in advance of
final disposition upon receipt of an undertaking to repay and an affirmation of
the director's good faith belief that the director has net the statutory
standard of conduct for indemnification. The authorization of such payments may
be made by the articles, bylaws, a board or shareholder resolution or a
contract.
Under Washington law, indemnification of directors beyond the basic
statutory authority may be established by the articles of incorporation, or a
bylaw that is adopted or ratified by the shareholders, or a resolution that is
adopted or ratified, before or after any relevant event, by the shareholders.
However, no such indemnity shall indemnify any director from or on account of:
(i) acts or omissions of the director finally adjudged to be intentional
misconduct or a knowing violation of law; (ii) conduct of a director finally
adjudged to be in violation of a statute relating to unlawful dividends or
other distributions; or (iii) any transaction with respect to which it was
finally adjudged that such director personally received a benefit in money,
property, or services to which the director was not legally entitled. The
indemnification provisions of the Articles of Incorporation and Bylaws of BLT
establish mandatory indemnification of directors and officers that goes beyond
the basic statutory authority, as permitted by this section of Washington law.
Accordingly, certain of the conditions and limitations described above in the
basic indemnification authority of Washington law do not apply to the mandatory
indemnification of directors and officers as provided in the Bylaws.
Washington law requires that if a corporation indemnifies or advances
expenses to a director in connection with a proceeding by or in the right of
the corporation, the corporation shall report the indemnification or advance to
the shareholders with or before the notice of the next meeting of the
shareholders.
Georgia law permits corporations to adopt a provision in their articles of
incorporation eliminating or limiting the personal liability of a director to
the corporation or its shareholders for monetary damages for breach of the
director's duty of care or other duties as directors. Georgia law does not
permit the elimination or limitation of monetary liability in the event of (i)
misappropriation of corporate business opportunities; (ii) intentional
misconduct or knowing violation of the law; (iii) unlawful distributions; or
(iv) improper
111
<PAGE> 128
personal benefit. The WorldCom Articles limit the personal liability of
directors for monetary damages to the fullest extent permissible under
applicable law.
Georgia law permits WorldCom to indemnify any director or officer of
WorldCom for any liability and expense that may be incurred in connection with
any threatened, pending or completed civil, criminal, administrative or
investigative action, suit or proceeding (whether brought by or in the right of
WorldCom), in which he may become involved by reason of his being or having
been a director or officer of WorldCom, provided that such person acted in a
manner he believed in good faith to be in or not opposed to the best interests
of WorldCom, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Except where an
individual is successful on the merits or otherwise in defense of any such
action, suit or proceeding, in which case indemnification is as of right, the
determination of whether the director has met the requisite standard of conduct
for indemnification may be made by (i) a majority vote of a quorum consisting
of directors not at that time parties to the suit; (ii) a duly designated
committee of directors; (iii) duly selected special legal counsel; or (iv) the
shareholders, excluding shares owned by or voted under the control of directors
who are at that time parties to the suit. If authorized by the articles of
incorporation or a bylaw, contract, or resolution approved or ratified by the
shareholders, a corporation may indemnify a director made a party to a
proceeding including a proceeding brought by or in the right of the corporation
unless the director is adjudged liable: (1) for any appropriation, in
violation of his duties, of any business opportunity of the corporation; (2)
for acts which involve intentional misconduct or a knowing violation of law;
(3) for unlawful distributions; or (4) for any transaction from which he
received an improper personal benefit. A corporation may pay for or reimburse
the reasonable expenses incurred by a director who is a party to a proceeding
in advance of final disposition if the director certifies that he has met the
standards of conduct under Georgia law and the director agrees to repay any
advances if it is ultimately determined that he is not entitled to
indemnification. Under Georgia law, a corporation's authority to indemnify
officers, unlike directors, is restricted only by public policy. A person who
is both an officer and a director is treated, for indemnification purposes, as
a director. The WorldCom Articles and the WorldCom Bylaws authorize
indemnification of its officers and directors to the fullest extent permitted
by Georgia law.
SPECIAL REDEMPTION PROVISIONS
The WorldCom Articles contain provisions permitting WorldCom to redeem
shares of its capital stock from certain foreign shareholders in order to
enable it to continue to hold certain common carrier radio licenses. These
provisions are intended to cause WorldCom to remain in compliance with the
Communications Act of 1934, as amended, and the regulations of the FCC
promulgated thereunder. See "Description of WorldCom Capital Stock - Certain
Charter and Bylaw Provisions - Special Redemption Provisions."
* * * * * * * * * *
The above discussion does not constitute a complete comparison of the
differences between the rights of BLT shareholders and holders of WorldCom
Common Stock or the provisions of the WBCA and the GBCC. BLT shareholders are
referred to the WBCA, GBCC and the WorldCom Articles and the WorldCom Bylaws,
which have been filed as exhibits to WorldCom's filings with the Commission and
incorporated by reference herein respectively, for a more complete treatment of
the subject matter, including without limitation matters such as the election,
removal, indemnification and limitation of liability of directors, action by
written consent, amendments to the articles of incorporation and bylaws,
special meetings of shareholders, voting rights in general, dividends,
preemptive rights and special redemption provisions. See also "Risk Factors --
Anti-Takeover Provisions" and "Description of WorldCom Capital Stock."
112
<PAGE> 129
EXPERTS
The consolidated financial statements and schedule of WorldCom 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 WorldCom'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 is incorporated herein
by reference from WorldCom'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 years then ended, incorporated by
reference in this Proxy Statement/Prospectus, have been audited by Ernst &
Young LLP, independent auditors, to the extent indicated in their report
thereon, also incorporated by reference in this Proxy Statement/Prospectus.
Such combined financial statements are incorporated by reference herein in
reliance upon such report 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 WorldCom's Current Report on Form 8-K/A dated August 25, 1996
(filed November 4, 1996) and incorporated by reference into this Proxy
Statement/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 financial statements of BLT as of May 31, 1996 and 1995 and for the
years ended May 31, May 31, 1996 and 1995 and for the seventeen-month period
ended May 31, 1994 have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of such firm as experts in
accounting and auditing in giving such reports.
113
<PAGE> 130
INDEX TO BLT FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants ........................... F-1
Balance Sheets as of May 31, 1996 and 1995 ......................... F-2
Statements of Operations
for the years ended May 31,1996 and 1995
and the 17 months ended May 31, 1994 ........................ F-3
Statements of Shareholders'
Equity (Deficit) for the years ended May 31, 1996 and 1995
and the 17 months ended May 31, 1994 ........................ F-4
Statements of Cash Flows
for the years ended May 31, 1996 and 1995
and the 17 months ended May 31, 1994 ........................ F-5
Notes to Financial Statements ...................................... F-6
Balance Sheets as of August 31, 1996 (unaudited) and May 31, 1996 .. F-15
Statements of Operations
for the three months ended August 31, 1996 and 1995 ......... F-16
Statement of Cash Flows
for the three months ended August 31, 1996 and 1995 ......... F-17
Notes to Financial Statements (unaudited) .......................... F-18
</TABLE>
114
<PAGE> 131
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
BLT Technologies, Inc.:
We have audited the accompanying balance sheets of BLT Technologies, Inc.
(formerly Bottom Line Telecommunications, Inc. a Washington corporation) as of
May 31, 1996 and 1995, and the related statements of operations, shareholders'
equity (deficit) and cash flows for the years then ended and the
seventeen-month period ended May 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of BLT Technologies, Inc. as of
May 31, 1996 and 1995, and the results of its operations and its cash flows for
the years then ended and the seventeen-month period ended May 31, 1994, in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Portland, Oregon,
July 31, 1996
F-1
<PAGE> 132
BLT TECHNOLOGIES, INC.
BALANCE SHEETS -- MAY 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS
1996 1995
----------- ----------
CURRENT ASSETS:
---------------
<S> <C> <C>
Cash and cash equivalents $ 719,193 $ 491,829
Accounts receivable, less
allowance of $130,000 and
$138,450 5,814,881 3,390,377
Commissions receivable, less
allowance of $0 and $20,000 55,719 134,200
Prepaid expenses and other 975,334 346,931
Inventories 639,205 326,000
Notes receivable 223,705 128,358
Deferred taxes 538,000 500,000
----------- ----------
Total current assets 8,966,037 5,317,695
----------- ----------
PROPERTY AND EQUIPMENT:
Vending machines 2,591,440 2,392,709
Computer equipment 3,017,923 1,407,343
Office furniture and equipment 494,457 127,024
Land, building and improvements 1,347,325 -
CTI system in progress 1,959,841 -
----------- ----------
9,410,986 3,927,076
Less-Accumulated depreciation (1,580,140) (472,951)
----------- ----------
Net property and equipment 7,830,846 3,454,125
----------- ----------
OTHER ASSETS:
Deposits 95,838 125,662
Other 12,566 29,306
----------- ----------
Total other assets 108,404 154,968
----------- ----------
Total assets $16,905,287 $8,926,788
----------- ----------
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
1996 1995
----------- -----------
CURRENT LIABILITIES:
<S> <C> <C>
Short-term notes payable $ 145,930 $ 1,000,000
Accounts payable 2,692,338 420,980
Accrued access 1,557,645 950,966
Accrued expenses 914,989 662,827
Commissions payable 357,960 287,460
Accrued taxes 1,248,535 439,202
Deferred revenue (Note 2) 7,864,971 4,923,080
Other 2,531 6,500
----------- -----------
Total current liabilities 14,784,899 8,691,015
----------- -----------
LONG-TERM LIABILITIES 1,307,679 54,879
----------
-----------
Total liabilities 16,092,578 8,745,894
----------- -----------
COMMITMENTS AND CONTINGENCIES
(Note 7)
SHAREHOLDERS' EQUITY:
Preferred stock, $0.01 par value, authorized 5,000,000 and -- --
0; no shares issued and outstanding
Common stock and paid-in capital, $0.01 par value,
authorized 40,000,000 and 15,000,000; issued and 2,462,090 2,462,100
outstanding 5,848,897 and 5,848,900
Accumulated deficit (1,649,381) (2,281,206)
----------- -----------
Total shareholders' equity 812,709 180,894
----------- -----------
Total liabilities and shareholders' equity $16,905,287 $8,926,788
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-2
<PAGE> 133
BLT TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MAY 31, 1996 AND 1995 AND THE
SEVENTEEN-MONTH PERIOD ENDED MAY 31, 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Card revenues and long distance services $36,723,826 $18,920,468 $ 4,213,237
Commissions earned 596,549 1,311,859 4,237,974
----------- ----------- -----------
Total revenues 37,320,375 20,232,327 8,451,211
----------- ----------- -----------
OPERATING EXPENSES:
Cost of services 25,809,986 14,557,019 5,006,695
Selling, general and administrative 9,291,047 6,550,719 4,494,997
Depreciation and amortization 1,181,623 413,637 83,048
----------- ----------- -----------
Total operating expenses 36,282,656 21,521,375 9,584,740
----------- ----------- -----------
Operating income (loss) 1,037,719 (1,289,048) (1,133,529)
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (76,743) (171,994) (70,683)
Gains from sales of rights and investments
- 959,996 -
Other 1,849 35,823 12,744
----------- ----------- -----------
Total other (74,894) 823,825 (57,939)
----------- ----------- -----------
Income (loss) before income taxes 962,825 (465,223) (1,191,468)
INCOME TAX EXPENSE (BENEFIT) 331,000 (500,000) -
----------- ----------- -----------
NET INCOME (LOSS) $ 631,825 $ 34,777 $(1,191,468)
=========== =========== ===========
EARNINGS PER SHARE:
Primary $ 0.11 $ 0.01 $ (0.22)
=========== =========== ===========
Fully diluted $ 0.10 $ 0.00 $ (0.22)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 134
BLT TECHNOLOGIES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED MAY 31, 1996 AND 1995 AND THE
SEVENTEEN-MONTH PERIOD ENDED MAY 31, 1994
<TABLE>
<CAPTION>
Common Stock
-------------------
Additional Total
Par Paid-in Accumulated Shareholders'
Shares Value Capital Deficit Equity (Deficit)
--------- ------- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1992 5,161,900 $ - $ 733,350 $(1,124,515) $ (391,165)
Common stock issued to 359,500 - 719,000 - 719,000
shareholders for cash
Common stock issued for 5,000 - 10,000 - 10,000
services
Net loss - - - (1,191,468) (1,191,468)
--------- ------- ---------- ----------- -----------
BALANCE, May 31, 1994 5,526,400 - 1,462,350 (2,315,983) (853,633)
Common stock issued to 312,500 - 968,750 - 968,750
shareholders for cash
Common stock issued related 10,000 - 31,000 - 31,000
to financing
Net income - - - 34,777 34,777
--------- ------- ---------- ----------- -----------
BALANCE, May 31, 1995 5,848,900 - 2,462,100 (2,281,206) 180,894
Reverse split (3) - (10) - (10)
Par value adjustment - 58,489 (58,489) - -
Net income - - - 631,825 631,825
--------- ------- ---------- ----------- -----------
BALANCE, May 31, 1996 5,848,897 $58,489 $2,403,601 $(1,649,381) $ 812,709
========= ======= ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 135
BLT TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MAY 31, 1996 AND 1995 AND THE
SEVENTEEN-MONTH PERIOD ENDED MAY 31, 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 631,825 $ 34,777 $(1,191,468)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities-
Depreciation and amortization 1,188,699 461,501 90,548
Gains from sales of rights and investments - (959,996) -
Write off of notes receivable 66,930 - -
Common stock issued for services - - 10,000
Provisions for uncollectible accounts 94,649 250,138 287,172
Deferred taxes (38,000) (500,000) -
Changes in assets and liabilities-
Accounts and commissions receivable (2,750,062) (2,764,077) (1,438,557)
Prepaid expenses and other (613,425) (133,782) (207,513)
Inventories (313,205) (236,000) (90,000)
Deposits 29,824 (33,923) (79,684)
Notes receivable (32,661) - (25,005)
Accounts payable and accrued expenses 1,245,117 340,521 1,577,044
Accrued taxes 809,333 289,837 144,639
Deferred revenue 3,251,281 3,188,280 1,734,800
Other (48,087) 58,365 (10,906)
----------- ----------- -----------
Net cash provided by (used in) operating activities 3,522,218 (4,359) 801,070
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (2,490,171) (2,177,545) (1,451,555)
Purchase of land, building and improvements (356,228) - -
Prepaid equipment purchases - - (200,000)
Proceeds from sales of rights and investments - 1,079,784 3,855
----------- ----------- -----------
Net cash used in investing activities (2,846,399) (1,097,761) (1,647,700)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock (10) 968,750 719,000
Proceeds from notes payable 650,000 999,000 1,000,000
Payments on notes payable (1,076,391) (936,050) (408,283)
Payment of loan fees (22,054) - (30,000)
----------- ----------- -----------
Net cash (used in) provided by financing activities (448,455) 1,031,700 1,280,717
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 227,364 (70,420) 434,087
CASH AND CASH EQUIVALENTS, beginning of period 491,829 562,249 128,162
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 719,193 $ 491,829 $ 562,249
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 63,248 $ 136,630 $ 193,758
=========== =========== ===========
Cash paid during the year for income taxes $ 82,097 $ $
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 136
BLT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1996
1. THE COMPANY:
BLT Technologies, Inc. (formerly Bottom Line Telecommunications, Inc.) herein
BLT or the Company, is a Washington corporation formed in 1989. The Company is
a national marketer and reseller of telecommunications products and services.
The Company's products are marketed on a national basis through manufacturer's
representatives, distributors, major retailers and a direct sales force. The
Company uses its trade name "TALK 'N TOSS(R)" to develop brand name recognition
for its standard prepaid calling card.
In addition, the Company acts as a nonexclusive sales agent to promote and
market telephone services for Hertz Technologies, Inc. Hertz Technologies,
Inc. is considered the telephone carrier and bills the end users for the
service.
The Company was a reseller of WilTel, Inc. service providing long distance
services to businesses throughout the United States. During 1995, the Company
sold its rights to customers and sales agents of this service. See Note 9,
Sale of Rights, for additional discussion.
TALK 'N TOSS(R), Inc., formed in March 1993 as a Washington corporation, was a
wholly owned subsidiary of BLT. On May 31, 1995, TALK 'N TOSS(R), Inc. was
merged into the Company and the name was retained as a trade name of BLT. All
significant intercompany transactions have been eliminated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
Cash and Cash Equivalents
The Company invests excess cash in overnight securities through a commercial
bank. On May 31, 1996 and 1995, $98,000 and $837,000, respectively, was
invested in overnight repurchase agreements. The Company considers investments
with original maturity dates of 90 days or less to be cash equivalents.
Accounts Receivable
Accounts receivable primarily represents amounts due from national retailers
and distributors.
F-6
<PAGE> 137
Inventory
Inventory consists of printing costs and materials for prepaid calling cards
held for sale. Inventories are stated at the lower of cost or market on a
first-in, first-out basis. The Company charges card inventory costs to
deferred revenue as cards are sold and recognizes card inventory costs when the
minutes sold are consumed. The Company has charged deferred revenue $185,000
and $90,000 of this cost as of May 31, 1996 and 1995, respectively.
Prepaid Expenses
Prepaid expenses are predominately amounts granted to certain retail customers
to promote the Company's TALK 'N TOSS(R) prepaid calling card. The Company
expenses these dollars over the term of the retail contract. If the retailer
does not meet certain sales figures a portion of the marketing funds are to be
reimbursed to the Company.
Property and Equipment and Depreciation
Property and equipment is recorded at cost and is depreciated using the
straight-line method over the estimated useful lives, which are as follows:
Vending machines 3 years
Computer equipment 5 years
Office furniture and equipment 5 - 7 years
Building and improvements 5 - 40 years
The cost of vending machines which have not been placed into service as of May
31, 1996 was $332,420.
In December 1995, the Company purchased land and a building in Portland, Oregon
for approximately $1,100,000; paying approximately $220,000 in cash and by
entering into a mortgage backed note with the seller for $880,000.
The Company has contracted to develop a new system for processing its
customers' long distance calls and other applications. This Computer-Telephony
Integrated System (the CTI system) was not in service as of May 31, 1996. The
Company has an obligation to pay the supplier approximately $1,200,000 upon
completion of the contract, subject to downward adjustment for delivery dates.
Repairs and maintenance are charged to expense as incurred. Major improvements
which substantially extend the useful life of the equipment are capitalized.
Upon sale or other disposition of assets, the cost and the related accumulated
depreciation are removed from the accounts and a gain or loss, if any, is
recognized.
State and Local Taxes
The Company has recorded a provision for state and local taxes based on
estimates of amounts currently owed. The Company and its advisors continue to
evaluate the amounts that may be owed based on the nature of the services the
Company provides in various jurisdictions. The Company believes that the
ultimate resolution of this matter will not have a material adverse impact on
the Company's financial position, results of operations or liquidity.
F-7
<PAGE> 138
Deferred Revenue and Revenue Recognition
The Company defers amounts received upon the sale of its prepaid calling cards
for later recognition. Amounts deferred represent future revenues to be
recognized as minutes are consumed by end-use customers and is inclusive of
amounts to cover carrier access costs, card expense and related taxes, with any
remaining amount representing operating margin. For purposes of revenue
recognition, the Company estimates the unused minutes in the population of
minutes sold as deferred revenue and recognizes as card revenue the minutes
used by cardholders at composite rates as minutes are consumed.
The Company estimates an amount for sales returns and allowances and offsets
deferred revenue and accounts receivable by this amount. At May 31, 1996 and
1995, the amount was $400,000 and $91,000, respectively.
Significant Customers
The Company has four customers whose activity amount to approximately 60% of
accounts receivable at May 31, 1996 and approximately 55% of revenue during the
fiscal year ending May 31, 1996. The Company has been notified that one
customer will not renew its contract in December 1996. The loss of sales,
starting in January 1997, is expected to have a material impact on future card
revenues. The Company expects to replace the lost customer with new accounts.
The Company believes its relations with other major customers are excellent;
however, the loss of any major customer could have an adverse material impact
on income from operations.
Commissions Earned
The Company recognizes revenues when the related commission is earned.
Commission Expense
The Company pays a commission to its agents for facilitating and originating
certain prepaid calling card sales. The Company defers a portion of these
costs and recognizes the expense as the associated revenue is recognized. At
May 31, 1996 and 1995, the Company has deferred $381,000 and $160,000 of this
cost, as a reduction of deferred revenue.
Income Taxes
Income taxes consist of provisions/benefits for tax consequences deferred to
future periods, reflected at current income tax rates in accordance with
Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for
Income Taxes" (see Note 4).
Capital Structure and Earnings per Share
In September 1995, the shareholders of the Company approved a two-for-one
reverse split of the Company's outstanding common stock which was effective on
September 22, 1995. Common stock issued and outstanding and per share amounts
have been adjusted to reflect this stock split.
Earnings per share is based on the weighted average number of common stock
outstanding. The fully diluted, weighted average number of common stock
outstanding was 6,100,647, 5,615,188 and 5,478,463 for the fiscal years ended
May 31, 1996 and 1995 and for the seventeen-month period ended May 31, 1994,
respectively. The weighted average number of shares outstanding have been
adjusted to reflect the impact of the reverse split discussed above.
F-8
<PAGE> 139
3. NOTES PAYABLE:
Line of Credit and Term Loans
In October 1995, the Company entered into a Loan and Security Agreement (the
Agreement) with a bank. As of May 31, 1996, this Agreement, as amended,
comprises a line of credit facility (Line of Credit) of $1,500,000 and term
loan facilities of $3,000,000. Any amounts outstanding under the Agreement are
collateralized by all current and future accounts receivable, inventory,
equipment and intangibles of the Company.
The Agreement contains restrictive covenants, including requirements to
maintain a debt to tangible net worth ratio not to exceed 12:1. The Company is
required to regularly deposit all funds received from its business activities
in the Company's accounts at this bank. The Agreement places restrictions on
the Company's ability to make dividend payments or changes to its capital
structure. The Company is in compliance with all such covenants.
Amounts available under the Line of Credit are limited to a borrowing base
determined by the balance of the Company's eligible receivables.
As of May 31, 1996, there were no amounts outstanding under the Line of Credit.
Amounts borrowed under the Line of Credit bear interest at prime plus 1.5%
(9.75%); any amounts borrowed under this facility and the related unpaid
interest is due October 6, 1996.
As of May 31, 1996, the amount outstanding under the term loan facilities was
$427,082. The term loan facilities bear annual interest at prime plus 1.5% -
2% (9.75%-10.25%) and are repayable in monthly installments over a four-year
period.
The term loan facilities, which convert to a four-year term loan in October
1996, permit the Company to borrow up to $2,500,000 for equipment purchases.
In June 1996, the Company borrowed $1,420,000 under the term loan facilities.
Promissory Notes Payable
In December 1995, the Company entered into a Business Loan Agreement (the Loan
Agreement) with a bank and its affiliate. As of May 31, 1996, this Loan
Agreement, as amended, comprises two promissory notes with a mortgage on the
building and an improvement loan. The amounts outstanding under the Loan
Agreement are collateralized by a deed of trust and an assignment of all rents
on the property. The Company has borrowed $880,000 for the mortgage and
$150,000 for improvements under the Loan Agreement as of May 31, 1996.
The Company must meet certain restrictive covenants during the term of the Loan
Agreement. The Loan Agreement places restrictions on the Company's ability to
make dividend payments or changes to its capital structure. The Company is in
compliance with all such covenants.
At May 31, 1996, the amount outstanding under the mortgage and improvement loan
were $876,527 and $150,000, respectively. Amounts borrowed under the Loan
Agreement bear interest at 8% and prime plus .5% for the mortgage and
improvement loan, respectively; amounts borrowed will be repaid over a
five-year period with a final balloon payment on maturity.
Related Party Notes Payable
The related party notes payable as of May 31, 1995 of $1,000,000, with an
officer and a director of the Company, were paid in full in August 1995.
F-9
<PAGE> 140
Fair Market Value of Loans
All outstanding loans were executed during the year. The stated rates on these
credit facilities materially represent market rates at May 31, 1996; as a
result, the recorded amounts approximate fair value.
Summary of Maturities
Principal maturities of the notes payable are as follows:
<TABLE>
<S> <C>
Fiscal year ending May 31:
1997 $ 145,930
1998 148,228
1999 148,911
2000 76,733
2001 857,140
2002 76,667
----------
1,453,609
Short-term notes payable (145,930)
----------
Long-term notes payable $1,307,679
==========
</TABLE>
4. INCOME TAXES:
Income tax expense (benefit) comprises the following:
<TABLE>
<CAPTION>
May 31,
---------------------------------------
1996 1995 1994
-------- --------- ---------
<S> <C> <C> <C>
Current-state and local $ 35,000 $ - $ -
Deferred-Federal, state and local 296,000 (500,000) -
-------- --------- ---------
$331,000 $(500,000) $ -
======== ========= =========
</TABLE>
In the fiscal year ended May 31, 1996, the Company's effective tax rate
differed from the federal statutory tax rate primarily due to state taxes. In
the fiscal year ended May 31, 1995, a reversal of the valuation reserve of
$371,000 positively impacted the Company's effective tax rate when compared to
the statutory rate. In the seventeen month period ended May 31, 1994, an
income tax benefit was not recognized at the statutory rate. In adopting SFAS
109, the Company determined that the net deferred tax asset did not satisfy the
recognition criteria set forth in the standard. Accordingly, a valuation
allowance was recorded against the amount.
F-10
<PAGE> 141
Deferred income taxes are determined based on the estimated future tax effects
of differences between the financial reporting and tax bases of assets and
liabilities given the provisions of the enacted tax laws. The primary
components of deferred taxes are as follows:
<TABLE>
<CAPTION>
May 31,
--------------------------
1996 1995
--------- ---------
<S> <C> <C>
Deferred tax assets (liabilities)-
Net operating loss carryforward $ 153,000 $ 602,000
AMT credit 35,000 -
Contingent liabilities 415,000 232,000
Allowance for uncollectible accounts 48,000 47,000
Promotional liability 12,000 9,000
Vacation accrual 10,000 3,000
Property and equipment (135,000) (81,000)
--------- ---------
538,000 812,000
Valuation allowance - (312,000)
--------- ---------
$ 538,000 $ 500,000
========= =========
</TABLE>
The Company's federal net operating loss carryforward of approximately $413,000
at May 31, 1996, expires in the year 2009. The decrease in the valuation
allowance for the fiscal year ended May 31, 1996 was $312,000. The decrease
relates to the Company's assessment of the realizability of the deferred tax
asset in connection with the improved profitability of the Company in the past
fiscal year.
5. DEFINED CONTRIBUTION PLAN:
The Company adopted the BLT Technologies, Inc. 401(k) Plan (the Plan),
effective September 1, 1993. Participation in the Plan is offered to eligible
employees of the Company. Generally, all employees of the Company who are at
least 21 years of age and who have completed three consecutive months of
service, or 12 months during which they worked at least 1,000 hours, are
eligible for participation in the Plan.
The Plan is a defined contribution plan which provides that participants may
make voluntary salary deferred contributions, on a pretax basis, between 1% and
15% of their compensation, up to a maximum indexed for cost of living
adjustments. In October 1995 the Company commenced matching contributions of
50% of the employee's first 6% deferred contribution. Company contributions
for the fiscal year ended May 31, 1996 were approximately $25,000.
6. STOCK OPTION PLAN:
The Company adopted the BLT Technologies, Inc. 1994 Stock Option Plan (the
Stock Option Plan) on December 15, 1994. The total number of shares currently
assigned to the plan for award are 1,000,000, after the reverse split. The
total number of outstanding options to purchase shares of the Company's common
stock is 1,175,500, including options to purchase 190,000 shares which are
subject to shareholder approval of an increase in the number of shares
available to the Stock Option Plan.
The Audit Committee of the Board of Directors administers the Stock Option
Plan. The stock options issued under this plan to employees or officers of the
Company are intended to qualify under Internal Revenue Code Section 422 as
"Incentive Stock Options." As such, the exercise price is not less than the
fair market value per share of the Company's common stock at the time the
option is granted. The options vest over periods of up to three years. Stock
options have been issued to members of the Company's Board of Directors and are
considered "Nonqualified Stock Options;" the exercise price of these options
shall not be less than 85% of the fair market value per share of the Company's
common stock at the time the option is granted. The following table summarizes
the activity under the Stock Option Plan:
<TABLE>
<CAPTION>
Number of
Options Exercise Price
--------- --------------
<S> <C> <C>
Granted 597,500 $3.10 - $4.00
--------- -------------
Outstanding as of May 31, 1995 597,500 $3.10 - $4.00
Granted 605,500 $3.50 - $5.00
Canceled (27,500) $3.10 - $3.50
--------- -------------
Outstanding as of May 31, 1996 1,175,500 $3.10 - $5.00
========= =============
Exercisable as of May 31, 1996 477,000
=========
</TABLE>
F-11
<PAGE> 142
An ancillary result of the actions taken by the Board of Directors on July 17,
1996 was that all outstanding and authorized options were immediately vested as
of that date.
7. COMMITMENTS AND CONTINGENCIES:
Leases
The Company has entered into leases for office and warehouse space and
equipment. The Company's rental expense under its leases amounted to $477,000,
$382,000 and $266,000, for the fiscal years ended May 31, 1996 and 1995 and the
seventeen-month period ended May 31, 1994, respectively. At May 31, 1996, the
Company's future minimum lease obligations were as follows:
1997 $411,772
1998 112,814
1999 63,102
2000 7,389
2001 -
--------
$595,077
========
Agent Commissions
The Company has entered into agreements with certain of its agents which
require the Company to continue to pay the agent commissions on their accounts
for a period of up to five years if the Company terminates the agreement
without cause.
Carrier Access
In April 1995, the Company entered into a service contract with its primary
access carrier, MCI Telecommunications Corporation (MCI). The Company has
agreed for the first 24 months to use MCI to carry 80% of its long distance and
committed to monthly usage of $1 million of service, with additional
subcommitments for specific services offered by MCI. The agreement is
effective for 36 months. If the Company terminates the agreement or if
termination of the agreement is for the Company's material breach, the Company
must pay MCI 15% of the difference between the Company's remaining actual
monthly usage and the total of all monthly commitments. The Company may
terminate the agreement without termination charges once the Company's
cumulative monthly billings under the agreement equals or exceeds $50 million.
F-12
<PAGE> 143
Severance Agreements
As a result of certain severance and related consulting agreements, the Company
is obligated to pay approximately $55,000 to former officers of the Company in
fiscal year 1997. The entire amount accrued for these severance and related
consulting agreements was expensed in fiscal 1995.
System Contingency
There is a possibility that there are more prepaid phone cards in circulation
than the number utilized to calculate the Company's deferred revenue and
accrual for promotional expense. Management believes that this will not result
in a material impact on the Company's financial position, results of operations
or liquidity.
Litigation
In March 1996, two complaints were filed in California Superior Court
concerning the manner in which the Company and other prepaid phone card
providers subtract time from cards. The complaints allege that the practice of
phone card companies of rounding up each call on a card to the nearest minute
should be disclosed on the cards' packaging and that failure to fully disclose
this practice amounts to an "unfair or fraudulent business act or practice".
Both complaints seek equitable relief requiring defendants to revise their
packaging, conduct an information campaign concerning the rounding practice and
disgorging profits. While it is too early to quantify any financial exposure,
the Company intends to defend these matters vigorously. An unfavorable
resolution of these actions, individually or in the aggregate, could have a
material impact on the Company's financial position.
In April 1996, an action was filed in Massachusetts Superior Court alleging
that the Company must pay the plaintiff amounts representing "breakage" under a
1993 customer promotion. The Company does not believe that this action will
have a material impact on the Company's financial position, results of
operations or liquidity.
In the ordinary course of its business, the Company is party to legal
proceedings generally incidental to its business. Other than as stated in the
preceding paragraphs, the Company is currently not involved in any litigation
and management is not aware of any potential litigation against the Company
that could have a material impact on the Company's financial position, results
of operations or liquidity.
8. RELATED PARTY TRANSACTIONS:
The Company rents its corporate office space from a shareholder and director of
the Company. Total related party rental expense was $336,000, $307,000 and
$257,000, for the fiscal years ended May 31, 1996 and 1995 and the
seventeen-month period ended May 31, 1994, respectively.
The Company subleases warehouse space to a former officer and shareholder of
the Company. The Company received $21,000 in rental income from the related
party for the fiscal year ended May 31, 1996.
One of the Company's software vendors, Communications Product Development Inc.
(CPDI), is partially owned by a shareholder and director of the Company. Total
amounts paid to CPDI were $120,000 for the fiscal years ended May 31, 1996 and
1995 and $150,000 for the seventeen-month period ended May 31, 1994.
During fiscal 1995, the Company sold to a related party its 10% interest in an
unrelated entity. As consideration, the Company received a $150,000 reduction
in a note payable to this related party. The Company recorded a gain of
$150,000 on this transaction.
F-13
<PAGE> 144
9. SALE OF RIGHTS:
On March 10, 1995, the Company sold its rights to customers and sales agents
from its long distance reseller service (the WilTel program). The Company
recorded a gain of approximately $809,000 related to this transaction in the
fiscal year ended May 31, 1995. The Company received $1,080,000 in cash
related to this transaction.
During the year ended May 31, 1995 the Company recognized revenues of
$2,290,000 and operating income of $82,000, related to the WilTel program.
10. SUBSEQUENT EVENTS:
Merger Agreement
On July 31, 1996, a merger agreement was signed under which the Company will
become a subsidiary of WorldCom, Inc. The merger is subject to federal and
state regulatory approvals and shareholder approval will not be completed until
late 1996 or early 1997.
The Loan and Security Agreement and the Business Loan Agreement contain
negative covenants which require the Company to obtain the prior written
consent of the banks before affecting a merger. The Company is in the process
of obtaining the banks' consents.
Commitment
In July 1996, the Company signed a contract with a major grocery chain to
provide vending machines and sell prepaid calling cards. The Company has
committed to purchase $1,200,000 in vending machines in fiscal 1997 to satisfy
this contract.
F-14
<PAGE> 145
BLT TECHNOLOGIES, INC.
----------------------
AUGUST 31, 1996 AND MAY 31, 1996
--------------------------------
<TABLE>
<CAPTION>
ASSETS
------
August 31, May 31,
1996 1996
----------- -----------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,506,923 $ 719,193
Accounts receivable, less allowance of $128,370 and 7,408,484 5,814,881
$130,000
Commissions receivable 46,433 55,719
Prepaid expenses and other 1,233,380 975,334
Inventories 572,908 639,205
Notes receivable 132,269 223,705
Deferred taxes 453,893 538,000
----------- -----------
Total current assets 11,354,290 8,966,037
----------- -----------
PROPERTY AND EQUIPMENT:
Vending machines 2,794,725 2,591,440
Computer equipment 3,257,612 3,017,923
Office furniture and equipment 582,381 494,457
Land, building and improvements 1,449,055 1,347,325
CTI system in progress 1,959,841 1,959,841
----------- -----------
10,043,614 9,410,986
Less-Accumulated depreciation (1,972,125) (1,580,140)
----------- -----------
Net property and
equipment 8,071,489 7,830,846
----------- -----------
OTHER ASSETS:
Deposits 96,552 95,838
Other 8,381 12,566
----------- -----------
Total other assets 104,933 108,404
----------- -----------
Total assets $19,530,712 $16,905,287
=========== ===========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
August 31, May 31,
1996 1996
----------- -----------
(unaudited)
<C> <C> <C>
CURRENT LIABILITIES:
Short-term notes payable $ 145,930 $ 145,930
Accounts payable 1,175,847 2,692,338
Accrued access 2,304,645 1,557,645
Accrued expenses 1,243,070 914,989
Commissions payable 497,483 357,960
Accrued taxes 1,515,674 1,248,535
Deferred revenue 8,911,655 7,864,971
Other - 2,531
----------- -----------
Total current liabilities 15,794,304 14,784,899
----------- -----------
Long-term liabilities
2,692,174 1,307,679
Total liabilities ----------- -----------
18,486,478 16,092,578
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $0.01 par value,
authorized 5,000,000; no shares
issued and outstanding - -
Common stock and paid-in capital,
$0.01 par, authorized 40,000,000;
issued and outstanding 5,848,897 2,462,090 2,462,090
Accumulated deficit (1,417,856) (1,649,381)
----------- -----------
Total shareholders' equity 1,044,234 812,709
----------- -----------
Total liabilities and
shareholders' equity $19,530,712 $16,905,287
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-15
<PAGE> 146
BLT TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED AUGUST 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
REVENUES:
Card revenue $12,214,341 $7,030,452
Commissions earned 82,872 194,417
----------- ----------
Total revenues 12,297,213 7,224,869
OPERATING EXPENSES:
Cost of services 8,525,473 5,206,845
Selling, general and administrative 2,951,141 1,636,998
Depreciation and amortization 397,368 191,069
----------- ----------
Total operating expenses 11,873,982 7,034,912
----------- ----------
Operating income 423,231 189,957
----------- ----------
OTHER (EXPENSE) INCOME:
Interest expense (62,092) (25,542)
Other 6,636 22,977
----------- ----------
Total other (55,456) (2,565)
----------- ----------
Income before tax 367,775 187,392
Income taxes 136,250 65,500
----------- ----------
NET INCOME $ 231,525 $ 121,892
=========== ==========
EARNINGS PER SHARE $0.04 $0.02
===== =====
</TABLE>
The accompanying notes are an integral part of these statements.
F-16
<PAGE> 147
BLT TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED AUGUST 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 231,525 $ 121,892
Adjustments to reconcile net income to net cash provided by operating activities-
Depreciation and amortization 400,859 191,955
Provision for uncollectible accounts 7,418 21,551
Deferred taxes 84,107 65,500
Changes in assets and liabilities-
Accounts and commissions receivable (1,631,735) (23,427)
Prepaid expenses and other (261,537) (414,497)
Inventories 66,297 -
Deposits (714) (15,000)
Notes receivable 91,436 705
Accounts payable and accrued expenses 1,302,194 763,588
Accrued taxes 267,139 184,907
Deferred revenue 1,086,684 (152,442)
Other (2,531) (27,088)
----------- -----------
Net cash provided by operating activities 1,641,142 717,644
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (2,066,556) (194,884)
Purchase of land, building and improvements (171,350) -
----------- -----------
Net cash used in investing activities (2,237,906) (194,884)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 1,420,000 -
Payments on notes payable (35,506) (1,000,000)
----------- -----------
Net cash provided by (used in) financing activities
1,384,494 (1,000,000)
----------- -----------
Net change in cash and cash equivalents 787,730 (477,240)
CASH AND CASH EQUIVALENTS, beginning of period 719,193 491,829
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 1,506,923 $ 14,589
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 64,623 $ 25,542
=========== ===========
Cash paid during the period for income taxes $ 52,033 $ -
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-17
<PAGE> 148
BLT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996
(unaudited)
1. THE COMPANY:
BLT Technologies, Inc. (formerly Bottom Line Telecommunications, Inc.) herein
BLT or the Company, is a Washington corporation formed in 1989. The Company is
a national marketer and reseller of telecommunications products and services.
The Company's products are marketed on a national basis through manufacturer's
representatives, distributors, major retailers and a direct sales force. The
Company uses its trade name "TALK 'N TOSS(R)" to develop brand name recognition
for its standard prepaid calling card.
In addition, the Company acts as a nonexclusive sales agent to promote and
market telephone services for Hertz Technologies, Inc. Hertz Technologies,
Inc. is considered the telephone carrier and bills the end users for the
service.
2. FINANCIAL STATEMENTS AND NOTES:
The accompanying interim financial statements are unaudited, but reflect all
adjustments which are, in the opinion of management, necessary to a fair
presentation of the financial position, results of operations and cash flows
for the periods presented. All such adjustments are of a normal, recurring
nature. Results of operations for interim periods presented are not
necessarily indicative of results of operations for the entire year. Financial
statement disclosures made in the May 31, 1996 financial statements are still
applicable, unless otherwise discussed herein.
3. NOTES PAYABLE:
Line of Credit and Term Loans
In October 1995, the Company entered into a Loan and Security Agreement (the
Agreement) with a bank. This Agreement, as amended, comprises a line of credit
(Line of Credit) of $1,500,000 and term loan facilities of $3,000,000. Any
amounts outstanding under the Agreement are collateralized by all current and
future accounts receivable, inventory, equipment and intangibles of the
Company.
As of August 31, 1996, there were no amounts outstanding under the Line of
Credit. Amounts borrowed under the Line of Credit bear interest at prime plus
1.5% (9.75%); any amounts borrowed under this facility and the related unpaid
interest was paid October 6, 1996.
As of August 31, 1996, the amount outstanding under the term loan facilities
was $1,815,834. The term loan facilities bear annual interest at prime plus
1.5%-2% (9.75%-10.25%) and are repayable in monthly installments over a
four-year period.
The Company has negotiated a commitment from Silicon Valley Bank for a new line
of credit facility for $6,000,000 and an additional term loan for $2,000,000.
Interest rates under the commitment will be prime plus 1%. The line of credit
will expire October 6, 1997, and the term loan will mature April 2001.
F-18
<PAGE> 149
Promissory Notes Payable
In December 1995, the Company purchased land and a building in Portland, Oregon
and entered into a Business Loan Agreement (the Loan Agreement) with a bank and
its affiliate. The Loan Agreement, as amended, comprises two promissory notes
with a mortgage on the building and an improvement loan. The amounts
outstanding under the Loan Agreement are collateralized by a deed of trust, a
second mortgage and an assignment of all rent on the property. The Company has
borrowed $880,000 for the mortgage and $150,000 for improvements under the Loan
Agreement as of August 31, 1996.
At August 31, 1996, the amounts outstanding under the mortgage and improvement
loan were $874,770 and $147,500, respectively. Amounts borrowed under the Loan
Agreement bear interest at 8% and prime plus .5% for the mortgage and
improvement loan, respectively; amounts borrowed will be repaid over a
five-year period with a final balloon payment on maturity.
4. STOCK OPTION PLAN:
The Company adopted the BLT Technologies, Inc. 1994 Stock Option Plan (the
Plan) on December 15, 1994. The total number of shares currently assigned to
the Plan for award are 1,000,000. The total number of outstanding options to
purchase shares of the Company's common stock is 805,500, including options to
purchase 190,000 shares subject to shareholder approval of an increase in the
number of shares available to the Plan. The increase in the number of shares
available for the Plan was approved by the Company's shareholders on November
9, 1996.
In September 1996, 360,000 options were exercised by certain option holders
which increased the Company's shareholders' equity by $1,414,500 for the cash
received and $191,622 for the tax benefit realized due to the exercise.
The following table summarizes the activity under the Plan:
<TABLE>
<CAPTION>
Number of
Options Exercise Price
--------- --------------
<S> <C> <C>
Outstanding as of May 31, 1995 597,500 $3.10 - $4.00
Granted 605,500 $3.50 - $5.00
Canceled (27,500) $3.10 - $3.50
--------- -------------
Outstanding as of May 31, 1996 1,175,500 $3.10 - $5.00
Exercised (360,000) $3.10 - $4.00
Canceled (10,000) $4.00
--------- -------------
Outstanding as of September 30, 1996 805,500 $3.10 - $5.00
========= =============
Exercisable as of September 30, 1996 615,500
=========
</TABLE>
5. EARNINGS PER SHARE:
Earnings per share is based on the weighted average number of common stock
outstanding. The fully diluted, weighted average number of common stock
outstanding is 6,100,647 and 5,928,380 as of August 31, 1996 and 1995,
respectively.
F-19
<PAGE> 150
6. COMMITMENTS AND CONTINGENCIES:
Litigation
In March 1996, two complaints were filed in California Superior Court
concerning the manner in which the Company and other prepaid phone card
providers subtract time from cards. The complaints allege that the practice of
phone card companies of rounding up each call on a card to the nearest minute
should be disclosed on the cards' packaging and that failure to fully disclose
this practice amounts to an "unfair or fraudulent business act or practice."
In October 1996, a ruling favorable to the Company's position was issued by the
California Superior Court. The plaintiffs have filed a motion for
reconsideration.
In April 1996, an action was filed in Massachusetts Superior Court alleging
that the Company must pay the plaintiff amounts representing "breakage" under a
1993 customer promotion. The Company does not believe that this action will
have a material impact on the Company's financial position, results of
operations or liquidity.
In the ordinary course of its business, the Company is party to legal
proceedings generally incidental to its business. Other than as stated in the
preceding paragraphs, the Company is currently not involved in any litigation
and management is not aware of any potential litigation against the Company
that could have a material impact on the Company's financial position, results
of operations or liquidity.
System Contingency
There is a possibility that there are more prepaid phone cards in circulation
than the number utilized to calculate the Company's deferred revenue and
accrual for promotional expense. Management believes that this will not result
in a material impact on the Company's financial position, results of operations
or liquidity.
7. MERGER AGREEMENT:
On July 31, 1996, a merger agreement was signed under which the Company will
become a subsidiary of WorldCom, Inc. The merger is subject to federal and
state regulatory approvals and shareholder approval and will not be completed
until late 1996 or early 1997.
F-20
<PAGE> 151
EXHIBIT A
================================================================================
AGREEMENT AND PLAN OF MERGER
By and Between
BLT Technologies, Inc.
(the "Company"),
and
WorldCom, Inc.
Dated
July 26, 1996
================================================================================
<PAGE> 152
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I - TERMS OF MERGERS...................................................1
1.1. Merger...............................................................1
1.2. Effective Time.......................................................1
1.3. Merger Consideration.................................................2
1.4. Rights upon Merger...................................................2
1.5. Surrender and Exchange; Payment of Merger Consideration..............3
1.6. Articles of Incorporation............................................3
1.7. Bylaws...............................................................3
1.8. Directors and Officers...............................................3
1.9. Other Effects of Merger..............................................4
1.10. Additional Actions..................................................4
1.11. Tax-Free Reorganization.............................................4
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF WORLDCOM........................4
2.1. Organization.........................................................4
2.2. Authorization........................................................4
2.3. Non-Contravention....................................................5
2.4. Valid Shares.........................................................5
2.5. Broker's or Finder's Fee.............................................5
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................5
3.1. Organization and Subsidiaries........................................5
3.2. Articles of Incorporation, Bylaws and Agreements.....................5
3.3. Capital Structure and Ownership......................................6
3.4. Authorization........................................................6
3.5. Financial Statements and Absence of Changes..........................6
3.6. Title to and Condition of Assets and Property........................7
3.7. Environmental Matters................................................7
3.8. Intellectual Property................................................8
3.9. Liabilities..........................................................8
3.10. Contracts...........................................................8
3.11. Litigation and Compliance...........................................9
3.12. Non-Contravention..................................................10
3.13. Licenses, Permits and Required Consents............................10
3.14. Insurance..........................................................10
3.15. Employee Benefit Plans.............................................10
3.16. Taxes and Returns..................................................12
3.17. Changes............................................................14
3.18. No Adverse Actions.................................................14
3.19. Labor Matters......................................................14
3.20. Minute and Stock Books; Records....................................15
3.21. Hart-Scott-Rodino Matters..........................................15
3.22. Accounts Receivable................................................15
3.23. Disclosure.........................................................15
3.24. Broker's or Finder's Fee...........................................16
</TABLE>
A-i
<PAGE> 153
<TABLE>
<S> <C>
ARTICLE IV - ADDITIONAL AGREEMENTS OF THE PARTIES.............................16
4.1. Ordinary Course.....................................................16
4.2. Access Prior to Closing.............................................18
4.3. Regulatory and Other Authorizations.................................18
4.4. Further Assurances..................................................18
4.5. No Interference.....................................................18
4.6. Stock Options.......................................................18
4.7. Delivery............................................................18
4.8. Indemnity...........................................................19
4.9. Employees...........................................................21
4.10. Continued Relationships............................................21
4.11. Confidentiality....................................................21
4.12. Noncompete and Confidentiality Agreements..........................22
4.13. Shareholder Approval...............................................22
4.14. Pooling of Interests...............................................22
4.15. Affiliate Agreements...............................................22
4.16. Section 3(a) (10)..................................................23
4.17. Notification of Certain Matters....................................23
ARTICLE V - CONDITIONS TO CLOSING.............................................23
5.1. The Company's Conditions to Close...................................23
5.2. WorldCom's Conditions to Close......................................24
ARTICLE VI - THE CLOSING......................................................25
6.1. Deliveries by the Company...........................................25
6.2. WorldCom's Deliveries...............................................26
ARTICLE VII - TERMINATION.....................................................27
7.1. Termination.........................................................27
7.2. Effect of Termination...............................................28
ARTICLE VIII - MISCELLANEOUS..................................................28
8.1. Expenses............................................................28
8.2. Public Disclosure...................................................28
8.3. Governing Law and Consent to Jurisdiction...........................28
8.4. Notices.............................................................28
8.5. Assignment..........................................................29
8.6. Section Headings....................................................29
8.7. Counterparts........................................................29
8.8. Amendment...........................................................29
8.9. Entire Agreement....................................................29
8.10. Binding Effect.....................................................29
8.11. Survival...........................................................30
8.12. Severability.......................................................30
8.13. Third Parties......................................................30
</TABLE>
A-ii
<PAGE> 154
LIST OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description
- ------- ------------------------------------------------------------------------
<S> <C>
1.1 Form of Plan of Merger and Articles of Merger
1.5-1 Form of Transmittal Letter
1.5-2 Form of Escrow Agreement
3.1 Foreign Qualifications
3.2(a) List of Articles of Incorporation and Bylaws, as amended
3.2(b) Restrictions upon Transfer or Pertaining to Securities
3.3 Capital Structure and Ownership
3.6 Liens, Claims, Charges, Security Interests, Options, etc.; Property
3.8 Intellectual Property
3.9 Certain Liabilities
3.10 Contracts
3.11 Litigation and Claims
3.13 Franchises, Licenses, Permits, Etc.
3.15 Employee Benefit Plans
3.16 Tax Matters
3.17 Changes
3.20 Records and Information Off Premises
4.8 Scheduled Indemnification Matters
4.12 Noncompete Agreement
4.15 Form of Affiliate Agreement
5.2 Exceptions to No Material Adverse Change Condition
</TABLE>
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GLOSSARY OF DEFINED TERMS
<TABLE>
<CAPTION>
Term Page Where Defined
- ------------------------------------------------------------ ------------------
<S> <C>
Acquisition Subsidiary .................................................... 5
Affiliate ................................................................. 13
Affiliate Agreements ...................................................... 26
Agreement ................................................................. 5
Articles of Merger ........................................................ 5
Authorizations ............................................................ 14
Certificates .............................................................. 6
Closing ................................................................... 5
Closing Date .............................................................. 5
Code ...................................................................... 8
Commission ................................................................ 25
Common Stock .............................................................. 5
Company ................................................................... 5
Contract .................................................................. 12
Contracts ................................................................. 12
Control ................................................................... 13
Dissenters ................................................................ 6
Effective Time ............................................................ 5
Employee Benefit Plan ..................................................... 14
ERISA ..................................................................... 14
Escrow Agreement .......................................................... 7
Excess Dissenter Amount ................................................... 23
Exchange Act .............................................................. 25
Exchange Ratio ............................................................ 6
Financial Statements ...................................................... 10
HSR Act ................................................................... 19
Indemnified Party ......................................................... 23
Indemnifying Party ........................................................ 23
Losses .................................................................... 23
Merger .................................................................... 5
Merger Consideration ...................................................... 6
Noncompete Agreements ..................................................... 26
Option Plan ............................................................... 16
Optionholder .............................................................. 13
Plan ...................................................................... 14
Plan of Merger ............................................................ 5
Scheduled Matters ......................................................... 23
Securities Act ............................................................ 25
Shareholder Representative ................................................ 23
Shareholders .............................................................. 6
Stock Options ............................................................. 15
Surviving Corporation ..................................................... 5
Surviving Corporation Common Stock ........................................ 6
Taxes ..................................................................... 16
Transmittal Letter ........................................................ 6
</TABLE>
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<TABLE>
<S> <C>
Washington Act ............................................................ 5
WorldCom .................................................................. 5
WorldCom Options .......................................................... 22
WorldCom Stock ............................................................ 6
WorldCom Stock Value ...................................................... 6
</TABLE>
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EXHIBIT 1.1
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (the "Agreement") is made as of July 26,
1996, by and between WorldCom, Inc., a Georgia corporation ("WorldCom"), and
BLT Technologies, Inc., a Washington corporation (the "Company").
WITNESSETH:
In consideration of the premises and the mutual covenants and agreements
hereinafter set forth, the parties hereto agree as follows:
ARTICLE I
TERMS OF MERGERS
1.1. Merger.
The Company acknowledges and agrees that the representations, covenants,
warranties, agreements, indemnities and other undertakings contained in this
Agreement are made and given to induce WorldCom to enter into this Agreement
and consummate the transactions contemplated by this Agreement and that
WorldCom in reliance thereon has agreed to execute this Agreement and
consummate the transactions contemplated by this Agreement. At the Effective
Time (as hereinafter defined), upon the terms and subject to the conditions of
this Agreement and the Plan of Merger (as hereinafter defined), a wholly owned
subsidiary ("Acquisition Subsidiary") of WorldCom shall merge with and into the
Company (the "Merger") in accordance with the Washington Business Corporation
Act (the "Washington Act"). At the Effective Time, the separate existence of
Acquisition Subsidiary shall cease, and the Company, as the surviving
corporation in the Merger (the "Surviving Corporation"), shall become a
subsidiary of WorldCom. The Company shall execute in the forms attached hereto
as Exhibit 1.1 a plan of merger (the "Plan of Merger") and articles of merger
("Articles of Merger") in order to comply in all respects with the requirements
of the Washington Act and with the provisions of this Agreement.
1.2. Effective Time.
The Merger shall become effective at the time of the filing of the
Articles of Merger with the Secretary of State of Washington in accordance with
the applicable provisions of the Washington Act or at such later time as may be
specified in the Articles of Merger. The Articles of Merger shall be filed as
soon as practicable after all of the conditions set forth in this Agreement
have been satisfied or waived by the party or parties entitled to the benefit
of the same. WorldCom shall determine the time of such filing and the place
where the closing of the Merger (the "Closing") shall occur after consultation
with the Company. The time when the Merger shall become effective is herein
referred to as the "Effective Time," and the date on which the Effective Time
occurs is herein referred to as the "Closing Date."
1.3 Merger Consideration.
(a) Subject to the provisions of this Agreement, at the Effective
Time, each of the issued and outstanding shares of common stock of the Company
(the "Common Stock") shall, by virtue of the Merger and without any action on
the part of the holders thereof, be converted into the right to receive, and
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there shall be paid and issued as hereinafter provided in exchange therefor
(subject to statutory provisions with respect to dissenters' rights and the
provisions of the Escrow Agreement (as hereinafter defined)), that fraction of
a share of the common stock, $.01 par value per share, of WorldCom (the
"WorldCom Stock") equal to 3,150,000 shares divided by the number of shares of
Common Stock outstanding on a fully diluted basis (.4491 based upon 7,014,397
shares of Common Stock) (the "Exchange Ratio"). No fractional shares of
WorldCom Stock shall be issued pursuant to this Agreement nor will any
fractional share interest involved entitle the holder thereof to vote, to
receive dividends or to exercise any other rights of a shareholder of WorldCom.
In lieu thereof, any person or entity who would otherwise be entitled to a
fractional share of WorldCom Stock pursuant to the provisions hereof shall
receive an amount in cash equal to the value of such fractional share. The
value of such fractional share shall be the product of such fraction (rounded
down to the nearest hundredth of a share) multiplied by $23.50 (the "WorldCom
Stock Value"). The aggregate number of shares of WorldCom Stock and fractional
share payments issuable and payable hereunder is referred to herein as the
"Merger Consideration." The Merger Consideration shall be payable as provided
in Section 1.5, below, to the shareholders of the Company (the "Shareholders")
as of the Effective Time. The Exchange Ratio and the WorldCom Stock Value shall
be subject to appropriate adjustment in the event of a stock split, stock
dividend or recapitalization applicable to shares of WorldCom Stock held of
record after the date hereof and prior to the Effective Time.
(b) Subject to the provisions of this Agreement, at the Effective
Time, the shares of Acquisition Subsidiary common stock outstanding immediately
prior to the Merger shall be converted, by virtue of the Merger and without any
action on the part of the holder thereof, into one share of the common stock of
the Surviving Corporation (the "Surviving Corporation Common Stock"), which
share of the Surviving Corporation Common Stock shall constitute all of the
issued and outstanding capital stock of the Surviving Corporation.
1.4. Rights upon Merger.
Upon consummation of the Merger, the holders of certificates which
theretofore represented shares of the Common Stock (the "Certificates") shall
cease to have any rights with respect thereto, and, subject to applicable law
and this Agreement, shall only have the right (a) in the case of holders other
than those who exercise dissenters' rights under the Washington Act in
connection with the Merger ("Dissenters") to receive the amount of cash in lieu
of fractional shares of WorldCom Stock and the number of shares of WorldCom
Stock into which their shares of the Common Stock have been converted pursuant
to this Agreement and the Merger, or (b) in the case of Dissenters, to receive
the fair value of their shares of Common Stock in accordance with the
Washington Act. Any Dissenter shall not be entitled to any dividends or other
distributions payable in respect of the shares of the WorldCom Stock after the
Effective Time regardless of whether such Dissenter has received payment of
said fair value.
1.5 Surrender and Exchange; Payment of Merger Consideration.
In connection with the Closing, each Shareholder shall surrender and
deliver the Certificates to WorldCom together with a duly completed and
executed transmittal letter, waiver and release in the form attached hereto as
Exhibit 1.5-1 ("Transmittal Letter"), subject to applicable law with respect to
dissenters' rights. Upon the later to occur of the Effective Time or such
surrender and delivery, the holder shall receive the amount of cash in lieu of
any fractional share of WorldCom Stock and a certificate representing the
number of whole shares of WorldCom Stock to which such holder is entitled
pursuant to this Agreement, less 10% of such number of shares of WorldCom Stock
which shall be delivered to the Escrow Agent under, and be held and released
pursuant to, the terms of an Escrow Agreement in substantially the form
attached hereto as
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Exhibit 1.5-2 (the "Escrow Agreement"). Until so surrendered and exchanged,
subject to applicable law with respect to dissenters' rights, each outstanding
Certificate after the Effective Time shall be deemed for all purposes to
evidence the right to receive the amount of cash and that number of whole
shares of WorldCom Stock into which the shares previously represented by the
Certificate have been converted pursuant to this Agreement; provided, however,
that no dividends or other distributions, if any, in respect of the shares of
the WorldCom Stock, declared after the Effective Time and payable to holders of
record after the Effective Time, shall be paid to the holders of any
unsurrendered Certificates until such Certificates and Transmittal Letters are
surrendered and delivered as provided herein and no interest shall be paid on
the amount of any cash. Holders of any unsurrendered Certificates shall not be
entitled to vote the WorldCom Stock involved until such Certificates are
exchanged pursuant to this Agreement.
1.6. Articles of Incorporation.
At and after the Effective Time, the Articles of Incorporation of the
Company shall be the Articles of Incorporation of the Surviving Corporation
(subject to any amendment specified in the Plan of Merger and any subsequent
amendment).
1.7. Bylaws.
At and after the Effective Time, the Bylaws of the Company shall be the
Bylaws of the Surviving Corporation (subject to any amendment specified in the
Plan of Merger and any subsequent amendment).
1.8. Directors and Officers.
At and after the Effective Time, until their successors are duly elected
or appointed, the directors and the officers of the Surviving Corporation shall
be as follows:
<TABLE>
<CAPTION>
Directors Officers
------------------------------ -------------------------------------------
<S> <C>
Charles T. Cannada Bernard J. Ebbers - President
Bernard J. Ebbers Scott D. Sullivan - Secretary and Treasurer
Charles T. Cannada - Assistant Secretary
William E. Anderson - Assistant Secretary
</TABLE>
1.9. Other Effects of Merger.
The Merger shall have all further effects as specified in the applicable
provisions of the Washington Act.
1.10. Additional Actions.
If, at any time after the Effective Time, the Surviving Corporation shall
consider or be advised that any deeds, bills of sale, assignments, assurances
or any other actions or things are necessary or desirable to vest, perfect or
confirm of record or otherwise in the Surviving Corporation its right, title or
interest in, to or under any of the rights, properties or assets of Acquisition
Subsidiary or the Company or otherwise to carry out this Agreement, the
officers and directors of the Surviving Corporation shall be authorized to
execute and deliver, in the name and on behalf of Acquisition Subsidiary or the
Company, all such deeds, bills of sale, assignments and assurances and to take
and do, in the name and on behalf of Acquisition Subsidiary or the Company, all
such other
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actions and things as may be necessary or desirable to vest, perfect or confirm
any and all right, title and interest in, to and under such rights, properties
or assets in the Surviving Corporation or otherwise to carry out this Agreement
and the transactions contemplated hereby.
1.11. Tax-Free Reorganization.
The parties intend that the Merger qualify as a tax-free reorganization
pursuant to Section 368 of the Internal Revenue Code of 1986, as amended, and
the regulations thereunder (the "Code") and will take no actions inconsistent
with such treatment unless otherwise required by applicable law.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF WORLDCOM
WorldCom represents and warrants to the Company as follows, which
representations and warranties are made as of the date hereof and as of the
Closing Date and shall survive the Closing for a period of one (1) year from
and after the Effective Time:
2.1. Organization.
WorldCom is a corporation duly organized, validly existing and in good
standing under the laws of the State of Georgia. Acquisition Subsidiary is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Washington.
2.2. Authorization.
The execution, delivery and performance by WorldCom of this Agreement have
been duly and validly authorized by the Board of Directors of WorldCom, and
this Agreement constitutes the valid and binding agreement of WorldCom,
enforceable in accordance with its terms, subject to (i) general principles of
equity, regardless of whether enforcement is sought in a proceeding in equity
or at law, and (ii) bankruptcy, reorganization, insolvency, fraudulent
conveyance, moratorium, receivership or other similar laws relating to or
affecting creditors' rights generally.
2.3 Non-Contravention.
Neither the execution or delivery of this Agreement, nor the consummation
of the transactions contemplated hereby, will result in the breach of any term
or provision of, or constitute a default under, the Articles of Incorporation
or Bylaws of WorldCom.
2.4. Valid Shares.
The WorldCom Stock, when issued to the Shareholders and the holders of
WorldCom Options (as hereinafter defined) pursuant to this Agreement and the
WorldCom Options, as applicable, will have been duly and validly authorized and
issued, will be fully paid and nonassessable and will not have been issued in
violation of the preemptive rights of any person or entity.
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2.5. Broker's or Finder's Fee.
No person acting on behalf of WorldCom is, or will be, entitled to any
commission, fee or other payment in connection with or arising out of this
Agreement or any of the transactions contemplated hereby.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to WorldCom as follows, which
representations and warranties are made as of the date hereof and as of the
Closing Date and shall survive the Closing for a period of one (1) year from
and after the Effective Time or such longer period during which a claim for a
Loss (as hereinafter defined) associated therewith may be subject to
indemnification under Section 4.8, below:
3.1. Organization and Subsidiaries.
(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Washington, is duly qualified and
in good standing as a foreign corporation in the states set forth on Exhibit
3.1 attached hereto, with full power and authority to own its properties and
assets and to carry on lawfully its business as currently conducted, and is not
required to be qualified to do business as a foreign corporation in any other
jurisdiction.
(b) The Company does not have any subsidiaries, does not own or hold any
securities of, or any interest in, any other person or entity and is not
subject to any joint venture, partnership, limited liability company or other
arrangement or contract which is or could be treated as a partnership for
federal income tax purposes.
3.2. Articles of Incorporation, Bylaws and Agreements.
A true, complete and correct copy of the Articles of Incorporation and
Bylaws of the Company together with all amendments thereto have been delivered
to WorldCom, as listed on Exhibit 3.2(a) attached hereto. Except as set forth
on Exhibit 3.2(b) attached hereto, there are no agreements by and between or
among any or all of the security holders of the Company, whether or not the
Company is a party thereto, imposing any restrictions upon the transfer of or
otherwise pertaining to the securities of the Company (including, but not
limited to, the Common Stock) or the ownership thereof other than restrictions
that would have no effect on the transactions contemplated by this Agreement.
Any and all such restrictions shall be duly complied with or effectively waived
as of the Closing.
3.3. Capital Structure and Ownership.
The Company has authorized, issued and outstanding the number of shares of
stock and other securities so indicated on Exhibit 3.3 attached hereto. All
such outstanding securities have been duly and validly issued and are fully
paid and nonassessable. The Company warrants (but does not represent) that all
outstanding securities have not been issued in violation of the preemptive
rights of any person or entity or applicable securities laws. No shares of any
other class of capital stock of the Company are outstanding. There are no
outstanding options, warrants or other rights to acquire securities of the
Company, nor are there securities outstanding which are convertible into
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securities of the Company, except as set forth on said Exhibit 3.3. Except
pursuant to applicable corporate laws and as set forth in Exhibit 3.3 hereto,
there are no restrictions including, but not limited to, self-imposed
restrictions on the retained earnings of the Company or on the ability of the
Company to declare and pay dividends.
The name and residence address of each of the holders of the shares of the
Common Stock and other securities of the Company and the respective number and
percentage of outstanding shares held by each holder are set forth on Exhibit
3.3 attached hereto.
3.4. Authorization.
The Company has full legal right, power and authority to enter into this
Agreement, subject to Shareholder approval, and to carry out the transactions
contemplated by this Agreement. The execution, delivery and performance by the
Company of this Agreement and the other agreements and documents referred to
herein and the actions contemplated hereby and thereby have been duly and
validly authorized by all necessary corporate action on the part of the
Company, other than Shareholder approval, and, subject to Shareholder approval,
this Agreement and such other agreements and documents constitute valid and
binding obligations of the Company, enforceable in accordance with their terms,
subject to (i) general principles of equity, regardless of whether enforcement
is sought in a proceeding in equity or at law, and (ii) bankruptcy,
reorganization, insolvency, fraudulent conveyance, moratorium, receivership or
other similar laws relating to or affecting creditors' rights generally.
3.5. Financial Statements and Absence of Changes.
The balance sheets as of May 31, 1995 and 1994, and the income statements
and statements of cash flows for the fiscal years then ended and the balance
sheets for each month subsequent to May 31, 1995, through April 30, 1996, and
the income statements and statements of cash flows for the months then ended of
the Company (the "Financial Statements") have been provided to WorldCom. Each
of the Financial Statements is true, complete and correct and fairly presents
(including, but not limited to, the inclusion of all adjustments with respect
to interim periods which are necessary to present fairly the financial
condition and assets and liabilities or the results of operations of the
Company) the financial condition and assets and liabilities or the results of
operations of the Company as of the dates and for the periods indicated. The
Financial Statements were prepared in accordance with generally accepted
accounting principles applicable to the business of the Company consistently
applied in accordance with past accounting practices. Except as reflected in
the Financial Statements, the Company has no debts, obligations, guaranties of
obligations of others or liabilities (contingent or otherwise) that would be
required to be disclosed in financial statements prepared in accordance with
generally accepted accounting principles. Except as otherwise expressly
disclosed in Exhibit 3.17 attached hereto, from April 30, 1996, through the
date of this Agreement, there have been no adverse changes to the business,
financial condition, results of operations or prospects of the Company from
that described and reflected in the Financial Statements as of that date. Any
financial statements prepared with respect to the Company subsequent to the
date hereof shall be promptly provided to WorldCom and shall constitute
Financial Statements for purposes hereof.
3.6. Title to and Condition of Assets and Property.
The Company has good and marketable title to, or a valid leasehold
interest in, any assets reflected in the Financial Statements or currently used
in the operation of its business, and such assets, or the Company's leasehold
interests therein, are free and clear of all liens, claims, charges, security
interests, options, easements, restrictive covenants, encroachments, or other
title defects
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or encumbrances, except as set forth on Exhibit 3.6 attached hereto. Exhibit
3.6 sets forth a description of all real and personal property currently leased
or otherwise occupied or used but not owned by the Company, true, correct and
complete copies of which leases and other agreements have previously been
delivered to WorldCom. Said Exhibit 3.6 also describes all real property owned
by the Company, the title to which, including all buildings, structures and
other improvements located thereon, is held by the Company in fee simple
absolute. All personal property not set forth in Exhibit 3.6 attached hereto
and reflected on the Financial Statements or located on the premises of the
Company is owned by the Company and all tangible property owned or leased by
the Company is in good operating condition and repair, is suitable for the use
to which the same is customarily put, is free from defects (other than minor
defects which do not interfere with the use or operation thereof), is
merchantable and is of a quality and quantity presently usable in the ordinary
course of the operation of the business of the Company and is all of the assets
currently used or needed in said business. The buildings, assets and operations
of the Company conform in all material respects with all applicable restrictive
covenants, deeds, leases, and restrictions and all laws, ordinances, rules and
regulations (including, but not limited to, those relating to zoning and
working conditions) applicable to the Company.
3.7. Environmental Matters.
The Company has duly complied with, and its business, operations, assets,
equipment, leaseholds and other facilities are in compliance with, the
provisions of all applicable environmental, health and safety laws, codes and
ordinances and all rules and regulations promulgated thereunder, governing (i)
air emissions, (ii) discharges to surface water or ground water, (iii) solid or
liquid waste disposal, (iv) the use, storage, generation, handling, transport,
discharge, release, or disposal of toxic or hazardous substances or wastes, or
(v) other environmental, health or safety matters including, without
limitation, the Comprehensive Environmental Response, Compensation and
Liability Act, the Resource Conservation and Recovery Act, the Federal Water
Pollution Control Act, the Toxic Substance Control Act and the Clean Air Act.
There are no investigations, administrative proceedings, judicial actions,
orders, claims or notices which are pending or threatened against the Company
relating to the environment. The Company has not received a notice of, and does
not know, any facts which might constitute a violation of any environmental,
health or safety laws, codes or ordinances, and any rules or regulations
promulgated thereunder, which relate to the use, ownership or occupancy of the
property or the operation of the business of the Company.
3.8. Intellectual Property.
Except as set forth in Exhibit 3.8 attached hereto, the Company owns no
patents, registered copyrights, registered trade names, registered trademarks,
registered service marks, other such names, marks or applications therefor and
has not conducted business under any corporate, trade or fictitious name other
than its current corporate name. Except as set forth on Exhibit 3.8 hereto,
there are no pending or threatened claims of infringement upon the rights to
any intellectual property of others.
3.9. Liabilities.
Except as set forth on Exhibit 3.9 attached hereto or to the extent
reflected or reserved against in the Financial Statements, or existing under
the terms of the Contracts (as hereinafter defined) in effect on the date of
this Agreement (other than those pertaining to a default or event of default),
the Company had no liabilities or obligations as of the dates thereof, secured
or unsecured (whether accrued, absolute, contingent or otherwise) including,
without limitation, tax liabilities due or to become due, and the Company has
not incurred, nor will it incur, any liabilities or obligations since the date
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of the most recent of the Financial Statements provided to WorldCom prior to
the date of this Agreement, except liabilities not prohibited by this
Agreement. Except as set forth on Exhibit 3.9 hereto, the Company has no
obligations or liabilities, whether direct or indirect, joint or several,
absolute or contingent, matured or unmatured, secured or unsecured, which can
be accelerated by the execution and delivery of this Agreement or the
consummation of the transactions contemplated by this Agreement or which could
affect the same.
3.10. Contracts.
Except as set forth in Exhibit 3.10 attached hereto or in any other
Exhibit attached hereto and referenced below, true, correct and complete copies
of which referenced items have previously been made available for inspection by
WorldCom, on the date of this Agreement the Company is not a party to or bound
by, and does not have any liability with respect to, any of the following
(hereinafter, any of the following are referred to collectively as the
"Contracts" and individually as a "Contract"):
(a) contract for the purchase or sale of services, equipment,
inventory, materials, supplies, or any capital item or items, or supply
agreements with a government or any agency thereof;
(b) collective bargaining agreement or other agreement with any labor
union or labor organization or any employment, consulting, severance, bonus,
deferred compensation or similar agreement;
(c) agreement, indenture or other instrument relating to the
borrowing of money or guaranty of any obligation for the borrowing of money;
(d) tenancy, lease, license or similar agreement relating to property
except as set forth in Exhibit 3.6 attached hereto;
(e) license, lease or other agreement to provide, acquire or use
telecommunications or other services or equipment of any kind;
(f) any insurance policies naming the Company as an insured or
beneficiary or as a loss payee, or for which the Company has paid all or part
of the premium;
(g) any instrument or agreement relating to indebtedness by way of
lease-purchase arrangements, conditional sale, guarantee or other undertakings
on which others rely in extending credit, any joint venture agreements or any
chattel mortgages or other security arrangements;
(h) confidentiality, secrecy, standstill or noncompete agreement to
which the Company is bound or which is in its favor;
(i) any agreement or contract with, or any obligation to or from, an
Affiliate, a Shareholder, a holder of an option to acquire Common Stock (an
"Optionholder") or any Affiliate of a Shareholder or Optionholder. For purposes
of this Agreement, "Affiliate" shall mean: any person or entity (i) that
directly or indirectly, through one or more intermediaries, controls or is
controlled by, or is under common control with, the person or entity involved
including, without limitation, officers and directors, (ii) that directly or
beneficially owns or holds 5% or more of any equity interest in the person or
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entity involved, or (iii) 5% or more of whose voting securities (or in the case
of an entity which is not a corporation, 5% or more of any equity interest) is
owned directly or beneficially by the person or entity involved. As used
herein, the term "Control" shall mean possession, directly or indirectly, of
the power to direct or cause the direction of the management or policies of a
person or entity, whether through ownership of securities, by contract or
otherwise; or
(j) any other agreements, contracts or powers of attorney, whether
written or oral.
Except as set forth in Exhibit 3.10 attached hereto, neither the Company
nor, to the knowledge of the Company, any other party to any such Contract, has
breached any provisions of, or is in violation or default under the terms of,
or has caused or permitted to exist any event that with or without due notice
or lapse of time or both would constitute a default or event of default under,
any such Contract. All such Contracts are valid, binding and in full force and
effect and will continue in full force and effect to the benefit of the
Surviving Corporation, without change following the consummation of the
transactions contemplated by this Agreement without obtaining the consent or
other action of, or providing notice to, any other party thereto, except as set
forth in Exhibit 3.10 attached hereto, and the execution and delivery of this
Agreement by the Company and the consummation of the transactions contemplated
by this Agreement will not violate or cause a default or event of default under
any provision of, or result in the acceleration of any obligation under, or the
termination of, any such Contract except as set forth in said Exhibit 3.10.
3.11. Litigation and Compliance.
Except as set forth on Exhibit 3.11 attached hereto, on the date of this
Agreement there is no pending or threatened claim, investigation, lawsuit or
administrative proceeding by or against the Company or to which the Company is
a party or a subject. The Company and the operation of its business are in
compliance with all applicable laws and regulations and administrative orders,
all tariffs, rules and regulations of local exchange carriers and
inter-exchange carriers applicable thereto and its Articles of Incorporation
and Bylaws. There is no order, writ, injunction or decree binding on the
Company relating to or affecting the operations or the business of the Company
or the transactions contemplated by this Agreement.
3.12. Non-Contravention.
Neither the execution and delivery of this Agreement nor the consummation
of the transactions contemplated hereby will result in the breach of any term
or provision of, constitute a default under, or accelerate or augment the
performance otherwise required under, any provision of the Articles of
Incorporation or Bylaws of the Company or, as of the time of Closing, subject
to receipt of any consent described in Exhibit 3.10 hereto, any agreement
(including, without limitation, any loan agreement or promissory note),
indenture, instrument, order, law or regulation to which the Company is a party
or by which it is bound, or will result in the creation of any lien or
encumbrance upon any property of the Company.
3.13. Licenses, Permits and Required Consents.
Except as set forth in Exhibit 3.13 attached hereto, the Company has all
required franchises, tariffs, licenses, ordinances, certifications, approvals,
authorizations and permits ("Authorizations") necessary to the conduct of its
business as currently conducted. A list of such Authorizations is set forth on
Exhibit 3.13 attached hereto, true, correct and complete copies of which have
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previously been made available for inspection by WorldCom. All Authorizations
relating to the business of the Company are in full force and effect, no
violations have been made in respect thereof, and no proceeding is pending or
threatened which could have the effect of revoking or limiting any such
Authorizations and, subject to receipt of any necessary regulatory approvals,
the same will not cease to remain in full force and effect by reason of the
transactions contemplated by this Agreement.
3.14. Insurance.
Exhibit 3.14 attached hereto sets forth a list of all policies of
insurance which insure the properties, business or liability (including, but
not limited to, directors' and officers' liability) of the Company, setting
forth the types and amounts of coverage, true, correct and complete copies of
which have previously been made available for inspection by WorldCom. Each of
such policies is current and in full force and effect and the Company has not
received notice of default under, or intended cancellation or nonrenewal of,
any such policies. The Company has complied with the terms and provisions of
such policies including, without limitation, all riders and amendments thereto.
Such insurance is adequate and the Company will keep all current insurance
policies in effect through the Closing. The Company has not been refused any
insurance by an insurance carrier to which it has applied for insurance.
3.15. Employee Benefit Plans.
(a) Exhibit 3.15 attached hereto sets forth a complete list and brief
description of each employee benefit plan or arrangement ("Employee Benefit
Plan" or "Plan") including, but not limited to, an employee benefit plan as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended, and the regulations thereunder ("ERISA"), whether or not subject to
ERISA including, but not limited to, any pension, profit sharing, stock bonus,
deferred or supplemental compensation, retirement, thrift, stock purchase or
stock option plan, or any other compensation, welfare, fringe benefit or
retirement plan, program, policy, course of conduct, understanding or
arrangement of any kind whatsoever, whether formal or informal, oral or
written, which is or has been maintained for current or former employees or
agents of the Company and their beneficiaries and dependents or which is or has
been contributed to by the Company. For purposes of this Section, the Company
shall include all trades or businesses (whether or not incorporated) which are
a member of a group of which the Company is a member and which are under common
control within the meaning of Section 414 of the Code.
(b) Each Employee Benefit Plan and any related trust agreement,
annuity contract or any other funding or implementing instrument complies
currently and has complied in the past, as to form, operation and
administration, with its terms, the provisions of ERISA (to the extent
applicable) and all other applicable laws, rules and regulations and with the
Code where required in order to be tax-qualified under Sections 401(a) or
403(a) and 501(a) of the Code and no event has occurred which will or could
give rise to disqualification of any such Plan under said sections. All
necessary governmental approvals for the Employee Benefit Plans have been
obtained; each Employee Benefit Plan which is subject thereto meets and has met
at all times the minimum funding standards of any applicable law and no
accumulated funding deficiency, whether or not waived, exists with respect to
any such Plan; each Employee Benefit Plan which is an employee pension benefit
plan (as defined in Section 3(2) (A) of ERISA) has been duly authorized by the
Board of Directors of the Company and a favorable determination as to the
qualification under the Code of each such employee pension benefit plan has
been made by the Internal Revenue Service. The Company does not now and never
has maintained or contributed to an employee pension benefit plan which is
subject to the minimum funding standards of Section 302 of ERISA or Section 412
of the Code. The Company does not now nor
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has it ever maintained or contributed to an employee pension benefit plan which
is subject to the provisions of Title IV of ERISA. None of the Plans is a
multiemployer plan within the meaning of Section 3(37) of ERISA or a multiple
employer plan as defined in Section 413 of the Code. The Company has the
unrestricted right to amend or terminate any Plan other than with respect to
contractual rights in effect on the date of this Agreement under Contracts
described in Exhibit 3.10 hereto, such as employment and option agreements, or
as may be prohibited by applicable law.
(c) Neither the Company nor any fiduciary or administrator of any
Employee Benefit Plan has engaged in any transaction in violation of Section
406(a) or (b) of ERISA for which no exemption exists under Section 408 of ERISA
or any prohibited transaction (as defined under ERISA and the Code) for which
no exemption exists under Section 4975 (c) (2) or 4975(d) of the Code. No event
has occurred which will or could subject any such Plan to income tax under
Section 511 of the Code or to an excise tax under Sections 4971 through 4981 of
the Code.
(d) The Company has made available for inspection by WorldCom a
complete and correct copy of (i) each Employee Benefit Plan (and related trust
agreement, annuity contract or other funding or implementing instrument),
including all amendments thereto; (ii) all filings (including all attachments
thereto) made by or on behalf of the Company (including, but not limited to,
annual reports and returns) with the Internal Revenue Service, Department of
Labor or the Pension Benefit Guaranty Corporation relative to any Employee
Benefit Plan for each of the three most recent plan years; (iii) the actuarial
reports and balance sheets and consolidated financial statements for each of
the three most recent plan years and the most recent Internal Revenue Service
determination letters; (iv) the most recent summary plan description (as
defined in ERISA) for each Employee Benefit Plan; and (v) other relevant
documents in the possession of the Company or its employees or agents, with
respect to each Employee Benefit Plan. Such documents fairly present the
financial condition of each of such Plans.
(e) Except as provided in Exhibit 3.15 hereto, with respect to each
Employee Benefit Plan which is a welfare plan (as defined in ERISA Section
3(l)): (i) no such plan provides medical or death benefits with respect to
current or former employees beyond their termination of employment (except as
required by applicable law); (ii) there are no reserves, assets, surplus or
prepaid premiums under any such plan; and (iii) the Company has complied with
Code Section 4980B.
(f) Except as described in Exhibit 3.15 attached hereto, the
consummation of the transactions contemplated by this Agreement will not (i)
entitle any individual to severance pay, or (ii) accelerate the time of payment
or vesting of benefits or increase the amount of compensation due to any
individual, other than causing the vesting of outstanding and unexercised
options as of the Effective Time to acquire Common Stock (the "Stock Options")
granted pursuant to the Company's 1994 Stock Option Plan described in Exhibit
3.10 attached hereto (the "Option Plan") in accordance with the present terms
of the Option Plan and option agreements outstanding thereunder on the date of
this Agreement.
(g) The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby will not result in: (i) a complete or
partial withdrawal from any Employee Benefit Plan, or (ii) any funding
deficiency or lien under ERISA.
3.16. Taxes and Returns.
(a) Except as set forth in Exhibit 3.16(a) attached hereto, all
federal, state, county and local, and all foreign and other, income, franchise,
excise, tariff, gross receipts, sales and use, payroll, real and personal
property and other taxes and governmental charges, assessments and
contributions
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for which the Company is or may be liable including, but not limited to,
interest and penalties ("Taxes"), required to be paid, collected or withheld
with respect to all open years have been paid or collected or withheld and
remitted to the appropriate governmental agency except for (i) any Taxes which
the Company is contesting in good faith which have been noted in the Financial
Statements, and (ii) Taxes not yet payable which have been adequately provided
for in the Financial Statements. Except as set forth in Exhibit 3.16(a) hereto,
true, complete and correct returns (including, without limitation, information
returns and other material information) have been timely filed with the
appropriate governmental agency with respect to all Taxes, and the copies
thereof which have been made available for inspection by WorldCom are true,
accurate and complete. The Tax returns of the Company have not been audited by
the Internal Revenue Service. Except as set forth in said Exhibit 3.16, neither
the Company nor any group of which the Company is now or ever was a member has
filed or entered into any election, consent or extension agreement that extends
any applicable statute of limitations or the time within which a return must be
filed. Neither the Company nor any group of which the Company is now or ever
was a member is a party to any action or proceeding pending or threatened by
any governmental authority for assessment or collection of Taxes, no unresolved
claim for assessment or collection of Taxes has been asserted, no audit or
investigation by any governmental authority is pending or threatened and no
such matters are under discussion with any governmental authority. No
deficiencies for Taxes have been claimed, proposed or assessed by any taxing or
other governmental authority. The Company has never been an "S" corporation
under the Code.
(b) All elections with respect to Taxes affecting the Company are set
forth in Exhibit 3.16 attached hereto. The Company: (i) has not made and will
not make a deemed dividend election under Treas. Reg. '1.1502-32(f)(2) or a
consent dividend election under Section 565 of the Code; (ii) has not consented
at any time under Section 341(f)(l) of the Code to have the provisions of
Section 341(f)(2) of the Code apply to any disposition of the Company's assets;
(iii) has not agreed, and is not required, to make any adjustment under Section
481(a) of the Code by reason of a change in accounting method or otherwise;
(iv) has not made an election, and is not required, to treat any asset of the
Company as owned by another person for federal income tax purposes or as
tax-exempt bond financed property or tax-exempt use property within the meaning
of Section 168 of the Code; and (v) has not made any of the foregoing elections
and is not required to apply any of the foregoing rules under any comparable
state or local income tax provision.
(c) Except as set forth in Exhibit 3.16 attached hereto, the Company
is not and never has been an includable corporation in an affiliated group of
corporations, within the meaning of Section 1504 of the Code.
(d) All tax sharing agreements or similar arrangements with respect
to or involving the Company are set forth in Exhibit 3.16 attached hereto.
(e) The Company has not made an election under Section 338 of the
Code and has not taken any action that would result in any tax liability of the
Company as a result of a deemed election within the meaning of Section 338 of
the Code.
(f) The Company has not made or become obligated to make, and will
not, as a result of the transactions contemplated by this Agreement, make or
become obligated to make, any "excess parachute payment" as defined in Section
280G of the Code (without regard to subsection (b) (4) thereof).
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(g) The amount of any tax credit of the Company subject to recapture
is set forth in Exhibit 3.16 attached hereto. The aggregate amount of ordinary
losses on Section 1231(b) property that has been deducted by the Company is set
forth in Exhibit 3.16 attached hereto.
(h) The Company is not and has not been a United States real property
holding company (as defined in Section 897(c)(2) of the Code) during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(i) Except as provided in Exhibit 3.16 attached hereto, neither the
Company nor any Shareholder is a person other than a United States person
within the meaning of the Code.
(j) None of the assets of the Company is property which the Company
is required to treat as being owned by any other person pursuant to the
so-called "safe harbor lease" provisions of Section 168(f)(8) of the Internal
Revenue Code of 1954, as amended.
(k) The transactions contemplated herein are not subject to the tax
withholding provisions of Code Section 3406, or of Subchapter A of Chapter 3 of
the Code or of any other provision of law.
(l) The Company has not violated any of the COBRA continuation
coverage requirements set forth in Section 4980B of the Code.
(m) The Company has disclosed on its federal income tax returns all
positions taken therein that could give rise to a substantial understatement of
federal income tax liability within the meaning of Section 6662(d) of the Code.
(n) Except as set forth in Exhibit 3.16 attached hereto: (i) none of
the assets of the Company have been financed with or directly or indirectly
secure any industrial development bond or debt the interest on which is tax
exempt under Section 103(a) of the Code; (ii) the Company is not a borrower or
guarantor of any outstanding industrial revenue bond; and (iii) the Company is
not a tenant, principal user or related person to any principal user (within
the meaning of Section 144(a) of the Code) of any property which has been
financed or improved with the proceeds of any industrial revenue bond.
(o) Except as set forth in Exhibit 3.16 attached hereto, since
January 1, 1993, the Company has not acquired (i) any trade or business
(whether through a taxable or nontaxable asset or stock acquisition), or (ii)
any asset by way of merger or liquidation.
(p) The Company has not participated in an international boycott
within the meaning of Section 999 of the Code.
3.17. Changes.
Except as otherwise expressly disclosed in Exhibit 3.17 attached hereto,
from April 30, 1996, through the date of this Agreement, there has not been:
(a) any damage, destruction, other casualty loss or other occurrence
that could, individually or in the aggregate, have an adverse effect on the
assets, business, condition or prospects of the Company;
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(b) any disposition of any asset of the Company other than in the
ordinary course of business;
(c) any amendment, modification or termination of any existing, or
entering into any new, contract, agreement, lease, license, permit or franchise
that could, individually or in the aggregate, have an adverse effect on the
business, condition or prospects of the Company;
(d) any direct or indirect redemption, purchase or other acquisition
of, or any declaration, setting aside or payment of any dividend or other
distribution on or in respect of, any stock or other securities of the Company;
(e) any changes in the accounting methods or practices followed by
the Company or any change in depreciation or amortization policies or rates; or
(f) any other adverse change in the assets, business, condition or
prospects of the Company.
3.18. No Adverse Actions.
There is, on the date of this Agreement, no existing, or, to the knowledge
of the Company, pending or threatened, termination or cancellation prior to the
expiration of any fixed term of any Contract between the Company and any
specific supplier, customer or other person or entity. Neither the Company nor
any shareholder, director, officer, agent, employee or other person or entity
associated with or acting on behalf of the Company has used any corporate funds
for unlawful contributions, payments, gifts, entertainment or other unlawful
expenses relating to political activity, or made any direct or indirect
unlawful payments to governmental or regulatory officials or others.
3.19. Labor Matters.
The Company has no obligations, contingent or otherwise, under any
employment or consulting agreement (except if and as set forth in Exhibit 3.10
attached hereto), collective bargaining agreement or other contract with a
labor union or other labor or employee group. There are no efforts presently
being made or threatened by or on behalf of any labor union with respect to
employees of the Company. The Company is in compliance with all applicable laws
respecting employment and employment practices, terms and conditions of
employment and wages and hours, and has not and is not engaged in any unfair
labor practice; no unfair labor practice complaint against the Company is
pending or threatened before the National Labor Relations Board; there is no
labor strike, dispute, disturbance, slowdown or stoppage pending or threatened
against or involving the Company; no representation question exists respecting
the employees of the Company; no grievance or internal or informal complaint
which might have an adverse effect upon the Company or the conduct of its
business exists, no arbitration proceeding arising out of or under any
collective bargaining agreement is pending and no claim therefor has been
asserted; no collective bargaining agreement is currently being negotiated by
the Company; and the Company has not experienced any labor difficulty. There
has not been, and to the best knowledge of the Company there will not be (other
than as may result from an act or omission by WorldCom), any adverse change in
relations with employees of the Company as a result of any announcement or
consummation of the transactions contemplated by this Agreement.
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3.20. Minute and Stock Books; Records.
The minute books of the Company made available to WorldCom contain the
records of all meetings and other corporate actions of the shareholders and
directors (and committees thereof) of the Company and accurately and completely
reflect all such actions, other than matters during the period from February
26, 1996 to July 2, 1996, related solely to the possible acquisition of the
Company or strategic alliances. The Bylaws contained in or kept with said
minute books are true, complete and correct copies of the Bylaws of the Company
and all amendments thereto duly adopted and in force. The stock books
maintained by the Company made available to WorldCom are complete and
accurately disclose all issuances and transfers of stock of the Company. All
other records maintained by the Company including, but not limited to, records
pertaining to bank accounts and safe deposit boxes accurately reflect the
information presented therein. Except as set forth on Exhibit 3.20 attached
hereto, the Company does not have any of its records or information recorded,
stored, maintained or held off the premises of the Company.
3.21. Hart-Scott-Rodino Matters.
For purposes of, and as defined or provided in, the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and regulations
promulgated thereunder (the "HSR Act"), the Company is an "ultimate parent
entity" and a "person" which includes no other "entities."
3.22 Accounts Receivable.
The accounts receivable which are reflected in the Financial Statements
were validly obtained in the ordinary course of business of the Company. The
reserves for doubtful accounts reflected on the Financial Statements were
determined in accordance with generally accepted accounting principles and past
practices consistently applied and adequately provide for all uncollectible
accounts receivable.
3.23. Disclosure.
No representation, warranty or statement made by or on behalf of the
Company in this Agreement (including, but not limited to, the Exhibits attached
hereto) or in the certificates or other written materials furnished to WorldCom
incident to this Agreement or the negotiations leading to this Agreement,
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact or other information required to be stated
herein or therein or necessary to make the statements contained herein or
therein not misleading; provided, however, that this representation will not be
construed to apply in any manner to any Company projections or other
forward-looking statements or beliefs contained in such other materials.
3.24. Broker's or Finder's Fee.
Other than Orca Capital pursuant to the agreement described in Exhibit
3.10 hereto, no person or entity acting on behalf of the Company or the
Shareholders is, or will be, entitled to any commission, fee or other payment
in connection with or arising out of this Agreement or any of the transactions
contemplated hereby.
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ARTICLE IV
ADDITIONAL AGREEMENTS OF THE PARTIES
4.1. Ordinary Course.
The Company covenants, represents and warrants that prior to the Closing,
without WorldCom's written consent, the Company shall not:
(a) amend or propose to amend its Articles of Incorporation or
Bylaws;
(b) other than with respect to Shareholder approval of Stock Options
identified with an asterisk regarding such approval in Schedule 2 of Exhibit
3.3 hereto, authorize for issuance, issue, grant, sell, or propose to issue,
grant, sell, any shares of, or any options, warrants, commitments,
subscriptions or rights of any kind to acquire or sell any shares of, the
capital stock or other securities of the Company including, but not limited to,
any securities convertible into or exchangeable for shares of stock of any
class of the Company, except for the issuance of shares of Common Stock
pursuant to the exercise of Stock Options under the present terms of the Option
Plan and related agreements outstanding on the date of this Agreement;
(c) split, combine or reclassify any shares of its capital stock or
declare, pay or set aside any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock,
or redeem, purchase or otherwise acquire or offer to acquire any shares of its
capital stock or other securities;
(d) (i) except for debt (including, but not limited to, obligations
in respect of capital leases) not in excess of $100,000 in the aggregate
incurred in the ordinary course of business consistent with past practice,
create, incur or assume any short- or long-term debt in excess of existing
credit arrangements as disclosed in Exhibit 3.10 attached hereto; (ii) assume,
guarantee, endorse or otherwise become liable or responsible (whether directly,
indirectly, contingently or otherwise) for the obligations of any person or
entity; (iii) make any capital expenditures, other than as required under the
terms of the Contracts with Safeway Incorporated, Pro Line Home Services and
Northern Telecom in effect on the date of this Agreement and referenced in
Exhibit 3.10 hereto, in excess of $300,000 in the aggregate; (iv) make any
loans, advances or capital contributions to, or investments in, any other
person or entity (other than customary travel or business advances to employees
made in the ordinary course of business consistent with past practice; (v)
acquire the stock or assets of, or merge or consolidate with, any other person
or entity; or (vi) agree to incur any liability or obligation not otherwise
permitted hereby in excess of $50,000 individually or $250,000 in the aggregate
for all such liabilities or obligations;
(e) directly or indirectly through any investment banker or other
representative or otherwise, solicit, entertain or negotiate with respect to
any inquiries or proposals from any person or entity relating to: (i) the
merger or consolidation of the Company with any person or entity, (ii) the
direct or indirect acquisition by any person or entity of any of the assets of
the Company, or (iii) the acquisition of direct or indirect beneficial
ownership or control of the Company or any securities thereof by any person or
entity. The Company shall promptly notify WorldCom of any inquiries or
proposals it may receive relating to any such matters;
(f) sell, transfer, mortgage, pledge or otherwise dispose of, or
encumber, any assets or properties;
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(g) increase in any manner the compensation of any of its officers,
employees or agents other than any increases in the ordinary course of business
consistent with the past practice not in excess of (i) on an individual basis,
the lesser of 15% of the current compensation of such person or entity or
$8,000 per annum, or (ii) on an aggregate basis for all officers, employees and
agents, $150,000 per annum.
(h) enter into, establish, amend or terminate any employment,
consulting, retention, change in control, collective bargaining, bonus or other
incentive compensation, profit sharing, health or other welfare, stock option
or other equity, pension, retirement, vacation, severance, deferred
compensation or other compensation or benefit plan, policy, agreement, trust,
fund or arrangement with, for or in respect of, any Shareholder, officer,
director, other employee, agent, consultant or Affiliate;
(i) make any new elections with respect to Taxes or any changes in
current elections with respect to Taxes;
(j) compromise, settle, grant any release or take any other
significant action relating to any litigation, claim or proceeding;
(k) take any action or omit to take any action, which action or
omission would result in a breach of any of the covenants, representations and
warranties of the Company set forth in this Agreement;
(l) enter into or amend any lease of, or agreement with respect to,
real property;
(m) enter into or amend any agreement (i) pursuant to which the
aggregate financial obligation of the Company or the value of the services to
be provided could exceed $20,000, other than purchase orders for cards and
related printing orders in the ordinary course of business consistent with past
practice not in excess of $100,000, (ii) having a term of more than twelve (12)
months and pursuant to which the aggregate financial obligation of the Company
or the value of the services to be provided could exceed $10,000 per year, or
(iii) which is not terminable upon no more than thirty (30) days' notice by the
Company without penalty;
(n) take any action with respect to the indemnification of any person
or entity;
(o) change any accounting practices;
(p) otherwise enter into any transaction or take other action not in
the ordinary course of business consistent with past practice; or
(q) agree, commit or arrange to do any of the foregoing.
4.2. Access Prior to Closing.
Upon reasonable notice, the Company shall afford WorldCom and its
representatives (including, without limitation, its independent public
accountants, attorneys and banks or other lenders' representatives) reasonable
access from the date hereof through the Closing to any and all of the premises,
properties, contracts, books, records, data, personnel, customers and vendors
of or relating to the Company or its operations. The Company shall cause its
officers, directors, agents and employees to cooperate fully in connection with
the foregoing.
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4.3. Regulatory and Other Authorizations.
The Company shall obtain or make, and/or shall cooperate fully in
obtaining or making, all governmental, regulatory and third-party approvals,
orders, qualifications, waivers, consents, filings, authorizations,
certifications or other actions necessary in order to consummate the
transactions contemplated hereby. The parties hereto will not take any action
that will have the effect of delaying, impairing or impeding the receipt of any
of the foregoing and will use their respective best efforts to secure the same
as promptly as possible.
4.4. Further Assurances.
At any time and from time to time at or after the Closing, the parties
agree to cooperate with each other, to execute and deliver such other
documents, instruments of transfer or assignment, files, books and records and
do all such further acts and things as may be reasonably required to carry out
the transactions contemplated hereby.
4.5. No Interference.
The Company and WorldCom will use their respective best efforts to prevent
their respective employees and agents from interfering with the business
relationships of the other party (including relationships with customers,
suppliers, and distributors) through use of the existence of this Agreement or
any nonpublic information obtained from the other party pursuant hereto.
4.6 Stock Options.
At the Effective Time, WorldCom shall cause each holder of a Stock Option
to receive, by virtue of the Merger, an option exercisable for shares of
WorldCom Stock (the "WorldCom Options") having substantially the same terms and
conditions as the Stock Option except that the exercise price and the number of
shares issuable upon exercise shall be divided and multiplied, respectively, by
the Exchange Ratio.
4.7. Delivery.
The parties shall cause the delivery of the respective documents required
to be delivered or caused to be delivered by them pursuant to Article VI below.
4.8. Indemnity.
(a) Pursuant to the Escrow Agreement and as hereinafter provided, the
Shareholders shall indemnify WorldCom, its Affiliates (including, but not
limited to, the Surviving Corporation following the Closing) and their
respective directors, officers, shareholders, employees, agents, successors and
assigns (collectively, the "Indemnified Party") against, and hold each and
every one of the foregoing harmless from, any and all damages, losses, claims,
liabilities, demands, charges, suits, penalties, costs or expenses, whether
accrued, absolute or contingent, including, but not limited to, court costs and
attorneys' fees arising after the Effective Time (collectively, the "Losses"),
which any of the foregoing may incur or to which any of the foregoing may be
subjected, arising out of or otherwise based upon any of the following:
(i) Any misrepresentation or breach of warranty or
representation by the Company or any breach or default by the Company of
or under any of the covenants or other provisions of this Agreement or of
any other
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agreement or instrument relating to or contemplated by this Agreement to
which WorldCom or an Affiliate of WorldCom is a party or which is in favor
of WorldCom or an Affiliate of WorldCom;
(ii) The failure of any Employee Benefit Plan to meet benefit
commitments accrued as of the Closing, the failure by the Company to meet
any minimum funding requirement with respect to any Employee Benefit Plan
on or before the Closing Date, retroactive disqualification of any
Employee Benefit Plan by the Internal Revenue Service for any act or
omission occurring on or before the Closing Date, the occurrence of any
"prohibited transaction" on or before the Closing Date by the Company or
any fiduciary or administrator relative to any Employee Benefit Plan, or
any unfunded benefit obligations, claims or payments accrued as of the
Closing;
(iii) Any exercise of dissenters' rights incident to the Merger
including, without limitation, the payment of the fair value and other
amounts with respect to the shares of the Common Stock held by any
Dissenter to the extent the same exceeds the amount of the WorldCom Stock
Value multiplied by the product of the Exchange Ratio times the number of
shares of Common Stock involved (any such excess being the "Excess
Dissenter Amount"); or
(iv) the matters set forth in Exhibit 4.8 attached hereto (the
"Scheduled Matters").
(b) Any Indemnified Party intending to seek indemnification from
another person or entity (the "Indemnifying Party") pursuant to this Agreement
and the Escrow Agreement shall give the Shareholder Representative under the
Escrow Agreement (the "Shareholder Representative") prompt written notice
thereof. The failure of the Indemnified Party to give such notice shall not
relieve the Indemnifying Party of any indemnity obligation pursuant to this
Agreement and the Escrow Agreement except to the extent such failure prejudices
the rights of the Indemnifying Party. If such matter involves the assertion of
a claim by a third party in an amount not in excess of $10,000,000 less the
amount of other Losses or potential Losses incurred to date, the Indemnified
Party shall give the Shareholder Representative the opportunity to undertake
the defense thereof pursuant to the provisions hereof at the expense of the
Indemnifying Party through reputable legal counsel selected by the Shareholder
Representative which is reasonably satisfactory to the Indemnified Party. The
Shareholder Representative shall have the right to so assume the defense of
such matter by (i) giving the Indemnified Party written notice thereof within
twenty (20) days after the giving of notice of the matter by the Indemnified
Party or such shorter period as may be required to avoid any prejudice to the
rights of the Indemnified Party, and (ii) thereafter diligently and timely
defending the same. Such a matter may be settled with the claimant on terms and
conditions acceptable to the Shareholder Representative and the Indemnified
Party, which acceptance shall not be unreasonably withheld or delayed. If the
Shareholder Representative so assumes the defense of such matter, the
Indemnified Party shall have the right to employ his or its own counsel, at his
or its expense, and participate in the defense or settlement thereof, provided
if the Shareholder Representative does not provide assurances satisfactory to
the Indemnified Party as to the defense and payment of any indemnity
obligation, then the counsel of the Indemnified Party shall have the right to
assume the defense at the expense of the Indemnifying Party. In the event the
Shareholder Representative does not so assume the defense of such matter, the
Indemnified Party may engage counsel and defend or settle the same on such
terms and conditions as the Indemnified Party may determine in his or its
reasonable
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discretion. The Indemnifying Party and the Indemnified Party shall cooperate in
good faith with each other in connection with the defense of any such matter
and shall make available all information necessary or useful to the defense of
any such matter.
(c) The obligations of this Section 4.8 shall expire at midnight on
the date one (1) year after the Closing Date other than with respect to the
following, as to which said obligations shall survive the Closing without time
limitation other than as may be provided by applicable law:
(i) matters as to which a claim for Losses exists and notice of
which has been given to the Shareholder Representative on or before said
expiration date;
(ii) the Excess Dissenter Amount; or
(iii) the Scheduled Matters.
(d) Notwithstanding anything herein to the contrary, other than with
respect to an intentional misrepresentation, breach or default, as to which the
limitations of this Section 4.8(d) shall not apply, an Indemnified Party shall
be entitled to indemnification hereunder only if a Loss and/or the aggregate
Losses claimed to date by all Indemnified Parties exceed $500,000, in which
event the Indemnified Party shall be entitled to recover the amount of such
Loss(es) in excess of $500,000, and the maximum indemnity obligation of each
Shareholder hereunder shall not exceed the amount held in escrow pursuant to
the Escrow Agreement.
(e) Prior to or at the Closing, WorldCom and the Shareholder
Representative (on behalf of the Shareholders) shall execute and deliver, and
shall cause an escrow agent mutually acceptable to WorldCom and the Shareholder
Representative to execute as the Escrow Agent and deliver, the Escrow
Agreement.
4.9. Employees.
The Company hereby acknowledges that WorldCom has no obligation to employ,
or to continue the employment by the Company of, any of the employees of the
Company. The Company shall make no representation to the contrary to any of
such employees; provided, however, WorldCom and/or its Affiliates may interview
or otherwise contact such employees regarding any future employment. If and to
the extent WorldCom so requests, the officers of the Company shall, and will
use their best efforts to cause employees of the Company designated by WorldCom
to, remain employees of the Company or become employees or consultants of
WorldCom, with it being understood and agreed that such employment or
engagement shall be with no contractual obligation on the part of the Company
or WorldCom to continue any such employment or engagement, which employment or
engagement shall be upon terms and conditions satisfactory to WorldCom.
The Company shall not incur any obligation, severance pay or otherwise,
with respect to the termination of employees without the prior written approval
of WorldCom.
4.10. Continued Relationships.
The Company shall use all reasonable efforts to preserve intact the
business of the Company and keep available the services of its officers and
employees and maintain good relationships with suppliers, customers and others
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having business relations with the Company, and shall use all reasonable
efforts to avoid any change in the business, condition or results of operations
of the Company which may have a material adverse effect on the assets,
business, condition or prospects of the Company.
4.11. Confidentiality.
(a) Except as contemplated by this Agreement, as required by law or
otherwise expressly consented to in writing by WorldCom and the Company, all
information or documents furnished hereunder by any party shall be kept
strictly confidential by the party or parties to whom furnished at all times
prior to the Closing Date, and in the event such transactions are not
consummated, each shall return to the other all documents furnished hereunder
and copies thereof upon request and shall continue to keep confidential all
information furnished hereunder and shall not thereafter use the same for its
advantage. Notwithstanding the foregoing, (i) in consultation with the
Company, WorldCom may issue or make a press release, announcement or other
disclosure regarding this Agreement and the transactions contemplated hereby
which it determines necessary or desirable under applicable law, and (ii)
WorldCom may, at any time after the date of this Agreement, file with the
Securities and Exchange Commission (the "Commission") a Report on Form 8-K
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), with respect to the transactions contemplated by this Agreement, and/or
file with the Commission a registration statement under the Securities Act of
1933, as amended (the "Securities Act"), which includes a prospectus containing
any information required to be included therein with respect to the
transactions contemplated by this Agreement and thereafter distribute said
prospectus in connection with the offer and sale of securities of WorldCom. The
Company shall cooperate with WorldCom and provide such information and
documents as may be required in connection with any such filings.
(b) In the event the Closing is not consummated, each party hereto
will hold in absolute confidence any information obtained from another party
except to the extent (i) such party is required to disclose such information by
law or regulation, (ii) disclosure of such information is necessary or
desirable in connection with the pursuit or defense of a claim, (iii) such
information was known by such party prior to such disclosure or was thereafter
developed or obtained by such party independent of such disclosure, or (iv)
such information becomes generally available to the public or is otherwise no
longer confidential. Prior to any disclosure of information pursuant to the
exception in clause (i) or (ii) of the preceding sentence, the party intending
to disclose the same shall so notify the party which provided the same in order
that such party may seek a protective order or other appropriate remedy should
it choose to do so.
4.12. Noncompete and Confidentiality Agreements.
As of the Closing, the persons specified in Exhibit 4.12 attached hereto
shall execute, without further consideration, noncompete and confidentiality
agreements in substantially the form attached hereto as Exhibit 4.12 (the
"Noncompete Agreements").
4.13. Shareholder Approval.
As soon as practicable and in consultation with WorldCom, the Company will
take all steps necessary to duly call, give notice of, convene and hold a
meeting of its Shareholders for the purpose of approving the Plan of Merger and
the Escrow Agreement and for such other purposes as may be necessary or
desirable in connection with effectuating the transactions contemplated hereby.
The Board of Directors of the Company (i) will recommend to Shareholders that
they approve the Plan of Merger and the Escrow Agreement and the transactions
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contemplated hereby, and (ii) will use its best efforts to obtain any necessary
approval by the Shareholders of the Plan of Merger and the Escrow Agreement and
the transactions contemplated hereby including, without limitation, voting the
shares of the Common Stock held for such approval. None of the information
provided by or on behalf of the Company to its Shareholders incident to the
foregoing will contain any untrue statement of a material fact or omit to state
a material fact or other information required to be stated therein or necessary
to make the statements contained therein not misleading, provided this covenent
by the Company shall not apply to information provided by or on behalf of
WorldCom for transmittal to the Shareholders. None of the information provided
by or on behalf of WorldCom for transmittal to the Shareholders incident to the
foregoing will contain any untrue statement of a material fact or omit to state
a material fact or other information required to be stated therein or necessary
to make the statements contained therein not misleading.
4.14 Pooling of Interests.
The Company shall not take, and shall use its best efforts to ensure that
none of its Shareholders, Optionholders, directors, officers or employees
takes, any action that could result in the Merger not qualifying for
pooling-of-interests accounting treatment in accordance with Accounting
Principles Board Opinion No. 16.
4.15. Affiliate Agreements.
The Company shall use its best efforts to ensure that each person or
entity who is or may be an Affiliate of the Company within the meaning of Rule
144 promulgated under the Securities Act shall enter into an agreement in the
form attached hereto as Exhibit 4.15 (the "Affiliate Agreements").
4.16. Section 3(a) (10).
In connection with the issuance of WorldCom Stock and WorldCom Options
pursuant to the transactions contemplated by this Agreement, WorldCom, with the
cooperation of the Company, shall file a request for approval of the issuance
of WorldCom Stock and WorldCom Options in accordance with Oregon Revised
Statutes 59.095 so as to cause such securities to be exempt from the
requirements of registration under the Securities Act by virtue of application
of Section 3(a)(10) of the Securities Act and shall take such further actions
as may be necessary to obtain a fairness hearing in accordance with Oregon
Revised Statutes 59.095 and an order of registration pursuant thereto.
4.17. Notification of Certain Matters.
The Company shall give prompt notice to WorldCom if any of the following
occur after the date of this Agreement but prior to the Effective Time: (i)
receipt of any notice or other communication from any third party alleging that
the consent or other action of such third party is or may be required in
connection with the transactions contemplated by this Agreement; (ii) receipt
of any notice or other communication from any regulatory or governmental
authority in connection with the transactions contemplated by this Agreement;
(iii) the occurrence of an event which would constitute a material adverse
change in the assets, business, condition or prospects of the Company taken as
a whole within the meaning of Section 5.2(i), below; or (iv) the occurrence of
any event that would cause a breach by the Company of any provision of this
Agreement or that, if such event had occurred on or before the date of this
Agreement, would have been required to have been disclosed in this Agreement.
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ARTICLE V
CONDITIONS TO CLOSING
5.1. The Company's Conditions to Close.
The obligations of the Company under this Agreement are subject to the
satisfaction at or prior to the Closing of each of the following conditions,
but compliance with any or all of such conditions may be waived, in writing, by
the Company:
(a) The representations and warranties of WorldCom contained in this
Agreement shall be true and correct in all material respects on the date hereof
and on the Closing Date;
(b) WorldCom shall have performed and complied with all of the
covenants and agreements in all material respects and satisfied in all material
respects the conditions required by this Agreement to be performed or complied
with or satisfied by WorldCom at or prior to the Closing;
(c) All required governmental (including, without limitation,
regulatory) approvals, clearances, consents and/or waiting periods shall have
been obtained or shall have expired including, but not limited to, expiration
or early termination of the waiting period under the HSR Act and those under
applicable securities or blue sky laws relative to the issuance of the WorldCom
Stock;
(d) No action, suit or proceeding shall have been instituted by any
person or entity including, but not limited to, any governmental agency or body
to restrain or prevent the carrying out of the transactions contemplated by
this Agreement or that seeks other material relief with respect to any of such
transactions or that could, individually or in the aggregate, have a material
adverse effect on the business or prospects of WorldCom and its subsidiaries
taken as a whole. On the Closing Date, there shall be no injunction,
restraining order or decree of any nature of any court or governmental agency
or body in effect that restrains or prohibits the consummation of the
transactions contemplated by this Agreement; and
(e) The Plan of Merger shall have been duly approved by the
Shareholders pursuant to the Washington Act.
5.2. WorldCom's Conditions to Close.
The obligations of WorldCom under this Agreement are subject to the
satisfaction at or prior to the Closing of each of the following conditions,
but compliance with any or all of such conditions may be waived, in writing, by
WorldCom:
(a) The representations and warranties of the Company contained in
this Agreement shall be true and correct in all material respects on the date
hereof and on the Closing Date;
(b) The Company shall have performed and complied with all the
covenants and agreements in all material respects and satisfied in all material
respects the conditions required by this Agreement to be performed or complied
with or satisfied by it at or prior to the Closing;
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(c) All required governmental (including, without limitation,
regulatory) and third-party approvals, clearances, consents and/or waiting
periods shall have been obtained or shall have expired including, but not
limited to, expiration or early termination of the waiting period under the HSR
Act and those under applicable securities or blue sky laws relative to the
issuance of the WorldCom Stock;
(d) The Plan of Merger shall have been duly approved by the
Shareholders pursuant to the Washington Act and Dissenters shall not hold more
than five percent (5%) of the shares of the Common Stock;
(e) WorldCom's lenders shall have received such documents and
instruments as WorldCom's lenders may require and any necessary consent of such
lenders to supplements or amendments to credit agreement schedules reflecting
the transactions contemplated by this Agreement shall have been obtained,
provided WorldCom shall use its best efforts to obtain the same;
(f) No action, suit, or proceeding shall have been instituted by any
person or entity including, but not limited to, any governmental agency or body
to restrain or prevent the carrying out of the transactions contemplated by
this Agreement or that seeks other material relief with respect to any of such
transactions or that could, individually or in the aggregate, have a material
adverse effect on the business or prospects of the Company. On the Closing
Date, there shall be no injunction, restraining order or decree of any nature
of any court or governmental agency or body in effect that restrains or
prohibits the consummation of the transactions contemplated by this Agreement;
(g) The Affiliate Agreements, the Escrow Agreement and the Noncompete
Agreements shall have been duly approved, executed and delivered to WorldCom;
(h) WorldCom shall have received estoppel letters confirming the
existence, without breach, of Contracts referenced in Exhibit 3.10 hereto as
being subject to this condition, if and as reasonably requested by WorldCom,
provided no such letter shall be transmitted to the Company's customers without
the prior written review and approval of the Company, which approval shall not
be unreasonably withheld;
(i) There shall not have occurred any material adverse change in the
assets, business, condition or prospects of the Company taken as a whole,
provided the matters identified in Exhibit 5.2 attached hereto shall not be
considered to be such a material adverse change to the extent provided therein;
and
(j) The Company's new CTI system shall have been installed and tested
and be completely operational and carrying at least 25% of the Company's
prepaid phone card traffic.
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ARTICLE VI
THE CLOSING
6.1. Deliveries by the Company.
At or prior to the Closing, WorldCom shall receive from the Company the
following:
(a) Certificate of good standing in each of the states in which the
Company is incorporated or qualified stating that the Company is a validly
existing corporation in good standing;
(b) A certificate, dated as of the Closing Date, by an officer of the
Company to the effect that the conditions specified in Section 5.2, above
(except for clauses (e) and (h) thereof), have been satisfied;
(c) An opinion from counsel to the Company (which may be in the form
of two opinions, one from corporate counsel and one from FCC counsel), dated as
of the Closing Date in form and substance reasonably satisfactory to counsel
for WorldCom, to the effect that: (i) the Company is a corporation, duly
incorporated, validly existing and in good standing under the laws of the State
of Washington, is duly qualified to do business as a foreign corporation and is
in good standing in each jurisdiction in which the ownership of its properties
or the conduct of its business requires such qualification, except such
jurisdictions where the failure to be so qualified would not have a material
adverse effect on the financial condition of the Company, has all requisite
power and authority to own all of its properties and assets, and has all
required Authorizations and the foregoing shall not cease to remain in full
force and effect in accordance with their terms by reason of the transactions
contemplated by this Agreement; (ii) the shares of the Common Stock and other
securities of the Company have been duly and validly authorized and issued, are
held as set forth in this Agreement, are fully paid and nonassessable, and
constitute all of the issued and outstanding securities of the Company; (iii)
to the best of such counsel's knowledge, all orders, qualifications, filings,
authorizations, consents, approvals, certifications, notices or other actions
of any federal, state, local or foreign regulatory or administrative agency,
commission or other body or of any other third party required to be obtained or
given or waiting period required to expire in order that the transactions
contemplated hereby may be consummated have been obtained, provided, satisfied
or waived or have expired; (iv) this Agreement and the other agreements and
documents contemplated hereby have been duly and validly authorized, executed
and delivered on behalf of the Company and constitute (subject to standard
exceptions to enforceability arising from the bankruptcy laws and rules of
equity) its valid, binding and enforceable agreements; (v) except as may be
specified by such counsel, there is no litigation, proceeding, or governmental
investigation or labor dispute pending or threatened against or relating to the
Company or its properties or business which is material to the business of the
Company or which may prohibit or inhibit consummation of this Agreement and the
transactions contemplated hereby; (vi) the execution, delivery and performance
of this Agreement and the other agreements and documents contemplated hereby do
not (a) violate any provision of the Articles of Incorporation or Bylaws of the
Company, or (b) constitute an event which is or with the passage of time or
notice or both could result in a violation or acceleration of, or result in the
imposition of any lien upon the shares of the Common Stock, any other
securities of the Company or the property of the Company pursuant to, any
written mortgage, lien, security agreement, lease, agreement, instrument,
order, award, judgment
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or decree to which the Company is a party or by which it is bound and which has
been specifically provided to counsel to the Company and listed as an exhibit
to such opinion; and (viii) the Plan of Merger and the Escrow Agreement have
been duly and validly approved and adopted by the Shareholders and the Board of
Directors of the Company and all actions on the part of the Company necessary
to cause the Merger to become effective have been duly and validly taken;
(d) Copies of duly adopted resolutions of the Board of Directors of
the Company approving the execution, delivery and performance of this Agreement
and the other agreements and instruments contemplated hereby and by the
Shareholders approving the Plan of Merger and the Escrow Agreement, certified
by the Secretary of the Company;
(e) The duly executed Noncompete Agreements, Affiliate Agreements and
Escrow Agreement;
(f) A true, correct and complete copy of the Articles of
Incorporation, as amended, of the Company, certified by the Secretary of State
of Washington, and a true, correct and complete copy of the Bylaws, as amended,
of the Company, certified by the corporate Secretary;
(g) The resignations of any officers or directors of the Company and
terminations of any employment or consulting agreements, all as requested by
WorldCom; and
(h) Such other documents and instruments as WorldCom may reasonably
request.
6.2. WorldCom's Deliveries.
At or prior to the Closing, the Company shall receive from WorldCom the
following:
(a) Certificate of existence from the Secretary of State of Georgia
stating that WorldCom is a validly existing corporation in good standing;
(b) Certificate of existence or other evidence of existence from the
Secretary of State of Washington stating that Acquisition Subsidiary is a
validly existing corporation in good standing;
(c) A certificate, dated as of the Closing Date, signed by an officer
of WorldCom to the effect that the conditions specified in Section 5.1, above
(except for clause (e) thereof), have been satisfied;
(d) Copies of duly adopted resolutions of WorldCom's Board of
Directors approving the execution, delivery and performance of this Agreement,
certified by its Secretary or Assistant Secretary; and
(e) An opinion from in-house counsel of WorldCom dated as of the
Closing Date in form and substance reasonably satisfactory to counsel for the
Company, to the effect that: (i) WorldCom is a corporation validly existing
under the laws of the State of Georgia; (ii) Acquisition Subsidiary is a
corporation validly existing under the laws of the State of Washington; (iii)
the shares of WorldCom Stock, when issued pursuant to the Merger and the
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WorldCom Options, will have been duly and validly authorized and issued and
will be fully paid and nonassessable; (iv) this Agreement has been duly and
validly authorized, executed and delivered on behalf of WorldCom and
constitutes (subject to standard exceptions to enforceability arising from the
bankruptcy laws and rules of equity) its valid, binding and enforceable
agreement; (v) except as contemplated by the Agreement or in compliance with
the provisions of the HSR Act, the Securities Act, the Exchange Act, FCC
regulations and the corporation, public utility, securities or blue sky laws of
the various states, to the best of such counsel's knowledge no consent,
authorization, order or approval of, or filing or registration with, any
governmental authority or other person is required for the execution and
delivery of the Agreement by WorldCom and the consummation by WorldCom of the
transactions contemplated therein; (vi) neither the execution and delivery of
the Agreement by WorldCom, nor the consummation by WorldCom of the transactions
contemplated therein, will conflict with or result in a breach of any of the
items, conditions, or provisions of WorldCom's Amended and Restated Articles of
Incorporation or Bylaws; and (vii) the documents filed by WorldCom with the
Commission in the last two years (other than the financial statements,
schedules and other financial and statistical information included therein, as
to which such counsel need express no opinion) complied as to form in all
material respects with the requirements of the Securities Act and the Exchange
Act, as applicable, and the rules and regulations of the Commission.
ARTICLE VII
TERMINATION
7.1. Termination.
Notwithstanding anything in this Agreement to the contrary, this Agreement
may be terminated only (a) by the mutual written consent of WorldCom and the
Company, or (b) by WorldCom or the Company if for any reason the Closing has
not occurred on or before January 31, 1997, provided said failure to close does
not result from an act or failure to act of the party effecting termination,
and provided WorldCom may extend said date from time to time in the event one
or more conditions to the obligations of the parties hereunder has not been
satisfied or waived.
7.2. Effect of Termination.
In the event of the termination of this Agreement pursuant to the
preceding Section of this Agreement, this Agreement shall thereafter become
void and have no effect, and without any liability on the part of any party or
its shareholders, directors or officers in respect thereof, except as otherwise
provided in this Agreement and except that nothing herein will relieve any
party from liability for any breach of this Agreement.
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ARTICLE VIII
MISCELLANEOUS
8.1. Expenses.
The Company shall bear its own expenses, fees and commissions (including,
but not limited to, all compensation and expenses of counsel, financial
advisors, brokers, consultants, actuaries and accountants) incurred in
connection with the preparation, negotiation and execution of this Agreement
and consummation of the transactions contemplated hereby to the extent the same
do not exceed $1,200,000. Any such expenses, fees and commissions in excess of
$1,200,000 shall be borne by the Shareholders. If the Closing does not occur by
reason of a breach of this Agreement by a party hereto, the non-breaching party
shall be entitled to recover its reasonable attorneys' fees and court costs in
connection with any action for damages or specific performance, in addition to
such other rights or remedies to which it may be entitled under applicable law
or in equity.
8.2. Public Disclosure.
No press release or other public announcement or communication will be
made or caused to be made concerning the terms and conditions of this Agreement
unless specifically approved in advance by WorldCom.
8.3 Governing Law and Consent to Jurisdiction.
This Agreement shall be deemed to be made in, and in all respects shall be
interpreted, construed and governed by and in accordance with the internal laws
of, the State of Mississippi (except to the extent the Washington Act controls
with respect to the Merger), and the parties hereto consent to the jurisdiction
of the courts of or in the States of Mississippi or Washington with respect to
any dispute, controversy or other matter relating to or arising out of this
Agreement or the transactions contemplated hereby.
8.4. Notices.
Any notices or other communications required under this Agreement shall be
in writing, shall be deemed to have been given when delivered in person, by
telex or telecopier, when delivered to a recognized next business day courier,
or, if mailed, when deposited in the United States first class mail, registered
or certified, return receipt requested, with proper postage prepaid, addressed
as follows or to such other address as notice shall have been given pursuant
hereto:
If to the Company:
BLT Technologies, Inc.
Attn: Robert S. Wiggins
610 Esther Street
Vancouver, WA 98660
Telecopy: (360) 750-7551
If to WorldCom or, after the Closing, the Company:
WorldCom, Inc.
Attn: Charles T. Cannada
515 East Amite Street
Jackson, MS 39201-2702
Telecopy: (601) 360-8615
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8.5. Assignment.
This Agreement may not be assigned, by operation of law or otherwise,
except that WorldCom may assign its rights under this Agreement in whole or in
part to a subsidiary or other Affiliate of WorldCom or, subsequent to the
Closing, to any other person or entity.
8.6. Section Headings.
The section headings contained in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
8.7. Counterparts.
This Agreement may be executed in duplicate counterparts, each of which
shall be deemed to be an original, but all of which together shall constitute
one and the same instrument.
8.8 Amendment.
This Agreement may not be amended except by a writing signed by the party
to be charged.
8.9. Entire Agreement.
This Agreement constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof.
8.10. Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, personal representatives, successors
and permitted assigns.
8.11. Survival.
Subject to the express limitations specified in this Agreement, the
covenants, agreements, indemnities, representations and warranties made in or
pursuant to this Agreement shall survive the Closing for the periods indicated
herein, notwithstanding any investigation made or information obtained by or on
behalf of WorldCom or the Company.
8.12. Severability.
In case any provision in this Agreement shall be held invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions hereof shall not in any way be affected or impaired.
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8.13. Third Parties.
Nothing contained in this Agreement or in any instrument or document
executed by any party in connection with the transactions contemplated hereby
shall create any rights in, or be deemed to have been executed for the benefit
of, any person or entity that is not a party hereto, a successor or permitted
assign of such a party or a person or entity entitled to indemnification
hereunder; provided the representations and warranties of WorldCom in Section
2.4, above, shall inure to the benefit of the Shareholders and the holders of
WorldCom Options.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
WORLDCOM, INC. BLT TECHNOLOGIES, INC.
By By
------------------------------------ --------------------------------------
Name: Name:
--------------------------------- -----------------------------------
Title: Title:
-------------------------------- ----------------------------------
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EXHIBIT 1.5-1
LETTER OF TRANSMITTAL, WAIVER AND RELEASE
For submitting certificates representing
shares of stock of BLT Technologies, Inc.
pursuant to the Agreement and Plan of Merger
dated as of July 26, 1996 (the "Merger Agreement")
and related Plan of Merger (the "Plan of Merger")
In connection with the merger (the "Merger") of WC Acquisition, Inc., a
Washington corporation and wholly owned subsidiary of WorldCom, Inc., a Georgia
corporation ("WorldCom"), with and into BLT Technologies, Inc., a Washington
corporation ("BLT"), and pursuant to the Merger Agreement and the Plan of
Merger, the undersigned encloses herewith and surrenders the following
certificate(s) (the "Certificates"), representing shares of BLT common stock
(the "Shares"):
NAME & ADDRESS OF BLT CERTIFICATE(S) ENCLOSED
REGISTERED OWNER
- ----------------------------------- -------------------------------------------
Certificate No. Number of Shares
- ----------------------------------- ------------------------- ----------------
- ----------------------------------- ------------------------- ----------------
- ----------------------------------- ------------------------- ----------------
Authority, Ownership and Further Assurances
The undersigned hereby warrants that the undersigned has full power and
authority to submit, sell, assign and transfer the Certificates and the Shares
and that the Shares are owned by the undersigned and are free and clear of all
liens, encumbrances, security interests, mortgages, pledges, charges,
agreements, rights, options, warrants, restrictions and claims. The undersigned
will, upon request, execute any additional documents reasonably necessary or
desirable to complete the transfer of the Shares and accomplish the matters
contemplated hereby.
<PAGE> 188
Payment of Merger Consideration
You hereby are authorized and instructed to prepare in the name and
deliver to the address of the undersigned set forth above, or to such other
address as requested by the undersigned in writing, a certificate representing
the appropriate number of shares of WorldCom common stock and a check in lieu
of any fractional share to be issued and paid in accordance with the terms and
conditions of the Merger Agreement and the Plan of Merger in exchange for the
Shares evidenced by the enclosed Certificates.
Waiver
For valuable consideration, the receipt of which is hereby acknowledged,
the undersigned hereby waives any and all restrictions on the sale of the
Shares contained in any agreement in favor of the undersigned or to which the
undersigned is a party relating to the Shares, and any rights the undersigned
may have under any such agreement. The foregoing waiver shall be binding upon
the undersigned and the undersigned's heirs, personal representatives,
successors and assigns and shall inure to the benefit of WorldCom, BLT and
their respective shareholders, successors and assigns.
Release
For valuable consideration, the receipt of which hereby is acknowledged,
the undersigned hereby releases and forever discharges BLT, its affiliates,
officers, directors and their respective heirs, personal representatives,
successors and assigns, from any and all claims, damages, losses, liabilities,
demands, charges, suits, penalties, actions and causes of action, whether
accrued, absolute, contingent, known or unknown, which the undersigned may now
or hereafter have arising out of or relating to (i) the formation, financing,
management or operations of BLT, (ii) the issuance, holding or repurchase of
securities of BLT, or (iii) the undersigned's status as a shareholder, officer,
director, and/or employee of BLT. The foregoing release shall be binding upon
the undersigned and the undersigned's heirs, personal representatives,
successors and assigns.
Certification
By signing below, under the penalties of perjury, the undersigned
certifies (1) that the Social Security Number or Taxpayer Identification Number
set forth below is the undersigned's correct Social Security Number or Taxpayer
Identification Number, (2) that all other information provided herein is true
and accurate, and (3) that the undersigned is not subject to backup withholding
because (a) the undersigned has not been notified that the undersigned is
subject to backup withholding as a result of a failure to report all interest
or dividends, or (b) the Internal Revenue Service has notified the undersigned
that the undersigned is no longer subject to backup withholding. (The
undersigned must cross out subpart (3) of this certification if the Internal
Revenue Service has notified the undersigned that the undersigned is subject to
backup withholding due to the underreporting of dividends or interest on tax
returns and notice has not been received from the Internal Revenue Service
advising that backup withholding has terminated.) NOTE: FAILURE TO COMPLETE AND
RETURN THIS INFORMATION WILL RESULT IN BACKUP WITHHOLDING ON PAYMENTS DUE TO
YOU.
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<PAGE> 189
IMPORTANT: UNLESS AND UNTIL ANY OUTSTANDING CERTIFICATE FORMERLY
EVIDENCING THE SHARES IS DELIVERED TO WORLDCOM, NO DIVIDENDS OR DISTRIBUTIONS
OF ANY KIND PAYABLE TO HOLDERS OF RECORD OF SHARES OF WORLDCOM COMMON STOCK
SHALL BE PAID TO THE HOLDER THEREOF. NO INTEREST WILL ACCRUE ON ANY UNPAID
DIVIDENDS OR DISTRIBUTIONS.
The undersigned has carefully reviewed this Letter of Transmittal, Waiver
and Release and understands its contents and the significance thereof and, if
so desired by the undersigned, has consulted with counsel with regard thereto.
All authority herein conferred shall survive the death or incapacity of the
undersigned, and all obligations of the undersigned hereunder shall be binding
upon the heirs, personal representatives, successors and assigns of the
undersigned.
- -------------------------------------- Dated as of , 1996.
(Signature) ---------------------
Name:
---------------------------------
Social Security or
Taxpayer I.D. No.:
--------------------
- --------------------------------------
(Signature, if jointly held)
Name:
---------------------------------
Social Security or
Taxpayer I.D. No.:
--------------------
Phone No.:
----------------------------
All registered owners must sign exactly as name(s) appear on Certificate(s). If
anyone other than the registered owner or if an attorney, personal
representative, trustee, custodian, guardian, partner, other fiduciary or
officer of a corporation signs the Letter of Transmittal, proper evidence of
authority to act, satisfactory to WorldCom, Inc., must be submitted herewith.
-3-
<PAGE> 190
EXHIBIT 4.12
FORM OF NONCOMPETE AND CONFIDENTIALITY
AGREEMENT AND PERSONS COVERED THEREBY
In addition to any other key employees subsequently identified and
mutually agreeable to WorldCom and the Company, the following persons shall
execute and deliver Noncompete Agreements as provided in this Agreement:
1. William E. Colson
2. Thomas Holce
3. Gary Maffei
4. Edward Pietz
5. John Skimas
6. Robert A. Sternberg
<PAGE> 191
EXHIBIT 4.12
(cont'd.)
NONCOMPETE AND CONFIDENTIALITY AGREEMENT
(Individual)
THIS AGREEMENT (the "Agreement") is made and entered into this _____
day of ______________ , 1996, by and between WorldCom, Inc., a Georgia
corporation (which, together with its present and future Affiliates and their
respective successors and assigns, is hereinafter referred to as "WorldCom"),
and _________________________ ("Individual").
BLT Technologies, Inc., a Washington corporation (which, together with
its present and future Affiliates and their respective successors and assigns,
is hereinafter referred to as the "Company"), and WorldCom are parties to that
certain Agreement and Plan of Merger dated as of July 26, 1996 (the "Merger
Agreement"), by which WorldCom shall acquire the Company. It is a condition to
the obligation of WorldCom to acquire the Company that Individual enter into
this Agreement with WorldCom.
NOW, THEREFORE, as an inducement for WorldCom to acquire the Company
pursuant to the Merger Agreement, and for other valuable consideration, the
receipt of which is hereby acknowledged, the parties do hereby agree as
follows:
1. Certain Defined Terms. As used in this Agreement or in any document
made or otherwise entered into pursuant to this Agreement, the following terms
shall, unless the context otherwise requires and whether or not capitalized,
have the meanings specified in this Section 1. These terms shall be deemed to
refer to the singular, plural, masculine, feminine or neuter, as the context
requires.
1.1 "Agreement" means this Agreement, as originally executed
on the date hereof and as the same may be amended, modified and
supplemented from time to time. Words such as "herein," "hereinafter,"
"hereof," "hereto," "hereby," and "hereunder," when used with
reference to this Agreement, refer to this Agreement as a whole,
unless the context otherwise requires.
1.2 "Affiliate" means, when used with reference to a specific
Person, any Person that, directly or indirectly, through one or more
intermediaries, now or hereafter Controls, is Controlled by or is
under common Control with such specific Person. This term shall also
include any Person who, directly or indirectly, through one or more
intermediaries, now or hereafter has the contractual right or option
to acquire or vote more than 5% of the voting interest of a specific
Person.
1.3 "Business" means the direct or indirect origination,
transmission, and/or termination of voice and data messages; the
provision of long distance telecommunications services; the provision
of operator services and/or billing and collection services with
respect to long distance telecommunications; the provision of local
telephone services; the offer and sale of debit cards for
telecommunications services; the provision of related services or
equipment; and consulting with respect to or arranging for any such
origination, transmission, termination, services or equipment; or any
of the above.
<PAGE> 192
1.4 "Control" (whether used as a noun or verb) means to have
the power, directly or indirectly, to cause the direction of the
management or policies of another Person, whether through the
ownership of voting securities, by contract, agency or otherwise.
1.5 "Person" means any general partnership, limited
partnership, corporation, limited liability company, joint venture,
trust, business trust, governmental agency, cooperative, association,
individual or other entity, and the heirs, executors, administrators,
legal representatives, successors and assigns of such person as the
context may require.
2. Nondisclosure. Individual agrees that neither he nor his
representatives, employees, consultants, contractors, agents or Affiliates
(including, but not limited to, any officers, directors, shareholders,
representatives, employees, consultants, contractors or agents of such
Affiliates) will disclose to any Person, or use for his or their benefit or the
benefit of others, any information concerning Business activities or operations
of the Company or WorldCom or the results of the provision of services
performed by the Company or WorldCom relating to the Business including, but
not limited to, information relating to the pricing, methods, processes,
customers, suppliers, financial data, lists, apparatus, statistics, programs,
research, development or related information of the Company, WorldCom, or the
suppliers or customers of either.
3. Proprietary Nature. Individual hereby stipulates that all
information described in Sections 2 and 4 hereof is proprietary information and
is or upon WorldCom's acquisition of the Company shall become the property of
WorldCom.
4. Trade Secrets. Individual covenants and warrants that neither he
nor his representatives, employees, consultants, contractors, agents or
Affiliates (including, but not limited to, any officers, directors,
shareholders, representatives, employees, consultants, contractors or agents of
such Affiliates) have given, transferred or otherwise disclosed to any third
party any proprietary information of the Company or WorldCom relating to the
Business, and that neither he nor they will do so, directly or indirectly, at
any time in the future. Individual covenants and warrants further that neither
he nor his representatives, employees, consultants, contractors, agents or
Affiliates (including, but not limited to, any officers, directors,
shareholders, representatives, employees, consultants, contractors or agents of
such Affiliates) have appropriated or will appropriate said proprietary
information including, but not limited to, customer lists of the Company or
WorldCom, for their benefit. Individual further covenants and warrants that all
such proprietary information is neither generally known nor readily
ascertainable but, rather, constitutes confidential information. Individual
further stipulates that said information is secret and not generally known in
the trade; that the Company has kept said information secret; that it is of
value; and that it is particular to the Business as conducted by the Company
and/or WorldCom and has been used exclusively by the Company and/or WorldCom.
The parties hereby agree and stipulate that such information thus further
constitutes a trade secret and that use thereof in violation of this Agreement
shall constitute an unfair trade practice pursuant to applicable law.
5. Noncompete. Individual hereby agrees that neither Individual nor,
at his direction, his representatives, employees, consultants, contractors,
agents
-2-
<PAGE> 193
or Affiliates (including, but not limited to, any officers, directors,
shareholders, representatives, employees, consultants, contractors or agents of
such Affiliates) will, directly or indirectly, during the term of Individual's
employment with WorldCom, if Individual is so employed, and for a period of
three (3) years following the later of (a) the date hereof, or (b) termination
(voluntary or involuntary) of such employment, (i) own, manage, operate,
control, be employed or engaged by or otherwise participate or have any
interest in any Person which is engaged in, or otherwise engage in, the
Business in any state in the United States, or (ii) solicit, divert, take away,
interfere with or disrupt relationships with, or attempt to do any of the
foregoing with respect to, any customer, supplier, employee, independent
contractor, agent or representative of WorldCom.
6. Injunction and Expenses. Upon breach or threatened breach of this
Agreement, in addition to any and all other rights and remedies it may have,
WorldCom shall be entitled to injunctive relief, both pendente lite and
permanent, against the breaching party, as the parties recognize that a remedy
at law would be inadequate and insufficient. WorldCom shall be entitled to
recover from Individual all costs and expenses including, but not limited to,
attorneys' fees and court costs, incurred by WorldCom as a result or arising
out of any breach or threatened breach under or pursuant to this Agreement in
addition to such other rights or remedies as WorldCom may have under this
Agreement or any other agreement, at law or in equity.
7. Passive Investments. Nothing contained in Section 5, above, shall
limit the right of Individual as an investor to make and hold passive
investments in investment securities aggregating not more than 5% of the issued
and outstanding securities of any corporation that is registered on a national
securities exchange or admitted to trading privileges thereon or actively
traded on a generally recognized over-the-counter market.
8. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective Affiliates, heirs,
personal representatives, successors, and assigns, and shall survive any
termination (voluntary or involuntary) of Individual's employment by WorldCom,
if Individual is so employed.
9. Severability and other Restrictions. It is the intention of the
parties that the provisions of this Agreement shall be enforced by the courts
of each state and jurisdiction in which enforcement is sought to the fullest
extent permissible under the law and public policy. Accordingly, if any part of
this Agreement shall be adjudicated to be invalid or unenforceable by a court
of competent jurisdiction, whether in its entirety or as modified as to
duration (which modification said court is hereby authorized to make),
territory or otherwise, then such part shall be deemed deleted or amended, as
the case may be, with respect to the state or jurisdiction involved in order to
render the remainder hereof valid and enforceable. The invalidity or
unenforceability of any particular provision of this Agreement shall not affect
the other provisions hereof. This Agreement shall not supersede or be in lieu
of any other agreement restricting activities referenced herein but shall be in
addition to any such other restrictions.
10. No Waiver or Modification. No waiver or modification of this
Agreement shall be valid unless in writing and duly authorized and signed by
the party to be charged.
-3-
<PAGE> 194
11. Governing Law and Consent to Jurisdiction. This Agreement shall be
governed by and construed in accordance with the internal laws of the State of
Mississippi and the parties hereby consent to the jurisdiction of the courts of
or in the State of Mississippi in connection with any matter related to or
arising out of this Agreement or any breach thereof.
12. Headings. The headings contained in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
13. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.
DATED as of the day and year first above written.
INDIVIDUAL: WORLDCOM, INC.
By:
- -------------------------------------- -------------------------------------
-4-
<PAGE> 195
EXHIBIT 4.12
(cont'd.)
NONCOMPETE AND CONFIDENTIALITY AGREEMENT
(R. Sternberg)
THIS AGREEMENT (the "Agreement") is made and entered into this _____
day of ______________ , 1996, by and between WorldCom, Inc., a Georgia
corporation (which, together with its present and future Affiliates and their
respective successors and assigns, is hereinafter referred to as "WorldCom"),
and Robert A. Sternberg ("Individual").
BLT Technologies, Inc., a Washington corporation (which, together with
its present and future Affiliates and their respective successors and assigns,
is hereinafter referred to as the "Company"), and WorldCom are parties to that
certain Agreement and Plan of Merger dated as of July 26, 1996 (the "Merger
Agreement"), by which WorldCom shall acquire the Company. It is a condition to
the obligation of WorldCom to acquire the Company that Individual enter into
this Agreement with WorldCom.
NOW, THEREFORE, as an inducement for WorldCom to acquire the Company
pursuant to the Merger Agreement, and for other valuable consideration, the
receipt of which is hereby acknowledged, the parties do hereby agree as
follows:
1. Certain Defined Terms. As used in this Agreement or in any document
made or otherwise entered into pursuant to this Agreement, the following terms
shall, unless the context otherwise requires and whether or not capitalized,
have the meanings specified in this Section 1. These terms shall be deemed to
refer to the singular, plural, masculine, feminine or neuter, as the context
requires.
1.1 "Agreement" means this Agreement, as originally executed
on the date hereof and as the same may be amended, modified and
supplemented from time to time. Words such as "herein," "hereinafter,"
"hereof," "hereto," "hereby," and "hereunder," when used with
reference to this Agreement, refer to this Agreement as a whole,
unless the context otherwise requires.
1.2 "Affiliate" means, when used with reference to a specific
Person, any Person that, directly or indirectly, through one or more
intermediaries, now or hereafter Controls, is Controlled by or is
under common Control with such specific Person. This term shall also
include any Person who, directly or indirectly, through one or more
intermediaries, now or hereafter has the contractual right or option
to acquire or vote more than 5% of the voting interest of a specific
Person.
1.3 "Business" means the direct or indirect origination,
transmission, and/or termination of voice and data messages in
connection with prepaid phone card telecommunications services; the
provision of prepaid long distance telecommunications; the provision
of billing and collection services with respect to prepaid phone card
telecommunications; the offer and sale of debit cards for
telecommunications and other prepaid card services; the provision of
related prepaid phone card services or equipment; and consulting with
respect to or arranging for any such origination, transmission,
termination, services or equipment; or any of the above.
<PAGE> 196
1.4 "Cause" means (i) default by Individual in the
performance of any of Individual's obligations or duties under this
Agreement or under common law, or in the performance of any other
obligation or duty Individual has to WorldCom, or breach by Individual
of any material provision hereof or of any other agreement with or in
favor of WorldCom; (ii) an act or omission by Individual as a result
of which Individual is charged with a criminal offense involving moral
turpitude, dishonesty or breach of trust; (iii) Individual's
conviction of a felony or plea of guilty or nolo contendere with
respect to a felony; (iv) willful misconduct by Individual which
results in injury or loss to WorldCom; (v) a right to discontinue
Individual's employment in order reasonably to comply with applicable
laws and regulations or satisfy the orders, recommendations and/or
requirements of any regulatory agency, body or official having
jurisdiction; or (vi) Individual's failure to comply with any material
policies, rules or performance standards established from time to time
by WorldCom or requests of WorldCom's executive officers or directors.
1.5 "Control" (whether used as a noun or verb) means to have
the power, directly or indirectly, to cause the direction of the
management or policies of another Person, whether through the
ownership of voting securities, by contract, agency or otherwise.
1.6 "Person" means any general partnership, limited
partnership, corporation, limited liability company, joint venture,
trust, business trust, governmental agency, cooperative, association,
individual or other entity, and the heirs, executors, administrators,
legal representatives, successors and assigns of such person as the
context may require.
2. Nondisclosure. Individual agrees that neither he nor his
representatives, employees, consultants, contractors, agents or Affiliates
(including, but not limited to, any officers, directors, shareholders,
representatives, employees, consultants, contractors or agents of such
Affiliates) will disclose to any Person, or use for his or their benefit or the
benefit of others, other than in the normal course of business and for the
benefit of the Company or Worldcom, any information concerning Business
activities or operations of the Company or WorldCom or the results of the
provision of services performed by the Company or WorldCom relating to the
Business including, but not limited to, information relating to the pricing,
methods, processes, customers, suppliers, financial data, lists, apparatus,
statistics, programs, research, development or related information of the
Company, WorldCom, or the suppliers or customers of either.
3. Proprietary Nature. Individual hereby stipulates that all
information described in Sections 2 and 4 hereof is proprietary information and
is or upon WorldCom's acquisition of the Company shall become the property of
WorldCom.
4. Trade Secrets. Individual covenants and warrants that neither he
nor his representatives, employees, consultants, contractors, agents or
Affiliates (including, but not limited to, any officers, directors,
shareholders, representatives, employees, consultants, contractors or agents of
such Affiliates) have given, transferred or otherwise disclosed to any third
party any proprietary information of the Company (except in the normal course
of
-2-
<PAGE> 197
business and in the interest of the Company) or WorldCom relating to the
Business, and that neither he nor they will do so, directly or indirectly, at
any time in the future. Individual covenants and warrants further that neither
he nor his representatives, employees, consultants, contractors, agents or
Affiliates (including, but not limited to, any officers, directors,
shareholders, representatives, employees, consultants, contractors or agents of
such Affiliates) have appropriated or will appropriate said proprietary
information including, but not limited to, customer lists of the Company or
WorldCom, for their benefit. Individual further covenants and warrants that all
such proprietary information is neither generally known nor readily
ascertainable but, rather, constitutes confidential information. Individual
further stipulates that said information is secret and not generally known in
the trade; that the Company has kept said information secret; that it is of
value; and that it is particular to the Business as conducted by the Company
and/or WorldCom and has been used exclusively by the Company and/or WorldCom.
The parties hereby agree and stipulate that such information thus further
constitutes a trade secret and that use thereof in violation of this Agreement
shall constitute an unfair trade practice pursuant to applicable law.
5. Noncompete. Individual hereby agrees that neither Individual nor,
at his direction, his representatives, employees, consultants, contractors,
agents or Affiliates (including, but not limited to, any officers, directors,
shareholders, representatives, employees, consultants, contractors or agents of
such Affiliates) will, directly or indirectly, during the term of Individual's
employment with WorldCom, if Individual is so employed, and for a period of
three (3) years following the later of (a) the date hereof, or (b) termination
(voluntary or involuntary) of such employment (provided said three (3) year
period shall be reduced to one (1) year in the event of involuntary termination
of Individual's employment without Cause or in the event of Individual's
voluntary termination as a result of a material reduction in compensation or a
change in location of employment from the Vancouver, Washington area), (i) own,
manage, operate, control, be employed or engaged by or otherwise participate or
have any interest in any Person which is engaged in, or otherwise engage in,
the Business in any state in the United States (provided, that Individual may
be employed by a Person that, as an incidental part of such Person's business,
is engaged in the Business so long as Individual is not directly or indirectly
so engaged), or (ii) solicit, divert, take away, interfere with or disrupt
relationships with, or attempt to do any of the foregoing with respect to, any
customer, supplier, employee, independent contractor, agent or representative
of WorldCom.
6. Injunction and Expenses. Upon breach or threatened breach of this
Agreement, in addition to any and all other rights and remedies it may have,
WorldCom shall be entitled to injunctive relief, both pendente lite and
permanent, against the breaching party, as the parties recognize that a remedy
at law would be inadequate and insufficient. The prevailing party shall be
entitled to recover from the other all costs and expenses including, but not
limited to, attorneys' fees and court costs, incurred as a result or arising
out of any litigation concerning breach or threatened breach under or pursuant
to this Agreement in addition to such other rights or remedies as either party
may have under this Agreement or any other agreement, at law or in equity.
7. Passive Investments. Nothing contained in Section 5, above, shall
limit the right of Individual as an investor to make and hold passive
investments in investment securities aggregating not more than 5% of the issued
and outstanding securities of any corporation that is registered on a national
-3-
<PAGE> 198
securities exchange or admitted to trading privileges thereon or actively
traded on a generally recognized over-the-counter market.
8. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective Affiliates, heirs,
personal representatives, successors, and assigns, and shall survive any
termination (voluntary or involuntary) of Individual's employment by WorldCom,
if Individual is so employed.
9. Severability and other Restrictions. It is the intention of the
parties that the provisions of this Agreement shall be enforced by the courts
of each state and jurisdiction in which enforcement is sought to the fullest
extent permissible under the law and public policy. Accordingly, if any part of
this Agreement shall be adjudicated to be invalid or unenforceable by a court
of competent jurisdiction, whether in its entirety or as modified as to
duration (which modification said court is hereby authorized to make),
territory or otherwise, then such part shall be deemed deleted or amended, as
the case may be, with respect to the state or jurisdiction involved in order to
render the remainder hereof valid and enforceable. The invalidity or
unenforceability of any particular provision of this Agreement shall not affect
the other provisions hereof. This Agreement shall not supersede or be in lieu
of any other agreement restricting activities referenced herein but shall be in
addition to any such other restrictions.
10. No Waiver or Modification. No waiver or modification of this
Agreement shall be valid unless in writing and duly authorized and signed by
the party to be charged.
11. Governing Law and Consent to Jurisdiction. This Agreement shall be
governed by and construed in accordance with the internal laws of the State of
Mississippi and the parties hereby consent to the jurisdiction of the courts of
or in the State of Mississippi in connection with any matter related to or
arising out of this Agreement or any breach thereof.
12. Headings. The headings contained in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
13. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.
DATED as of the day and year first above written.
INDIVIDUAL: WORLDCOM, INC.
By:
- -------------------------------------- -------------------------------------
Robert A. Sternberg
-4-
<PAGE> 199
EXHIBIT 4.15
AGREEMENT OF DIRECTOR/OFFICER AND/OR
5% SHAREHOLDER OF BLT TECHNOLOGIES, INC.
Reference is made to that certain Agreement and Plan of Merger (the
"Merger Agreement") by and among BLT Technologies, Inc., a Washington
corporation (the "Company"), and WorldCom, Inc., a Georgia corporation
("WorldCom"), dated as of July 26, 1996. Capitalized terms used but not defined
herein shall have the meaning set forth in the Merger Agreement.
As a director, officer and/or the holder of 5% or more of the Shares
of the Company, the undersigned acknowledges that the undersigned may be deemed
to be an "affiliate" of the Company, as such term is used in connection with
the applicability of "pooling of interests" accounting treatment of the Merger,
and as defined in Rule 144 under the Securities Act of 1933, as amended (the
"1933 Act"), although nothing contained herein shall be construed as an
admission of such fact. The undersigned understands the nature and conditions
of exemptions from registration under the 1933 Act, including Rules 144 and
145(d) under the 1933 Act, as such rules relate to and limit the sale,
assignment or transfer of the WorldCom Stock.
In consideration of the issuance to the undersigned of shares of
WorldCom Stock pursuant to the Merger and for other valuable consideration, the
receipt and sufficiency of which consideration is hereby acknowledged, the
undersigned hereby undertakes, covenants and agrees with WorldCom that the
undersigned will not offer, sell, dispose of, transfer, assign or otherwise
reduce the undersigned's market risk or interest (collectively, a "Sale") with
respect to the WorldCom Stock to be received in the Merger or any additional
securities issued to the undersigned with respect thereto in connection with or
as part of a stock dividend, stock split, recapitalization, merger,
consolidation or other similar event: (i) until such time as financial results
covering at least 30 days of combined operations of WorldCom and the Company
after the Merger have been published within the meaning of Section 201.01 of
the Securities and Exchange Commission's Codification of Financial Reporting
Policies, and (ii) unless all Sales of such shares of WorldCom Stock and any
such additional securities are made in a manner and to the extent permitted by
Rule 145 under the 1933 Act or are made pursuant to an effective registration
statement under, or an exemption from the registration requirements of, the
1933 Act or otherwise in accordance with applicable law. In addition, the
undersigned hereby represents and warrants to WorldCom that the undersigned has
not made or completed any Sales of the undersigned's shares of stock of the
Company during the 30-day period immediately preceding the date hereof and the
undersigned agrees that the undersigned will not engage in any such Sale prior
to the Merger.
The undersigned further acknowledges and agrees that: (i) the
undersigned has carefully read this agreement and understands the requirements
hereof and the restrictions imposed upon the Sale of shares of stock of the
Company currently held, and WorldCom Stock and any referenced additional
securities to be received, by the undersigned, and (ii) at any time and from
time to time after the date hereof, the undersigned will execute and deliver
such other documents and take such other actions as may be reasonably requested
by WorldCom in connection with the matters referenced herein.
IN WITNESS WHEREOF, the undersigned has executed this agreement as of
_______________, 1996.
----------------------------------------
(Signature)
----------------------------------------
(Printed Name)
<PAGE> 200
EXHIBIT B
PLAN OF MERGER
OF
WC ACQUISITION, INC.
INTO
BLT TECHNOLOGIES, INC.
This Plan of Merger (the "Plan") is adopted as of the 26th day of July,
1996, by WC Acquisition, Inc., a Washington corporation ("Acquisition
Corporation") and wholly owned subsidiary of WorldCom, Inc., a Georgia
corporation ("WorldCom"), and BLT Technologies, Inc., a Washington corporation,
(the "Company"). Together, Acquisition Corporation and the Company are
hereinafter sometimes referred to as the "Constituent Corporations."
WHEREAS, the respective Boards of Directors of the Constituent
Corporations deem it advisable for the mutual benefit of the Constituent
Corporations and their respective shareholders that Acquisition Corporation be
merged with and into the Company pursuant to the Washington Business
Corporation Act (the "Act") upon the terms and subject to the conditions
hereinafter provided (the "Merger"), and said Boards of Directors have adopted
and recommended that the shareholders of the Constituent Corporations approve
this Plan; and
WHEREAS, WorldCom and the Company have entered into that certain Agreement
and Plan of Merger of even date herewith (the "Merger Agreement"), relating to
the proposed Merger;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, provisions and covenants contained or referenced herein, the
Constituent Corporations adopt this Plan and prescribe the terms and conditions
of the Merger as follows:
1. Parties to the Merger; Effective Time. Acquisition Corporation shall be
merged into the Company (which entity, as thus constituted, is herein referred
to as the "Surviving Corporation") pursuant to the provisions of the Act, the
Merger Agreement, and this Plan. The Merger shall become effective upon the
filing of Articles of Merger with the Washington Secretary of State or at such
later time as may be specified in the Articles of Merger in accordance with the
Act (the "Effective Time").
2. Certain Terms of the Merger.
(a) Articles of Incorporation. At the Effective Time, the Articles of
Incorporation of the Company as in effect immediately prior thereto shall
continue in full force and effect as the Articles of Incorporation of the
Surviving Corporation. The Surviving Corporation reserves the right, subject to
the Act, to alter, amend, or repeal any provision contained in its Articles of
Incorporation after the Merger, and all rights conferred in this Plan are
subject to such reserved power.
(b) Bylaws. At the Effective Time, the Bylaws of the Company as in
effect immediately prior thereto shall continue in full force and effect as the
Bylaws of the Surviving Corporation, until the same shall be altered, amended
or repealed in accordance with the Act and the Articles of Incorporation of the
Surviving Corporation.
B-1
<PAGE> 201
(c) Directors and Officers. From and after the Effective Time until
their successors are duly elected or appointed, the directors and the officers
of the Surviving Corporation shall be as follow:
Directors Officers
- ------------------------------------ ------------------------------------------
Charles T. Cannada Bernard J. Ebbers, President
Bernard J. Ebbers Scott D. Sullivan, Secretary and Treasurer
Charles T. Cannada, Assistant Secretary
William E. Anderson, Assistant Secretary
(d) Capitalization. At the Effective Time, the retained earnings of
the Surviving Corporation shall be increased by the stated capital, capital
surplus and retained earnings of Acquisition Corporation.
3. Conversion of Shares.
(a) At the Effective Time, each of the issued and outstanding shares
of common stock of the Company (the "Common Stock") shall, by virtue of the
Merger and without any action on the part of the holders thereof, be converted
into the right to receive, and there shall be paid and issued as hereinafter
provided in exchange therefor (subject to statutory provisions with respect to
dissenters' rights and the provisions of the Escrow Agreement (as hereinafter
defined)), that fraction of a share of the common stock, $.01 par value per
share, of WorldCom (the "WorldCom Stock") equal to 3,150,000 shares divided by
the number of shares of Common Stock outstanding on a fully diluted basis
(.4491 based upon 7,014,397 shares of Common Stock) (the "Exchange Ratio"). No
fractional shares of WorldCom Stock shall be issued pursuant to this Plan nor
will any fractional share interest involved entitle the holder thereof to vote,
to receive dividends or to exercise any other rights of a shareholder of
WorldCom. In lieu thereof, any person or entity who would otherwise be entitled
to a fractional share of WorldCom Stock pursuant to the provisions hereof shall
receive an amount in cash equal to the value of such fractional share. The
value of such fractional share shall be the product of such fraction (rounded
down to the nearest hundredth of a share) multiplied by $23.50 (the "WorldCom
Stock Value"). The aggregate number of shares of WorldCom Stock and fractional
share payments issuable and payable hereunder is referred to herein as the
"Merger Consideration." The Merger Consideration shall be payable as provided
in Section 5, below, to the shareholders of the Company (the "Shareholders") as
of the Effective Time. The Exchange Ratio and the WorldCom Stock Value shall be
subject to appropriate adjustment in the event of a stock split, stock dividend
or recapitalization applicable to shares of WorldCom Stock held of record after
the date hereof and prior to the Effective Time.
(b) At the Effective Time, the shares of Acquisition Corporation
common stock outstanding immediately prior to the Merger shall be converted, by
virtue of the Merger and without any action on the part of the holder thereof,
into one share of the common stock of the Surviving Corporation (the "Surviving
Corporation Common Stock"), which share of the Surviving Corporation Common
Stock shall constitute all of the issued and outstanding capital stock of the
Surviving Corporation.
4. Rights upon Merger. Upon consummation of the Merger, the holders of
certificates which theretofore represented shares of the Common Stock (the
"Certificates") shall cease to have any rights with respect thereto, and,
subject to applicable law, the Merger Agreement and this Plan, shall only have
the right (a) in the case of holders other than those who exercise dissenters'
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rights under the Act in connection with the Merger ("Dissenters") to receive
the amount of cash in lieu of fractional shares of WorldCom Stock and the
number of shares of WorldCom Stock into which their shares of the Common Stock
have been converted pursuant to this Plan and the Merger, or (b) in the case of
Dissenters, to receive the fair value of their shares of Common Stock in
accordance with the Act. Any Dissenter shall not be entitled to any dividends
or other distributions payable in respect of the shares of the WorldCom Stock
after the Effective Time regardless of whether such Dissenter has received
payment of said fair value.
5. Surrender and Exchange; Payment of Merger Consideration. In connection
with the closing of the Merger, each Shareholder shall surrender and deliver
the Certificates to WorldCom together with a duly completed and executed
transmittal letter, waiver and release in the form attached to the Merger
Agreement as Exhibit 1.5-1 ("Transmittal Letter"), subject to applicable law
with respect to dissenters' rights. Upon the later to occur of the Effective
Time or such surrender and delivery, the holder shall receive the amount of
cash in lieu of any fractional share of WorldCom Stock and a certificate
representing the number of whole shares of WorldCom Stock to which such holder
is entitled pursuant to the Merger Agreement and this Plan, less 10% of such
number of shares of WorldCom Stock which shall be delivered to the Escrow Agent
under, and be held and released pursuant to, the terms of an Escrow Agreement
in substantially the form attached to the Merger Agreement as Exhibit 1.5-2
(the "Escrow Agreement"). Until so surrendered and exchanged, subject to
applicable law with respect to dissenters' rights, each outstanding Certificate
after the Effective Time shall be deemed for all purposes to evidence the right
to receive the amount of cash and that number of whole shares of WorldCom Stock
into which the shares previously represented by the Certificate have been
converted pursuant to this Agreement; provided, however, that no dividends or
other distributions, if any, in respect of the shares of the WorldCom Stock,
declared after the Effective Time and payable to holders of record after the
Effective Time, shall be paid to the holders of any unsurrendered Certificates
until such Certificates and Transmittal Letters are surrendered and delivered
as provided herein and no interest shall be paid on the amount of any cash.
Holders of any unsurrendered Certificates shall not be entitled to vote the
WorldCom Stock involved until such Certificates are exchanged pursuant to this
Agreement.
6. Other Effects of Merger. The Merger shall have all further effects as
specified in the applicable provisions of the Act.
7. Additional Actions. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of Acquisition Corporation or the Company or otherwise to
carry out the Merger Agreement and this Plan, the officers and directors of the
Surviving Corporation shall be authorized to execute and deliver, in the name
and on behalf of Acquisition Corporation or the Company, all such deeds, bills
of sale, assignments and assurances and to take and do, in the name and on
behalf of Acquisition Corporation or the Company, all such other actions and
things as may be necessary or desirable to vest, perfect or confirm any and all
right, title and interest in, to and under such rights, properties or assets in
the Surviving Corporation or otherwise to carry out the Merger Agreement, this
Plan and the transactions contemplated thereby and hereby.
8. Terms and Conditions of Merger. The Merger is subject to all of the
terms and conditions set forth in the Merger Agreement and this Plan. In the
event of a conflict between the terms and conditions of this Plan and those in
the Merger Agreement, the terms and conditions in the Merger Agreement shall
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control. Acquisition Corporation hereby joins in the Merger Agreement to the
extent the same is applicable to it.
9. Termination. This Plan shall be terminated upon any termination of the
Merger Agreement, such termination to have the effect provided in the Merger
Agreement. Such termination may be made at any time prior to the filing of the
Articles of Merger notwithstanding approval of this Plan by the shareholders of
either or both of the Constituent Corporations.
10. Amendment. Subject to applicable law, this Plan may be amended by the
Boards of Directors of the Constituent Corporations at any time prior to the
Effective Time; provided, however, that any amendment must be by an instrument
or instruments in writing signed and delivered on behalf of each of the parties
hereto.
11. Counterparts. This Plan may be executed in any number of counterparts,
each of which shall be deemed an original and all of which taken together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the Constituent Corporations have caused this Plan to
be executed in multiple copies by their duly authorized officers as the
respective act, deed and agreement of each of the Constituent Corporations, as
of the date first above written.
WC ACQUISITION, INC. BLT TECHNOLOGIES, INC.
By: By:
---------------------------------- ------------------------------------
Charles T. Cannada, President Name:
Title:
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EXHIBIT C
ESCROW AGREEMENT
This Escrow Agreement (the "Escrow Agreement") is made as of ___________,
1996, by and among WorldCom, Inc., a Georgia corporation ("WorldCom"),
("Shareholder Representative"), in his/her individual capacity and as
representative of all former shareholders (the "Shareholders") of BLT
Technologies, Inc., a Washington corporation ("BLT"), and ____________________,
as escrow agent hereunder (the "Escrow Agent").
Recitals
A. WorldCom and BLT have entered into that certain Agreement and Plan of
Merger dated as of July 26, 1996 (the "Merger Agreement");
B. Pursuant to Section 4.8 of the Merger Agreement, the Shareholders have
agreed to indemnify WorldCom and certain others (the "Indemnified Parties") for
the matters referenced therein (the "Indemnified Matters");
C. Claims with respect to the Indemnified Matters are to be satisfied
pursuant to the Merger Agreement and this Escrow Agreement; and
I. Capitalized terms used but not defined herein shall have the meanings
set forth in the Merger Agreement.
Agreements
1. Delivery of Escrow Shares
1.1 Subject and pursuant to the Merger Agreement, 10% of the number of
shares of WorldCom Stock issuable under the Merger Agreement to each of the
Shareholders (the "Escrow Shares"), are to be delivered to the Escrow Agent.
The stock certificates representing the Escrow Shares shall be issued in the
name of the Escrow Agent. Title to the Escrow Shares will be in the name of the
Escrow Agent for convenience purposes only. The parties acknowledge that the
Shareholders are the beneficial owners of the Escrow Shares, subject to the
terms and conditions of the Merger Agreement and this Escrow Agreement.
1.2 The Escrow Shares shall be deemed to have been contributed into escrow
hereunder by the Shareholders in the same proportion to the WorldCom Stock to
be received by each Shareholder pursuant to the Merger Agreement.
2. Dividends; Voting Rights
2.1 All cash dividends on the Escrow Shares shall be deposited directly
into an escrow account created by the Escrow Agent specifically for the purpose
of holding such cash dividends (the "Dividend Account"), without any tax or
other withholding or deduction. Shares resulting from stock dividends, stock
splits and other shares or securities issued in respect of the Escrow Shares
shall be issued in the name of the Escrow Agent, and shall be held by the
Escrow Agent subject to the provisions of this Agreement, and upon issuance
shall become part of the Escrow Shares.
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2.2 The Escrow Shares shall be voted on all matters submitted to the
shareholders of WorldCom as each Shareholder shall direct with respect to the
number of Escrow Shares allocated to such Shareholder. During the period the
Escrow Shares are held hereunder, WorldCom shall cause all proxy solicitation
materials, including forms of proxy, to be sent to the Shareholders as and when
sent to the shareholders of WorldCom. In the absence of direction from any
Shareholder, the Escrow Shares contributed into escrow by such Shareholder
shall be voted as the Escrow Agent shall direct.
3. Application of Escrow Shares to Claims of Indemnified Parties
3.1 In the event an Indemnified Party claims that it is entitled to
indemnification pursuant to the Merger Agreement, such Indemnified Party shall
give written notice of such claim to the Shareholder Representative and the
Escrow Agent. Subject to compliance by such Indemnified Party with the
applicable indemnification provisions of the Merger Agreement, the amount of
such claim shall be paid to the Indemnified Party out of the Escrow Shares as
provided in Section 3.3 (plus any payments due from the Dividend Account) or as
otherwise provided in Section 3.3, unless the Shareholder Representative shall
contest the right of such Indemnified Party to such payment by delivering to
such Indemnified Party and the Escrow Agent notice of such contest within 15
days after such Indemnified Party shall have delivered notice to the
Shareholder Representative of the claim.
3.2 If within the 15 day period specified in Section 3.1 above, the
Shareholder Representative shall deliver to the Indemnified Party and the
Escrow Agent involved the notice of contest referred to in Section 3.1 above,
no payment shall be made hereunder with respect to the claim involved until the
dispute has been finally settled by agreement of such Indemnified Party and the
Shareholder Representative or, in the absence of such an agreement, by a
binding and final arbitration award if such Indemnified Party and the
Shareholder Representative have agreed to such arbitration, or otherwise by a
binding and final judgment, order or decree of a court of competent
jurisdiction specified in Section 11 below.
3.3 Payments to an Indemnified Party shall be made by cancellation of the
number of whole shares of the Escrow Shares, allocated pro rata among the
Shareholders, having an aggregate value nearest to the amount payable to such
Indemnified Party, such value to be the WorldCom Stock Value, subject to
appropriate adjustment to take into account any stock split, stock dividend or
recapitalization subsequent to the Effective Time and not reflected in such
WorldCom Stock Value (the "Share Value"). In addition, upon the cancellation of
such Escrow Shares, a proportionate distribution of any cash dividends in the
Dividend Account (the "Dividend Account Amount") shall be made to such
Indemnified Party. Notwithstanding the foregoing, a Shareholder may elect, by
so notifying the Indemnified Party involved prior to such cancellation, to
satisfy such payment obligation by paying to such Indemnified Party when such
payment is due cash based upon such Share Value. Upon such payment, that number
of whole shares of the Escrow Shares having an aggregate value (based upon the
Share Value) equal to the amount of such payment plus the related Dividend
Account Amount shall be distributed to such Shareholder.
4. Final Distribution
As soon as practicable following the first anniversary of the date of this
Agreement (the "Anniversary"), except as otherwise provided in this Section,
the Escrow Shares and cash dividends in the Dividend Account then remaining in
escrow shall be distributed to the Shareholder Representative for distribution
to the Shareholders. If any claim theretofore asserted by an Indemnified Party
shall not have been paid or finally determined to be without merit or the
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amount of such claim shall not have been finally determined, the number of
whole shares of the Escrow Shares having an aggregate value (determined as
provided in Section 3.3 above) nearest to the amount of such claim on the
Anniversary (the "Retained Escrow Shares"), plus a proportionate amount of any
cash dividends in the Dividend Account, shall be retained in escrow until such
claim(s) shall have been paid or finally determined to be without merit,
whereupon such Retained Escrow Shares and cash dividends in the Dividend
Account shall be distributed to the Shareholder Representative, subject to the
remaining provisions of this Section. In addition to any Retained Escrow Shares
and cash dividends, the lesser of (a) the Escrow Shares then remaining in
escrow plus the related cash dividends in the Dividend Account, and (b)
____________ Escrow Shares [range to be established by agreement of WorldCom
and BLT prior to proxy solicitation; exact number to be established at Closing
by agreement of WorldCom and BLT], plus a proportionate amount of any cash
dividends in the Dividend Account (the "Special Matters Retention"), shall be
retained in escrow hereunder for use in satisfaction of claims, subject to
compliance with the applicable indemnification provisions of the Merger
Agreement, pursuant hereto arising out of any Scheduled Matters or the Excess
Dissenter Amount (the "Special Matters") not then resolved. Any portion of the
Special Matters Retention not used in satisfaction by an Indemnified Party of
said Special Matters pursuant hereto shall be distributed to the Shareholder
Representative on the first to occur of (x) the satisfaction by the Shareholder
in accordance with the terms of the Merger Agreement, of any Special Matters
arising out of the final resolution or settlement of any judicial or
administrative proceeding involving the Special Matters in their entirety, (y)
as to any Shareholder described in this clause (y), upon the execution by such
Shareholder and delivery to the Indemnified Party involved of an
indemnification undertaking reasonably satisfactory to such Indemnified Party
without time limitation other than as specified in the following clause (z) in
an amount equal to the amount of the Special Matters applicable to such
Shareholder, or (z) the expiration of the applicable statute of limitations
with respect to the Special Matters (including any suspensions, tollings or
extensions thereof). Any distribution pursuant hereto shall be net of any
required tax or other withholding or deduction. The parties will make all
reasonable efforts to resolve any claims hereunder as quickly as possible.
5. Fractional Shares; Distributions
In the event any calculations required under this Escrow Agreement result
in allocation of a fractional share amount to a Shareholder, the fraction shall
be rounded to the next lower whole number. All deliveries under this Escrow
Agreement shall be made by and to the parties hereto (or their lawfully
appointed attorneys-in-fact) in the United States.
6. Shareholder Representative; Notices and Written Directions
6.1 Each Shareholder has appointed the Shareholder Representative to be
his, her or its true and lawful attorney for all matters in connection with
this Escrow Agreement, the Escrow Shares and any cash dividends in the Dividend
Account, including without limitation the acceptance of any claim by an
Indemnified Party, and the compromise of any disputes relating to the Escrow
Shares, cash dividends or other matter under this Escrow Agreement.
Notwithstanding the foregoing, the Shareholder Representative will not act on
behalf of the Shareholders with respect to distributions, voting or tax
withholdings. The Shareholder Representative hereby accepts such appointment.
6.2 Any notice, direction or instruction given pursuant to the provisions
of this Escrow Agreement shall be in writing and shall be delivered by
messenger or by nationally recognized next business day courier, transmitted by
telex or telecopier (with receipt confirmed), or mailed by registered or
certified mail (return receipt required), postage prepaid. Notice shall be
deemed given the
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earlier of (i) actual receipt by the intended recipient, (ii) the fifth day
after notice is deposited with the U.S. Mail, (iii) the next business day
following timely deposit with an overnight courier, and (iv) at the time of
electronic transmission, and shall be addressed as follows:
(a) If to WorldCom: (b) If to the Escrow Agent:
Mr. Charles T. Cannada -------------------------------
WorldCom, Inc. -------------------------------
515 East Amite Street -------------------------------
Jackson, Mississippi 39201-2702 -------------------------------
Telephone: (601) 360-8610 Telephone:
Telecopier: (601) 360-8615 Telecopier:
(c) If to the Shareholders or the
Shareholder Representative:
----------------------------------
----------------------------------
----------------------------------
----------------------------------
Telephone:
Telecopier:
Any party may change the above-specified addresses by notice to all other
parties given in the manner herein prescribed.
7. Escrow Agent
7.1 WorldCom and the Shareholder Representative hereby designate and
appoint Escrow Agent to serve, and Escrow Agent hereby agrees to act, in
accordance with the terms and conditions and provisions of this Escrow
Agreement. The Escrow Agent (i) shall not be obligated to take any legal or
other action hereunder which might, in its judgment, involve any expense or
liability unless it shall have been furnished with acceptable indemnification;
and (ii) may rely on any written notice, instruction, instrument, statement,
request or document furnished to it hereunder and believed by it to be genuine
and to have been signed or presented by the proper person. Escrow Agent shall
not be liable for any action taken or omitted to be taken by it hereunder
except in the case of bad faith, negligence, fraud and/or willful misconduct.
7.2 Escrow Agent may at any time resign as Escrow Agent hereunder by
giving at least thirty (30) days prior written notice of resignation to
WorldCom and the Shareholder Representative. After receipt of written notice,
WorldCom and the Shareholder Representative may agree to a successor escrow
agent who shall be subject to the terms and conditions of this Escrow Agreement
and so notify the existing Escrow Agent. If WorldCom and the Shareholder
Representative are unable to agree upon a successor escrow agent within thirty
(30) days after such notice, then the Escrow Agent shall be entitled to appoint
its successor. In addition, WorldCom and the Shareholder Representative may
agree at any time to substitute a successor escrow agent by giving notice
thereof to the existing Escrow Agent. Upon receipt of notice of the appointment
of a successor escrow agent, the existing Escrow Agent shall forthwith transfer
the Escrow Shares and the Dividend Account to the successor escrow agent.
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8. Transfer of Interests
The interests of the Shareholders in the Escrow Shares and the rights and
obligations of the Shareholders hereunder may not be transferred except by
will, the laws of descent and distribution or by other operation of law.
9. Interpretation of Agreement
It is the intention of WorldCom and the Shareholders that the Merger
qualify as a "reorganization" under the provisions of Section 368(a)(2)(E) of
the Internal Revenue Code of 1986, as amended, and be accounted for as a
"pooling of interests," and this Escrow Agreement shall be interpreted and
applied in a manner consistent with, and shall be subject to amendment to
conform to, the requirements for such treatment.
10. Counterparts
This Escrow Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original and all of which together shall
constitute one and the same instrument.
11. Governing Law
This Escrow Agreement shall be governed by the internal laws (ignoring
principles of conflicts of laws) of the State of Mississippi and the parties
hereby consent to the jurisdiction of the courts of or in the State of
Mississippi. All deliveries under this Escrow Agreement shall be made by and to
the parties hereto (or their lawfully appointed attorneys-in-fact) in the
United States.
12. Benefit
This Agreement shall be binding upon and inure to the benefit of the
parties hereto, the Shareholders, the Indemnified Parties and their respective
heirs, personal representatives, successors and permitted assigns.
13. Severability
In the event any provision of this Escrow Agreement shall be determined to
be invalid, illegal or unenforceable by a court of competent jurisdiction, such
provision shall be enforced to the fullest extent permitted by applicable law,
and the validity, legality and enforceability of the remaining provisions
hereof shall not in any way be affected or impaired thereby.
14. Headings
The headings of the sections of this Escrow Agreement are for convenience
of reference only and are not to be considered in construing this Escrow
Agreement.
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15. Waiver
Waiver by any party of any breach of any provision hereof shall not
operate or be construed as a waiver of any subsequent or similar breach.
IN WITNESS WHEREOF, the parties hereto have executed this Escrow Agreement
as of the date first set forth above.
WORLDCOM, INC.
----------------------------------------
(Escrow Agent)
By: By:
------------------------------- ---------------------------------
Name: Name:
------------------------------- ---------------------------------
Title: Title:
------------------------------- ---------------------------------
SHAREHOLDER REPRESENTATIVE, individually
and as representative of the other
Shareholders:
- --------------------------------------
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EXHIBIT D
REVISED CODE OF WASHINGTON
TITLE 23B. WASHINGTON BUSINESS CORPORATION ACT
CHAPTER 23B.13. DISSENTERS' RIGHTS
23B.13.010. Definitions. As used in this chapter:
(1) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by
merger or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under RCW 23B.13.020 and who exercises that right when and in
the manner required by RCW 23B.13.200 through 23B.13.280.
(3) "Fair value," with respect to a dissenter's shares, means the value of
the shares immediately before the effective date of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
23B.13.020. Right to dissent. (1) A shareholder is entitled to dissent
from, and obtain payment of the fair value of the shareholder's shares in the
event of, any of the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a party
(i) if shareholder approval is required for the merger by RCW 23B.11.030,
23B.11.080, or the articles of incorporation and the shareholder is entitled to
vote on the merger, or (ii) if the corporation is a subsidiary that is merged
with its parent under RCW 23B.11.040;
(b) Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired, if the shareholder is
entitled to vote on the plan;
(c) Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or substantially all
of the net proceeds of the sale will be distributed to the shareholders within
one year after the date of sale;
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(d) An amendment of the articles of incorporation that materially reduces
the number of shares owned by the shareholder to a fraction of a share if the
fractional share so created is to be acquired for cash under RCW 23B.06.040; or
(e) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
(2) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this chapter may not challenge the corporate action
creating the shareholder's entitlement unless the action fails to comply with
the procedural requirements imposed by this title, RCW 25.10.900 through
25.10.955, the articles of incorporation, or the bylaws, or is fraudulent with
respect to the shareholder or the corporation.
(3) The right of a dissenting shareholder to obtain payment of the fair
value of the shareholder's shares shall terminate upon the occurrence of any
one of the following events:
(a) The proposed corporate action is abandoned or rescinded;
(b) A court having jurisdiction permanently enjoins or sets aside the
corporate action; or
(c) The shareholder's demand for payment is withdrawn with the written
consent of the corporation.
23B.13.030. Dissent by nominees and beneficial owners. (1) A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in the shareholder's name only if the shareholder dissents with
respect to all shares beneficially owned by any one person and notifies the
corporation in writing of the name and address of each person on whose behalf
the shareholder asserts dissenters' rights. The rights of a partial dissenter
under this subsection are determined as if the shares as to which the dissenter
dissents and the dissenter's other shares were registered in the names of
different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares
held on the beneficial shareholder's behalf only if:
(a) The beneficial shareholder submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and
(b) The beneficial shareholder does so with respect to all shares of which
such shareholder is the beneficial shareholder or over which such shareholder
has power to direct the vote.
23B.13.200. Notice of dissenters' rights. (1) If proposed corporate action
creating dissenters' rights under RCW 23B.13.020 is submitted to a vote at a
shareholders' meeting, the meeting notice must state that shareholders are or
may be entitled to assert dissenters' rights under this chapter and be
accompanied by a copy of this chapter.
(2) If corporate action creating dissenters' rights under RCW 23B.13.020
is taken without a vote of shareholders, the corporation, within ten days after
[the] effective date of such corporate action, shall notify in writing all
shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in RCW 23B.13.220.
23B.13.210. Notice of intent to demand payment. (1) If proposed corporate
action creating dissenters' rights under RCW 23B.13.020 is submitted to a vote
at a shareholders' meeting, a shareholder who wishes to assert dissenters'
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rights must (a) deliver to the corporation before the vote is taken written
notice of the shareholder's intent to demand payment for the shareholder's
shares if the proposed action is effected, and (b) not vote such shares in
favor of the proposed action.
(2) A shareholder who does not satisfy the requirements of subsection (1)
of this section is not entitled to payment for the shareholder's shares under
this chapter.
23B.13.220. Dissenters' notice. (1) If proposed corporate action creating
dissenters' rights under RCW 23B.13.020 is authorized at a shareholders'
meeting, the corporation shall deliver a written dissenters' notice to all
shareholders who satisfied the requirements of RCW 23B.13.210.
(2) The dissenters' notice must be sent within ten days after the
effective date of the corporate action, and must:
(a) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(b) Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
(c) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting dissenters'
rights certify whether or not the person acquired beneficial ownership of the
shares before that date;
(d) Set a date by which the corporation must receive the payment demand,
which date may not be fewer than thirty nor more than sixty days after the date
the notice in subsection (1) of this section is delivered; and
(e) Be accompanied by a copy of this chapter.
23B.13.230. Duty to demand payment. (1) A shareholder sent a dissenters'
notice described in RCW 23B.13.220 must demand payment, certify whether the
shareholder acquired beneficial ownership of the shares before the date
required to be set forth in the dissenters' notice pursuant to RCW
23B.13.220(2)(c), and deposit the shareholder's certificates in accordance with
the terms of the notice.
(2) The shareholder who demands payment and deposits the shareholder's
share certificates under subsection (1) of this section retains all other
rights of a shareholder until the proposed corporate action is effected.
(3) A shareholder who does not demand payment or deposit the shareholder's
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
chapter.
23B.13.240. Share restrictions. (1) The corporation may restrict the
transfer of uncertificated shares from the date the demand for their payment is
received until the proposed corporate action is effected or the restriction is
released under RCW 23B.13.260.
(2) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until the
effective date of the proposed corporate action.
23B.13.250. Payment. (1) Except as provided in RCW 23B.13.270, within
thirty days of the later of the effective date of the proposed corporate
action, or the date the payment demand is received, the corporation shall pay
each
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dissenter who complied with RCW 23B.13.230 the amount the corporation estimates
to be the fair value of the shareholder's shares, plus accrued interest.
(2) The payment must be accompanied by:
(a) The corporation's balance sheet as of the end of a fiscal year ending
not more than sixteen months before the date of payment, an income statement
for that year, a statement of changes in shareholder's equity for that year, ad
the latest available interim financial statements, if any;
(b) An explanation of how the corporation estimated the fair value of the
shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under RCW
23B.13.280; and
(e) A copy of this chapter.
23B.13.260. Failure to take action. (1) If the corporation does not effect
the proposed action within sixty days after the date set for demanding payment
and depositing share certificates, the corporation shall return the deposited
certificates and release any transfer restrictions imposed on uncertificated
shares.
(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation wishes to undertake the proposed action, it must
send a new dissenters' notice under RCW 23B.13.220 and repeat the payment
demand procedure.
23B.13.270. After-acquired shares. (1) A corporation may elect to withhold
payment required by RCW 23B.13.250 from a dissenter unless the dissenter was
the beneficial owner of the shares before the date set forth in the dissenters'
notice as the date of the first announcement to news media or to shareholders
of the terms of the proposed corporate action.
(2) To the extent the corporation elects to withhold payment under
subsection (1) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of the dissenter's demand. The corporation shall send with its offer an
explanation of how it estimated the fair value of the shares, an explanation of
how the interest was calculated, and a statement of the dissenter's right to
demand payment under RCW 23B.13.280.
23B.13.280. Procedure if shareholder dissatisfied with payment or offer.
(1) A dissenter may notify the corporation in writing of the dissenter's own
estimate of the fair value of the dissenter's shares and amount of interest
due, and demand payment of the dissenter's estimate, less any payment under RCW
23B.13.250, or reject the corporation's offer under RCW 23B.13.270 and demand
payment of the dissenter's estimate of the fair value of the dissenter's shares
and interest due, if:
(a) The dissenter believes that the amount paid under RCW 23B.13.250 or
offered under RCW 23B.13.270 is less than the fair value of the dissenter's
shares or that the interest due is incorrectly calculated;
(b) The corporation fails to make payment under RCW 23B.13.250 within
sixty days after the date set for demanding payment; or
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(c) The corporation does not effect the proposed action and does not
return the deposited certificates or release the transfer restrictions imposed
on uncertificated shares within sixty days after the date set for demanding
payment.
(2) A dissenter waives the right to demand payment under this section
unless the dissenter notifies the corporation of the dissenter's demand in
writing under subsection (1) of this section within thirty days after the
corporation made or offered payment for the dissenter's shares.
23B.13.300. Court action. (1) If a demand for payment under RCW 23B.13.280
remains unsettled, the corporation shall commence a proceeding within sixty
days after receiving the payment demand and petition the court to determine the
fair value of the shares and accrued interest. If the corporation does not
commence the proceeding within the sixty-day period, it shall pay each
dissenter whose demand remains unsettled the amount demanded.
(2) The corporation shall commence the proceeding in the superior court of
the county where a corporation's principal office, or, if none in this state,
its registered office, is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the county in this state where the registered office of the domestic
corporation merged with or whose shares were acquired by the foreign
corporation was located.
(3) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled, parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(4) The corporation may join as a party to the proceeding any shareholder
who claims to be a dissenter but who has not, in the opinion of the
corporation, complied with the provisions of this chapter. If the court
determines that such shareholder has not complied with the provisions of this
chapter, the shareholder shall be dismissed as a party.
(5) The jurisdiction of the court in which the proceeding is commenced
under subsection (2) of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers
described in the order appointing them, or in any amendment to it. The
dissenters are entitled to the same discovery rights as parties in other civil
proceedings.
(6) Each dissenter made a party to the proceeding is entitled to judgment
(a) for the amount, if any, by which the court finds the fair value of the
dissenter's shares, plus interest, exceeds the amount paid by the corporation,
or (b) for the fair value, plus accrued interest, of the dissenter's
after-acquired shares for which the corporation elected to withhold payment
under RCW 23B.13.270.
23B.13.310. Court costs and counsel fees. (1) The court in a proceeding
commenced under RCW 23B.13.300 shall determine all costs of the proceeding,
including the reasonable compensation and expenses of appraisers appointed by
the court. The court shall assess the costs against the corporation, except
that the court may assess the costs against all or some of the dissenters, in
amounts the court finds equitable, to the extent the court finds the dissenters
acted arbitrarily, vexatiously, or not in good faith in demanding payment under
RCW 23B.13.280.
(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
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<PAGE> 215
(a) Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the requirements
of RCW 23B.13.200 through 23B.13.280; or
(b) Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses are
assessed acted arbitrarily, vexatiously, or not in good faith with respect to
the rights provided by chapter 23B.13 RCW.
(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these counsel reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited.
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<PAGE> 216
EXHIBIT E
ORCA CAPITAL
July 31, 1996
The Board of Directors
BLT Technologies, Inc.
610 Esther Street, Suite 1000
Vancouver, Washington 98660
Members of the Board:
You have asked Orca Capital Corporation's ("Orca Capital") opinion with respect
to the fairness, from a financial point of view, of the terms of the proposed
Agreement and Plan of Merger dated as of July 26, 1996 (the "Agreement") by and
concerning BLT Technologies, Inc. ("BLT") and WorldCom, Inc. ("WorldCom").
Under the terms and conditions of the Agreement, BLT will be merged with a
subsidiary of WorldCom (the "Merger"), whereby BLT will become a wholly-owned
subsidiary of WorldCom. The total consideration for the Merger will be equal to
3,150,000 shares of WorldCom stock in exchange for the total number of shares
of BLT Common Stock outstanding on a fully diluted basis (7,014,397 shares).
The terms and conditions of the Merger are more fully set forth in the
Agreement.
For purposes of this opinion Orca Capital has: (i) reviewed financial
information on BLT and WorldCom furnished to Orca Capital by these companies
and/or publicly available in published sources; (ii) held discussions with the
managements of BLT and WorldCom concerning the businesses, operations, and
prospects, now and upon consummation of the Merger; (iii) reviewed the proposed
Agreement; (iv) reviewed the evaluations of publicly traded companies Orca
Capital deemed comparable to BLT; (v) compared the financial terms of the
Merger with the financial terms of other transactions which Orca Capital deemed
relevant; and (vi) made such other studies and inquiries as Orca Capital deemed
relevant.
In connection with Orca Capital's opinion, Orca Capital has not independently
verified any of the foregoing information and has relied on all of such
information being complete and accurate in all material respects. With
1200 N.W. Front Suite 500 Portland Oregon 97209-2800
Office 503-227-3055 Home 503-790-0752 Fax 503-248-1731
<PAGE> 217
The Board of Directors
BLT Technologies, Inc.
July 31, 196
Page Two
respect to the financial forecasts, which Orca Capital has reviewed, Orca
Capital has relied upon assurances and judgments of BLT management as to the
future financial performance by BLT. Orca Capital did not obtain any
independent appraisal of the properties or assets of BLT. Orca Capital does not
hereby express an opinion as to the prices at which shares of WorldCom stock
will actually trade following the date of this letter. While Orca Capital
believes that its review, as described herein, is an adequate basis for the
opinion Orca Capital expresses, this opinion is necessarily based upon market,
economic, and other conditions as they exist and can be evaluated as of the
date of this letter.
Orca Capital has been engaged to render financial advisory services to BLT in
connection with the transaction and will receive a fee for its services,
substantially all of which is contingent upon the consummation of the Merger.
Orca Capital's advisory services and the opinion expressed herein are provided
solely for the use of the Board of BLT in its evaluation of the proposed Merger
and are not for the benefit of and shall not constitute a recommendation to any
other person or entity, including the shareholders of BLT. Nothing contained in
this opinion shall be construed as creating or imposing upon Orca Capital any
undertaking or obligation to advise any person of any change in any fact or
matter (specifically including without limitation any change to the value or
the freely tradeable character of the shares of the WorldCom stock to be
offered the shareholders of BLT) affecting its opinion of which Orca Capital
becomes aware (or otherwise occurs) after the date hereof.
Orca Capital's opinion may not be published or referred to, nor shall any
public reference to Orca Capital be made, without Orca Capital's prior written
consent, which will not be unreasonably withheld. Orca Capital understands this
opinion will be included in the proxy statement and requires the opportunity to
review and comment on such portions of the proxy statement dealing with this
opinion prior to its distribution and/or filing.
Based upon and subject to the foregoing, Orca Capital's experience as
investment bankers, the work as described above, and other factors Orca Capital
deemed relevant, Orca Capital is of the opinion that as of the date hereof, the
consideration from a financial point of view to be offered in the Agreement to
the shareholders of BLT is fair.
Very truly yours,
ORCA CAPITAL CORPORATION
/s/ Norman B. Duffett
Norman B. Duffett
President
<PAGE> 218
PART II
INFORMATION NOT REQUIRED IN PROXY STATEMENT/PROSPECTUS
ITEM 20. 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 WorldCom 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 WorldCom'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 WorldCom shall be limited
to the fullest extent permitted by amendments to Georgia law.
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 WorldCom
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 WorldCom) in which he is
made a party by reason of being a director of WorldCom and for directors who,
at the request of WorldCom, 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 WorldCom 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 WorldCom 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 WorldCom's Amended and Restated Articles of Incorporation
or Bylaws, or a contract or resolutions approved by WorldCom'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 WorldCom, 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
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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 WorldCom
(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, WorldCom may, as provided by WorldCom'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.
The indemnification provisions of Article X of WorldCom's Bylaws and
Article Eleven of WorldCom's Amended and Restated Articles of Incorporation are
consistent with the foregoing provisions of the Georgia Code. However,
WorldCom'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, WorldCom's best interests. WorldCom's
Bylaws extend the indemnification available to officers under the Georgia Code
to employees and agents.
ITEM 21(A). EXHIBITS.
See Exhibit Index.
ITEM 21(B). FINANCIAL STATEMENT SCHEDULES.
All financial statement schedules of WorldCom which are required to be
included herein are included in the Annual Report of WorldCom on Form 10-K for
the fiscal year ended December 31, 1995 which is incorporated herein by
reference. No financial statement schedules of BLT are required to be included
in the this Registration Statement.
ITEM 22. UNDERTAKINGS.
(1) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") 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 Securities 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 of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
(2) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act") (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Exchange Act) that is incorporated by reference in the
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.
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<PAGE> 220
(3) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of
a prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(4) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (3) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415 under the
Securities Act, will be filed as a part of an amendment to the registration
statement and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offering therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(5) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(6) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(7) The undersigned registrant hereby undertakes:
(a) 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;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information
set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or high
and of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3, Form S-8 or
Form S-3, and the information required to be included in
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<PAGE> 221
a post-effective amendment by those paragraphs is contained in
periodic reports filed with or furnished to the Commission by the
registrant pursuant to Section 13 or 15(d) of the Exchange Act that
are incorporated by reference in the registration statement.
(b) That for the purposes of determining any liability under the
Securities Act, 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.
(c) 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.
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<PAGE> 222
SIGNATURES
Pursuant to the requirements of the Securities Act the registrant 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 21, 1996.
WORLDCOM, INC.
By: /s/ BERNARD J. EBBERS
-------------------------------------
Bernard J. Ebbers
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Bernard J. Ebbers, Scott D. Sullivan and Charles T. Cannada and each of them
(with full power to each of them to act alone), his or her true and lawful
attorneys in fact and agents for him or her and on his or her behalf and in his
or her name, place and stead, in any and all capacities to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with exhibits and any and all other documents
filed with respect thereto, with the Securities and Exchange Commission (or any
other governmental or regulatory authority), granting unto said attorneys, and
each of them, full power and authority to do and to perform each and every act
and thing requisite and necessary to be done in and about the premises in order
to effectuate the same as fully to all intents and purposes as he or she might
or could do if personally present, hereby ratifying and confirming all that
said attorneys in fact and agents, or any of them, may lawfully do or cause to
be done by virtue hereof.
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.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ CARL J. AYCOCK Director November 21, 1996
- -----------------------
Carl J. Aycock
/s/ MAX E. BOBBITT Director November 21, 1996
- -----------------------
Max E. Bobbitt
/s/ BERNARD J. EBBERS Director, President November 21, 1996
- ----------------------- and Chief Executive
Bernard J. Ebbers Officer (Principal
Executive Officer)
/s/ FRANCESCO GALESI Director November 21, 1996
- -----------------------
Francesco Galesi
</TABLE>
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<PAGE> 223
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ STILES A.KELLETT, JR. Director November 21, 1996
- -------------------------
Stiles A. Kellett, Jr.
/s/ SILVIA KESSEL Director November 21, 1996
- -------------------------
Silvia Kessel
/s/ JOHN W. KLUGE Director November 21, 1996
- -------------------------
John W. Kluge
/s/ JOHN A. PORTER Director November 21, 1996
- -------------------------
John A. Porter
Director November , 1996
- -------------------------
Stuart Subotnick
/s/ SCOTT D. SULLIVAN Director, Principal November 21, 1996
- ------------------------- Financial Officer and
Scott D. Sullivan Principal Accounting
Officer
/s/ LAWRENCE C. TUCKER Director November 21, 1996
- -------------------------
Lawrence C. Tucker
/s/ ROY A. WILKENS Director November 21, 1996
- -------------------------
Roy A. Wilkens
</TABLE>
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<PAGE> 224
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------- -----------
<S> <C>
2.1 Agreement and Plan of Merger by and between WorldCom, Inc.
("WorldCom") and BLT Technologies, Inc. ("BLT") dated as of July 26,
1996 (attached as Exhibit A to the Proxy Statement/Prospectus included
in this Registration Statement)*
2.2 Plan of Merger dated as of July 26, 1996 by and between BLT and WC
Acquisition, Inc. (attached as Exhibit B to the Proxy
Statement/Prospectus included in this Registration Statement)
2.3 Form of Escrow Agreement by and among WorldCom, BLT and [Escrow Agent]
(attached as Exhibit C to the Proxy Statement/Prospectus included in
this Registration Statement)
2.4 Amended and Restated Agreement and Plan of Merger by and among
WorldCom, HIJ Corp. and MFS Communications Company, Inc. ("MFS") dated
as of August 25, 1996 (attached as Appendix I to the Joint Proxy
Statement/Prospectus included in WorldCom's Registration Statement on
Form S-4 (Registration No. 333-16015) (the "MFS Registration
Statement") and incorporated by reference herein)*
2.5 Agreement dated as of August 25, 1996 between WorldCom and MFS
(attached as Appendix II to the Joint Proxy Statement/Prospectus
included in the MFS Registration Statement and incorporated by
reference herein)
2.6 Stock Option Agreement dated as of August 25, 1996 between WorldCom
and MFS (attached as Appendix III to the Joint Proxy
Statement/Prospectus included in the MFS Registration Statement and
incorporated by reference herein)
2.7 Stock Option Agreement dated as of August 25, 1996 between WorldCom
and MFS (attached as Appendix IV to the Joint Proxy
Statement/Prospectus included in the MFS Registration Statement and
incorporated by reference herein)
4.1 Amended and Restated Articles of Incorporation of WorldCom (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 herein by reference to
Exhibit 4.1 to the Annual Report on Form 10-K filed by WorldCom (File
No. 0-11258) for the year ended December 31, 1995)
</TABLE>
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<PAGE> 225
<TABLE>
<S> <C>
4.2 Articles of Amendment to the Amended and Restated Articles of
Incorporation of WorldCom dated May 23, 1996 (incorporated herein by
reference to Exhibit 3(ii) to the Quarterly Report on Form 10-Q filed
by WorldCom (File No. 0-11258) for the quarter ended June 30, 1996)
4.3 Bylaws of WorldCom (incorporated herein by reference to Exhibit 3(iii)
to the Quarterly Report on Form 10-Q filed by WorldCom (File No.
0-11258) 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))
4.5 Terms of Series A 8% Cumulative Convertible Preferred Stock, par value
$.01 per share, of WorldCom (the "WorldCom Series A Preferred Stock")
(attached as Appendix VIII to the Joint Proxy Statement/Prospectus
included in the MFS Registration Statement and incorporated by
reference herein)
4.6 Terms of Series B Convertible Preferred Stock, par value $.01 per
share, of WorldCom (the "WorldCom Series B Preferred Stock") (attached
as Appendix IX to the Joint Proxy Statement/Prospectus included in the
MFS Registration Statement and incorporated by reference herein)
4.7 Form of Deposit Agreement between WorldCom, The Bank of New York and
the holders from to time of the Depositary Shares representing 1/100
of a share of WorldCom Series A preferred Stock (the "WorldCom
Depositary Shares") (incorporated herein by reference to Exhibit 4.7
to the MFS Registration Statement)
4.8 Form of certificate representing WorldCom Depositary Shares (attached
as Exhibit A to the Deposit Agreement incorporated by reference as
Exhibit 4.7 hereto)
</TABLE>
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<PAGE> 226
<TABLE>
<S> <C>
4.9 Amended and Restated Credit Agreement among WorldCom, NationsBank of
Texas, N.A. (Managing Agent and Administrative Agent), Bank of America
Illinois, The Bank of New York, The Bank of Nova Scotia, Canadian
Imperial Bank of Commerce, Chemical Bank, Credit Lyonnais New York
Branch, First Union National Bank of North Carolina, The Industrial
Bank of Japan, Limited, Atlanta Agency, The First National Bank of
Chicago, The Long-Term Credit Bank of Japan, Limited, New York Branch,
Toronto Dominion (Texas), Inc., and Wachovia Bank of Georgia N.A.
(Agents) and the Lenders named therein (Lenders) dated as of June 28,
1996, (incorporated herein by reference to Exhibit 10.1 to the
Quarterly Report on Form 10-Q filed by WorldCom (File No. 0-11258) for
the quarter ended June 30, 1996)
4.10 Stock Registration Agreement among Resurgens, John D. Phillips and
certain other holders of Warrants, dated June 30, 1989 (incorporated
herein by reference to Exhibit 10.6 to Resurgens' Current Report on
Form 8-K dated July 28, 1989 (File No. 1-10415))
4.11 Form of Selling Stockholder Agreement between Resurgens and certain
Selling Stockholders, dated 1993 (incorporated herein by reference to
Exhibit 4.16 of WorldCom's Transition Report on Form 10-K for the
period from June 30, 1993 to December 31, 1993 (File No. 1-10415))
4.12 Form of First Amendment to Selling Stockholder Agreement between
Resurgens and certain Selling Stockholders, dated September 13, 1993
(incorporated herein by reference to Exhibit 4.17 of WorldCom's
Transition Report on Form 10-K for the period from June 30, 1993 to
December 31, 1993 (File No. 1-10415))
5.1 Legality Opinion of P. Bruce Borghardt, Esq.
8.1 Tax Opinion of Bryan Cave LLP
12.1 Statement regarding Computation of Ratio of Earnings to Preferred
Stock Dividends and Fixed Charges (incorporated by reference to
Exhibit 12.1 to the MFS Registration statement)
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Ernst & Young LLP
23.4 Consent of Coopers & Lybrand LLP
23.5 Consent of Arthur Andersen LLP
23.6 Consent of Arthur Andersen LLP
</TABLE>
II-9
<PAGE> 227
<TABLE>
<S> <C>
23.7 Consent of P. Bruce Borghardt, Esq. (included in Exhibit 5.1)
23.8 Consent of Bryan Cave LLP (included in Exhibit 8.1)
23.9 Consent of Orca Capital Corporation
24.1 Power of Attorney (included in Signature Page)
99.1 Form of Proxy for BLT Special Meeting of Shareholders
</TABLE>
- ---------
* The Registrant hereby agrees to furnish supplementally a copy of any
omitted schedules to this Agreement to the Securities and Exchange
Commission upon its request.
II-10
<PAGE> 1
EXHIBIT 5.1
November 19, 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-4 (the "Registration Statement;" capitalized
terms used herein and not otherwise defined herein are used as therein defined)
to be filed with the Securities and Exchange Commission under the Securities
Act of 1933, as amended (the "Securities Act"), relating to the merger (the
"Merger") of a wholly-owned subsidiary of the Company, with and into BLT
Technologies, Inc., a Washington corporation ("BLT"), and to the registration
under the Securities Act of a maximum of 3,150,000 shares of the common stock,
par value $.01 per share, of the Company (the "Company Common Stock"), and
associated preferred stock purchase rights, to be issued pursuant to the Merger
to the holders of the common stock, $.01 par value, of BLT.
In connection herewith, I have examined and relied without investigation
as to matters of fact upon the Registration Statement, including the Proxy
Statement/Prospectus contained therein, the Amended and Restated Articles of
Incorporation, as amended, and Bylaws of the Company, certificates of public
officials, certificates and statements of the officers of the Company, and such
other documents, corporate records, opinions and instruments as I have deemed
necessary or appropriate to enable me to render the opinions expressed below. I
have assumed the genuineness of all signatures appearing on documents examined
by me, the authenticity of documents submitted to me as originals and the
conformity to authentic original documents 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:
1. The Company is a corporation validly existing under the laws of the
State of Georgia; and
2. When the conditions to consummation of transactions contemplated by the
Merger Agreement shall have been satisfied or waived, including,
without limitation:
(a) the shareholders of BLT shall have approved and adopted the Merger
Agreement at the Special Meeting;
<PAGE> 2
Board of Directors of
WorldCom, Inc.
November 19, 1996
Page 2
(b) Articles of Merger shall have been filed with the Secretary of
State of the State of Washington to consummate the Merger; and
(c) the shares of Company Common Stock to be issued in connection with
the Merger shall have been issued in accordance with the terms of
the Merger Agreement and the Plan of Merger,
then the Company Common Stock will be validly issued, fully paid and
non-assessable.
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 Merger Agreement provides that it shall be
deemed to be made in, and in all respects shall be interpreted, construed and
governed by and in accordance with the internal laws of, the State of
Mississippi (except to the extent the Washington Act controls with respect to
the Merger). 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 Merger Agreement would apply. This
opinion has not been prepared by an attorney admitted to practice in
Mississippi, Washington or Georgia.
I hereby consent to the filing of this opinion as Exhibit 5.1 to the
aforesaid Registration Statement on Form S-4. 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 Company Common
Stock. 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 Securities Act or the
rules and regulations of the Commission.
Very truly yours,
/s/ P. Bruce Borghardt
P. Bruce Borghardt
<PAGE> 1
EXHIBIT 8.1
BRYAN CAVE LLP
ONE METROPOLITAN SQUARE
211 NORTH BROADWAY, SUITE 3600
ST. LOUIS, MISSOURI 63102-2750
(314) 259-2000
FACSIMILE: (314) 259-2020
November 18, 1996
WorldCom, Inc.
515 East Amite Street
Jackson, Mississippi 39201
Gentlemen:
We have acted as counsel to WorldCom, Inc., a Georgia corporation
("WorldCom"), and WC Acquisition, Inc., a Washington corporation and a wholly
owned subsidiary of WorldCom ("Sub"), in connection with the proposed merger
(the "Merger") of Sub with and into BLT Technologies, Inc., a Washington
Corporation ("BLT"), pursuant to the Agreement and Plan of Merger, dated as of
July 26, 1996, by and among WorldCom, Sub and BLT (the "Merger Agreement"). In
connection with the preparation of the Registration Statement with respect to
the Merger on Form S-4 (the "Registration Statement"), which is to be filed
with the Securities and Exchange Commission under the Securities Act of 1933,
as amended, you have requested our opinion regarding whether the discussion of
the federal income tax consequences of the Merger set forth in the Registration
Statement under the caption "The Merger -- Certain U.S. Federal Income Tax
Consequences" fairly describes the material federal income tax consequences of
the Merger.
In rendering our opinion, we have examined the Merger Agreement, the
Registration Statement, and such other documents we deemed relevant for
purposes of this opinion.
In rendering our opinion, we have assumed that the Merger will be
consummated in accordance with the terms of the Merger Agreement and as
described in the Registration Statement and that none of the terms and
conditions contained therein will have been waived or modified in any respect
prior to the effective date of the Merger. We have also assumed that the
Registration Statement reflects all the material facts of the Merger and those
involving WorldCom, Sub and BLT. In addition, our opinion is expressly
conditioned on, among other things, the accuracy as of the date hereof, and the
continuing accuracy, of all of such facts, information, covenants, statements
and representations through and as of the effective date of the Merger. Any
material changes in the facts referred to, set forth or assumed herein, the
<PAGE> 2
WorldCom, Inc.
November 18, 1996
Page 2
Registration Statement or the representations referred to above may affect the
conclusions stated herein.
We have assumed the genuineness of all signatures, the legal capacity of
all natural persons, the authenticity of all documents submitted to us as
originals, the conformity to original documents of all documents submitted to
us as certified or photostatic copies and the authenticity of the originals of
such documents. We have also assumed that the Merger qualifies as a statutory
merger under the laws of the State of Washington.
In rendering our opinion, we have considered the applicable provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations promulgated thereunder by the Treasury Department (the
"Regulations"), pertinent judicial authorities, rulings of the Internal Revenue
Service (the "Service") and such other authorities as we have considered
relevant. It should be noted that such laws, Code, Regulations, judicial
decisions and administrative interpretations are subject to change at any time
and, in some circumstances, with retroactive effect. A material change in any
of the authorities upon which our opinion is based could affect our conclusions
herein.
Based solely upon and subject to the foregoing, we are of the opinion that
the statements in the Registration Statement under the caption "The Merger --
Certain U.S. Federal Income Tax Consequences" fairly describes the material
federal income tax consequences of the Merger.
Except as expressly set forth above, we express no other opinion. This
opinion is for your benefit and is not to be used, circulated, quoted or
otherwise referred to for any purpose except that we consent to the filing of
this opinion as Exhibit 8.1 of the Registration Statement. In giving such
consent, we do not thereby admit that we are in the category of persons whose
consent is required under Section 7 of the Securities Act of 1933.
Very truly yours,
/s/ Bryan Cave LLP
Bryan Cave LLP
<PAGE> 1
EXHIBIT 23.1
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement on Form S-4 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 Form 8-K/A filed on November 4, 1996, and
to all references to our Firm included in this registration statement.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Washington, D.C.
November 18, 1996
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of WorldCom, Inc. on Form
S-4 of our report dated March 7, 1994 (relating to the financial statements and
financial statement schedule of IDB Communications Group, Inc. for the year
ended December 31, 1993 not separately presented herein) 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 18, 1996
<PAGE> 1
EXHIBIT 23.3
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-4 of WorldCom, Inc. (f/k/a LDDS
Communications, Inc.) and related Proxy Statement of BLT Technologies, Inc. and
Prospectus of WorldCom, Inc., and to the incorporation by reference therein of
our report dated February 2, 1995, with respect to the combined financial
statements of WilTel Network Services for the years ended December 31, 1994 and
1993 included in 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
ERNST & YOUNG LLP
Tulsa, Oklahoma
November 19, 1996
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement on
Form S-4 (File No. 333- ) 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 dated August 25, 1996 (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 19, 1996
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our firm) included in or made a part of this Form S-4
for the registration of 3,150,000 shares of WorldCom, Inc. common stock issued
in anticipation of the merger with BLT Technologies, Inc.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Portland, Oregon
November 18, 1996
<PAGE> 1
EXHIBIT 23.6
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement on Form S-4 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
ARTHUR ANDERSEN LLP
Jackson, Mississippi
November 18, 1996
<PAGE> 1
EXHIBIT 23.9
Consent
Orca Capital Corporation consents to the filing of its fairness opinion,
dated July 31, 1996 addressed to BLT Technologies, Inc., as an exhibit to the
Registration Statement on Form S-4 of WorldCom, Inc. and also consents to the
references to Orca Capital and the fairness opinion included in such
Registration Statement, including the Proxy Statement/Prospectus.
Dated: November 21, 1996.
ORCA CAPITAL CORPORATION
By: /s/ Norman B. Duffett
---------------------
President
<PAGE> 1
EXHIBIT 99.1
BLT TECHNOLOGIES, INC.
PROXY
SOLICITED BY THE BOARD OF DIRECTORS
SPECIAL MEETING OF SHAREHOLDERS
December __, 1996
The undersigned hereby appoints Thomas J. Holce and Robert A. Sternberg,
and each of them as proxy agents, with full power of substitution, to vote on
behalf of the undersigned all shares of common stock that the undersigned may
be entitled to vote at the special meeting of shareholders of BLT Technologies,
Inc. (the "Company") on December __, 1996 and any adjournments or postponements
thereof as follows:
1. Approval of Proposal 1: approval of the Company's Agreement and Plan of
Merger with WorldCom, Inc. ("WorldCom") dated as of July 26, 1996, the
related Plan of Merger dated as of July 26, 1996 by and between the
Company and WC Acquisition, Inc., a Washington corporation wholly owned
by WorldCom, and the transactions contemplated thereby, including
without limitation (a) the merger of the Company with a wholly owned
subsidiary of WorldCom, with the Company surviving the Merger as a
wholly owned subsidiary of WorldCom, and (b) the appointment of Thomas
J. Holce as the Shareholder Representative pursuant to the Escrow
Agreement.
|_| FOR |_| AGAINST |_| ABSTAIN
2. Approval of Proposal 2: Approval of the adjournment of the Special
Meeting to allow for additional solicitation of shareholder proxies or
votes in the event that the number of proxies or votes sufficient to
obtain a quorum or to approve Proposal 1 has not been received by the
date of the Special Meeting.
|_| FOR |_| AGAINST |_| ABSTAIN
The undersigned further authorizes the proxy agents to vote such shares in
their discretion FOR or AGAINST such additional matters as may properly come
before the special meeting or any adjournments or postponements thereof and
ratifies and confirms all acts the proxy agents may do or cause to be done by
virtue of this proxy. This proxy revokes any prior proxy given by the
undersigned to vote such shares at the special meeting of shareholders.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED ABOVE,
BUT IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE IN FAVOR OF PROPOSALS 1 AND
2 SPECIFIED ABOVE. THE PROXIES MAY VOTE IN THEIR DISCRETION AS TO OTHER MATTERS
THAT MAY COME BEFORE THE MEETING.
<PAGE> 2
The undersigned acknowledges receipt of the notice of the annual meeting
and proxy statement.
Dated: _______________, 1996
----------------------------------------
(Signature)
----------------------------------------
(Print name)
----------------------------------------
(Number of shares)
Please sign exactly as name(s) appears on stock certificates. Print the
name of the shareholder and the person signing, including designation as
attorney, executor, trustee, etc., if applicable. A corporation or partnership
must sign by an authorized officer or general partner. All joint owners must
sign.
PLEASE SIGN AND DATE THE PROXY AND RETURN IT IN THE ENVELOPE PROVIDED
