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FILED PURSUANT TO RULE
424(b)(3)
REGISTRATION NUMBER 333-27345
PROSPECTUS AND CONSENT SOLICITATION
WORLDCOM, INC.
[LOGO OF WORLDCOM APPEARS HERE]
OFFERS TO EXCHANGE
$686,402,000 9 3/8% SENIOR NOTES OF WORLDCOM, INC. DUE JANUARY 15, 2004 FOR
ANY AND ALL OUTSTANDING
9 3/8% SENIOR DISCOUNT NOTES OF MFS COMMUNICATIONS COMPANY, INC. DUE JANUARY
15, 2004
$671,849,000 8 7/8% SENIOR NOTES OF WORLDCOM, INC. DUE JANUARY 15, 2006 FOR
ANY AND ALL OUTSTANDING
8 7/8% SENIOR DISCOUNT NOTES OF MFS COMMUNICATIONS COMPANY, INC. DUE JANUARY
15, 2006
AND
CONSENT SOLICITATIONS
WorldCom, Inc. ("WorldCom" or the "Company") hereby offers, upon the terms and
subject to the conditions set forth in this Prospectus and Consent
Solicitation (together, the "Prospectus") and the accompanying Letters of
Transmittal and Consent (each a "Letter of Transmittal"), to exchange (i)
$871.60 principal amount of its 9 3/8% Senior Notes due January 15, 2004
("WorldCom 2004 Notes") for each $1,000 Principal Amount (as defined below) of
outstanding 9 3/8% Senior Discount Notes due January 15, 2004 ("MFS 2004
Notes") of MFS Communications Company, Inc., a wholly owned subsidiary of
WorldCom ("MFS"), properly tendered for exchange and accepted and (ii) $737.91
principal amount of its 8 7/8% Senior Notes due January 15, 2006 ("WorldCom
2006 Notes" and, together with the WorldCom 2004 Notes, the "WorldCom Notes")
for each $1,000 Principal Amount of outstanding 8 7/8% Senior Discount Notes
due January 15, 2006 ("MFS 2006 Notes" and, together with the MFS 2004 Notes,
the "MFS Notes") of MFS properly tendered for exchange and accepted (each such
offer, an "Exchange Offer," and collectively, the "Exchange Offers"). Interest
on the WorldCom Notes will accrue from July 15, 1997 (the "Interest Accrual
Date") at the stated rate thereon. As used herein with respect to either
series of MFS Notes, "Principal Amount" shall mean the principal amount at
stated maturity of such MFS Notes as of the date of their original issuance.
Pursuant to the election by MFS to commence the accrual of cash interest on
both series of MFS Notes as of the Interest Accrual Date, the principal amount
at stated maturity of each series of MFS Notes will be reduced to the Accreted
Value (as defined herein) thereof as of such date. The Accreted Value, as of
the Interest Accrual Date, per $1,000 Principal Amount, of the MFS 2004 Notes
and the MFS 2006 Notes is $871.60 and $737.91, respectively.
Concurrently with the Exchange Offers, WorldCom is soliciting consents
("Consents") from each registered holder of the MFS 2004 Notes and the MFS
2006 Notes (each such holder, a "Holder," and collectively, the "Holders") to
certain amendments (the "Proposed Amendments") to the Indenture dated as of
January 15, 1994 (as supplemented by a First Supplemental Indenture thereto
dated as of March 31, 1995, the "1994 Indenture") and the Indenture dated as
of January 15, 1996 (as supplemented by a First Supplemental Indenture thereto
dated as of January 15, 1996, the "1996 Indenture" and, together with the 1994
Indenture, the "MFS Indentures"), under which the MFS Notes were issued (each
such solicitation, a "Consent Solicitation," and collectively, the "Consent
Solicitations"). No record date has been or will be set for purposes of giving
Consents.
(cover page continues)
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EACH EXCHANGE OFFER WILL EXPIRE AT 11:59 P.M., NEW YORK CITY TIME, ON AUGUST
4, 1997, UNLESS EXTENDED (SUCH TIME AND DATE, AS EXTENDED, THE "EXPIRATION
DATE" WITH RESPECT TO SUCH EXCHANGE OFFER). TENDERS OF MFS NOTES MAY NOT BE
WITHDRAWN (AND THE RELATED CONSENTS THEREBY REVOKED) AT ANY TIME AFTER 11:59
P.M., NEW YORK CITY TIME, ON AUGUST 4, 1997, UNLESS THE APPLICABLE EXCHANGE
OFFER IS EXTENDED AND CONTAINS NEW TERMS MATERIALLY ADVERSE TO THE TENDERING
HOLDERS THEREOF.
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SEE "RISK FACTORS" COMMENCING ON PAGE 18 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED IN EVALUATING THE EXCHANGE OFFERS AND CONSENT SOLICITATIONS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
None of WorldCom, MFS or the Dealer Managers makes any recommendation as to
whether or not Holders should exchange their MFS Notes pursuant to the
Exchange Offers and provide Consents to the Proposed Amendments.
THE JOINT DEALER MANAGERS FOR THE EXCHANGE OFFERS AND CONSENT SOLICITATIONS
ARE:
SALOMON BROTHERS INC GOLDMAN, SACHS & CO.
The date of this Prospectus and Consent Solicitation is July 3, 1997.
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(cover page continued)
The Company hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the Letters of Transmittal, to pay each Holder
who gives a valid Consent (which is not revoked) on or prior to the Expiration
Date a cash fee in an amount equal to (i) with respect to such Holder's MFS
2004 Notes, 0.25% of the Accreted Value, as of the Interest Accrual Date, of
such MFS 2004 Notes and (ii) with respect to such Holder's MFS 2006 Notes,
0.375% of the Accreted Value, as of the Interest Accrual Date, of such MFS
2006 Notes, in either case, with respect to which such Consent has been given
(each such cash payment, a "Consent Payment"). HOLDERS OF MFS NOTES OF EITHER
SERIES MAY GIVE THEIR CONSENT TO THE PROPOSED AMENDMENTS APPLICABLE TO THAT
SERIES ONLY BY TENDERING SUCH MFS NOTES IN THE APPLICABLE EXCHANGE OFFER AND
WILL BE DEEMED TO HAVE GIVEN SUCH CONSENT BY SO TENDERING. Consents from
Holders of a majority in aggregate principal amount Outstanding (as defined
herein) of MFS Notes of a series (the "Requisite Consent") must be received in
order to amend the MFS Indenture governing that series as described herein,
except with respect to the modification of the term "Change of Control," which
requires Consents from Holders of not less than 75% of the aggregate principal
amount Outstanding of MFS Notes of a series (the "Supermajority Consent"). As
used herein, "Accreted Value" shall have the meaning given such term in the
applicable MFS Indenture. The Accreted Value of a series of MFS Notes as of
the Interest Accrual Date is the sum of (i) the initial issue price of such
MFS Notes plus (ii) the portion of the original issue discount applicable to
such MFS Notes accreted from and including the original issue date thereof and
to but excluding the Interest Accrual Date. See "The Proposed Amendments--
Certain Definitions."
The obligation of the Company, with respect to either series of MFS Notes, to
consummate the applicable Exchange Offer and to make the Consent Payments is
conditional upon, among other things, the receipt of the Requisite Consent to
the Proposed Amendments with respect to both series of MFS Notes. See "The
Exchange Offers--Conditions to the Exchange Offers" and "The Consent
Solicitations--Consent Payments." The Company will consummate the Exchange
Offer with respect to the MFS 2004 Notes only if a majority in aggregate
principal amount Outstanding of such MFS Notes is validly tendered (and not
validly withdrawn) as of the Expiration Date (which would result in the
issuance of at least approximately $343.2 million in aggregate principal
amount of WorldCom 2004 Notes in such Exchange Offer) and will consummate the
Exchange Offer with respect to the MFS 2006 Notes only if a majority in
aggregate principal amount Outstanding of such MFS Notes is validly tendered
(and not validly withdrawn) as of the Expiration Date (which would result in
the issuance of at least approximately $335.9 million in aggregate principal
amount of WorldCom 2006 Notes in such Exchange Offer).
WorldCom Notes will be issued only in denominations of $1,000 and integral
multiples thereof. If the aggregate principal amount of WorldCom Notes that
otherwise would be issued in exchange for the MFS Notes of a series tendered
by a Holder and accepted by the Company pursuant to an Exchange Offer is not
an integral multiple of $1,000, such principal amount will be reduced to the
nearest such multiple and the Company will pay to such Holder an amount in
cash equal to the reduction of such principal amount. Upon consummation of the
Exchange Offers, WorldCom Notes will be delivered and Consent Payments and
other cash payments, if any, will be made on the third business day following
the Expiration Date, or as soon as practicable thereafter (the "Exchange
Date").
The WorldCom Notes will be senior, unsecured obligations of the Company, will
rank pari passu in right of payment with all other existing and future senior,
unsecured indebtedness of the Company and will rank senior in right of payment
to any future subordinated obligations of the Company. The WorldCom Notes will
be effectively subordinated to any secured indebtedness of the Company to the
extent of the value of the assets securing such indebtedness. As of March 31,
1997, after giving effect to the issuance and sale by the Company of the April
WorldCom Notes (as defined herein), the aggregate amount of indebtedness of
the Company to which the WorldCom Notes would have ranked pari passu was
approximately $3.18 billion and the aggregate amount of secured indebtedness
of the Company was approximately $53 million. The WorldCom Notes will be
structurally subordinated to all obligations of the Company's subsidiaries,
including any MFS Notes not exchanged for WorldCom Notes in the Exchange
Offers, to the extent of the assets of such subsidiaries. As of March 31,
1997, the aggregate amount of outstanding obligations of the Company's
subsidiaries to which the holders of the WorldCom Notes would have been
structurally subordinated (including trade payables but excluding intercompany
indebtedness) was approximately $2.66 billion (of which $1.38 billion
represented the carrying value of the MFS Notes). See "Risk Factors--Certain
Considerations Relating to Holders Tendering in the Exchange Offers--
Structural Subordination of the WorldCom Notes" and "Description of the
WorldCom Notes--Ranking."
As of and after the Exchange Date, the financial terms of the WorldCom 2004
Notes and the WorldCom 2006 Notes will be substantially identical in all
material respects to the financial terms of the MFS 2004 Notes and the MFS
2006 Notes, respectively, including with respect to redemption at the option
of the issuer, except that: (i) the MFS Notes are the sole obligations of MFS,
while the WorldCom Notes will be the sole obligations of WorldCom; and (ii)
overdue principal and premium, if any, and interest on the overdue principal
and any overdue premium of the MFS 2004 Notes and the MFS 2006 Notes bear
interest at the rate of 10 3/8% and 9 7/8% per annum, respectively, while
overdue principal and premium, if any, and interest on the overdue principal
and any overdue premium of the WorldCom 2004 Notes and the WorldCom 2006 Notes
will bear interest at 9 3/8% and 8 7/8% per annum, respectively. The WorldCom
Indenture (as defined herein) will contain covenants that are substantially
less restrictive than those that are currently in the MFS Indentures, and the
WorldCom Notes will carry significantly reduced protections than now afforded
to the MFS Notes. Pursuant to the MFS Indentures, MFS has elected to commence
the accrual of cash interest on both series of MFS Notes as of the Interest
Accrual Date, at which time the outstanding principal amount at stated
maturity of the MFS Notes of each series will be reduced to the Accreted Value
of such MFS Notes as of such date, and cash interest on such reduced principal
amount will be payable on January 15, 1998 and on each Interest Payment Date
thereafter. See "The Exchange Offers--Description of Differences Between the
MFS Notes and the WorldCom Notes."
The Company does not intend to list the WorldCom Notes on any national
securities exchange. The Dealer Managers currently plan to make a market in
the WorldCom Notes. However, there can be no assurance that the Dealer
Managers will make such a market or that any active market in the WorldCom
Notes will develop or be maintained.
The receipt of WorldCom Notes, Consent Payments and other cash, if any,
pursuant to the Exchange Offers and Consent Solicitations will be a taxable
transaction for United States federal income tax purposes. See "Certain U.S.
Federal Income Tax Consequences."
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, OR ANY UNDERWRITER, AGENT OR DEALER. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCE, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.
AVAILABLE INFORMATION
Each of WorldCom and MFS 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"). Such reports,
proxy statements and other information filed by each of WorldCom and MFS may
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 Northeast
Regional Office, Seven World Trade Center, Suite 1300, New York, New York
10048 and Midwest Regional Office, Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such materials can also be
obtained by mail from the Public Reference Section of the Commission,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains a Web site that contains reports, proxy and
information statements and other materials that are filed through the
Commission's Electronic Data Gathering, Analysis and Retrieval (EDGAR) system.
This Web site can be accessed at http://www.sec.gov. Shares of the Company's
Common Stock are listed on the Nasdaq National Market and the reports, proxy
statements and other information filed by WorldCom also can be inspected at
the offices of the National Association of Securities Dealers, Inc. (the
"NASD"), at 1735 K Street, N.W., Washington, D.C. 20006. Upon completion of
the Exchange Offers, application (on Form 15) to the Commission promptly will
be made to deregister the common stock of MFS under the Exchange Act. As a
result of such deregistration and the effectiveness of the Proposed
Amendments, MFS no longer will be obligated to file periodic reports with the
Commission. See "The Proposed Amendments."
This Prospectus constitutes a part of a registration statement on Form S-4
(together with all amendments and exhibits thereto, the "Registration
Statement") filed by WorldCom with the Commission under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the WorldCom Notes
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. Reference is made
to such Registration Statement and to the exhibits relating thereto for
further information with respect to WorldCom, the WorldCom Notes, MFS and the
MFS Notes. Any statements contained herein concerning the provisions of
certain documents are not necessarily complete, and in each instance,
reference is made to the copy of such document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission for a more
complete description of the matter involved. Each such statement is qualified
in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by WorldCom (formerly
Resurgens Communications Group, Inc.) under File No. 0-11258 (formerly File
No. 1-10415) and by MFS under File No. 33-72594 (formerly File No. 0-21594)
pursuant to the Exchange Act are incorporated herein by reference:
(a)(1) WorldCom's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (the "WorldCom 1996 Form 10-K");
(2) WorldCom's Quarterly Report on Form 10-Q for the quarter ended March
31, 1997; and
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(3) WorldCom's Current Reports on Form 8-K dated August 25, 1996 (filed
August 26, 1996 and as amended on Forms 8-K/A filed November 4, 1996 and
November 20, 1996), December 31, 1996 (filed January 15, 1997), March 18,
1997 (filed March 24, 1997), March 26, 1997 (filed April 2, 1997) and May
22, 1997 (filed June 6, 1997).
(b)(1) MFS' Annual Report on Form 10-K for the year ended December 31,
1996;
(2) MFS' Quarterly Report on Form 10-Q for the quarter ended March 31,
1997;
(3) MFS' Current Report on Form 8-K dated January 20, 1997 (filed January
24, 1997); and
(4) MFS' Form 10 dated May 16, 1997 (filed May 16, 1997).
All documents filed by WorldCom and MFS with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
hereof and prior to the termination of the offering of any securities offered
hereby shall be deemed to be incorporated by reference into this Prospectus
and to be a part hereof from the date of filing of such documents. See
"Available Information." Any statement contained herein, or in a document
incorporated or deemed to be incorporated herein by reference, shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent
that a statement contained herein or in any other subsequently filed document
incorporated or deemed to be incorporated herein by reference, which statement
is also incorporated herein by reference, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. COPIES OF THESE DOCUMENTS (EXCLUDING EXHIBITS
UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO THE
INFORMATION INCORPORATED HEREIN) WILL BE PROVIDED BY FIRST CLASS MAIL WITHOUT
CHARGE TO EACH PERSON TO WHOM THIS PROSPECTUS IS DELIVERED UPON WRITTEN OR
ORAL REQUEST BY SUCH PERSON TO WORLDCOM, INC., 515 EAST AMITE STREET, JACKSON,
MISSISSIPPI 39201-2702, ATTENTION: 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 JULY 28, 1997.
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION....................................................... 3
INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE............................................................... 3
PROSPECTUS SUMMARY.......................................................... 5
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS................... 18
RISK FACTORS................................................................ 18
THE EXCHANGE OFFERS......................................................... 28
Purpose of the Exchange Offers............................................. 28
Terms of the Exchange Offers............................................... 28
Conditions of the Exchange Offers and
Consent Solicitations..................................................... 29
Certain Consequences to Holders Not
Tendering in the Exchange Offers.......................................... 30
Expiration Date; Extensions; Amendments.................................... 31
Effect of Tender........................................................... 31
Acceptance of MFS Notes for Exchange;
Delivery of WorldCom Notes................................................ 31
Procedures for Tendering................................................... 32
Proper Execution and Delivery of Letters of Transmittal.................... 34
Withdrawal of Tenders and Revocation of Consents........................... 35
Exchange Agent............................................................. 36
Information Agent.......................................................... 36
Dealer Managers............................................................ 37
</TABLE>
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Other Fees and Expenses; Transfer Taxes................................... 37
Description of Differences Between the
MFS Notes and the WorldCom Notes......................................... 38
THE CONSENT SOLICITATIONS.................................................. 56
Required Consents......................................................... 56
Consent Payments.......................................................... 57
THE PROPOSED AMENDMENTS.................................................... 58
Provisions to be Deleted.................................................. 58
Provisions to be Revised.................................................. 61
Definition to be Revised Upon Receipt of Supermajority Consent from
Holders of Each
Series of MFS Notes...................................................... 63
Certain Definitions....................................................... 64
DESCRIPTION OF THE WORLDCOM NOTES.......................................... 74
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES............................... 86
United States Holders..................................................... 86
Non-U.S. Holders.......................................................... 88
INFORMATION REGARDING WORLDCOM............................................. 89
INFORMATION REGARDING MFS.................................................. 89
CERTAIN RELATED TRANSACTIONS............................................... 89
ACCOUNTING TREATMENT OF EXCHANGE OFFERS.................................... 89
LEGAL MATTERS.............................................................. 89
EXPERTS.................................................................... 89
</TABLE>
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PROSPECTUS SUMMARY
The following summary does not purport to be complete and is qualified in its
entirety by, and should be read in conjunction with, the more detailed
financial information and Consolidated Financial Statements (including the
notes thereto) incorporated by reference in this Prospectus. In particular,
prospective purchasers should carefully consider the information set forth
under "Cautionary Statement Regarding Forward-Looking Statements" and "Risk
Factors."
WORLDCOM
WorldCom is one of the four largest long distance telecommunications
companies in the United States. The Company provides telecommunications
services to business, government, telecommunications companies and consumer
customers, through its network of fiber optic cables, digital microwave, and
fixed and transportable satellite earth stations.
WorldCom is one of the first major facilities-based telecommunications
companies with the capability to provide businesses with high quality local,
long distance, Internet, data and international communications services over
its global networks. With service to points throughout the nation and the
world, WorldCom provides telecommunications products and services including:
switched and dedicated long distance and local products, 800 services, calling
cards, domestic and international private lines, broadband data services, debit
cards, conference calling, advanced billing systems, enhanced fax and data
connections, high speed data communications, facilities management, local
access to long distance companies, local access to ATM-based backbone service
and interconnection via Network Access Points to Internet service providers.
WorldCom's principal executive offices are located at 515 East Amite Street,
Jackson, Mississippi 39201-2702, and its telephone number is (601) 360-8600.
MFS
MFS provides communications 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; (iv) local access,
ATM-based backbone service and interconnection via Network Access Points to
Internet service providers; and (v) a comprehensive range of Internet-based
services. MFS provides communications services by utilizing its international
network platform, which consists of MFS-owned transmission and switching
facilities and network capacity leased from the other carriers primarily in the
United States and Western Europe.
On August 12, 1996, MFS acquired UUNET Technologies, Inc. ("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 tailored to meet the needs of businesses and professionals.
UUNET makes available to customers a variety of products and services,
including dedicated and dial-up Internet access, 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. UUNET enables Internet users to purchase access,
applications and services, including integration services, through a single
source. UUNET's products and services are supported by a technical staff that
is highly experienced in Internet
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operations and services. UUNET's network operations center monitors traffic
across UUNET's network 24 hours per day, seven days per week.
MFS provides network systems integration services primarily through MFS
Network Technologies, Inc. ("MFS Network Technologies"). Initially created to
design and build MFS' networks in a high quality and cost-effective manner, MFS
Network Technologies provides network systems integration services 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, a telephone number is (402) 231-3000.
WORLDCOM/MFS MERGER
On December 31, 1996, WorldCom, through a wholly owned subsidiary, merged
with MFS (the "MFS Merger"). As a result of the MFS Merger, each share of MFS
common stock was converted into the right to receive 2.1 shares of WorldCom
common stock (the "Common Stock") or approximately 471.0 million shares of
Common Stock in the aggregate. Each share of MFS Series A 8% Cumulative
Convertible Preferred Stock ("MFS Series A Preferred Stock") was converted into
the right to receive one share of Series A 8% Cumulative Convertible Preferred
Stock of WorldCom ("WorldCom Series A Preferred Stock") or 94,992 shares of
WorldCom Series A Preferred Stock in the aggregate. Each share of MFS Series B
Convertible Preferred Stock was converted into the right to receive one share
of Series B Convertible Preferred Stock of WorldCom ("WorldCom Series B
Preferred Stock") or approximately 12.7 million shares of WorldCom Series B
Preferred Stock in the aggregate. In addition, each depositary share
representing 1/100th of a share of MFS Series A Preferred Stock was exchanged
for a depositary share representing 1/100th of a share of WorldCom Series A
Preferred Stock. Upon effectiveness of the MFS Merger, the then outstanding and
unexercised options and warrants exercisable for shares of MFS common stock
were converted into options and warrants, respectively, exercisable for shares
of Common Stock having substantially the same terms and conditions as the MFS
options and warrants, except that (i) the exercise price and the number of
shares issuable upon exercise were divided and multiplied, respectively, by 2.1
and (ii) the holders of each then outstanding and unexercised MFS "Shareworks
Plus Award" granted under the MFS 1993 Stock Plan instead received the cash
value of such award in accordance with the terms of such plan.
As a result of the MFS Merger, MFS became a wholly-owned subsidiary of
WorldCom. Operationally and financially, WorldCom has been integrating MFS into
the WorldCom organization. The Exchange Offers and the Consent Solicitations
are elements of such integration efforts. Subsequent to the MFS Merger,
WorldCom filed a shelf registration statement with the Commission (the "Shelf
Registration Statement") in order to register and issue debt securities having
an aggregate initial offering price of up to $3.0 billion. Pursuant to the
WorldCom Indenture and the Shelf Registration Statement, WorldCom issued and
sold senior notes having an aggregate principal amount of $2.0 billion (the
"April WorldCom Notes") on April 1, 1997. The April WorldCom Notes contain
covenants that are substantially identical to the WorldCom Notes offered
hereby.
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THE EXCHANGE OFFERS
TERMS OF THE EXCHANGE
OFFERS...................... The Company hereby offers, upon the terms and
subject to the conditions set forth in this
Prospectus and in the Letters of Transmittal, to:
(i) exchange $871.60 principal amount of WorldCom
2004 Notes for each $1,000 Principal Amount of
outstanding MFS 2004 Notes properly tendered for
exchange and accepted; and
(ii) exchange $737.91 principal amount of
WorldCom 2006 Notes for each $1,000 Principal
Amount of outstanding MFS 2006 Notes properly
tendered for exchange and accepted.
The principal amount of WorldCom Notes offered in
each Exchange Offer for the applicable series of
MFS Notes is equal to the Accreted Value of such
MFS Notes as of the Interest Accrual Date, and
interest on such WorldCom Notes will accrue from
the Interest Accrual Date at the stated interest
rate on such WorldCom Notes.
As of the Interest Accrual Date, the Accreted
Value of the MFS 2004 Notes is $871.60 per $1,000
Principal Amount and the Accreted Value of the
MFS 2006 Notes is $737.91 per $1,000 Principal
Amount.
WorldCom Notes will be issued only in
denominations of $1,000 and integral multiples
thereof. If the aggregate principal amount of
WorldCom Notes that otherwise would be issued in
exchange for the MFS Notes of a series tendered
by a Holder and accepted by the Company pursuant
to the Exchange Offers is not an integral
multiple of $1,000, such principal amount will be
reduced to the nearest such multiple and the
Company will pay to such Holder an amount in cash
equal to the reduction of such principal amount.
See "The Exchange Offers."
CONSENT SOLICITATIONS;
CONSENT PAYMENTS............ Concurrently with the Exchange Offers, WorldCom
is soliciting Consents to the Proposed Amendments
to the 1994 Indenture and the 1996 Indenture from
each Holder of the MFS 2004 Notes and the MFS
2006 Notes, respectively. HOLDERS OF MFS NOTES OF
EITHER SERIES MAY GIVE THEIR CONSENT TO THE
PROPOSED AMENDMENTS APPLICABLE TO THAT SERIES
ONLY BY TENDERING SUCH MFS NOTES IN THE
APPLICABLE EXCHANGE OFFER AND WILL BE DEEMED TO
HAVE GIVEN SUCH CONSENT BY SO TENDERING. Consents
from Holders of a majority in aggregate principal
amount Outstanding of MFS Notes of a series (the
"Requisite Consent") must be received in order to
amend the MFS Indenture governing that series as
described herein, except with respect to the
modification of the term "Change of Control"
which requires Consents from Holders of not less
than 75% of the aggregate principal amount
Outstanding of MFS Notes of a series (the
"Supermajority Consent"). See "The Consent
Solicitations" and "The Proposed Amendments."
7
<PAGE>
The Company hereby offers, upon the terms and
subject to the conditions set forth in this
Prospectus and in the Letters of Transmittal, to
pay each Holder who gives a valid Consent (which
is not revoked) on or prior to the Expiration
Date a cash fee in an amount equal to (i) with
respect to such Holder's MFS 2004 Notes, 0.25% of
the Accreted Value, as of the Interest Accrual
Date, of such MFS 2004 Notes and (ii) with
respect to such Holder's 2006 Notes, 0.375% of
the Accreted Value, as of the Interest Accrual
Date, of such MFS 2006 Notes, in either case,
with respect to which such Consent has been
given. See "The Consent Solicitations--Consent
Payments."
CONDITIONS TO THE EXCHANGE
OFFERS AND CONSENT
SOLICITATIONS............... The obligation of the Company, with respect to
either series of MFS Notes, to consummate the
Exchange Offer and to make the Consent Payments
is conditioned upon, among other things, the
receipt of the Requisite Consent with respect to
both series of MFS Notes. See "The Exchange
Offers--Conditions to the Exchange Offers" and
"The Consent Solicitations."
The Company will consummate the Exchange Offer
with respect to the MFS 2004 Notes only if a
majority in aggregate principal amount
Outstanding of such MFS Notes is validly tendered
(and not validly withdrawn) as of the Expiration
Date (which would result in the issuance of at
least approximately $343.2 million in aggregate
principal amount of WorldCom 2004 Notes in such
Exchange Offer) and will consummate the Exchange
Offer with respect to the MFS 2006 Notes only if
a majority in aggregate principal amount
Outstanding of such MFS Notes is validly tendered
(and not validly withdrawn) as of the Expiration
Date (which would result in the issuance of at
least approximately $335.9 million in aggregate
principal amount of WorldCom 2006 Notes in such
Exchange Offer).
Except for the requirements of applicable federal
and state securities laws, there are no federal
or state regulatory requirements to be complied
with or approvals to be obtained by the Company
or MFS in connection with the Exchange Offers
which, if not complied with or obtained, would
have a material adverse effect on the Company.
BACKGROUND AND REASONS FOR
THE EXCHANGE OFFERS AND THE
CONSENT SOLICITATIONS....... Since the MFS Merger, WorldCom has been
operationally and financially integrating MFS
into the WorldCom organization, which integration
includes creating a single, more efficient,
consolidated credit entity. The Exchange Offers
and the Consent Solicitations are elements of
this integration effort, and the Proposed
Amendments are expected to provide greater
financial and operating flexibility to the fully
integrated organization. The Company believes
that the failure to consummate the Exchange
Offers or adopt the Proposed Amendments will not
have a material adverse effect on the
8
<PAGE>
Company. See "The Exchange Offers--Purpose of the
Exchange Offers" and "The Proposed Amendments."
CERTAIN CONSEQUENCES TO
HOLDERS TENDERING IN THE
EXCHANGE OFFERS............. Holders whose MFS Notes are properly tendered and
accepted in the Exchange Offers will receive
WorldCom Notes. The WorldCom Notes will be
senior, unsecured obligations of WorldCom and
rank pari passu in right of payment with all
other existing and future senior, unsecured
indebtedness of WorldCom. In addition, as of and
after the Exchange Date, the financial terms of
the WorldCom Notes and the MFS Notes will be
substantially identical in all material respects
except that: (i) the MFS Notes are the sole
obligations of MFS, while the WorldCom Notes will
be the sole obligations of WorldCom; and (ii)
overdue principal and premium, if any, and
interest on the overdue principal and any overdue
premium of the MFS 2004 Notes and the MFS 2006
Notes bear interest at the rate of 10 3/8% and 9
7/8% per annum, respectively, while overdue
principal and premium, if any, and interest on
the overdue principal and any overdue premium of
the WorldCom 2004 Notes and the WorldCom 2006
Notes will bear interest at 9 3/8% and 8 7/8% per
annum, respectively. The WorldCom Indenture will
contain covenants that are substantially less
restrictive than those currently contained in the
MFS Indentures, and the WorldCom Notes will carry
significantly reduced protections than now
afforded to the MFS Notes. Pursuant to the MFS
Indentures, MFS has elected to commence the
accrual of cash interest on both series of MFS
Notes as of the Interest Accrual Date, at which
time the outstanding principal amount at stated
maturity of the MFS Notes of each series will be
reduced to the Accreted Value of such MFS Notes
as of such date, and cash interest on such
reduced principal amount will be payable on
January 15, 1998 and on each Interest Payment
Date thereafter. See "Risk Factors--Certain
Considerations Relating to Holders Tendering in
the Exchange Offers" and "The Exchange Offers--
Description of Differences Between the MFS Notes
and the WorldCom Notes."
CERTAIN CONSEQUENCES TO
HOLDERS NOT TENDERING IN
THE EXCHANGE OFFERS......... Consummation of the Exchange Offers and the
adoption of the Proposed Amendments will have
certain consequences to Holders of the MFS Notes
who elect not to tender in the Exchange Offers,
including, without limitation, that the covenants
and certain other terms set forth in the MFS
Indentures, as proposed to be amended, with
respect to the MFS Notes will be substantially
less restrictive, and afford significantly
reduced protections to such Holders, than those
that are currently in the MFS Indentures. The
Proposed Amendments would, among other things,
eliminate (i) the covenants in each of the MFS
Indentures that (a) restrict the ability of MFS
and its restricted subsidiaries to incur debt,
incur liens, enter into sale and leaseback
transactions, make
9
<PAGE>
restricted payments (including payment of
dividends) or enter into transactions with
affiliates and (b) restrict the ability of
restricted subsidiaries of MFS to issue equity
securities, to encumber their ability to pay
dividends or to make certain loans or transfers
of property to MFS or another restricted
subsidiary of MFS and (ii) the separate financial
reporting requirements contained in the MFS
Indentures. If a Supermajority Consent with
respect to a series of MFS Notes is received, the
Proposed Amendments would also limit the
circumstances in which a "Change of Control" will
be deemed to occur and consequently limit the
circumstances in which MFS would be required, as
a result of a Change of Control, to offer to
repurchase such series of MFS Notes. See "The
Proposed Amendments." In addition, the trading
market for unexchanged MFS Notes could become
more limited due to the reduction in the amount
of the MFS Notes outstanding after the Exchange
Offers, which may adversely affect the liquidity,
market price and price volatility of such MFS
Notes. See "Risk Factors--Certain Considerations
Relating to Holders Not Tendering in the Exchange
Offers."
CERTAIN U.S. FEDERAL INCOME
TAX CONSIDERATIONS.......... The receipt of WorldCom Notes, Consent Payments
and other cash, if any, pursuant to the Exchange
Offers and Consent Solicitations will be a
taxable transaction for United States federal
income tax purposes. See "Certain U.S. Federal
Income Tax Consequences."
EXPIRATION DATE............. The Exchange Offers will expire at 11:59 p.m.,
New York City time, on August 4, 1997, unless the
Exchange Offers (or either of them) are extended
by the Company in its sole discretion, in which
case the term "Expiration Date," with respect to
an Exchange Offer, will mean the latest date and
time to which such Exchange Offer is extended.
See "The Exchange Offers--Expiration Date;
Extensions; Amendments."
EXCHANGE DATE............... Upon consummation of the Exchange Offers,
WorldCom Notes will be delivered and the related
Consent Payments and other cash payments, if any,
will be made on the third business day following
the Expiration Date, or as soon as practicable
thereafter.
RECORD DATE................. No record date has been or will be set for
purposes of giving Consents in either of the
Consent Solicitations.
SPECIAL CONSIDERATIONS FOR
BENEFICIAL OWNERS........... Any beneficial owner whose MFS Notes are held by
a broker, dealer, commercial bank, trust company
or other nominee and who wishes to tender such
MFS Notes in the Exchange Offers should contact
such nominee promptly and instruct such nominee
to tender on such beneficial owner's behalf. See
"The Exchange Offers--Procedures for Tendering."
10
<PAGE>
PROCEDURES FOR TENDERING
MFS NOTES AND GIVING THE
RELATED CONSENT............. Each Holder of MFS Notes wishing to accept either
of the Exchange Offers must complete, sign and
date the appropriate Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein, and
mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with
such MFS Notes and any other required
documentation to Harris Trust and Savings Bank,
as exchange agent, at its address set forth
therein on or prior to the Expiration Date. By
executing a Letter of Transmittal, the Holder
will represent to and agree with the Company
that, among other things, the MFS Notes tendered
therewith are held by such Holder free and clear
of all security interests, liens, restrictions,
charges, encumbrances, conditional sale
agreements or other obligations relating to their
sale or transfer, and are not subject to any
adverse claim when the same are accepted by the
Company. See "The Exchange Offers--Procedures for
Tendering."
The proper completion, execution and delivery of
a Letter of Transmittal with respect to MFS Notes
of a series will constitute the giving of a
Consent to the Proposed Amendments for such
series.
The WorldCom Notes issued in exchange for
properly tendered and accepted MFS Notes will be
delivered only in book-entry form through The
Depository Trust Company ("DTC"). Accordingly,
Holders who anticipate tendering and whose MFS
Notes are not held custodially through DTC are
urged to contact promptly a bank, broker or other
intermediary (that has the capability to hold
securities custodially through DTC) to arrange
for receipt of any WorldCom Notes to be delivered
pursuant to the Exchange Offers and to obtain the
information necessary to provide the required DTC
participant and account information in the
relevant Letter of Transmittal. See "The Exchange
Offers--Procedures for Tendering--Book-Entry
Delivery Procedures."
GUARANTEED DELIVERY
PROCEDURES.................. Holders of MFS Notes who wish to tender their MFS
Notes and whose MFS Notes are not immediately
available or who cannot deliver their MFS Notes,
the Letter of Transmittal or any other
documentation required by the Letter of
Transmittal to the Exchange Agent on or prior to
the Expiration Date may, nonetheless, tender
their MFS Notes according to the guaranteed
delivery procedures set forth under "The Exchange
Offers--Guaranteed Delivery Procedures."
ACCEPTANCE OF THE MFS
NOTES; RETURN OF MFS
NOTES....................... Upon the terms and subject to the satisfaction or
waiver of the conditions to each Exchange Offer,
the Company will accept for exchange any and all
MFS Notes that are properly tendered in such
Exchange Offer on or prior to the Expiration
Date. The Company shall be deemed to have
accepted validly tendered MFS Notes and properly
given Consents which have
11
<PAGE>
not been withdrawn or revoked as provided in this
Prospectus when, and if, the Company has given
oral or written notice thereof to the Exchange
Agent. Any MFS Notes not accepted for exchange
for any reason will be returned to the tendering
Holder as promptly as practicable after the
expiration or termination of the applicable
Exchange Offer. See "The Exchange Offers--Terms
of the Exchange Offers" and "--Acceptance of MFS
Notes for Exchange; Delivery of WorldCom Notes."
WITHDRAWAL AND REVOCATION
RIGHTS...................... Tenders of MFS Notes in an Exchange Offer may not
be withdrawn at any time after 11:59 p.m., New
York City time, on August 4, 1997, unless such
Exchange Offer is extended and contains new terms
materially adverse to the tendering Holders
thereof. Valid withdrawal of a tendered MFS Note
will constitute the revocation of the related
Consent. Holders may not revoke a Consent without
validly withdrawing the related MFS Note. See
"The Exchange Offers--Withdrawal of Tenders" and
"The Consent Solicitations."
NO DISSENTERS' RIGHTS....... Holders of MFS Notes do not have any appraisal or
dissenters' rights under the Delaware General
Corporation Law or the applicable MFS Indenture
in connection with the Exchange Offers.
NO PROCEEDS TO COMPANY...... The Company will not receive any proceeds from
the issuance of the WorldCom Notes offered hereby
and has agreed to pay certain expenses of the
Exchange Offers. See "The Exchange Offers--
Exchange Agent," "--Information Agent," "--Dealer
Managers" and "--Other Fees and Expenses;
Transfer Taxes." WorldCom will cause the MFS
Notes surrendered in exchange for the WorldCom
Notes to be retired and cancelled. Issuance of
the WorldCom Notes will not result in any
increase in the outstanding debt of the Company,
on a consolidated basis.
EXCHANGE AGENT.............. Harris Trust and Savings Bank (the "Exchange
Agent"). The address and telephone numbers of the
Exchange Agent are set forth on the back cover
page of this Prospectus.
INFORMATION AGENT........... MacKenzie Partners, Inc. (the "Information
Agent"). Questions concerning tender procedures
and requests for additional copies of this
Prospectus, the Letters of Transmittal or Notices
of Guaranteed Delivery should be directed to the
Information Agent. The address and telephone
numbers of the Information Agent are set forth on
the back cover page of this Prospectus.
DEALER MANAGERS............. Salomon Brothers Inc and Goldman, Sachs & Co.
(the "Dealer Managers"). Questions concerning the
terms of the Exchange Offers or the Consent
Solicitations should be directed to the Dealer
Managers. The addresses and telephone numbers of
12
<PAGE>
the Dealer Managers are set forth on the back
cover page of this Prospectus.
DEALER MANAGER MARKET
ACTIVITY.................... The Dealer Managers currently plan to make a
market in the WorldCom Notes following the
completion of the Exchange Offers and may buy and
sell WorldCom Notes on a "when and if issued"
basis prior to the completion of the Exchange
Offers. However, there can be no assurance that
the Dealer Managers will engage in such
activities or that any active market in the
WorldCom Notes will develop or be maintained. See
"Risk Factors--Certain Considerations Relating to
Holders Tendering in the Exchange Offers."
13
<PAGE>
THE WORLDCOM NOTES
As of and after the Exchange Date, the financial terms of the WorldCom 2004
Notes and the WorldCom 2006 Notes will be substantially identical in all
material respects to the financial terms of the MFS 2004 Notes and the MFS 2006
Notes, respectively, except that: (i) the MFS Notes are the sole obligations of
MFS, while the WorldCom Notes will be the sole obligations of WorldCom; and
(ii) overdue principal and premium, if any, and interest on the overdue
principal and any overdue premium of the MFS 2004 Notes and the MFS 2006 Notes
bear interest at the rate of 10 3/8% and 9 7/8% per annum, respectively, while
overdue principal and premium, if any, and interest on the overdue principal
and any overdue premium of the WorldCom 2004 Notes and the WorldCom 2006 Notes
will bear interest at 9 3/8% and 8 7/8% per annum, respectively. The WorldCom
Indenture will contain covenants that are substantially less restrictive than
those that are currently in the MFS Indentures, and the WorldCom Notes will
carry significantly reduced protections than those now afforded to the MFS
Notes. Pursuant to the MFS Indentures, MFS has elected to commence the accrual
of cash interest on both series of MFS Notes as of the Interest Accrual Date,
at which time the outstanding principal amount at stated maturity of the MFS
Notes of each series will be reduced to the Accreted Value of such MFS Notes as
of such date, and cash interest on such reduced principal amount will be
payable on January 15, 1998 and on each Interest Payment Date thereafter. See
"The Exchange Offers--Description of Differences Between the MFS Notes and the
WorldCom Notes." The following is a summary of certain terms of the WorldCom
Notes:
<TABLE>
<CAPTION>
MATURITY DATE INTEREST RATE INTEREST PAYMENT DATE
---------------- ------------- ---------------------------
<C> <C> <C> <S>
WorldCom 2004 Notes January 15, 2004 9 3/8% Payable semi-annually on
January 15 and July 15 each
year, commencing July 15,
1997.
WorldCom 2006 Notes January 15, 2006 8 7/8% Payable semi-annually on
January 15 and July 15 each
year, commencing July 15,
1997.
</TABLE>
ISSUER...................... WorldCom, Inc.
RANKING..................... The WorldCom Notes will be senior, unsecured
obligations of the Company, will rank pari passu
in right of payment with all other existing and
future senior, unsecured indebtedness of the
Company and will rank senior in right of payment
to any future subordinated obligations of the
Company. The WorldCom Notes will be effectively
subordinated to any secured indebtedness of the
Company to the extent of the value of the assets
securing such indebtedness. As of March 31, 1997,
after giving effect to the issuance and sale by
the Company of the April WorldCom Notes, the
aggregate amount of indebtedness of the Company to
which the WorldCom Notes would have ranked pari
passu was approximately $3.18 billion and the
aggregate amount of secured indebtedness of the
Company was approximately $53 million. The
WorldCom Notes will be structurally subordinated
to all obligations of the Company's subsidiaries,
including any MFS Notes not exchanged for WorldCom
Notes in the Exchange Offers, to the extent of the
assets of such subsidiaries. As of March 31, 1997,
the aggregate amount of outstanding obligations of
the
14
<PAGE>
Company's subsidiaries to which the holders of
WorldCom Notes would have been structurally
subordinated (including trade payables but
excluding intercompany indebtedness) was
approximately $2.66 billion (of which $1.38
billion represented the carrying value of the MFS
Notes). See "Risk Factors" and "Description of
the WorldCom Notes--Ranking."
OPTIONAL REDEMPTION......... The WorldCom 2004 Notes and the WorldCom 2006
Notes will be redeemable at the option of the
Company, on or after January 15, 1999 and January
15, 2001, respectively, in whole at any time or
in part from time to time, at the prices set
forth herein, plus accrued and unpaid interest,
if any, to the date of redemption. See
"Description of the WorldCom Notes--Optional
Redemption."
CERTAIN COVENANTS........... The WorldCom 2004 Notes and the WorldCom 2006
Notes will be entitled to the benefits of and
governed by the Senior Indenture dated as of
March 1, 1997 between WorldCom and Mellon Bank,
N.A., as Trustee (as supplemented and described
herein, the "WorldCom Indenture"). The WorldCom
Indenture contains certain covenants which,
subject to certain exceptions and qualifications,
restrict the ability of the Company and its
Restricted Subsidiaries to create liens, to enter
into sale and leaseback transactions and to sell
assets or merge with or into another company. See
"Description of the WorldCom Notes--Limitation on
Liens," "--Consolidation, Merger, Conveyance,
Sale or Lease" and "--Certain Definitions."
FORM........................ The WorldCom Notes will be available only in
book-entry form through DTC.
For additional information regarding the WorldCom Notes, please see
"Description of the WorldCom Notes" and "Certain U.S. Federal Income Tax
Consequences."
RISK FACTORS
Prospective investors should carefully consider certain factors relating to
an investment in the WorldCom Notes. See "Cautionary Statement Regarding
Forward-Looking Statements" and "Risk Factors" beginning on page 18.
15
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following table presents selected historical financial data of WorldCom,
MFS and UUNET. The historical data for each of the years in the five-year
period ended December 31, 1996 are based on the audited historical financial
statements of the respective companies, excluding UUNET for 1996 (see note 8 to
the table below). The selected financial data for each of WorldCom, MFS and
UUNET for the three month periods ended March 31, 1997 and 1996 have been
obtained from unaudited financial statements and, in the opinion of the
respective managements of WorldCom, MFS and UUNET, include all adjustments (of
a normal and recurring nature) which are necessary to present fairly the data
for such periods. This data should be read in conjunction with and is qualified
in its entirety by the consolidated financial statements of each of WorldCom,
MFS and UUNET and the related notes thereto, incorporated by reference herein.
See "Available Information" and "Incorporation of Certain Documents by
Reference."
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------------------- ----------------------
1996(1) 1995 1994 1993 1992 1997 1996
---------- ---------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
WORLDCOM
Revenues................ $4,485,130 $3,696,345 $2,245,663 $1,474,257 $ 948,060 $1,677,239 $1,034,060
Net income (loss) from
continuing operations
(after preferred
dividend requirement):
Total.................. (2,189,804)(2) 233,080(3) (151,779)(4) 112,638(4) 6,232(4) 43,054 85,802
Per common share:
Primary................ (5.50) 0.64 (0.48) 0.41 0.03 0.05 0.22
Fully diluted.......... (5.50) 0.64 (0.48) 0.40 0.03 0.05 0.21
Dividends per common
share.................. -- -- -- -- -- -- --
Total assets............ 19,861,977 6,656,629 3,441,474 3,236,718 1,241,278 19,595,269 6,816,942
Long-term debt.......... 4,803,581 3,391,598(5) 794,001 730,023 448,496 4,617,431 2,194,357
Shareholders'
investment............. 12,959,976 2,187,681 1,827,410 1,911,800 478,823 13,021,153 2,295,295
Ratio of earnings to
fixed charges(6)....... N/A 2.59:1 0.15:1 5.10:1 1.47:1 1.94:1 3.15:1
Deficiency of earnings
to fixed charges....... 2,066,991 -- 52,597 -- -- -- --
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------------------- ----------------------
1996 1995 1994 1993 1992 1997 1996
---------- ---------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
MFS
Revenues................ $1,115,006 $ 583,194 $ 286,747 $ 141,111 $ 108,707 $ 425,935 $ 186,316
Income (loss) from
continuing operations
(after preferred
dividend requirement):
Total.................. (1,867,459)(7) (282,962) (151,201) (15,769) (13,129) (82,192) (93,296)
Per common share:
Primary................ (11.22) (2.21) (1.21) (0.15) (0.15) (0.75)
Fully diluted.......... (11.22) (2.21) (1.21) (0.15) (0.15) (0.75)
Dividends per common
share.................. -- -- -- -- -- -- --
Total assets............ 12,550,329 1,867,134 1,584,546 906,937 363,299 12,334,647 2,347,211
Long-term debt.......... 1,477,670 723,471 548,333 143 169 1,412,843 1,286,354
Shareholders' equity.... 10,287,586 830,332 770,103 811,105 298,516 10,190,119 754,582
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------- ---------------------
1996(8) 1995 1994 1993 1992 1997(8) 1996
-------- -------- ------- ------- ------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C>
UUNET
Revenues................ $129,047 $ 94,461 $33,138 $24,019 $20,396 $ 43,013
Income (loss) from
continuing operations
(after preferred
dividend requirement):
Total.................. (14,373) (18,257) (7,988) (2,026) 1,074 233
Per common share (pro
forma):
Primary................ (0.44) (0.63) (0.35) -- --
Fully diluted.......... (0.44) (0.63) (0.35) -- -- 0.01
Dividends per common
share.................. -- -- 0.01 -- 0.08 0.01
Total assets............ 137,610 29,625 10,585 8,285 156,278
Long-term debt.......... 13,686 15,269 3,310 974 18,045
Shareholders' equity.... 80,667 279 425 2,567 82,084
</TABLE>
- --------
(1) On December 31, 1996, WorldCom completed the MFS Merger. The MFS Merger is
being accounted for as a purchase; accordingly, the operating results for
MFS are reflected from the date of acquisition.
(2) WorldCom's results for 1996 include a $2.14 billion charge for in-process
research and development related to the MFS Merger. The charge is based
upon a valuation analysis of the technologies of MFS' worldwide information
system, the Internet network expansion system of UUNET, and certain other
identified research and development projects purchased in the MFS Merger.
The expense includes $1.6 billion associated with UUNET and $0.54 billion
related to MFS. Additionally, 1996 results include other after-tax charges
of $121.0 million for employee severance, employee compensation charges,
alignment charges, and costs to exit unfavorable telecommunications
contracts and $343.5 million after-tax write-down of operating assets
within the Company's non-core businesses. On a pre-tax basis, these charges
totaled $600.1 million.
(3) In 1995, Metromedia Company ("Metromedia") converted its Series 1 Preferred
Stock into Common Stock, exercised warrants to acquire Common Stock and
immediately sold its position of 61,699,096 shares of Common Stock in a
public offering. In connection with the preferred stock conversion,
WorldCom made a non-recurring payment of $15.0 million to Metromedia,
representing a discount to the minimum nominal dividends that would have
been payable on the Series 1 Preferred Stock prior to the September 15,
1996 optional call date of approximately $26.6 million (which amount
includes an annual dividend requirement of $24.5 million plus accrued
dividends to such call date).
(4) As a result of the acquisitions of IDB Communications Group, Inc. ("IDB")
in 1994 (the "IDB Merger") and of Advanced Telecommunications Corporation
in 1992 (the "ATC Merger"), the Company initiated plans to reorganize and
restructure its management and operational organization and facilities to
eliminate duplicate personnel, physical facilities and service capacity, to
abandon certain products and marketing activities, and to take further
advantage of the synergies available to the combined entities. Also, during
the fourth quarter of 1993, plans were approved to reduce IDB's cost
structure and to improve productivity. Accordingly, in 1994, 1993 and 1992,
the Company charged to operations the estimated costs of such
reorganization and restructuring activities, including employee severance,
physical facility abandonment and duplicate service capacity. These costs
totaled $43.7 million in 1994, $5.9 million in 1993 and $79.8 million in
1992. Also, during 1994 and 1992, the Company incurred direct merger costs
of $15.0 million and $7.3 million, respectively, related to the IDB Merger
(in 1994) and the ATC Merger (in 1992). These costs include professional
fees, proxy solicitation costs, travel and related expenses and certain
other direct costs attributable to these mergers.
(5) Long-term debt as of December 31, 1995 includes $1.1 billion related to the
Company'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.
(6) For the purpose of computing the ratio of earnings to fixed charges,
earnings consist of income (loss) from continuing operations, and fixed
charges consist of pre-tax interest (including capitalized interest) on all
indebtedness, amortization of debt discount and expense and that portion of
rental expense which the Company believes to be representative of interest.
For the historical years ended December 31, 1994 and 1996, earnings were
inadequate to cover fixed charges by the amounts shown.
(7) MFS' results for 1996 include a $1.4 billion charge for in-process research
and development related to its acquisition of UUNET. The charge is based on
a valuation analysis of the technologies of the Internet network expansion
system of UUNET and certain other identified research and development
projects purchased in the acquisition.
(8) MFS' acquisition of UUNET closed on August 12, 1996 and was accounted for
as a purchase. Therefore, the year ended December 31, 1996 under the
caption "UUNET" above 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. Subsequent to August 12, 1996, the
operating results of UUNET are consolidated with MFS and are included under
the caption "MFS" above in the balance sheet and results of operations of
MFS.
17
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in "Risk Factors" and certain statements
incorporated by reference from documents filed with the Commission by WorldCom
and MFS, 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 the MFS Merger, and other
statements, including any forecasts, projections and synergies, 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). Such
statements are subject to risks and uncertainties and, therefore, actual
results could differ materially from those expressed or implied by such
statements. Factors that could cause actual results to differ materially (the
"Cautionary Statements") include, but are not limited to, those discussed
under "Risk Factors." All subsequent written and oral forward-looking
statements attributable to the Company, or persons acting on its behalf, are
expressly qualified in their entirety by the Cautionary Statements.
RISK FACTORS
In addition to the other information included in or incorporated by
reference into this Prospectus, Holders of the MFS Notes should carefully
consider the following risk factors before deciding to surrender MFS Notes in
exchange for WorldCom Notes pursuant to the Exchange Offers. The
considerations listed below are not intended to represent a complete list of
the general or specific risks that may affect Holders who tender or fail to
tender in the Exchange Offers or that relate to the Company or MFS. It should
be recognized that other risks may be significant, now or in the future, and
the risks set forth below may affect tendering or non-tendering Holders to a
greater extent than indicated.
CERTAIN CONSIDERATIONS RELATING TO HOLDERS TENDERING IN THE EXCHANGE OFFERS
Liquidity of WorldCom Notes; No Prior Public Market for WorldCom Notes
Upon consummation of the Exchange Offers and depending on the amount of the
WorldCom Notes outstanding after the Exchange Offers (which will be no less
than approximately $343.2 million in aggregate principal amount of WorldCom
2004 Notes and no less than approximately $335.9 million in aggregate
principal amount of WorldCom 2006 Notes), the trading market for the WorldCom
Notes may be more limited than the trading market for the MFS Notes prior to
the Exchange Offers, which might adversely affect the liquidity and market
price of such WorldCom Notes. The Company does not plan to list the WorldCom
Notes on any national securities exchange or interdealer quotation system
sponsored by a national securities association. Although the MFS Notes are not
so listed, there is currently a limited trading market for the MFS Notes. The
WorldCom Notes are new securities for which there is currently no market.
While the Dealer Managers intend to make a market for the WorldCom Notes, they
are not obligated to do so and any market making may be discontinued at any
time. There can be no assurance that an active trading market for the WorldCom
Notes will develop or, if such market develops, as to the liquidity or
sustainability of any such market.
Structural Subordination of the WorldCom Notes
WorldCom conducts a portion of its business through its subsidiaries. The
Company is therefore dependent to some extent upon dividends and other
payments from its subsidiaries to generate a portion of the funds necessary to
meet its obligations, including the payment of principal and interest on the
WorldCom Notes. As a result, the WorldCom Notes will be structurally
subordinated to all obligations of the Company's subsidiaries, including any
MFS Notes that are not exchanged in the Exchange Offers, to the extent of the
assets of such subsidiaries. As of March 31, 1997, the aggregate
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amount of outstanding obligations of the Company's subsidiaries to which the
holders of the WorldCom Notes would have been structurally subordinated
(including trade payables but excluding intercompany indebtedness) was
approximately $2.66 billion (of which $1.38 billion represented the carrying
value of the MFS Notes). WorldCom expects that substantially all of its
business will ultimately be conducted through its subsidiaries as a result of
the transfer of operating assets to such subsidiaries. Thus, the Company
expects that the amount of obligations of its subsidiaries will increase and
that the Company will become increasingly dependent upon dividends and other
payments from its subsidiaries.
Recognition of Income to Holders Accepting Exchange Offers
The receipt of WorldCom Notes, Consent Payments and other cash, if any,
pursuant to the Exchange Offers and Consent Solicitations will be a taxable
transaction for United States federal income tax purposes. See "Certain U.S.
Federal Income Tax Consequences."
CERTAIN CONSIDERATIONS RELATING TO HOLDERS NOT TENDERING IN THE EXCHANGE
OFFERS
Proposed Amendments to the MFS Indentures
In the event that the Proposed Amendments are adopted with respect to a
series of the MFS Notes, the covenants and certain other terms with respect to
such series of MFS Notes will be substantially less restrictive, and will
afford significantly reduced protections to Holders thereof, than those
currently set forth in the MFS Indentures. The Proposed Amendments
contemplated by the Consent Solicitations would, among other things, eliminate
the covenants in each of the MFS Indentures that (a) restrict the ability of
MFS and its restricted subsidiaries to incur debt, incur liens, enter into
sale and leaseback transactions, make restricted payments (including payment
of dividends) or enter into transactions with affiliates and (b) restrict the
ability of restricted subsidiaries of MFS to issue equity securities, to
encumber their ability to pay dividends or to make certain loans or transfers
of property to MFS or another restricted subsidiary of MFS. In addition, the
Proposed Amendments would eliminate the separate financial reporting
requirements currently contained in the MFS Indentures and, upon receipt of a
Supermajority Consent with respect to a series of MFS Notes, would limit the
circumstances in which MFS would be required, as a result of a "Change of
Control," to offer to repurchase such series of MFS Notes. See "The Proposed
Amendments."
In the event the Proposed Amendments are adopted with respect to a series of
MFS Notes, each non-exchanging Holder of such series of MFS Notes will be
bound by the Proposed Amendments even if such Holder did not consent to the
Proposed Amendments. The elimination or modification of the covenants
contemplated in the Proposed Amendments would, among other things, permit
WorldCom and MFS and their subsidiaries to take actions that could increase
the credit risk with respect to MFS, and might adversely affect the liquidity,
market price and price volatility of the MFS Notes or otherwise be adverse to
the interests of the holders of the MFS Notes. See "The Proposed Amendments."
Reduced Liquidity of MFS Notes
Although the Company believes there is currently a limited trading market
for the MFS Notes, no generally reliable public pricing information for the
MFS Notes is available. The trading market for unexchanged MFS Notes could
become even more limited or nonexistent due to the reduction in the amount of
MFS Notes outstanding upon consummation of the Exchange Offers, which might
adversely affect the liquidity, market price and price volatility of such MFS
Notes. If a market for unexchanged MFS Notes exists or develops, such MFS
Notes may trade at a discount to the price at which such MFS Notes would trade
if the amount outstanding were not reduced, depending on prevailing interest
rates, the market for similar securities and other factors. However, there can
be no assurance that an active market in the unexchanged MFS Notes will exist,
develop or be maintained and no assurance as to the prices at which the
unexchanged MFS Notes may be traded.
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CERTAIN CONSIDERATIONS REGARDING THE BUSINESS AND OPERATIONS OF WORLDCOM
Prospective investors should carefully consider the following risk factors
in evaluating the Company and its business before deciding to surrender MFS
Notes in exchange for WorldCom Notes pursuant to the Exchange Offers.
Risks of Increased Financial Leverage; Debt Service, Interest Rate
Fluctuations, Possible Reduction in Liquidity, Dividend Restrictions and Other
Restrictive Covenants
At March 31, 1997, the Company had $4.62 billion of long-term debt
(including capital leases and excluding current maturities) and a long-term
debt to equity ratio of 0.35 to 1.0. On July 3, 1997, the Company replaced its
$3.75 billion revolving credit facility (the "Old Credit Facility") with a
$3.75 billion Facility A Revolving Credit Agreement (the "Facility A Loans")
and a $1.25 billion Facility B Revolving Credit and Term Loan Agreement (the
"Facility B Loans," and together with the Facility A Loans, the "New Credit
Facilities"). The Facility A Loans have a four-year term which will be
extended one year automatically upon the receipt of certain regulatory
approvals, and may be extended for up to two successive one year terms
thereafter to the extent of the committed amounts from those lenders
consenting thereto, with a requirement that lenders holding at least two
thirds of the committed amounts consent. The Facility B Loans, which are
contingent upon the receipt of certain regulatory approvals, have a 364 day
term, which may be extended for up to two successive 364 day terms thereafter
to the extent of the committed amounts from those lenders consenting thereto,
with a requirement that lenders holding at least two thirds of the committed
amounts consent. Alternatively, effective as of the end of such 364 day term,
the Company may elect to convert the Facility B Loans from revolving loans to
term loans with a maturity date corresponding with the maturity date then in
effect with respect to the Facility A Loans. The New Credit Facilities bear
interest payable in varying periods, depending on the interest period, not to
exceed six months, at rates selected by the Company under the terms of the New
Credit Facilities, including a Base Rate or the Eurodollar Rate, plus
applicable margin. The applicable margin for a Eurodollar Rate borrowing
varies from 0.30% to 0.75% based upon certain debt ratings and a specified
financial test. The New Credit Facilities are unsecured but include a negative
pledge of the assets of the Company and its subsidiaries (subject to certain
exceptions). The New Credit Facilities require compliance with certain
financial and operating covenants which limit, among other things, the
incurrence of additional indebtedness by the Company, investments by the
Company, sales of assets and mergers and dissolutions, which covenants are
generally less restrictive than those contained in the Old Credit Facility and
which do not restrict distributions to shareholders, provided the Company is
not in default under the New Credit Facilities. The New Credit Facilities are
also subject to certain fees, including, among other fees, a commitment fee
not to exceed 0.25% of any unborrowed portion of the Facility A Loans and not
to exceed 0.225% of any unborrowed portion of the Facility B Loans.
Increases in interest rates, economic downturns and other adverse
developments, including factors beyond the Company's control, could impair its
ability to service its indebtedness under the WorldCom Notes, the MFS Notes,
the April WorldCom Notes or the New Credit Facilities. In addition, the cash
flow required to service the Company's debt may reduce its ability to fund
internal growth, additional acquisitions and capital improvements. In
addition, the New Credit Facilities limit the Company's financial flexibility.
See Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations," of the WorldCom 1996 Form 10-K.
The Company has historically utilized cash flow from operations to finance
capital expenditures and a mixture of cash flow, debt and stock to finance
acquisitions. The Company expects to experience increased capital intensity
due to network expansions and believes that funding needs in excess of
internally generated cash flow will be met by utilization of the New Credit
Facilities.
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Acquisition Integration
A major portion of the Company's growth in recent years has resulted from
acquisitions, which involve certain operational and financial risks.
Operational risks include the possibility that an acquisition does not
ultimately provide the benefits originally anticipated by management of the
acquiror, while the acquiror continues to incur operating expenses to provide
the services formerly provided by the acquired company. Financial risks
involve the incurrence of indebtedness by the acquiror in order to effect the
acquisition and the consequent need to service that indebtedness. In addition,
the issuance of stock in connection with acquisitions dilutes the voting power
and may dilute certain other interests of existing shareholders. In carrying
out its acquisition strategy, the Company attempts to minimize the risk of
unexpected liabilities and contingencies associated with acquired businesses
through planning, investigation and negotiation, but such unexpected
liabilities may nevertheless accompany acquisitions. There can be no assurance
that the Company will be successful in identifying attractive acquisition
candidates or completing additional acquisitions on favorable terms.
Additionally, achieving the expected benefits of the MFS Merger will depend
in part upon the integration of the businesses of WorldCom and MFS, together
with UUNET, in an efficient manner, and there can be no assurance that this
will occur. The transition to a combined company will require substantial
attention from management. The diversion of management attention and any
difficulties encountered in the transition process could have an adverse
effect on the revenues and operating results of the combined company. In
addition, the process of combining the three organizations could cause the
interruption of, or a disruption in, the activities of any or all of the
companies' businesses, which could have a material adverse effect on their
combined operations. There can be no assurance that the Company will realize
any of the anticipated benefits of the MFS Merger.
Contingent Liabilities
WorldCom is subject to a number of legal and regulatory proceedings. 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.
Risks of International Business
The Company derives substantial revenues by providing international
communications services to United States commercial and carrier customers.
Such operations are subject to certain risks such as changes in United States
or foreign government regulatory policies, disruption, suspension or
termination of operating agreements, and currency fluctuations. In particular,
the Company's revenues and costs of sales are sensitive to changes in
international settlement rates and international traffic routing patterns. The
rates that the Company can charge its customers for international services may
decrease in the future due to the entry of new carriers with substantial
resources, aggressiveness on the part of new or existing carriers, the
widespread resale of international private lines, the provision of
international services via non-traditional means including the Internet, the
consummation of mergers and 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 undersea fiber
optic cables and new high capacity satellite systems in the Atlantic, Pacific
and Indian Ocean regions.
Risks of Overseas Business Operations
The Company derives substantial revenues from providing services to
customers in overseas locations, particularly the United Kingdom and Germany.
Such operations are subject to certain risks such as changes in the legal and
regulatory policies of the foreign jurisdiction, local political and economic
developments, currency fluctuations, exchange controls, royalty and tax
increases, retroactive tax claims, expropriation, and import and export
regulations and other laws and policies of the United States affecting foreign
trade, investment and taxation. In addition, in the event of any
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dispute arising from foreign operations, the Company may be subject to the
exclusive jurisdiction of foreign courts and may not be successful in
subjecting foreign persons or entities to the jurisdiction of the courts in
the United States. WorldCom may also be hindered or prevented from enforcing
its rights with respect to foreign governments because of the doctrine of
sovereign immunity. There can be no assurance that the laws, regulations or
administrative practices of foreign countries relating to WorldCom's ability
to do business in that country will not change. Any such change could have a
material adverse effect on the business and financial condition of WorldCom.
Dependence on Availability of Transmission Facilities
The future profitability of the Company will be dependent in part on its
ability to utilize transmission facilities leased from others on a cost-
effective basis. The MFS Merger, and the Company's acquisition of the network
services operations of Williams Telecommunications Group, Inc. in January 1995
and merger with IDB Communications Group, Inc. in December 1994 have reduced
the leasing risk through the ownership of significant domestic and
international facilities; however, due to the possibility of unforeseen
changes in industry conditions, the continued availability of leased
transmission facilities at historical rates cannot be assured.
Rapid Technological Change; Dependence upon Product Development
The telecommunications industry is subject to rapid and significant changes
in technology. While WorldCom does not believe that, for the foreseeable
future, these changes will either materially or 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 cannot be predicted.
The market for UUNET's 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 UUNET will successfully identify new product and
service opportunities and develop and bring new products and services to
market in a timely manner. UUNET is also at risk from fundamental changes in
the way Internet access services are marketed and delivered. UUNET's Internet
service strategy assumes that the Transmission Control Protocol/Internet
Protocol, 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. UUNET's pursuit of necessary technological advances may
require substantial time and expense, and there can be no assurance that UUNET
will succeed in adapting its Internet services business to alternate access
devices, conduits and protocols.
Regulation Risks
The Company is subject to extensive regulation at the federal and state
levels, as well as in various foreign countries in connection with certain
overseas business activities. The regulatory environment varies substantially
by jurisdiction.
The Company is subject to varying degrees of federal, state, local and
international regulation. In the United States, the Company is most heavily
regulated by the states, especially for the provision of local exchange
services. The Company must be separately certified in each state to offer
local exchange and intrastate long distance services. No state, however,
subjects the Company to price cap or rate of return regulation, nor is the
Company currently required to obtain Federal Communications Commission ("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. The Company is subject
to varying degrees of regulation in the foreign jurisdictions in which it
conducts business including authorization for the installation and
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operation of its network facilities. Although the trend in federal, state,
local and international regulation appears to favor increased competition, no
assurance can be given that changes in current or future regulations adopted
by the FCC, state or foreign regulators or legislative initiatives in the
United States and abroad would not have a material adverse effect on the
Company.
On February 8, 1996, President Clinton signed the Telecommunications Act of
1996 (the "Telecom Act") which: permits, without limitation, the Bell System
Operating Companies ("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 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 levels; 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 8, 1996, the FCC released its FCC Interconnect Order which
established nationwide rules designed to encourage new entrants to participate
in the local service markets through interconnection with the Incumbent Local
Exchange Carriers ("ILECs"), 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 it or the industry. Motions to stay implementation of the FCC Interconnect
Order were filed with the FCC and federal courts of appeal. Appeals
challeging, among other things, the validity of the FCC Interconnect Order
were filed in several federal courts of appeal and assigned to the Eight
Circuit Court of Appeals for disposition. The Eighth Circuit Court of Appeals
has stayed the pricing provisions of the FCC Interconnect Order. Certain BOCs
have raised constitutional challenges to the restrictions of the Telecom Act
on inter-local access and transport area services and certain practices
implementing the cost provisions of the Telecom Act ordered by certain state
public utility commissions. WorldCom cannot predict either the outcome of
these or future challenges to the Telecom Act and appeals or the eventual
effect on its business or the industry in general.
On December 24, 1996, the FCC released a Notice of Proposed Rulemaking (the
"NPRM") seeking to reform the FCC's current access charge policies and
practices to comport with a competitive or potentially competitive local
access service market. On May 7, 1997, the FCC announced that it will issue a
series of orders that reform Universal Service Subsidy allocations, adopt
various reforms to the existing rate structure for interstate access that are
designed to reduce access charges, over time, to more economically efficient
levels and rate structures. In particular, the FCC adopted changes to its rate
structures for Common Line, Local Switching and Local Transport rate elements.
The FCC generally removed from minute-of-use access charges costs that are not
incurred on a per-minute-of-use-basis, with such costs being recovered through
flat rated charges. Additional charges and details of the FCC's actions are to
be addressed when Orders are released within the near future. Access charges
are a principal component of the Company's line cost expense. The Company
cannot predict whether or not results of this proceeding will have a material
impact upon the financial position or results of operations of the Company.
In the NPRM, the FCC tentatively concluded that information services
providers (including among others Internet service providers) should not be
subject to existing interstate access charges. However, the FCC recognized
that these services and recent technological advances may be constrained by
current regulatory practices that have their foundations in traditional
services and technologies. The FCC issued on December 24, 1996, a Notice of
Inquiry to seek comment on whether it should, in addition to access charge
reform, consider actions relating to interstate information services and the
Internet. Changes in the regulatory environment relating to the
telecommunications or Internet-related
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services industry could have an adverse effect on the Company's 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. The Company cannot predict the effect that the
Notice of Inquiry, the Telecom Act or any future legislation, regulation or
regulatory changes may have on its business.
In December 1996, the FCC adopted a new policy that will make it easier for
United States international carriers to obtain authority to route
international public switched voice traffic to and from the United States
outside of the traditional settlement rate and proportionate return regimes.
In February 1997, the United States entered into a World Trade Organization
Agreement (the "WTO Agreement") that should have the effect of liberalizing
the provision of switched voice telephone and other telecommunications
services in scores of foreign countries over the next several years. As a
result of the WTO Agreement, WorldCom expects the FCC, among other things, to
reexamine its policies regarding (i) the services that may be provided by
foreign owned United States international common carriers, including carriers
owned or controlled by foreign carriers that have market power in their home
markets, and (ii) the provision of international switched voice services
outside of the traditional settlement rate and proportionate return regimes.
Although the FCC's new flexible settlement rate policy, and the WTO Agreement
and any ensuing FCC policy changes, may result in lower costs to the Company
to terminate international traffic, there is a risk that the revenues that the
Company receives from inbound international traffic may decrease to an even
greater degree. The implementation of the WTO Agreement may also make it
easier for foreign carriers with market power in their home markets to offer
United States and foreign customers end-to-end services to the disadvantage of
WorldCom, which may face substantial obstacles in obtaining from foreign
governments and foreign carriers the authority and facilities to provide such
end-to-end services.
The Company is or will be subject to the applicable laws and has obtained or
will need to obtain the approval of the regulatory authority of each overseas
country in which it provides or proposes to provide telecommunications
services. The laws and regulatory requirements vary from country to country.
Some countries have substantially deregulated various communications services,
while other countries have maintained strict regulatory regimes. The
application procedure to enter new markets can be time-consuming and costly,
and terms of licenses vary for different countries. There can be no assurance
that the Company will receive all authorizations or licenses necessary for new
communications services or that delays in the licensing process will not
adversely affect its business.
Competition
Virtually all markets for telecommunications services are extremely
competitive, and the Company expects that competition will intensify in the
future. In each of the markets in which it offers telecommunications services,
the Company faces significant competition from carriers with greater market
share and financial resources. The Company competes domestically 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 the incumbent provider offers both
local and long distance services. The ILECs 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 the
Company. Many of the Company's existing and potential competitors have
financial, personnel and other resources significantly greater than those of
the Company. The Company also faces competition from one or more competitors
in most markets in which it operates, including Competitive Access Providers
operating fiber optic networks, in some cases in conjunction with the local
cable television operator. Each of AT&T Corp. ("AT&T"), MCI Communications
Corporation ("MCI") and Sprint Corporation has indicated its intention to
offer local telecommunications services in major United States markets using
its own facilities or by resale of the Local Exchange Carriers' or other
providers' services. In addition, the Company competes with equipment vendors
and installers and telecommunications management companies with respect to
certain portions of its business.
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In overseas markets, the Company competes with incumbent providers, many of
which still have special regulatory status and the exclusive rights to provide
certain services, and virtually all of which have historically regulatory
status and the exclusive rights to provide certain services, and virtually all
of which have historically dominated their local, domestic long distance and
international services markets. These incumbent providers have numerous
advantages including existing facilities, customer loyalty, and substantial
financial resources. The Company also competes with other service providers in
overseas markets, many of which are affiliated with incumbent providers in
other countries. Typically, the Company must devote extensive resources to
obtaining regulatory approvals necessary to operate in overseas markets, and
then to obtaining access to and interconnection with the incumbent's network
on a non-discriminatory basis.
The Company may also be subject to additional competition due to the
development of new technologies and increased availability of domestic and
international transmission capacity. For example, even though fiber optic
networks, such as that of the Company, are now widely used for long distance
transmission, it is possible that the desirability of such networks could be
adversely affected by changing technology. The telecommunications industry is
in a period of rapid technological evolution, marked by the introduction of
new product and service offerings and increasing satellite and fiber optic
transmission capacity for services similar to those provided by the Company.
The Company cannot predict which of many possible future product and service
offerings will be important to maintain its competitive position or what
expenditures will be required to develop and provide such products and
services.
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, they could be in a position to offer single
sources local and long distance service similar to that being offered by the
Company. The Company expects that the increased competition made possible by
regulatory reform will result in certain pricing and margin pressures in the
domestic telecommunications services business.
The Company, through UUNET, also competes in the market for data
communications services, including Internet access and on-line services. This
market is also extremely competitive. The Company expects that competition
will intensify in the future. The Company believes that its ability to compete
successfully in this market 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 on the Internet; the pricing policies of its competitors and
suppliers, the timing of the introduction of new products and services by the
Company and its competitors; UUNET's ability to support industry standards;
and industry and general economic trends. The success of the Company in this
market will depend heavily upon UUNET's ability to provide high quality
Internet connectivity and value-added Internet services at competitive prices.
The Company 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. The Company 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, Inc., AT&T, MCI, GTE Corporation and PSINet, Inc.,
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. UUNET expects these acquisitions
and strategic investments to increase, thus creating significant new
competitors to UUNET.
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As UUNET continues to expand Internet operations outside of the United
States, 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 its business.
UUNET will also encounter competition from companies whose operating styles
are substantially different from those that it usually experiences. For
example, in the United Kingdom, the Company competes directly with: (1)
telecommunications companies, such as British Telecommunications 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 Corporation, America Online/Bertelsmann AG,
Microsoft Corporation and AT&T. These foreign competitors may also possess a
better understanding of their local markets and may have better working
relationships with local telecommunications companies. There can be no
assurance that UUNET can obtain similar levels of local knowledge, and failure
to obtain that knowledge could place UUNET at a serious competitive
disadvantage.
Potential Liability of On-Line Service Providers
The law in the United States relating to the liability of on-line service
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. In addition, the United States Congress, in consultation with the
United States 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 of
potential liability for materials carried on or disseminated through their
systems could require UUNET 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.
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,
an Internet access provider that competes with UUNET 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.
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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 UUNET.
Dependence upon Network Infrastructure; Risk of System Failure; Security
Risks
The success of the Company in marketing its services to business and
government users requires that the Company provide superior reliability,
capacity and security via its network infrastructures. These networks 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 Company's business, financial condition and results of
operations.
Anti-Takeover Provisions
The Second Amendment and Restated Articles of Incorporation of WorldCom
contains provisions (a) requiring a 70% vote for approval of certain business
combinations with certain 10% shareholders unless approved by a majority of
the continuing Board of Directors or unless certain minimum price, procedural
and other requirements are met; (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 WorldCom's 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") and in
connection therewith entered into the Rights Agreement between WorldCom and
The Bank of New York, as Rights Agent, dated as of August 25, 1996, as
amended, which will cause substantial dilution to a person or group that
attempts to acquire WorldCom on terms not approved by WorldCom's Board of
Directors. Further, WorldCom's Bylaws (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.
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THE EXCHANGE OFFERS
PURPOSE OF THE EXCHANGE OFFERS
Since the MFS Merger, WorldCom has been operationally and financially
integrating MFS into the WorldCom organization, which integration includes
creating a single, more efficient, consolidated credit entity. The Exchange
Offers and the Consent Solicitations are elements of this integration effort,
and the Proposed Amendments are expected to provide greater financial and
operating flexibility to the fully integrated organization. The Company
believes that the failure to consummate the Exchange Offers or adopt the
Proposed Amendments will not have a material adverse effect on the Company.
See "The Proposed Amendments."
TERMS OF THE EXCHANGE OFFERS
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letters of Transmittal and in accordance with applicable law, the
Company offers to exchange (i) $871.60 principal amount of its WorldCom 2004
Notes for each $1,000 Principal Amount of MFS 2004 Notes validly tendered and
not withdrawn on or prior to the Expiration Date and accepted as provided
herein and (ii) $737.91 principal amount of its WorldCom 2006 Notes for each
$1,000 Principal Amount of MFS 2006 Notes validly tendered and not withdrawn
on or prior to the Expiration Date and accepted as provided herein. Interest
on the WorldCom Notes will accrue from the Interest Accrual Date at the stated
interest rate on such WorldCom Notes. The principal amount of WorldCom Notes
offered in each Exchange Offer for the applicable series of MFS Notes is equal
to the Accreted Value of such MFS Notes as of the Interest Accrual Date. As of
the Interest Accrual Date, the Accreted Value of the MFS 2004 Notes is $871.60
per $1,000 Principal Amount and the Accreted Value of the MFS 2006 Notes is
$737.91 per $1,000 Principal Amount. The Accreted Value of a series of MFS
Notes as of the Interest Accrual Date is the sum of (i) the initial issue
price of such MFS Notes plus (ii) the portion of the original issue discount
applicable to such MFS Notes accreted from and including the original issue
date thereof and to but excluding the Interest Accrual Date.
WorldCom Notes will be issued only in denominations of $1,000 and integral
multiples thereof. If the aggregate principal amount of WorldCom Notes that
otherwise would be issued in exchange for the MFS Notes of a series tendered
by a Holder and accepted by the Company pursuant to an Exchange Offer is not
an integral multiple of $1,000, such principal amount will be reduced to the
nearest such multiple and the Company will pay to such Holder an amount in
cash equal to the reduction of such principal amount. Upon consummation of the
Exchange Offers, WorldCom Notes will be delivered and Consent Payments and
other cash payments, if any, will be made on the Exchange Date.
As of and after the Exchange Date, the financial terms of the WorldCom 2004
Notes and WorldCom 2006 Notes will be substantially identical in all material
respects to the financial terms of the MFS 2004 Notes and MFS 2006 Notes,
respectively, except that: (i) the MFS Notes are the sole obligations of MFS,
while the WorldCom Notes will be the sole obligations of WorldCom; and (ii)
overdue principal and premium, if any, and interest on the overdue principal
and any overdue premium of the MFS 2004 Notes and the MFS 2006 Notes bear
interest at the rate of 10 3/8% and 9 7/8% per annum, respectively, while
overdue principal and premium, if any, and interest on the overdue principal
and any overdue premium of the WorldCom 2004 Notes and the WorldCom 2006 Notes
will bear interest at 9 3/8% and 8 7/8% per annum, respectively. The WorldCom
Indenture will contain covenants that are substantially less restrictive than
those that are currently in the MFS Indentures and the WorldCom Notes will
carry significantly reduced protections than those now afforded to the MFS
Notes. Pursuant to the MFS Indentures, MFS has elected to commence the accrual
of cash interest on both series of MFS Notes as of the Interest Accrual Date,
at which time the outstanding principal amount at stated maturity of the MFS
Notes of each series will be reduced to the Accreted Value
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of such MFS Notes as of such date, and cash interest on such reduced principal
amount will be payable on January 15, 1998 and on each Interest Payment Date
thereafter.
As of the date of this Prospectus, $787,519,000 in aggregate Principal
Amount of the MFS 2004 Notes and $910,475,000 in aggregate Principal Amount of
the MFS 2006 Notes were Outstanding for purposes of determining receipt of the
Requisite Consents. Only a Holder of the MFS Notes (or such Holder's legal
representative or attorney-in-fact) as reflected on the records of the Trustee
under the MFS Indentures may participate in the Exchange Offers and the
Consent Solicitations. There is and will be no fixed record date for
determining Holders of the MFS Notes entitled to participate in the Exchange
Offers.
The Company reserves the right, in its sole discretion, to purchase or make
offers for any MFS Notes that remain outstanding subsequent to the Expiration
Date and, to the extent permitted by applicable law, purchase MFS Notes in the
open market, in privately negotiated transactions or otherwise. The terms of
any such purchases or offers could differ from the terms of the Exchange
Offers. Any purchase or offer by the Company will not be made except in
accordance with applicable law and will in no event be made prior to the
expiration of ten business days after the Expiration Date.
CONDITIONS OF THE EXCHANGE OFFERS AND CONSENT SOLICITATIONS
Notwithstanding any other provisions of an Exchange Offer or Consent
Solicitation, or any extension of such Exchange Offer or Consent Solicitation,
the Company will not be required to issue WorldCom Notes or make any payments
in respect of any properly tendered MFS Notes or properly given Consents, and
may terminate such Exchange Offer or Consent Solicitation or, at its option,
modify, extend or otherwise amend such Exchange Offer or Consent Solicitation
with respect to such MFS Notes, if any of the following conditions has not
been satisfied, prior to or concurrently with the consummation of such
Exchange Offer or Consent Solicitation:
(a) receipt of the Requisite Consents with respect to both series of MFS
Notes;
(b) there shall not have been any action taken or threatened, or any
statute, rule, regulation, judgment, order, stay, decree or injunction
promulgated, enacted, entered, enforced or deemed applicable to the
Exchange Offers, the exchange of MFS Notes pursuant to the Exchange Offers
(the "Exchange"), the Consent Solicitations or the Proposed Amendments by
or before any court or governmental regulatory or administrative agency or
authority tribunal, domestic or foreign, which (i) challenges the making of
the Exchange Offers, the Exchange, the Consent Solicitations or the
Proposed Amendments or might, directly or indirectly, prohibit, prevent,
restrict or delay consummation of, or might otherwise adversely affect in
any material manner, the Exchange Offers, the Exchange, the Consent
Solicitations or the Proposed Amendments or (ii) in the reasonable judgment
of the Company, could materially adversely affect the business, condition
(financial or otherwise), income, operations, properties, assets,
liabilities or prospects of the Company and its subsidiaries, taken as a
whole, or materially impair the contemplated benefits of the Exchange
Offers, the Exchange, the Consent Solicitations or the Proposed Amendments
to the Company or might be material to holders of MFS Notes in deciding
whether to accept such Exchange Offers and give such Consents;
(c) there shall not have occurred or be likely to occur any event
affecting the business or financial affairs of the Company that, in the
reasonable judgment of the Company, would or might prohibit, prevent,
restrict or delay consummation of the Exchange Offers, the Exchange, the
Consent Solicitations or the Proposed Amendments or that will, or is
reasonably likely to, materially impair the contemplated benefits of the
Exchange Offers, the Exchange, the Consent Solicitations or the Proposed
Amendments to the Company or might be material to Holders of MFS Notes in
deciding whether to accept such Exchange Offers and give the related
Consent;
(d) there shall not have occurred (i) any general suspension of or
limitation on trading in securities on the NYSE or in the over-the-counter
market (whether or not mandatory), (ii) any
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material adverse change in the prices of the MFS Notes, (iii) a material
impairment in the general trading market for debt securities, (iv) a
declaration of a banking moratorium or any suspension of payments in
respect of banks by federal or state authorities in the United States
(whether or not mandatory), (v) a commencement of a war, armed hostilities
or other national or international crisis directly or indirectly relating
to the United States, (vi) any limitation (whether or not mandatory) by any
governmental authority on, or other event having a reasonable likelihood of
affecting, the extension of credit by banks or other lending institutions
in the United States or (vii) any material adverse change in United States
securities or financial markets generally, or in the case of any of the
foregoing existing at the time of the commencement of the Exchange Offers,
a material acceleration or worsening thereof; and
(e) the Trustee under the MFS Indentures (the "MFS Trustee") shall have
executed and delivered the supplemental indentures relating to the Proposed
Amendments and shall not have objected in any respect to, or taken any
action that could in the reasonable judgment of the Company adversely
affect the consummation of, any of the Exchange Offers, the Exchange, the
Consent Solicitations or the Company's ability to effect the Proposed
Amendments nor shall the MFS Trustee have taken any action that challenges
the validity or effectiveness of the procedures used by the Company in
soliciting Consents (including the form thereof) or in making the Exchange
Offers, the Exchange or the Consent Solicitations.
If any of the foregoing conditions are not satisfied with respect to a
particular series of MFS Notes, the Company may (i) terminate the Exchange
Offer and the Consent Solicitation with respect to such series of MFS Notes
and return all tendered MFS Notes of such series to the Holders thereof; (ii)
extend such Exchange Offer and Consent Solicitation and retain all tendered
MFS Notes and Consents until the Expiration Date, as extended, of such
Exchange Offer and Consent Solicitation, subject, however, to the withdrawal
rights of Holders, see "--Withdrawal of Tenders" and "--Expiration Date;
Extensions; Amendments"; or (iii) waive the unsatisfied conditions with
respect to such Exchange Offer and Consent Solicitation and accept all MFS
Notes tendered and not previously withdrawn.
The foregoing conditions are for the sole benefit of the Company and may be
waived by the Company, in whole or in part, in its sole discretion. Any
determination made by the Company concerning an event, development or
circumstance described or referred to above shall be conclusive and binding.
Notwithstanding any of the foregoing, the Company will consummate the
Exchange Offer with respect to the MFS 2004 Notes only if a majority in
aggregate principal amount Outstanding of such MFS Notes is validly tendered
(and not validly withdrawn) as of the Expiration Date (which would result in
the issuance of at least approximately $343.2 million in aggregate principal
amount of WorldCom 2004 Notes in such Exchange Offer) and will consummate the
Exchange Offer with respect to the MFS 2006 Notes only if a majority in
aggregate principal amount Outstanding of such MFS Notes is validly tendered
(and not validly withdrawn) as of the Expiration Date (which would result in
the issuance of at least approximately $335.9 million in aggregate principal
amount of WorldCom 2006 Notes in such Exchange Offer).
Except for the requirements of applicable federal and state securities laws,
there are no federal or state regulatory requirements to be complied with or
approvals to be obtained by the Company or MFS in connection with the Exchange
Offers which, if not complied with or obtained, would have a material adverse
effect on the Company.
CERTAIN CONSEQUENCES TO HOLDERS NOT TENDERING IN THE EXCHANGE OFFERS
Consummation of the Exchange Offers and the adoption of the Proposed
Amendments with respect to the MFS Notes will have certain consequences to
Holders of the MFS Notes who elect not
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to tender in the Exchange Offers, including, without limitation, that the
covenants and certain other terms set forth in the MFS Indentures, as proposed
to be amended, with respect to the MFS Notes will be substantially less
restrictive, and afford significantly reduced protections to such Holders,
than those that are currently in the MFS Indentures. See "Risk Factors--
Certain Considerations Relating to Holders Not Tendering in the Exchange
Offers."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 11:59 p.m., New York City time, on
August 4, 1997, subject to the right of the Company to extend such date and
time for either or both Exchange Offers in its sole discretion, in which case
the term "Expiration Date" shall mean, with respect to any such extended
Exchange Offer, the latest date and time to which such Exchange Offer is
extended.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any validly tendered MFS Notes, (ii) to extend the Exchange Offers
or (iii) to terminate or amend the Exchange Offers by giving oral or written
notice of such delay, extension, termination or amendment to the Exchange
Agent. Any such delay in acceptance, extension, termination or amendment will
be followed as promptly as practicable by a public announcement thereof which,
in the case of an extension, will be made no later than 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date. If the Exchange Offers are amended in a manner determined by the Company
to constitute a material change, the Company will promptly disclose such
amendment by means of a prospectus supplement that will be distributed to the
Holders, and the Company will extend the Exchange Offers for a period of five
to ten business days, depending upon the significance of the amendment and the
manner of disclosure to the Holders, if the Exchange Offers would otherwise
have expired during such five to ten business day period. Any change in the
consideration offered to Holders of MFS Notes pursuant to either Exchange
Offer shall be paid to all Holders whose MFS Notes have previously been
tendered pursuant to such Exchange Offer.
Without limiting the manner in which the Company may choose to make a public
announcement of any delay, extension, amendment or termination of the Exchange
Offers, the Company shall have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release to an appropriate news agency, including, without limitation,
the Dow Jones News Service.
EFFECT OF TENDER
Any tender by a Holder (and subsequent acceptance of such tender by the
Company) that is not withdrawn prior to the Expiration Date will constitute an
agreement between such Holder and the Company in accordance with the terms and
subject to the conditions of the applicable Exchange Offer described herein
and in the applicable Letter of Transmittal. The acceptance of an Exchange
Offer by a tendering Holder of MFS Notes will constitute the agreement by such
Holder to deliver good and marketable title to the tendered MFS Notes free and
clear of all liens, charges, claims encumbrances, interests and restrictions
of any kind.
Holders of the MFS Notes do not have any appraisal or dissenters' rights
under the Delaware General Corporation Law or the MFS Indentures in connection
with the Exchange Offers. The Company intends to conduct the Exchange Offers
in accordance with the applicable requirements of the Securities Act and the
Exchange Act, and the rules and regulations of the Commission thereunder.
ACCEPTANCE OF MFS NOTES FOR EXCHANGE; DELIVERY OF WORLDCOM NOTES
The Company shall be deemed to have accepted validly tendered MFS Notes and
properly given Consents which have not been withdrawn or revoked as provided
in this Prospectus when, and if, the
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Company has given oral or written notice thereof to the Exchange Agent.
Subject to the terms and conditions of the Exchange Offers, delivery of
WorldCom Notes, Consent Payments and other cash payments, if any, for MFS
Notes so accepted will be made by the Exchange Agent on the Exchange Date upon
receipt of such notice. The Exchange Agent will act as agent for tendering
Holders for the purpose of receiving MFS Notes from and transmitting Consent
Payments and WorldCom Notes to such Holders. If any tendered MFS Notes are not
accepted for any reason set forth in the terms and conditions of the Exchange
Offers or if MFS Notes are withdrawn or are submitted for a greater principal
amount than the Holder thereof desires to exchange, such unaccepted, withdrawn
or non-exchanged MFS Notes will be returned without expense to the tendering
Holder thereof as promptly as practicable.
PROCEDURES FOR TENDERING
To tender in the Exchange Offers, a Holder of MFS Notes must complete, sign
and date the applicable Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein and therein, have the
signatures thereon guaranteed if required by the Letter of Transmittal, and
mail or otherwise deliver such Letter of Transmittal or such facsimile to the
Exchange Agent at the address set forth in the Letter of Transmittal for
receipt on or prior to the Expiration Date, except as provided below. In
addition, either (i) certificates for such MFS Notes, along with the
applicable Letter of Transmittal, must be received by the Exchange Agent on or
prior to the Expiration Date or (ii) a timely confirmation of a book-entry
transfer (a "Book-Entry Confirmation") of such MFS Notes into the Exchange
Agent's account at DTC pursuant to the procedure for book-entry transfer
described below, must be received by the Exchange Agent on or prior to the
Expiration Date. A Holder who is unable to comply on a timely basis with the
above procedures but nonetheless wishes to tender may do so by complying with
the guaranteed delivery procedures described below.
THE METHOD OF DELIVERY OF MFS NOTES, THE LETTERS OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES, SUFFICIENT
TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO AND RECEIPT BY THE EXCHANGE AGENT
ON OR BEFORE THE EXPIRATION DATE. DO NOT SEND THE LETTER OF TRANSMITTAL OR ANY
MFS NOTES TO ANYONE OTHER THAN THE EXCHANGE AGENT.
Any beneficial owner whose MFS Notes are held by a broker, dealer,
commercial bank, trust company or other nominee and who wishes to tender
should contact such nominee promptly and instruct such nominee to tender on
such beneficial owner's behalf. If such beneficial owner wishes to tender on
such owner's own behalf, such owner must, prior to completing and executing
the applicable Letter of Transmittal and delivering such owner's MFS Notes,
either make appropriate arrangements to register ownership of the MFS Notes in
such owner's name or obtain a properly completed bond power from its nominee.
The transfer of registered ownership may take considerable time and be
difficult to complete prior to the Expiration Date.
All WorldCom Notes will be delivered only in book-entry form through DTC.
Accordingly, Holders who anticipate tendering other than through DTC are urged
to contact promptly a bank, broker or other intermediary (that has the
capability to hold securities custodially through DTC) to arrange for receipt
of any WorldCom Notes to be delivered pursuant to the Exchange Offers and to
obtain the information necessary to provide the required DTC participant and
account information in the applicable Letter of Transmittal.
The YELLOW Letter of Transmittal must be used to tender MFS 2004 Notes. The
BLUE Letter of Transmittal must be used to tender MFS 2006 Notes. Holders who
wish to tender MFS Notes of both series must complete a separate Letter of
Transmittal in respect of each series of MFS Notes tendered.
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Tender of MFS Notes Held in Physical Form.
To tender MFS Notes held in physical form, the Holder thereof must: (i)
complete and sign the applicable Letter of Transmittal in accordance with the
instructions set forth therein; and (ii) deliver the properly completed and
executed Letter of Transmittal and the MFS Notes in physical form to the
Exchange Agent at the address set forth on the back cover page of this
Prospectus on or prior to the Expiration Date. THE PROPER COMPLETION,
EXECUTION AND DELIVERY OF A LETTER OF TRANSMITTAL WITH RESPECT TO PARTICULAR
MFS NOTES WILL CONSTITUTE THE GIVING OF A CONSENT TO THE PROPOSED AMENDMENTS
WITH RESPECT TO SUCH MFS NOTES.
Book-Entry Delivery Procedures for Holders Tendering MFS Notes held with
DTC.
To tender MFS Notes held by a nominee with DTC, the beneficial owner thereof
must: (i) inform such owner's nominee of such owner's interest in tendering
such owner's MFS Notes pursuant to the Exchange Offers; (ii) instruct such
nominee to effect a book-entry transfer of all MFS Notes to be tendered in the
Exchange Offers by such owner into the Exchange Agent's account at DTC on or
prior to the Exchange Date; (iii) instruct such nominee to complete and sign
the applicable Letter of Transmittal in accordance with the instructions set
forth therein; and (iv) instruct such nominee to deliver the properly
completed and executed Letter of Transmittal (or a facsimile thereof) to the
Exchange Agent on or prior to the Expiration Date. THE PROPER COMPLETION,
EXECUTION AND DELIVERY OF A LETTER OF TRANSMITTAL WITH RESPECT TO PARTICULAR
MFS NOTES WILL CONSTITUTE THE GIVING OF A CONSENT TO THE PROPOSED AMENDMENTS
WITH RESPECT TO SUCH MFS NOTES.
The Exchange Agent will establish promptly an account with respect to the
MFS Notes at DTC for purposes of the Exchange Offers. The Exchange Agent and
DTC have confirmed that any financial institution that is a participant in
DTC's system may utilize DTC's Automated Tender Offer Program to tender MFS
Notes. Any such financial institution may make a book-entry delivery of MFS
Notes by causing DTC to transfer MFS Notes to the Exchange Agent's account.
However, although delivery of MFS Notes may be effected through book-entry
transfer at DTC, a properly completed and executed Letter of Transmittal,
together with any other documents required by the Letter of Transmittal, must,
in any case, be transmitted to, and received by, the Exchange Agent at its
address set forth in the Letter of Transmittal on or prior to the Expiration
Date, or the guaranteed delivery procedures described below must be complied
with. MFS Notes will not be deemed surrendered until the Letter of Transmittal
and signature guarantees, if any, is received by the Exchange Agent. DELIVERY
OF A LETTER OF TRANSMITTAL TO DTC WILL NOT CONSTITUTE VALID DELIVERY TO THE
EXCHANGE AGENT.
Guaranteed Delivery Procedures.
Holders who wish to tender their MFS Notes and (i) whose MFS Notes are not
immediately available or (ii) who cannot deliver their MFS Notes, the Letter
of Transmittal or any other required documents to the Exchange Agent on or
prior to the Expiration Date, may effect a tender if:
(a) The tender is made by or through a firm or other entity identified in
Rule 17Ad-15 under the Exchange Act, including (as such terms are defined
therein): (i) a bank; (ii) a broker, dealer, municipal securities dealer,
municipal securities broker, government securities dealer or government
securities broker; (iii) a credit union; (iv) a national securities
exchange, registered securities association or clearing agency; or (v) a
savings institution that is a participant in a Securities Transfer
Association recognized program (an "Eligible Institution");
(b) On or prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
substantially in the form provided by the Company setting forth the name
and address of the Holder, and the principal amount of MFS Notes tendered,
stating that the tender is being made thereby and guaranteeing that, within
two New York Stock Exchange trading days after the Expiration Date, the
Letter of Transmittal (or a facsimile thereof),
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together with the certificate(s) representing the MFS Notes in proper form
for transfer or a Book-Entry Confirmation, as the case may be, and any
other documents required by the Letter of Transmittal, will be delivered by
the Eligible Institution to the Exchange Agent; and
(c) Such properly executed Letter of Transmittal (or facsimile thereof),
as well as the certificate(s) representing all tendered MFS Notes in proper
form for transfer and all other documents required by the Letter of
Transmittal are received by the Exchange Agent within two New York Stock
Exchange trading days after the Expiration Date.
Upon request to the Information Agent, a Notice of Guaranteed Delivery will
be sent to Holders who wish to tender their MFS Notes according to the
guaranteed delivery procedures set forth above.
PROPER EXECUTION AND DELIVERY OF LETTERS OF TRANSMITTAL
Signatures on a Letter of Transmittal or notice of withdrawal described
below (see "--Withdrawal of Tenders and Revocation of Consents"), as the case
may be, must be guaranteed by an Eligible Institution unless the MFS Notes
tendered pursuant thereto are tendered (i) by a Holder who has not completed
the box entitled "Special Delivery Instructions" or "Special Issuance and
Payment Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution. In the event that signatures on a Letter of
Transmittal are required to be guaranteed, such guarantee must be made by an
Eligible Institution.
The YELLOW Letter of Transmittal must be used to tender MFS 2004 Notes. The
BLUE Letter of Transmittal must be used to tender MFS 2006 Notes. Holders who
wish to tender from both series must complete a separate Letter of Transmittal
in respect of each series of MFS Notes tendered.
If the Letter of Transmittal is signed by the Holder(s) of MFS Notes
tendered thereby, the signature(s) must correspond with the name(s) as written
on the face of the MFS Notes without alteration, enlargement or any change
whatsoever. If any of the MFS Notes tendered thereby are held by two or more
Holders, all such Holders must sign the Letter of Transmittal. If any of the
MFS Notes tendered thereby are registered in different names on different MFS
Notes, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal, and any accompanying documents, as there are different
registrations of certificates.
If payments are to be made to a person other than the signatory on the
Letter of Transmittal, or if MFS Notes that are not tendered for exchange
pursuant to the Exchange Offers are to be returned to a person other than the
Holder thereof, then certificates for such MFS Notes must be endorsed or
accompanied by an appropriate instrument of transfer, signed exactly as the
name of the registered owner appears on the certificates, with the signatures
on the certificates or instruments of transfer guaranteed by an Eligible
Institution.
If the Letter of Transmittal is signed by a person other than the Holder of
any MFS Notes listed therein, such MFS Notes must be properly endorsed or
accompanied by a properly completed bond power, signed by such Holder exactly
as such Holder's name appears on such MFS Notes.
If the Letter of Transmittal or any MFS Notes or bond powers or other
instruments of transfer are signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, such persons should so indicate when
signing, and, unless waived by the Company, evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
No alternative, conditional, irregular or contingent tenders or consents
will be accepted. By executing the Letter of Transmittal (or facsimile
thereof), the tendering Holders of MFS Notes waive any right to receive any
notice of the acceptance for exchange of their MFS Notes.
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<PAGE>
Tendering Holders should indicate in the applicable box in the Letter of
Transmittal the name and address to which payments and/or substitute
certificates evidencing MFS Notes for amounts not tendered or not exchanged
are to be issued or sent, if different from the name and address of the person
signing the Letter of Transmittal. If no such instructions are given, such
payments will be made, and/or MFS Notes not tendered or not exchanged will be
returned, to such tendering Holder.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance and withdrawal of tendered MFS Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and
all tendered MFS Notes determined by it not to be in proper form or not to be
properly tendered or any tendered MFS Notes the Company's acceptance of which
would, in the opinion of counsel for the Company, be unlawful. The Company
also reserves the right to waive, in its sole discretion, any defects,
irregularities or conditions of tender as to particular MFS Notes, whether or
not waived in the case of other MFS Notes. The Company's interpretation of the
terms and conditions of the Exchange Offers and the Consent Solicitations
(including the instructions in the Letters of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of MFS Notes must be cured within such time as the
Company shall determine. Although the Company intends to notify Holders of
defects or irregularities with respect to tenders of MFS Notes, neither the
Company, the Exchange Agent nor any other person will be under any duty to
give such notification or shall incur any liability for failure to give any
such notification. Tenders of MFS Notes will not be deemed to have been made
until such defects or irregularities have been cured or waived.
By tendering, each Holder of MFS Notes will represent to and agree with the
Company that, among other things, the MFS Notes tendered are held by such
Holder free and clear of all security interests, liens, restrictions, charges,
encumbrances, conditional sale agreements or other obligations relating to
their sale or transfer, and not subject to any adverse claim when the same are
accepted by the Company.
Any holder whose MFS Notes have been mutilated, lost, stolen or destroyed
will be responsible for obtaining replacement securities or for arranging for
indemnification with the MFS Trustee. Holders may contact the Information
Agent for assistance with such matters.
WITHDRAWAL OF TENDERS AND REVOCATION OF CONSENTS
Except as otherwise provided herein, tenders of MFS Notes may be withdrawn
at any time prior to 11:59 p.m., New York City time, on August 4, 1997.
Tenders of MFS Notes may not be withdrawn at any time after such time unless
the applicable Exchange Offer is extended with changes in the terms of such
Exchange Offer that are materially adverse to the tendering Holder, in which
case tenders of MFS Notes may be withdrawn under the conditions described in
the extension. The valid withdrawal of tendered MFS Notes will be deemed to be
a revocation of the Consents related to such MFS Notes.
Withdrawal of MFS Notes Held in Physical Form.
To withdraw a tender of MFS Notes in the Exchange Offers, a Holder of MFS
Notes held in physical form must provide a written or facsimile transmission
notice of withdrawal to the Exchange Agent at its address set forth herein
prior to 11:59 p.m., New York City time, on August 4, 1997, or such later
time, if any, specified in an extension of the applicable Exchange Offer. Any
such notice of withdrawal must (i) specify the name of the person who tendered
the MFS Notes to be withdrawn, (ii) identify the MFS Notes to be withdrawn
(including the certificate number or numbers and aggregate principal amount of
such MFS Notes), (iii) be signed by the Holder in the same manner as the
original signature on the Letter of Transmittal by which such MFS Notes were
tendered (including any required signature guarantees) and (iv) if such MFS
Notes are held by a new beneficial owner, include evidence satisfactory to the
Company that the person withdrawing the tender has succeeded to the beneficial
35
<PAGE>
ownership of the MFS Notes. A purported notice of withdrawal which lacks any
of the required information will not be an effective withdrawal of a tender
previously made.
Withdrawal of MFS Notes Held with DTC.
To withdraw a tender of MFS Notes in the Exchange Offers, a beneficial owner
of MFS Notes held with DTC must: (i) call such owner's nominee and instruct
such nominee to withdraw such tender of MFS Notes by debiting the Exchange
Agent's account at DTC of all MFS Notes to be withdrawn; and (ii) instruct
such nominee to provide a written or facsimile transmission notice of
withdrawal to the Exchange Agent at its address set forth herein prior to
11:59 p.m., New York City time, on August 4, 1997, or such later time, if any,
specified in an extension of the applicable Exchange Offer. Such notice of
withdrawal must: (A) specify the name of the person who tendered the MFS
Notes; (B) specify the aggregate principal amount of MFS Notes to be
withdrawn; (C) specify the number of the account at DTC to be credited with
the withdrawn MFS Notes; and (D) if such MFS Notes are held by a new
beneficial owner, evidence satisfactory to the Company that the person
withdrawing the tender has succeeded to the beneficial ownership of the MFS
Notes. A purported notice of withdrawal which lacks any of the required
information will not be an effective withdrawal of a tender previously made.
All questions as to the validity, form and eligibility (including time of
receipt) of any such notices of withdrawal will be determined by the Company,
in its sole discretion, whose determination shall be final and binding on all
parties. Unless waived, any defects or irregularities in connection with
withdrawals of tenders of MFS Notes must be cured within such time as the
Company shall determine. Neither the Company, the Exchange Agent nor any other
person will be under any duty to give notification of any such defect or
irregularity or shall incur any liability for failure to give any such
notification. Withdrawals of tenders of MFS Notes will not be deemed to have
been made until such defects or irregularities have been cured or waived. Any
MFS Notes so withdrawn will be deemed not to have been validly tendered for
purposes of the Exchange Offers and the Consents with respect thereto not to
have been validly given, and no WorldCom Notes will be issued with respect
thereto unless the MFS Notes so withdrawn are validly retendered. Properly
withdrawn MFS Notes may be retendered by following one of the procedures
described above under "The Exchange Offers--Procedures for Tendering" at any
time on or prior to the Expiration Date.
EXCHANGE AGENT
Harris Trust and Savings Bank has been appointed Exchange Agent for the
Exchange Offers and Consent Solicitations. Letters of Transmittal, Notices of
Guaranteed Delivery and all correspondence in connection with the Exchange
Offers should be sent or delivered by each Holder or a beneficial owner's
broker, dealer, commercial bank, trust company or other nominee to the
Exchange Agent at the addresses and telephone numbers set forth in the
applicable Letter of Transmittal. The Company will pay the Exchange Agent
reasonable and customary fees for its services and will reimburse it for its
reasonable, out-of-pocket expenses in connection therewith.
INFORMATION AGENT
MacKenzie Partners, Inc. has been appointed as Information Agent for the
Exchange Offers and the Consent Solicitations, and will receive customary
compensation for its services. Questions concerning tender procedures and
requests for additional copies of this Prospectus, the Letters of Transmittal
or the Notices of Guaranteed Delivery should be directed to the Information
Agent at the address and telephone numbers set forth on the back cover page of
this Prospectus. Holders of MFS Notes may also contact their broker, dealer,
commercial bank or trust company for assistance concerning the Exchange
Offers.
36
<PAGE>
DEALER MANAGERS
The Company has retained Salomon Brothers Inc and Goldman, Sachs & Co. to
act as Dealer Managers in connection with the Exchange Offers and Consent
Solicitations and will pay a fee to the Dealer Managers for soliciting
acceptances of each Exchange Offer if the related Requisite Consent is
received as of the termination or expiration of such Exchange Offer. Such fee
is based on the Accreted Value, as of July 15, 1997, of all MFS Notes validly
tendered and not validly withdrawn in such Exchange Offer as of the
termination or expiration thereof. The Company will also reimburse the Dealer
Managers for their reasonable out-of-pocket expenses. The obligations of the
Dealer Managers to perform such function are subject to certain conditions.
The Company has agreed to indemnify the Dealer Managers against certain
liabilities, including certain liabilities under the federal securities laws,
or to contribute to payments that the Dealer Managers may be required to make
in respect thereof. Any questions regarding the terms of the Exchange Offers
or the Consent Solicitations should be directed to the Dealer Managers at the
addresses and telephone numbers set forth on the back cover page of this
Prospectus.
The Dealer Managers currently plan to make a market in the WorldCom Notes
following the completion of the Exchange Offers and may buy and sell WorldCom
Notes on a "when and if issued" basis prior to the completion of the Exchange
Offers. However, there can be no assurance that the Dealer Managers will
engage in such activities or that any active market in the WorldCom Notes will
develop or be maintained. See "Risk Factors--Certain Considerations Relating
to Holders Tendering in the Exchange Offers."
The Dealer Managers, from time to time, make markets in the MFS Notes. As of
June 30, 1997, the Dealer Managers held approximately 8.2% and 4.7% of the
aggregate principal amount of Outstanding MFS 2004 Notes and MFS 2006 Notes,
respectively.
OTHER FEES AND EXPENSES; TRANSFER TAXES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, facsimile transmission, telephone or in person by
the Dealer Managers and the Information Agent, as well as by officers and
regular employees of the Company and its affiliates.
Tendering Holders of MFS Notes will not be required to pay any fee or
commission to the Dealer Managers. However, if a tendering Holder handles the
transaction through its broker, dealer, commercial bank, trust company or
other institution, such Holder may be required to pay brokerage fees or
commissions.
The Company will pay all transfer taxes, if any, applicable to the exchange
of MFS Notes pursuant to the Exchange Offers. If, however, WorldCom Notes
and/or substitute MFS Notes for amounts not tendered or not exchanged are to
be delivered to, or are to be registered in the name of, any person other than
the Holder of MFS Notes tendered, or if tendered MFS Notes are registered in
the name of any person other than the person signing the Letter of
Transmittal, or if a transfer tax is imposed for any reason other than the
exchange of the MFS Notes pursuant to an Exchange Offer, then the amount of
any such transfer taxes (whether imposed on the Holder or any other persons)
will be payable by the tenderor thereof. If satisfactory evidence of payment
of such taxes or exemption therefrom is not submitted with the appropriate
Letter of Transmittal, the amount of such transfer taxes will be billed
directly to such tendering Holder and/or withheld from any payments due with
respect to the MFS Notes tendered by such Holder.
37
<PAGE>
DESCRIPTION OF DIFFERENCES BETWEEN THE MFS NOTES AND THE WORLDCOM NOTES
The following is a summary comparison of the material terms of the MFS Notes
and the WorldCom Notes. The description of the MFS Notes reflects the MFS
Notes as currently constituted and does not reflect any changes to the
covenants and other terms of the MFS Notes that may be effected pursuant to
the Consent Solicitations as described under "The Proposed Amendments." Such
summary does not purport to be complete and is qualified in its entirety by
reference to the WorldCom Indenture and the MFS Indentures. Capitalized terms
appearing below within the descriptions of the MFS Notes and the WorldCom
Notes and which are not otherwise defined herein have the same meanings as are
given to such terms in the MFS Indentures and the WorldCom Indenture,
respectively, copies of which are exhibits to the Registration Statement of
which this Prospectus forms a part. Definitions of certain capitalized terms
relating to the MFS Indentures are set forth under "The Proposed Amendments--
Certain Definitions." Whenever particular sections or defined terms are
referred to, it is intended that such sections or defined terms shall be
incorporated by reference. For additional information regarding the WorldCom
Notes and for definitions of certain capitalized terms used with respect to
the WorldCom Notes but not heretofore defined, see "Description of the
WorldCom Notes" below.
----------------------------------------------------------------
MFS NOTES WORLDCOM NOTES
- -------------------------------------------------------------------------------
ISSUER: MFS WorldCom
INTEREST The MFS Notes were originally Interest on the WorldCom
PAYMENT issued at a discount and have Notes will accrue from the
DATES: accreted in value from and in- Interest Accrual Date and
cluding the respective origi- will be payable semi-annu-
nal issue date thereof. The ally on January 15 and July
MFS Notes will continue to 15 beginning on January 15,
accrete in value to but ex- 1998. (Sections 2(a)(iv) and
cluding the Interest Accrual 2(b)(iv) of WorldCom Inden-
Date. MFS has elected to com- ture)
mence the accrual of cash in-
terest on both series of MFS
Notes as of the Interest Ac-
crual Date, at which time the
outstanding principal amount
at Stated Maturity of MFS
Notes of each series will be
reduced to the Accreted Value
of such MFS Notes as of such
date. Cash interest on both
series of MFS Notes will be
payable semi-annually on Janu-
ary 15 and July 15 beginning
on January 15, 1998. Had MFS
not so elected to commence the
accrual of cash interest, in-
terest on the MFS 2004 Notes
would have been payable semi-
annually on January 15 and
July 15 beginning on July 15,
1999, and interest on the MFS
2006 Notes would have been
payable semi-annually on Janu-
ary 15 and July 15 beginning
on July 15, 2001. (Sections
202 and 301 of 1994 Indenture,
Section 2(a)(iv) of 1996 In-
denture)
OPTIONAL The MFS 2004 Notes are not re- The WorldCom 2004 Notes have
REDEMPTION: deemable at the option of MFS the same redemption provi-
prior to January 15, 1999. On sions as the MFS 2004 Notes,
or after January 15, 1999, the and the WorldCom 2006 Notes
MFS 2004 Notes are redeemable have the same redemption
at the option of MFS, in whole provisions as the MFS 2006
at any time or in part from Notes, except that WorldCom
time to time, at is the
- -------------------------------------------------------------------------------
38
<PAGE>
Continuation of Description of Differences Between the MFS Notes and the
WorldCom Notes
----------------------------------------------------------------
MFS NOTES WORLDCOM NOTES
- --------------------------------------------------------------------------------
the following prices (ex- Issuer of the WorldCom Notes
pressed as percentages of the and has the optional right to
principal amount at Stated redeem such notes. (Sections
Maturity), if redeemed during 2(a)(vi) and 2(b)(vi) of the
the twelve months beginning WorldCom Indenture)
January 15 of the years indi-
cated below, in each case to-
gether with interest accrued
to the redemption date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
1999.................. 103.52%
2000.................. 102.34%
2001.................. 101.17%
2002 and thereafter... 100.00%
</TABLE>
(Section 203 of 1994 Inden-
ture)
The MFS 2006 Notes are not
redeemable at the option of
MFS prior to January 15,
2001. On or after January 15,
2001, the MFS 2006 Notes will
be redeemable at the option
of MFS, in whole at any time
or in part from time to time,
at the following prices (ex-
pressed as percentages of the
principal amount at Stated
Maturity), if redeemed during
the twelve months beginning
January 15 of the years indi-
cated below, in each case to-
gether with interest accrued
to the redemption date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001.................. 103.32%
2002.................. 102.21%
2003.................. 101.11%
2004 and thereafter... 100.00%
</TABLE>
(Section 2(a)(vi) of 1996 In-
denture)
CHANGE OF Upon the occurrence of a None
CONTROL: Change of Control, each
Holder will have the right to
require MFS to repurchase all
or any part of such Holder's
Notes at a purchase price in
cash equal to 101 percent of
the Accreted Value thereof on
any Purchase Date occurring
prior to January 15, 1999, in
the case of the MFS 2004
Notes, and prior to January
15, 2001, in the case of the
MFS 2006 Notes, plus any ac-
crued and unpaid cash inter-
est not otherwise included in
- --------------------------------------------------------------------------------
39
<PAGE>
Continuation of Description of Differences Between the MFS Notes and the
WorldCom Notes
----------------------------------------------------------------
MFS NOTES WORLDCOM NOTES
- --------------------------------------------------------------------------------
Accreted Value to such Pur-
chase Date, or 101 percent of
the principal amount thereof
at Stated Maturity (subject to
possible reduction as provided
in the MFS Indentures) on any
Purchase Date occurring on or
after January 15, 1999 and
January 15, 2001, respective-
ly, plus accrued and unpaid
interest, if any, to such Pur-
chase Date, in accordance with
the procedures set forth in
the MFS Indentures. (Section
1013 of 1994 Indenture; Sec-
tion 5(r) of 1996 Indenture)
LIMITATION OF MFS will not incur any Debt None
DEBT: unless (i) after giving effect
to such incurrence of Debt and
the contemporaneous applica-
tion of the proceeds thereof,
no Default or Event of Default
shall have occurred and be
continuing at the time or
would occur as a consequence
of the incurrence of such
Debt, and (ii) such Debt is
Permitted Debt. (Section 1008
of 1994 Indenture; Section
5(e) of 1996 Indenture)
LIMITATION OF MFS will not permit any of its None
DEBT AND Restricted Subsidiaries to in-
PREFERRED cur any Debt or issue any pre-
STOCK OF ferred stock, except (a) Sub-
RESTRICTED sidiary Vendor Debt; (b) Debt
SUBSIDIARIES: and preferred stock of Re-
stricted Subsidiaries out-
standing as of January 26,
1994; (c) Debt and preferred
stock of a Restricted Subsidi-
ary issued to and held by MFS;
(d) Interest Swap Obligations,
provided that such obligations
are related to payment obliga-
tions on Debt otherwise per-
mitted by the terms of this
para- graph, and Currency
Hedge Obligations; (e) Debt or
preferred stock incurred in
exchange for, or the proceeds
of which are used to refi-
nance, Restricted Subsidiary
Debt or preferred stock re-
ferred to in clause (a) of
this paragraph, subject to
certain exceptions; (f) Debt
or preferred stock of MFS
Telecom, which is convertible
into Capital Stock of MFS, is-
sued to a Strategic Equity In-
vestor;
- --------------------------------------------------------------------------------
40
<PAGE>
Continuation of Description of Differences Between the MFS Notes and the
WorldCom Notes
----------------------------------------------------------------
MFS NOTES WORLDCOM NOTES
- -------------------------------------------------------------------------------
provided, however, that the
proceeds of such incurrence or
issuance are used as though
such proceeds were Net Cash
Proceeds in accordance with
the provisions of "Limitations
on Asset Sales" (described be-
low); and (g) Guarantees by
Restricted Subsidiaries of
Debt of MFS described in
clause (a) of the definition
of Permitted Debt. (Section
1009 of 1994 Indenture; Sec-
tion 5(f) of 1996 Indenture)
LIMITATIONS MFS will not, and will not Same as MFS Notes, except
ON LIENS: permit any of its Restricted that, WorldCom and its sub-
Subsidiaries to enter into, sidiaries may issue, assume
create, incur, assume or suf- or guarantee indebtedness
fer to exist any Liens of any secured by Liens on Property
kind, other than Permitted that are not Permitted Liens
Liens, on or with respect to without equally and ratably
any of its Property or assets securing the WorldCom Notes,
now owned or hereafter ac- provided that the sum of all
quired, or any interest such indebtedness then being
therein or any income or prof- issued, assumed or guaran-
its therefrom, unless the MFS teed together with such in-
Notes are secured equally and debtedness theretofore is-
ratably with (or prior to) sued, assumed or guaranteed
such Debt and any and all that remains outstanding
other Debt so secured by such does not exceed 15% of the
Property or assets for so long Consolidated Net Tangible
as any and all other Debt is Assets prior to the time
so secured. (Section 1012 of such indebtedness was is-
1994 Indenture; Section 5(g) sued, assumed or guaranteed.
of 1996 Indenture) (Section 1004 of WorldCom
Indenture)
LIMITATIONS MFS will not, and will not Sale and Leaseback Transac-
ON SALE AND permit any of its Restricted tions are considered Liens
LEASEBACK Subsidiaries to enter into, and are subject to the cove-
TRANSACTIONS: assume, Guarantee or otherwise nant restricting the ability
become liable with respect to of the Company to incur
any Sale and Leaseback Trans- Liens, as described above.
action, unless (i) the obliga- (Section 1004 of WorldCom
tion of MFS or such Restricted Indenture)
Subsidiary with respect
thereto is included as Debt
and would be permitted under
other covenants and any Liens
granted thereby would be per-
mitted by other covenants,
(ii) the net proceeds from
such transaction are at least
equal to the Fair Market Value
of such Property being trans-
ferred, and (iii) the Net Cash
Proceeds from such transaction
are applied in accordance with
other covenants (see corre-
sponding section of
- -------------------------------------------------------------------------------
41
<PAGE>
Continuation of Description of Differences Between the MFS Notes and the
WorldCom Notes
----------------------------------------------------------------
MFS NOTES WORLDCOM NOTES
- --------------------------------------------------------------------------------
"The Proposed Amendments--Pro-
visions to be Deleted"). (Sec-
tion 1016 of 1994 Indenture;
Section 5(h) of 1996 Inden-
ture)
LIMITATIONS MFS will not, and will not None
ON RESTRICTED permit any of its Restricted
PAYMENTS: Subsidiaries to make any Re-
stricted Payment unless, at
the time of and after giving
effect to the proposed Re-
stricted Payment (i) no De-
fault or Event of Default
shall have occurred and be
continuing or shall occur as a
consequence thereof; (ii) af-
ter giving effect, on a pro
forma basis, to such Re-
stricted Payment and the
incurrence of any Debt the net
proceeds of which are used to
finance such Restricted Pay-
ment, MFS could incur at least
$1.00 of additional Debt pur-
suant to clause (h) or (i) of
the definition of Permitted
Debt; and (iii) after giving
effect to such Restricted Pay-
ment on a pro forma basis, the
aggregate amount expended or
declared for all Restricted
Payments on or after January
26, 1994 does not exceed cer-
tain formula amounts (see cor-
responding section of "The
Proposed Amendments--Provi-
sions to be Deleted"). (Sec-
tion 1010 of 1994 Indenture;
Section 5(i) of 1996 Inden-
ture)
LIMITATIONS MFS will not, and will not None
ON DIVIDENDS permit any Restricted Subsidi-
AND OTHER ary to cause or suffer to ex-
PAYMENT ist or become effective or en-
RESTRICTIONS ter into any encumbrance or
AFFECTING restriction (other than pursu-
RESTRICTED ant to law or regulation) on
SUBSIDIARIES: the ability of any Restricted
Subsidiary (i) to pay divi-
dends or make any other dis-
tributions in respect of its
Capital Stock or pay any Debt
or other obligation owed to
MFS or any other Restricted
Subsidiary of MFS; (ii) to
make loans or advances to MFS
or any Restricted Subsidiary
of MFS; or (iii) to transfer
any of its Property or assets
to MFS or any other Restricted
Subsidiary of MFS, except pur-
suant to certain ordi-
- --------------------------------------------------------------------------------
42
<PAGE>
Continuation of Description of Differences Between the MFS Notes and the
WorldCom Notes
----------------------------------------------------------------
MFS NOTES WORLDCOM NOTES
- --------------------------------------------------------------------------------
nary course of business excep-
tions (see corresponding sec-
tion of "The Proposed Amend-
ments--Provisions to be Delet-
ed"). (Section 1014 of 1994
Indenture; Section 5(j) of
1996 Indenture)
LIMITATIONS MFS (i) shall not permit any None
ON ISSUANCE Restricted Subsidiary to issue
AND SALE OF any Capital Stock other than
CAPITAL STOCK to MFS or a Restricted Subsid-
OF RESTRICTED iary, other than pursuant to
SUBSIDIARIES: certain specified agreements
in existence on January 26,
1994, unless MFS acquires at
the same time not less than
its Proportionate Interest in
such issuance of Capital Stock
and (ii) shall not permit any
Person other than MFS or a Re-
stricted Subsidiary to own any
Capital Stock of any Re-
stricted Subsidiary of MFS
(other than directors' quali-
fying shares), except for cer-
tain specified transactions
(see corresponding section of
"The Proposed Amendments--Pro-
visions to be Deleted"). (Sec-
tion 1018 of 1994 Indenture;
Section 5(k) of 1996 Inden-
ture)
LIMITATIONS MFS will not, and will not None
ON ASSET permit any Restricted Subsidi-
SALES: ary to, consummate an Asset
Sale unless (i) MFS or such
Restricted Subsidiary, as the
case may be, receives consid-
eration at the time of such
Asset Sale at least equal to
the Fair Market Value (as evi-
denced by a resolution of the
Board of Directors of MFS) of
the Property or assets sold or
otherwise disposed of, (ii) at
least 85 percent of the con-
sideration received by MFS or
such Restricted Subsidiary for
such Property or assets con-
sists of Cash Proceeds (or, if
less than 85 percent, the re-
mainder of such consideration
consists of Telecommunications
Assets) and (iii) MFS or such
Restricted Subsidiary, as the
case may be, uses the Net Cash
Proceeds in the manner set
forth in the next paragraph.
- --------------------------------------------------------------------------------
43
<PAGE>
Continuation of Description of Differences Between the MFS Notes and the
WorldCom Notes
----------------------------------------------------------------
MFS NOTES WORLDCOM NOTES
- --------------------------------------------------------------------------------
Within 360 days, in the case
of the MFS 2004 Notes, or 300
days, in the case of the MFS
2006 Notes, after any Asset
Sale, MFS or such Restricted
Subsidiary, as the case may
be, may at its option (a) re-
invest an amount equal to the
Net Cash Proceeds (or any por-
tion thereof) from such dispo-
sition in Replacement Assets
and/or (b) apply an amount
equal to such Net Cash Pro-
ceeds (or remaining Net Cash
Proceeds) to the permanent re-
duction of any Debt of MFS
ranking pari passu with the
MFS Notes (including the MFS
Notes) or Debt of any Re-
stricted Subsidiaries of MFS.
Any Net Cash Proceeds from any
Asset Sale that are not used
to reinvest in Replacement As-
sets and/or repay any pari
passu Debt of MFS as described
above constitute "Excess Pro-
ceeds."
When the aggregate amount of
Excess Proceeds exceeds $5.0
million, MFS must offer to
purchase to the extent of such
Excess Proceeds on a pro rata
basis from all Holders of the
MFS Notes (and any unsecured
Debt of MFS ranking pari passu
with the MFS Notes and
containing similar provisions
requiring MFS to purchase such
Debt) the MFS Notes (and such
other Debt) at a purchase
price equal to 100 percent of
the Accreted Value thereof on
any Purchase Date occurring
prior to January 15, 1999, in
the case of the MFS 2004
Notes, and January 15, 2001,
in the case of the MFS 2006
Notes, plus any accrued and
unpaid interest not otherwise
included in Accreted Value to
such Purchase Date, or 100
percent of the principal
amount thereof at Stated
Maturity (subject to possible
reduction as provided in the
MFS Indentures) on any
Purchase Date occurring on or
after January 15, 1999, in the
case of the MFS 2004 Notes,
and
- --------------------------------------------------------------------------------
44
<PAGE>
Continuation of Description of Differences Between the MFS Notes and the
WorldCom Notes
----------------------------------------------------------------
MFS NOTES WORLDCOM NOTES
- --------------------------------------------------------------------------------
January 15, 2001, in the case
of the MFS 2006 Notes, plus
accrued and unpaid interest,
if any, to such Purchase
Date, in accordance with the
procedures set forth in the
MFS Indentures. (Section 1015
of 1994 Indenture; Section
5(l) of 1996 Indenture)
LIMITATIONS MFS will not, and will not None
ON permit any of its Restricted
TRANSACTIONS Subsidiaries to conduct any
WITH business or enter into or
AFFILIATES: permit to exist any transac-
tion or series of related
transactions with any Affili-
ate of MFS or such Restricted
Subsidiary, as the case may
be, unless (i) such business,
transaction or series of re-
lated transactions is in the
best interest of MFS or such
Restricted Subsidiary, (ii)
such business, transaction or
series of related transac-
tions is on terms no less fa-
vorable to MFS or such Re-
stricted Subsidiary than
those that could be obtained
in a comparable arm's-length
transaction with a Person
that is not such an Affiliate
and (iii) (a) with respect to
such business, transaction or
series of related transac-
tions that has a Fair Market
Value or involves aggregate
payments equal to, or in ex-
cess of, $10.0 million but
less than $15.0 million, MFS
delivers to the Trustee an
Officer's Certificate stating
that such business, transac-
tion or series of related
transactions complies with
clauses (i) and (ii) above;
and (b) with respect to such
business, transaction or se-
ries of related transactions
that has a Fair Market Value
or involves aggregate pay-
ments equal to, or in excess
of, $15.0, million such busi-
ness, transaction or series
of transactions is approved
by a majority of the Board of
Directors (including a major-
ity of the Disinterested Di-
rectors), which approval is
set forth in a Board Resolu-
tion delivered to the Trustee
certifying that such busi-
ness, transaction or series
of related transactions
complies with clauses (i) and
(ii)
- --------------------------------------------------------------------------------
45
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WorldCom Notes
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MFS NOTES WORLDCOM NOTES
- -------------------------------------------------------------------------------
above. (Section 1011 of 1994
Indenture; Section 5(m) of
1996 Indenture)
PROVISION OF Whether or not MFS is subject None
FINANCIAL to Section 13(a) or 15(d) of
INFORMATION: the Exchange Act, or any suc-
cessor provision thereto, MFS
shall file with the Commission
the annual reports, quarterly
reports and other documents
which MFS would have been re-
quired to file with the Com-
mission pursuant to such Sec-
tion 13(a) or 15(d) or any
successor provision thereto if
MFS were subject thereto, such
documents to be filed with the
Commission on or prior to the
respective dates (the "Re-
quired Filing Dates") by which
MFS would have been required
to file them. MFS shall also
in any event within 15 days of
each Required Filing Date (i)
transmit by mail to all Hold-
ers, as their names and ad-
dresses appear in the Security
Register, without cost to such
Holders, and (ii) file with
the Trustee copies of the an-
nual reports, quarterly re-
ports and other documents
(without exhibits) which MFS
would have been required to
file with the Commission pur-
suant to Section 13(a) or
15(d) of the Exchange Act or
any successor provisions
thereto if MFS were subject
thereto. (Section 1017 of 1994
Indenture; Section 5(n) of
1996 Indenture)
CONSOLIDATION, MFS will not, and will not WorldCom may consolidate
MERGER, permit any Restricted with, or sell, lease or
CONVEYANCE, Subsidiary to, in any convey all or substantially
TRANSFER OR transaction or series of all of its assets to, or
LEASE: transactions, consolidate with merge with or into any other
or merge into any other Person corporation, provided that
(other than a merger of a (a) either WorldCom shall be
Restricted Subsidiary into MFS the continuing corporation,
in which MFS is the continuing or the successor corporation
corporation or the merger of a (if other than WorldCom)
Restricted Subsidiary into or formed by or resulting from
with a Restricted Subsidiary), any such consolidation or
or sell, convey, assign, merger or which shall have
transfer, lease or otherwise received the transfer of
dispose of all or such assets shall expressly
substantially all of the assume payment of the
Property and assets of MFS and principal of (and premium,
the Restricted Subsidiaries if any) and interest on all
taken as a whole to any other
Person, unless:
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46
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Continuation of Description of Differences Between the MFS Notes and the
WorldCom Notes
----------------------------------------------------------------
MFS NOTES WORLDCOM NOTES
- -------------------------------------------------------------------------------
the WorldCom Notes and the
(a) either (i) MFS shall be performance and observance
the continuing corporation or of all the covenants and
(ii) the corporation (if other conditions of the WorldCom
than MFS) formed by such Indenture; and (b) WorldCom
consolidation or into which or such successor
MFS is merged, or the Person corporation shall not
which acquires, by sale, immediately thereafter be in
assignment, conveyance, default under the WorldCom
transfer, lease or Indenture. (Section 801 of
disposition, all or WorldCom Indenture)
substantially all of the
Property and assets of MFS and
the Restricted Subsidiaries
taken as a whole (such
corporation or Person, the
"Surviving Entity"), shall be
a corporation organized and
validly existing under the
laws of the United States of
America, any political
subdivision thereof or any
state thereof or the District
of Columbia, and shall
expressly assume, by a
supplemental MFS Indenture,
the due and punctual payment
of the principal of (and
premium, if any) and interest
on all the Notes and the
performance of MFS' covenants
and obligations under the MFS
Indentures;
(b) immediately before and af-
ter giving effect to such
transaction or series of
transactions on a pro forma
basis no Event of Default or
Default shall have occurred
and be continuing or would re-
sult therefrom;
(c) immediately after giving
effect to any such transaction
or series of transactions on a
pro forma basis as if such
transaction or series of
transactions had occurred on
the first day of the determi-
nation period, MFS (or the
Surviving Entity if MFS is not
continuing) would be permitted
to incur $1.00 of additional
Debt pursuant to paragraphs
(h) or (i) of the definition
of "Permitted Debt"; and
(d) immediately after giving
effect to such transaction or
series of transactions on a
pro forma basis, MFS (or the
Surviving Entity if MFS is not
continuing) shall have a Con-
solidated Net Worth equal to
or greater than the Consoli-
- -------------------------------------------------------------------------------
47
<PAGE>
Continuation of Description of Differences Between the MFS Notes and the
WorldCom Notes
----------------------------------------------------------------
MFS NOTES WORLDCOM NOTES
- -------------------------------------------------------------------------------
dated Net Worth of MFS immedi-
ately prior to such transac-
tion.
Upon any transaction, or se- Upon any transaction ef-
ries of transactions that are fected in accordance with
of the type described in, and the foregoing paragraph and
are effected in accordance upon any such assumption by
with, the foregoing paragraph the successor corporation,
the Surviving Entity shall such successor corporation
succeed to, and be substituted shall succeed to and be sub-
for, and may exercise every stituted for WorldCom with
right and power of, MFS under the same effect as if it had
the MFS Indentures and the MFS been named as WorldCom in
Notes with the same effect as the WorldCom Indenture, and
if such Surviving Entity had WorldCom, except in the case
been named as MFS in the MFS of a lease, will be relieved
Indentures; and when a Surviv- of any further obligations
ing Person duly assumes all of under the WorldCom Indenture
the obligations and covenants and the WorldCom Notes.
of MFS pursuant to the MFS In- (Section 802 of WorldCom In-
dentures and the MFS Notes, denture)
except in the case of a lease,
the predecessor Person shall
be relieved of all such obli-
gations. (Sections 801 and 802
of 1994 Indenture; Section 7
of 1996 Indenture)
EVENTS OF DEFAULT:
Each of the following is an The WorldCom Notes are sub-
"Event of Default" with re- ject to substantially simi-
spect to a series of MFS Notes lar "Events of Default" as
under the applicable MFS In- are described in paragraphs
denture: (a), (b), (e) and (h) under
"MFS Notes--Events of De-
(a) default in the payment of fault". In addition under
any installment of interest the WorldCom Indenture, cer-
upon any MFS Notes of that se- tain events of default re-
ries when it becomes due and sulting in the acceleration
payable, and the continuance of the maturity of indebted-
of such default for a period ness aggregating in excess
of 30 days; of $50,000,000 under any
mortgages, indentures or in-
(b) default in the payment of struments under which
the principal of (or premium, WorldCom may have issued, or
if any, on) any MFS Note of by which there may have been
that series at its Maturity, secured or evidenced, any
whether at Stated Maturity or other indebtedness of
upon repurchase, acceleration, WorldCom; but only if such
optional redemption or other- indebtedness is not dis-
wise; charged or such acceleration
is not rescinded or annulled
(c) default, on the applicable are also considered "Events
Purchase Date, in the purchase of Default." (Section 501 of
of MFS Notes required to be WorldCom Indenture)
purchased by MFS pursuant to
an Offer to Purchase as to
which an Offer has been mailed
to Holders or the failure to
make an Offer to Purchase as
required in the applicable MFS
Indentures;
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48
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Continuation of Description of Differences Between the MFS Notes and the
WorldCom Notes
----------------------------------------------------------------
MFS NOTES WORLDCOM NOTES
- --------------------------------------------------------------------------------
(d) MFS fails to comply with
any of its covenants or agree-
ments related to "Limitation
on Debt" or "Limitation on
Debt and Preferred Stock of
Restricted Subsidiaries" or
fails to perform or comply
with the provisions of the ap-
plicable MFS Indenture related
to "Consolidation, Merger,
Conveyance, Transfer or
Lease";
(e) default in the perfor-
mance, or breach, of any cove-
nant or warranty of
MFS in the applicable MFS In-
denture (other than a covenant
or warranty a default in whose
performance or breach is spe-
cifically dealt with in (a),
(b), (c) or (d) above) and
continuance of such default or
breach for a period of 60 days
after specified written notice
thereof has been given to MFS
by the Trustee or to MFS and
the Trustee by the Holders of
at least 25 percent of the ag-
gregate principal amount of
the Outstanding MFS Notes of
that series;
(f) Debt of MFS or any Re-
stricted Subsidiary is not
paid when due within the ap-
plicable grace period, if any,
or is accelerated by the hold-
ers thereof and, in either
case, the principal amount of
such unpaid or accelerated
Debt exceeds $10.0 million;
(g) the entry by a court of
competent jurisdiction of one
or more judgments or orders
against MFS or any Restricted
Subsidiary in an uninsured or
unin- demnified aggregate
amount in excess of $10.0 mil-
lion which remains undis-
charged, unwaived, unstayed,
unbonded or unsatisfied for a
period of 60 consecutive days;
and
(h) certain events of bank-
ruptcy, insolvency, liquida-
tion or reorganization, or
court appointment of a custo-
dian, trustee or other similar
official of MFS or any Signif-
icant Restricted Subsidiary or
- --------------------------------------------------------------------------------
49
<PAGE>
Continuation of Description of Differences Between the MFS Notes and the
WorldCom Notes
----------------------------------------------------------------
MFS NOTES WORLDCOM NOTES
- -------------------------------------------------------------------------------
of all or substantially all of
its property or property of
significant restricted subsid-
iaries. (Section 501 of 1994
Indenture; Section 4(a) of
1996 Indenture)
If any Event of Default (other If any Event of Default un-
than an Event of Default spec- der the WorldCom Indenture
ified in clause (h) above) oc- with respect to WorldCom
curs with respect to a series Notes of a series at the
of MFS Notes and is continu- time outstanding occurs and
ing, then and in every such is continuing, then in every
case the Trustee or the Hold- such case the Trustee or the
ers of not less than 25 per- holders of not less than 25
cent of the Outstanding aggre- percent in principal amount
gate principal amount at of the Outstanding WorldCom
Stated Maturity (as such prin- Notes of such series may de-
cipal amount may be reduced clare the principal amount
for the MFS 2006 Notes pursu- of all of the WorldCom Notes
ant to Section 2(a)(iv) of the of that series to be due and
1996 Indenture) of MFS Notes payable immediately by writ-
of such series may declare the ten notice thereof to
Default Amount and any accrued WorldCom (and to the Trustee
and unpaid interest on all MFS if given by the holders).
Notes of such series then Out- Under certain circumstances,
standing to be immediately due the holders of a majority in
and payable, by a notice in principal amount of Out-
writing to MFS (and to the standing WorldCom Notes of
Trustee if given by Holders), such series by notice to
and upon any such declaration, WorldCom and the Trustee may
such Default Amount and any rescind and annul an accel-
accrued interest will become eration and its conse-
and be immediately due and quences. The WorldCom Inden-
payable. If any Event of De- ture also provides that the
fault specified in clause (h) holders of not less than a
above occurs with respect to a majority in principal amount
series of MFS Notes, the Ac- of the Outstanding WorldCom
creted Value and accrued in- Notes of any series issued
terest, if any, on the MFS thereunder may waive certain
Notes of such series then Out- past defaults with respect
standing shall become immedi- to such series and their
ately due and payable without consequences. (Sections 502
any declaration or other act and 513 of WorldCom
on the part of the Trustee or Indenture)
any Holder. Until and includ-
ing January 15, 1999, in the
case of the MFS 2004 Notes, or
January 15, 2001, in the case
of the MFS 2006 Notes, the
"Default Amount" shall equal
the Accreted Value thereof as
of such date. On or after Jan-
uary 15, 1999, in the case of
the MFS 2004 Notes, or January
15, 2001, in the case of the
MFS 2006 Notes, the Default
Amount shall equal 100 percent
of the principal amount
thereof at the Stated Maturity
(subject to reduction for the
MFS 2006 Notes as aforesaid)
thereof.
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50
<PAGE>
Continuation of Description of Differences Between the MFS Notes and the
WorldCom Notes
----------------------------------------------------------------
MFS NOTES WORLDCOM NOTES
- --------------------------------------------------------------------------------
Under certain circumstances,
the Holders of a majority in
principal amount at Stated
Maturity (subject to reduc-
tion for the MFS 2006 Notes
as aforesaid) of the Out-
standing MFS Notes by notice
to MFS and the Trustee may
rescind and annul an acceler-
ation and its consequences.
The MFS Indentures provide
that the Holders of not less
than a majority in principal
amount at Stated Maturity of
the Outstanding MFS Notes may
waive certain past defaults
and their consequences. (Sec-
tions 502 and 513 of 1994 In-
denture; Sections 4(b) and
4(c) of 1996 Indenture)
AMENDMENT AND MFS and the Trustee may, at Same as MFS, except that
SUPPLEMENT: any time and from time to WorldCom and the Trustee may,
time, without notice or con- at any time and from time to
sent of any Holder, enter time, without notice or con-
into one or more indentures sent of any Holder, also enter
supplemental to either of the into one or more indentures
MFS Indentures (1) to evi- supplemental to the WorldCom
dence the succession of an- Indenture to supplement any of
other Person to MFS and the the provisions thereof to such
assumption by such successor extent as shall be necessary
of the covenants of MFS under to permit or facilitate the
such MFS Indenture and con- defeasance and discharge of
tained in the MFS Notes, either series of WorldCom
(2) to add to the covenants Notes pursuant to the WorldCom
of MFS, for the benefit of Indenture, provided that any
the Holders, or to surrender such action shall not ad-
any right or power conferred versely affect the interests
upon MFS by such MFS Inden- of the Holders of the WorldCom
ture, (3) to add any addi- Notes. (Section 901 of
tional Events of Default, (4) WorldCom Indenture)
to provide for uncertificated
notes in addition to or in
place of certificated MFS
Notes issued under such MFS
Indenture, (5) to change or
eliminate any of the provi-
sions of such MFS Indenture,
provided that any such change
or elimination will become
effective only when there is
not Outstanding any MFS Note
created prior to the execu-
tion of such supplemental in-
denture which is entitled to
the benefit of such provi-
sion, (6) to evidence and
provide for the acceptance of
appointment under such MFS
Indenture by a successor
Trustee, (7) to secure the
MFS Notes issued under such
MFS Indenture, (8) to cure
any ambiguity, to
- --------------------------------------------------------------------------------
51
<PAGE>
Continuation of Description of Differences Between the MFS Notes and the
WorldCom Notes
----------------------------------------------------------------
MFS NOTES WORLDCOM NOTES
- -------------------------------------------------------------------------------
correct or supplement any pro-
vision in such MFS Indenture
which may be defective or in-
consistent with any other pro-
vision therein or to add any
other provisions with respect
to matters or questions aris-
ing under such MFS Indenture;
provided such actions will not
adversely affect the interests
of the Holders in any material
respect, or (9) to comply with
the requirements of the Com-
mission in order to effect or
maintain the qualification of
such MFS Indenture under the
Trust Indenture Act. (Section
901 of 1994 Indenture; Section
8(a) of 1996 Indenture)
With the consent of the Hold- The WorldCom Indenture also
ers of not less than a major- generally requires the con-
ity in principal amount at sent of the holders of at
Stated Maturity (subject to least a majority in princi-
reduction for the MFS 2006 pal amount of Outstanding
Notes as aforesaid) of the WorldCom Notes of a series
Outstanding MFS Notes of a se- to supplement or amend the
ries, MFS and the Trustee may WorldCom Indenture with re-
enter into one or more inden- spect to that series, except
tures supplemental to the MFS as described above and ex-
Indenture under which such se- cept that the consent of the
ries was issued for the pur- Holder of each Outstanding
pose of adding any provisions WorldCom Note of each series
to or changing in any manner is required to (1) change
or eliminating any of the pro- the Stated Maturity of the
visions of such MFS Indenture principal of, or any in-
or the modifying in any manner stallment of principal of or
of the rights of such Holders; interest on, any WorldCom
provided, however, that no Note of such series, or re-
such supplemental indentures duce the principal amount
will, without the consent of thereof, or rate or amount
the Holder of each Outstanding of interest thereon that
MFS Note of that series, (1) would be due and payable
change the Stated Maturity of upon Maturity thereof, or
the principal of, or any in- adversely affect any right
stallment of interest on, any of repayment at the option
such MFS Note, or reduce the of the Holder of any
principal amount thereof (or WorldCom Note of such se-
premium, if any), or the in- ries, or change any Place of
terest thereon that would be Payment where, or the cur-
due and payable upon Maturity rency in which, any WorldCom
thereof, or reduce the Default Note of such series or the
Amount that would be due and interest thereon is payable,
payable on acceleration of the or impair the right to in-
Maturity thereof provided in stitute suit for the en-
such MFS Indenture or change forcement of any such pay-
the place of payment where, or ment on or after the Stated
the coin or currency in which, Maturity thereof, (2) reduce
any such MFS Note or any pre- the percentage in principal
mium or interest thereon is amount of such Outstanding
payable, or impair the right WorldCom Notes, the consent
to of
- -------------------------------------------------------------------------------
52
<PAGE>
Continuation of Description of Differences Between the MFS Notes and the
WorldCom Notes
----------------------------------------------------------------
MFS NOTES WORLDCOM NOTES
- --------------------------------------------------------------------------------
institute suit for the en- whose Holders is required for
forcement of any such payment any such supplemental inden-
on or after the Stated Matu- ture, or the consent of whose
rity thereof, (2) reduce the Holders is required for any
percentage in principal waiver with respect to such
amount at Stated Maturity of notes (or compliance with cer-
such Outstanding MFS Notes, tain provisions of the
the consent of whose Holders WorldCom Indenture or certain
is necessary for any such defaults thereunder and their
supplemental indenture or re- consequences) provided for in
quired for any waiver of com- the WorldCom Indenture, or re-
pliance with certain provi- duce the requirements of the
sions of such MFS Indenture WorldCom Indenture with re-
or certain Defaults thereun- spect to such WorldCom Notes
der, (3) modify the obliga- for quorum or voting, or (3)
tions of MFS to make offers to modify with respect to such
to purchase such MFS Notes WorldCom Notes the provisions
upon a Change of Control or regarding "Supplemental Inden-
from the proceeds of Asset tures with Consent of Holders"
Sales, (4) subordinate in or "Waiver of Past Defaults",
right of payment, or other- except to increase any such
wise subordinate, such MFS percentage or to provide that
Notes to any other indebted- certain provisions of the
ness, (5) modify any provi- WorldCom Indenture cannot be
sions of such MFS Indenture modified or waived without the
relating to the calculation unanimous consent of the Hold-
of Accreted Value or (6) mod- ers of such WorldCom Notes.
ify any of the provisions of (Section 902 of WorldCom In-
the MFS Indentures providing denture)
for the execution of supple-
mental indentures requiring The WorldCom Indenture does
the consent of Holders, not have any provisions that
waiver of past defaults and require the consent of the
waiver of certain covenants Holders of not less than 75
(except to increase any per- percent in principal amount of
centage set forth therein); Outstanding WorldCom Notes.
provided, further, that the
consent of the Holders of not
less than 75 percent of the
principal amount at Stated
Maturity (subject to reduc-
tion as aforesaid) of the
Outstanding MFS Notes of that
series is required to make
any amendment to the covenant
described under "Change of
Control." (Section 902 of
1994 Indenture; Section 8(b)
of 1996 Indenture)
SATISFACTION MFS may terminate its obliga- Same as MFS (Sections 401 and
AND DISCHARGE tions under either MFS Inden- 1401-1405 of WorldCom Inden-
OF THE ture when (i) either (A) all ture)
INDENTURES; outstanding MFS Notes issued
DEFEASANCE under such MFS Indenture have
AND COVENANT been delivered to the Trustee
DEFEASANCE: for cancellation or (B) all
such MFS Notes not thereto-
fore delivered to the Trustee
for cancellation have become
due and payable, will become
due and payable within one
year or are to be called for
redemption within one year
under irrevocable arrange-
ments
- --------------------------------------------------------------------------------
53
<PAGE>
Continuation of Description of Differences Between the MFS Notes and the
WorldCom Notes
----------------------------------------------------------------
MFS NOTES WORLDCOM NOTES
- --------------------------------------------------------------------------------
satisfactory to the Trustee
for the giving of notice of
redemption by the Trustee in
the name, and at the expense,
of MFS, and MFS has irrevoca-
bly deposited or caused to be
deposited with the Trustee
funds in an amount sufficient
to pay and discharge the en-
tire indebtedness on such MFS
Notes, not theretofore deliv-
ered to the Trustee for can-
cellation, for principal of,
premium, if any, and interest
to the date of deposit or
Stated Maturity or date of re-
demption; (ii) MFS has paid or
caused to be paid all sums
payable by MFS under such MFS
Indenture; and (iii) MFS has
delivered an Officer's Certif-
icate and an Opinion of Coun-
sel relating to compliance
with the conditions set forth
in such MFS Indenture. (Sec-
tion 401 of 1994 Indenture;
Section 3(a) of 1996 Inden-
ture)
MFS will be deemed to have
paid and discharged the entire
Debt on a series of MFS Notes
and the MFS Indenture under
which such MFS Notes were is-
sued shall cease to be of fur-
ther effect as to all out-
standing MFS Notes (except as
to (i) rights of registration
of transfer, substitution and
exchange of such MFS
Notes and MFS' right of op-
tional redemption, (ii) rights
of Holders to receive payments
of principal of, premium, if
any, and interest on such MFS
Notes (but not the Change of
Control Repurchase Price of
such MFS Notes) and any rights
of the Holders with respect to
such amounts, (iii) the
rights, obligations and immu-
nities of the Trustee under
such MFS Indenture and (iv)
certain other specified provi-
sions in such MFS Indenture
(the foregoing exceptions (i)
through (iv) are collectively
referred to as the "Reserved
Rights")) after the irrevoca-
ble deposit by MFS with the
Trustee, in trust for the ben-
efit of the Holders, at any
time prior to the Stated Matu-
rity of such MFS Notes, of
- --------------------------------------------------------------------------------
54
<PAGE>
Continuation of Description of Differences Between the MFS Notes and the
WorldCom Notes
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MFS NOTES WORLDCOM NOTES
- --------------------------------------------------------------------------------
(A) money in an amount, (B)
U.S. Government Obligations
which through the payment of
interest and principal will
provide, not later than one
day before the due date of
payment in respect of the MFS
Notes, money in an amount, or
(C) a combination thereof,
sufficient to pay and dis-
charge the principal of and
interest on such MFS Notes
then outstanding on the dates
on which any such payments are
due in accordance with the
terms of such MFS Indenture
and of such MFS Notes. Defea-
sance may only be deemed to
occur if certain conditions
are satisfied, including,
among other things, delivery
by MFS to the Trustee of an
opinion of outside counsel ac-
ceptable to the Trustee to the
effect that, among other
things, (i) the deposit, de-
feasance and discharge will
not be deemed, or result in, a
taxable event for federal in-
come tax purposes, with re-
spect to the Holders and (ii)
MFS' deposit will not result
in the Trust or the Trustee
being subject to regulation
under the Investment Company
Act of 1940. (Sections 1201-
1206 of 1994 Indenture; Sec-
tion 6 of 1996 Indenture)
- --------------------------------------------------------------------------------
55
<PAGE>
THE CONSENT SOLICITATIONS
Concurrently with the Exchange Offers, the Company is soliciting Consents
from the Holders to the Proposed Amendments to the 1994 Indenture (under which
the MFS 2004 Notes were issued) and the 1996 Indenture (under which the MFS
2006 Notes were issued). The proper completion, execution and delivery of a
Letter of Transmittal by a Holder tendering MFS Notes pursuant to an Exchange
Offer will constitute the Consent of such tendering Holder to the Proposed
Amendments with respect to such MFS Notes. Holders may not deliver Consents
without tendering their MFS Notes in the Exchange Offers.
REQUIRED CONSENTS
Consents from Holders of a majority in aggregate principal amount
Outstanding of a series of MFS Notes must be received in order to amend the
MFS Indenture governing that series in the manner contemplated by the Proposed
Amendments as described herein, except with respect to the modification of the
term "Change of Control," which requires Consents from Holders of not less
than 75% of the aggregate principal amount Outstanding of MFS Notes of a
series. Among other things, the Proposed Amendments would eliminate (i) the
covenants in each of the MFS Indentures that (a) restrict the ability of MFS
and its restricted subsidiaries to incur debt, incur liens, enter into sale
and leaseback transactions, make restricted payments (including payment of
dividends) or enter into transactions with affiliates and (b) restrict the
ability of restricted subsidiaries of MFS to issue equity securities to
encumber their ability to pay dividends or to make certain loans or transfers
of property to MFS or another restricted subsidiary of MFS and (ii) the
separate financial reporting requirements contained in the MFS Indentures. If
the Supermajority Consent with respect to a series of MFS Notes is received,
the Proposed Amendments would also limit the circumstances in which a "Change
of Control" will be deemed to occur and consequently limit the circumstances
in which MFS would be required, as a result of a Change of Control, to offer
to repurchase such series of MFS Notes. See "The Proposed Amendments." Among
other conditions, receipt of the Requisite Consent with respect to both series
of MFS Notes, the execution and delivery by the MFS Trustee of the
supplemental indentures relating to the Proposed Amendments and the lack of
any objection by the MFS Trustee as to MFS' ability to effect the Proposed
Amendments are conditions to consummation of each Exchange Offer and payment
of the Consent Payments by the Company. See "The Exchange Offers--Conditions
to the Exchange Offers."
If the Requisite Consent or the Supermajority Consent, as the case may be,
is received with respect to a series of MFS Notes and the Exchange Offer with
respect to such series is consummated, then MFS and the MFS Trustee will
execute a supplemental indenture setting forth the Proposed Amendments in
respect of the MFS Notes of such series and the MFS Indenture, as so
supplemented, will become operative on the Exchange Date. Each non-exchanging
Holder of such series of MFS Notes will be bound by such supplemental
indenture even if such Holder did not give its Consent. Each of the MFS
Indentures, without giving effect to the Proposed Amendments, will remain in
effect until the Proposed Amendments with respect thereto become operative on
the Exchange Date. If the Exchange Offer for a series of MFS Notes is
terminated or withdrawn, the Proposed Amendments in respect of such series
will never become operative. See "The Proposed Amendments."
Consents may be revoked at any time prior to 11:59 p.m., New York City time,
on August 4, 1997 by the withdrawal of a tender of MFS Notes in accordance
with the instructions for such withdrawal (see "The Exchange Offer--Withdrawal
of Tenders and Revocation of Consents"). Any valid withdrawal of a tender of
MFS Notes shall also be deemed to be a revocation of the related Consent.
Tenders of MFS Notes may not be withdrawn and the related Consents may not be
revoked at any time after 11:59 p.m., New York City time, on August 4, 1997,
unless the applicable Exchange Offer is extended with changes in the terms of
such Exchange Offer that are materially adverse to the tendering Holder, in
which case tenders of MFS Notes may be withdrawn under the conditions
described in the extension.
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CONSENT PAYMENTS
On the Exchange Date, the Company will pay each Holder who gives a valid
Consent (which is not revoked) on or prior to the Expiration Date a Consent
Payment equal to (i) with respect to such Holder's MFS 2004 Notes, 0.25% of
the Accreted Value, as of the Interest Accrual Date, of such MFS 2004 Notes
and (ii) with respect to such Holder's MFS 2006 Notes, 0.375% of the Accreted
Value, as of the Interest Accrual Date, of such MFS 2006 Notes, in either
case, with respect to which such Consent has been given. If, on or prior to
the Expiration Date, a Holder's MFS Notes are not validly tendered and the
related Consents are not validly given pursuant to an Exchange Offer and
Consent Solicitation, such Holder will not receive a Consent Payment even if
the Proposed Amendments become effective with respect to such Holder's MFS
Notes.
HOLDERS OF MFS NOTES OF EITHER SERIES MAY GIVE THEIR CONSENT TO THE PROPOSED
AMENDMENTS APPLICABLE TO THAT SERIES ONLY BY TENDERING SUCH MFS NOTES IN THE
APPLICABLE EXCHANGE OFFER AND WILL BE DEEMED TO HAVE GIVEN SUCH CONSENT BY SO
TENDERING. THE PROPER COMPLETION, EXECUTION AND DELIVERY OF A LETTER OF
TRANSMITTAL WITH RESPECT TO A PARTICULAR SERIES OF MFS NOTES WILL CONSTITUTE
THE DELIVERY OF A CONSENT WITH RESPECT TO SUCH MFS NOTES.
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THE PROPOSED AMENDMENTS
WorldCom is soliciting the Consent of the Holders of MFS Notes to the
Proposed Amendments. The 1994 Indenture and the 1996 Indenture contain
substantially similar covenants and terms. What follows are summaries of (i)
the covenants and terms proposed to be eliminated from each of the MFS
Indentures pursuant to the Consent Solicitations and (ii) the covenants and
terms proposed to be substantially revised pursuant to the Consent
Solicitations (collectively, the "Proposed Amendments"). Capitalized terms
appearing below which are not otherwise defined herein have the same meanings
as are given to such terms in the MFS Indentures, copies of which have been
filed as exhibits to the Registration Statement of which this Prospectus forms
a part. The definition of certain capitalized terms used herein are set forth
under "--Certain Definitions" below. The summaries do not purport to be
complete and are qualified in their entirety by reference to the 1994
Indenture, the 1996 Indenture and the forms of the supplemental indenture to
each of the 1994 Indenture and the 1996 Indenture that contain the Proposed
Amendments with respect to the MFS Notes (and that are to be executed in
respect of each series of MFS Notes by MFS and the MFS Trustee in the event
the Requisite Consent or the Supermajority Consent, as the case may be, with
respect to such series is obtained). The form of each such supplemental
indenture has been filed as an exhibit to the Registration Statement of which
this Prospectus forms a part and is available from the Company upon request.
Whenever particular sections or defined terms are referred to, it is intended
that such sections or defined terms shall be incorporated by reference.
PROVISIONS TO BE DELETED
Pursuant to the Consent Solicitations, the Company is proposing to eliminate
the following from each of the MFS Indentures with respect to each series of
MFS Notes:
Limitation on Debt. MFS will not, directly or indirectly, incur any Debt
unless (i) after giving effect to such incurrence of Debt and the
contemporaneous application of the proceeds thereof, no Default or Event of
Default shall have occurred and be continuing at the time or would occur as a
consequence of the incurrence of such Debt, and (ii) such Debt is Permitted
Debt. (Section 1008 of 1994 Indenture; Section 5(e) of 1996 Indenture)
Limitation of Debt and Preferred Stock of Restricted Subsidiaries. MFS will
not permit any of its Restricted Subsidiaries to incur, directly or
indirectly, any Debt or issue any preferred stock, except (a) Subsidiary
Vendor Debt; (b) Debt and preferred stock of Restricted Subsidiaries
outstanding as of January 26, 1994; (c) Debt and preferred stock of a
Restricted Subsidiary issued to and held by MFS; (d) Interest Swap
Obligations, provided that such obligations are related to payment obligations
on Debt otherwise permitted by the terms of this covenant, and Currency Hedge
Obligations; (e) Debt or preferred stock incurred in exchange for, or the
proceeds of which are used to refinance, Restricted Subsidiary Debt or
preferred stock referred to in clause (a) of this paragraph, provided that (i)
the principal amount of such Debt or the liquidation value of such preferred
stock so incurred does not exceed the principal amount or liquidation value of
the Debt or preferred stock being exchange or refinanced, and (ii) the Debt or
preferred stock so incurred has a stated maturity or final redemption date (if
any) no earlier than the stated maturity or final redemption date (if any) of,
and an Average Life that is no less than that of, the Debt or preferred stock
being exchanged or refinanced; provided, further, that the Debt or preferred
stock so incurred has no greater seniority and covenants not materially more
restrictive in the aggregate than those of the Debt or preferred stock being
exchanged or refinanced; (f) Debt or preferred stock of MFS Telecom, which is
convertible into Capital Stock of MFS, issued to a Strategic Equity Investor;
provided, however, that the proceeds of such incurrence or issuance are used
as though such proceeds were Net Cash Proceeds in accordance with the
provisions of the covenant described under "The Exchange Offers--Description
of Differences Between the MFS Notes and the WorldCom Notes-MFS Notes--
Limitations on Asset Sales;" and (g) Guarantees by Restricted Subsidiaries of
Debt of the Company described in clause (a) of the definition of Permitted
Debt. (Section 1009 of 1994 Indenture; Section 5(f) of 1996 Indenture)
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Limitation on Liens. MFS will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into, create, incur, assume or
suffer to exist any Liens of any kind, other than Permitted Liens, on or with
respect to any of its Property or assets now owned or hereafter acquired, or
any interest therein or any income or profits therefrom, unless the Notes are
secured equally and ratably with (or prior to) such Debt and any and all other
Debt so secured by such Property or assets for so long as any and all other
Debt is so secured. (Section 1012 of 1994 Indenture; Section 5(g) of 1996
Indenture)
Limitations on Sale and Leaseback Transactions. MFS will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, enter
into, assume, Guarantee or otherwise become liable with respect to any Sale
and Leaseback Transaction, unless (i) the obligation of MFS or such Restricted
Subsidiary with respect thereto is included as Debt and would be permitted
under the covenants described above under "--Limitation on Debt" or "--
Limitation of Debt and Preferred Stock of Restricted Subsidiaries,"
respectively, and any Liens granted thereby would be permitted by the covenant
described above under "--Limitation on Liens," (ii) the net proceeds from such
transaction are at least equal to the Fair Market Value of such Property being
transferred, and (iii) the Net Cash Proceeds from such transaction are applied
in accordance with the covenant described under "The Exchange Offers--
Description of Differences Between the MFS Notes and the WorldCom Notes--MFS
Notes--Limitations on Asset Sales." (Section 1016 of 1994 Indenture; Section
5(h) of 1996 Indenture)
Limitations on Restricted Payments. MFS will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, make any Restricted
Payment unless, at the time of and after giving effect to the proposed
Restricted Payment (i) no Default or Event of Default shall have occurred and
be continuing or shall occur as a consequence thereof; (ii) after giving
effect, on a pro forma basis, to such Restricted Payment and the incurrence of
any Debt the net proceeds of which are used to finance such Restricted
Payment, MFS could incur at least $1.00 of additional Debt pursuant to clause
(h) or (i) of the definition of Permitted Debt; and (iii) after giving effect
to such Restricted Payment on a pro forma basis, the aggregate amount expended
or declared for all Restricted Payments on or after January 26, 1994 does not
exceed the sum of (A) 50 percent of the Consolidated Net Income of MFS (or, if
Consolidated Net Income shall be a deficit, minus 100 percent of such deficit)
for the period (taken as one accounting period) beginning on the last day of
the fiscal quarter immediately preceding January 26, 1994 and ending on the
last day of the fiscal quarter immediately preceding the date of such
Restricted Payment, and (B) 100 percent of the aggregate net cash proceeds
received by MFS subsequent to January 26, 1994 from the issuance or sale
(other than to a Restricted Subsidiary or a Joint Venture) of shares of its
Qualified Capital Stock, including Qualified Capital Stock issued upon
conversion of convertible Debt and from the exercise of options, warrants or
rights to purchase such Qualified Capital Stock.
The foregoing limitations do not prevent MFS from (i) paying a dividend on
its Capital stock at any time within 60 days after the declaration thereof if,
on the declaration date, MFS could have paid such dividend in compliance with
the Indenture, and (ii) making Permitted Investments; provided that any
Permitted Investments made pursuant to clause (a) of the definition of
Permitted Investments will be deemed to be Restricted Payments for the
purposes of clause (iii) of the preceding paragraph.
For purposes of this covenant, if a particular Restricted Payment involves a
non-cash payment, including a distribution of assets, then such Restricted
Payment shall be deemed to be an amount equal to the cash portion of such
Restricted Payment, if any, plus an amount equal to the Fair Market Value of
the non-cash portion of such Restricted Payment as determined by the Board of
Directors, whose good faith determination shall be conclusive and evidenced by
a Board Resolution.
Not later than the date of making any Restricted Payment, MFS shall deliver
to the Trustee an Officers' Certificate stating that such Restricted Payment
is permitted and setting forth the basis upon
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which the required calculations were computed, which calculations may be based
upon MFS' latest available financial statements. (Section 1010 of 1994
Indenture; Section 5(i) of 1996 Indenture)
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. MFS will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, cause or suffer to exist or become effective or enter
into any encumbrance or restriction (other than pursuant to law or regulation)
on the ability of any Restricted Subsidiary (i) to pay dividends or make any
other distributions in respect of its Capital Stock or pay any Debt or other
obligation owed to MFS or any other Restricted Subsidiary of MFS; (ii) to make
loans or advances to MFS or any Restricted Subsidiary of MFS; or (iii) to
transfer any of its Property or assets to MFS or any other Restricted
Subsidiary of MFS, except:
(a) any encumbrance or restriction pursuant to an agreement in effect at
the Issue Date;
(b) any encumbrance or restriction pursuant to an agreement relating to
an acquisition of Property, so long as the encumbrances or restrictions in
any such agreement relate solely to the Property so acquired (and are not
or were not created in anticipation of or in connection with the
acquisition thereof);
(c) any encumbrance or restriction relating to any Debt of any Restricted
Subsidiary at the date on which such Restricted Subsidiary was acquired by
MFS or any Restricted Subsidiary (other than Debt issued by such Restricted
Subsidiary in connection with or in anticipation of its acquisition);
(d) any encumbrance or restriction pursuant to an agreement effecting a
permitted refinancing of Debt issued pursuant to an agreement referred to
in the foregoing clauses (a) through (c), or permitted replacement or
increase of Debt referred to in the foregoing clause (a), so long as the
encumbrances and restrictions contained in any such refinancing agreement
are not materially more restrictive than the encumbrances and restrictions
contained in such agreements;
(e) customary provisions restricting subletting or assignment of any
lease of MFS or any Restricted Subsidiary or provisions in agreements that
restrict the assignment of such agreement or any rights thereunder; and
(f) any restriction on the sale or other disposition of assets or
property securing Debt as a result of a Permitted Lien on such assets or
Property. (Section 1014 of 1994 Indenture; Section 5(j) of 1996 Indenture)
Limitations on Issuance and Sale of Capital Stock of Restricted
Subsidiaries. MFS (i) shall not permit any Restricted Subsidiary to issue any
Capital Stock other than to MFS or a Restricted Subsidiary, other than
pursuant to certain specified agreements in existence on January 26, 1994,
unless MFS acquires at the same time not less than its Proportionate Interest
in such issuance of Capital Stock and (ii) shall not permit any Person other
than MFS or a Restricted Subsidiary to own any Capital Stock of any Restricted
Subsidiary of MFS (other than directors' qualifying shares), except for (a)
Capital Stock of a Restricted Subsidiary sold in a transaction not prohibited
by the covenant described under "The Exchange Offers--Description of
Differences Between the MFS Notes and the WorldCom Notes--MFS Notes--
Limitations on Asset Sales," provided that such Restricted Subsidiary would
remain a Restricted Subsidiary, (b) Capital Stock issued as permitted by
clause (i) above, (c) Capital Stock issued and outstanding on January 26, 1994
and held by Persons other than MFS or any of its Restricted Subsidiaries, (d)
Capital Stock of a Restricted Subsidiary issued and outstanding prior to the
time that such Person becomes a Restricted Subsidiary so long as such Capital
Stock was not issued in contemplation of such Person's becoming a Restricted
Subsidiary of MFS or otherwise being acquired by MFS and (e) an issuance of
preferred stock permitted under the covenant described above under "--
Limitation on Debt and Preferred Stock of Restricted Subsidiaries." (Section
1018 of 1994 Indenture; Section 5(k) of 1996 Indenture)
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Limitations on Transactions with Affiliates. MFS will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, conduct
any business or enter into or permit to exist any transaction or series of
related transactions (including, but not limited to, the purchase, sale or
exchange of Property, the making of any Investment, the giving of any
Guarantee or the rendering of any service) with any Affiliate of MFS or such
Restricted Subsidiary, as the case may be, unless (i) such business,
transaction or series of related transactions is in the best interest of MFS
or such Restricted Subsidiary, (ii) such business, transaction or series of
related transactions is on terms no less favorable to MFS or such Restricted
Subsidiary than those that could be obtained in a comparable arm's-length
transaction with a Person that is not such an Affiliate and (iii) (a) with
respect to such business, transaction or series of related transactions that
has a Fair Market Value or involves aggregate payments equal to, or in excess
of, $10.0 million but less than $15.0 million, MFS delivers to the Trustee an
Officer's Certificate stating that such business, transaction or series of
related transactions complies with clauses (i) and (ii) above; and (b) with
respect to such business, transaction or series of related transactions that
has a Fair Market Value or involves aggregate payments equal to, or in excess
of, $15.0 million such business, transaction or series of transactions is
approved by a majority of the Board of Directors (including a majority of the
Disinterested Directors), which approval is set forth in a resolution
delivered to the Trustee certifying that, in good faith, the Board of
Directors believes that such business, transaction or series of transactions
complies with clauses (i) and (ii) above. (Section 1011 of 1994 Indenture;
Section 5(m) of 1996 Indenture)
Provision of Financial Information. Whether or not MFS is subject to Section
13(a) or 15(d) of the Exchange Act, or any successor provision thereto, MFS
shall file with the Commission the annual reports, quarterly reports and other
documents which MFS would have been required to file with the Commission
pursuant to such Section 13(a) or 15(d) or any successor provision thereto if
MFS were subject thereto, such documents to be filed with the Commission on or
prior to the respective dates (the "Required Filing Dates") by which MFS would
have been required to file them. MFS shall also in any event (a) within 15
days of each Required Filing Date (i) transmit by mail to all Holders, as
their names and addresses appear in the Security Register, without cost to
such Holders, and (ii) file with the Trustee copies of the annual reports,
quarterly reports and other documents (without exhibits) which MFS would have
been required to file with the Commission pursuant to Section 13(a) or 15(d)
of the Exchange Act or any successor provisions thereto if MFS were subject
thereto and (b) if filing such documents by MFS with the Commission is not
permitted under the Exchange Act, promptly upon written request supply copies
of such documents (without exhibits) to any prospective Holder. (Section 1017
of 1994 Indenture; Section 5(n) of 1996 Indenture)
Upon completion of the Exchange Offers, application (on Form 15) to the
Commission promptly will be made to deregister the common stock of MFS under
the Exchange Act. As a result of such deregistration and the effectiveness of
the Proposed Amendments, MFS no longer will be obligated to file periodic
reports with the Commission.
PROVISIONS TO BE REVISED
Pursuant to the Consent Solicitations, WorldCom is proposing to
substantially revise the definition of "Event of Default" contained in the MFS
Indentures with respect to each series of MFS Notes.
Events of Default. Each of the following is an "Event of Default" with
respect to a series of MFS Notes under the applicable MFS Indenture:
(a) default in the payment of any installment of interest upon any MFS
Note of that series when it becomes due and payable, and the continuance of
such default for a period of 30 days;
(b) default in the payment of the principal of (or premium, if any, on)
any MFS Note of that series at its Maturity, upon repurchase, acceleration,
optional redemption, required repurchase;
(c) default, on the applicable Purchase Date, in the purchase of MFS
Notes required to be purchased by MFS pursuant to an Offer to Purchase as
to which an Offer has been mailed to Holders or the failure to make an
Offer to Purchase as required in the applicable MFS Indenture;
(d) MFS fails to comply with any of its covenants or agreements in the
MFS Indentures described in "--Provisions to be Deleted--Limitation on
Debt" or "--Limitation on Debt and
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Preferred Stock of Restricted Subsidiaries" above, or fails to perform or
comply with the provisions of the applicable MFS Indenture described in
"The Exchange Offers--Description of Differences Between the MFS Notes and
the WorldCom Notes--MFS Notes--Consolidation, Merger, Conveyance, Transfer
or Lease" above;
(e) default in the performance, or breach, of any covenant or warranty of
MFS in the applicable MFS Indenture (other than a covenant or warranty a
default in whose performance or whose breach is specifically dealt with in
(a), (b), (c) or (d) above) and continuance of such default or breach for a
period of 60 days after specified written notice thereof has been given to
MFS by the Trustee or to MFS and the Trustee by the Holders of at least 25
percent of the aggregate principal amount of the Outstanding MFS Notes of
that series;
(f) Debt of MFS or any Restricted Subsidiary is not paid when due within
the applicable grace period, if any, or is accelerated by the holders
thereof and, in either case, the principal amount of such unpaid or
accelerated Debt exceeds $10.0 million;
(g) the entry by a court of competent jurisdiction of one or more
judgments or orders against MFS or any Restricted Subsidiary in an
uninsured or unindemnified aggregate amount in excess of $10.0 million
which remains undischarged, unwaived, unstayed, unbonded or unsatisfied for
a period of 60 consecutive days;
(h) the entry by a court having jurisdiction in the premises of (i) a
decree or order for relief in respect of MFS or any Significant Restricted
Subsidiary in an involuntary case or proceeding under U.S. bankruptcy laws,
as now or hereafter constituted, or any other applicable federal, state, or
foreign bankruptcy, insolvency, or other similar law or (ii) a decree or
order adjudging MFS or any Significant Restricted Subsidiary a bankrupt or
insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of
MFS or any Significant Restricted Subsidiary under U.S. bankruptcy laws, as
now or hereafter constituted, or any other applicable federal, state, or
foreign bankruptcy, insolvency, or similar law, or appointing a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other similar
official of MFS or any Significant Restricted Subsidiary or of any
substantial part of the Property or assets of MFS of any Significant
Restricted Subsidiary, or ordering the winding up or liquidation of the
affairs of MFS or any Significant Restricted Subsidiary, and the
continuance of any such decree or order for relief or any such other decree
or order unstayed and in effect for a period of 60 consecutive days; or
(i) (A) the commencement by MFS or any Significant Restricted Subsidiary
of a voluntary case or proceeding under U.S. bankruptcy laws, as now or
hereafter constituted, or any other applicable federal, state, or foreign
bankruptcy, insolvency or other similar law or of any other case or
proceeding to be adjudicated a bankrupt or insolvent, or (B) the consent by
MFS or any Significant Restricted Subsidiary to the entry of a decree or
order for relief in respect of MFS or any Significant Restricted Subsidiary
in an involuntary case or proceeding under U.S. bankruptcy laws, as now or
hereafter constituted, or any other applicable federal, state, or foreign
bankruptcy, insolvency, or other similar law or to the commencement of any
bankruptcy or insolvency case or proceeding against MFS or any Significant
Restricted Subsidiary, or (C) the filing by MFS or any Significant
Restricted Subsidiary of a petition or answer or consent seeking
reorganization or relief under U.S. bankruptcy laws, as now or hereafter
constituted, or any other applicable federal, state, or foreign bankruptcy,
insolvency or other similar law, or (D) the consent by MFS or any
Significant Restricted Subsidiary to the filing of such petition or to the
appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator or similar official of MFS or any
Significant Restricted Subsidiary or of any substantial part of the
Property or assets of MFS or any Significant Restricted Subsidiary, or the
making by MFS or any Significant Restricted Subsidiary of an assignment for
the benefit of creditors, or (E) the admission by MFS or any Significant
Restricted Subsidiary in writing of its inability to pay its debts
generally as they become due, or (F) the taking of corporate action by MFS
or any Significant Restricted Subsidiary in furtherance of any such action.
(Section 501 of 1994 Indenture; Section 4(a) of 1996 Indenture)
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The above referenced provision defining "Event of Default" is the existing
provision within the MFS Indenture that will be replaced with the definition
of Event of Default substantially similar to that set forth in the WorldCom
Indenture; conforming changes would also be effected with respect to certain
defined terms. For a summary of such provision, see "Description of the
WorldCom Notes--Events of Default; Notice and Waiver." In addition, under the
Proposed Amendments, the existing provision of each MFS Indenture providing
for the automatic acceleration of the Default Amount and any accrued and
unpaid interest on all Outstanding MFS Notes issued under such MFS Indenture
with respect to which any Event of Default described in paragraphs (h) or (i)
above has occurred (Section 502 of the 1994 Indenture; Section 4(b) of the
1996 Indenture), shall be revised such that all Events of Default under such
MFS Indenture, without exception, shall entitle the MFS Trustee or the Holders
of not less than 25 percent of the Outstanding aggregate principal at Stated
Maturity (subject to reduction) of MFS Notes of such series to declare any
such Default Amount and accrued and unpaid interest to be immediately due and
payable.
DEFINITION TO BE REVISED UPON RECEIPT OF SUPERMAJORITY CONSENT FROM HOLDERS OF
EACH SERIES OF MFS NOTES
Pursuant to the Consent Solicitations, the Company is proposing to
substantially revise the definition of "Change of Control" contained in the
MFS Indentures with respect to each series of MFS Notes only if Consents from
the Holders of at least 75% of the aggregate principal amount Outstanding of
MFS Notes of such series are received.
"Change of Control" means the occurrence of any of the following events:
(a) any "person" or "group" (as such terms are used in Sections 13(d) and
14(d) of the Exchange Act), other than Peter Kiewit Sons', Inc., a Delaware
corporation ("PKS"), or its Affiliates (in the case of the 1994 Indenture
only), the Employee Group or an underwriter engaged in a firm commitment
underwriting on behalf of MFS, is or becomes the "beneficial owner" (as
such term is used in Rules 13d-3 and 13d-5 under the Exchange Act) plus all
shares that such person or group has the right to acquire, whether such
right is exercisable immediately or only after a passage of time, directly
or indirectly, of more than 35 percent of the total voting power of the
Voting Stock of MFS and, in addition, beneficially owns more shares in MFS
than beneficially owned by PKS (in the case of the 1994 Indenture only) and
the Employee Group; or
(b) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (together with
any new directors whose election by the Board of Directors or whose
nomination for election by the stockholders of MFS was approved by a vote
of a majority of the directors of MFS then still in office who were either
directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute
66 2/3 percent of the Board of Directors then in office; or
(c) MFS shall cease to own, directly or indirectly, at least 51 percent
of the outstanding Capital Stock of MFS Telecom; provided, however, that
any sale, conveyance or transfer of Capital Stock of MFS Telecom must be to
a Strategic Equity Investor; or
(d) MFS sells, conveys, transfers or leases (either in one transaction or
a series of related transactions) all or substantially all of its assets to
a Person other than a Restricted Subsidiary; or
(e) MFS or a Subsidiary sells, conveys, transfers or leases (either in
one transaction or a series of related transactions) all or substantially
all of the assets of MFS Telecom to a Person other than the Company or a
Restricted Subsidiary. (Section 101 of 1994 Indenture; Section 1(d) of 1996
Indenture)
The above referenced definition of "Change of Control" is the existing
definition within the MFS Indentures that will be replaced with the following
definition of Change of Control only if the Supermajority Consent is received.
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"Change of Control" means the occurrence of any of the following events:
(a) any "person" or "group" (as such terms are used in Sections 13(d) and
14(d) of the Exchange Act), other than WorldCom, Inc. or its Affiliates, or
an underwriter engaged in a firm commitment underwriting on behalf of MFS,
is or becomes the "beneficial owner" (as such term is used in Rules 13d-3
and 13d-5 under the Exchange Act) plus all shares that such person or group
has the right to acquire, whether such right is exercisable immediately or
only after a passage of time, directly or indirectly, of more than 50
percent of the total voting power of the Voting Stock of MFS and, in
addition, beneficially owns more shares in MFS than beneficially owned by
WorldCom, Inc.; or
(b) MFS sells, conveys, transfers or leases (either in one transaction or
a series of related transactions) all or substantially all of its assets to
a Person other than an Affiliate.
Upon a Change of Control, MFS has an obligation to make an offer to purchase
outstanding MFS Notes at a purchase price in cash equal to 101% of the
Accreted Value of such MFS Notes as of the applicable purchase date plus
accrued but unpaid interest. (Section 1013 of the 1994 Indenture; Section 5(r)
of the 1996 Indenture). By limiting the occurrences that create a Change of
Control, MFS' obligation to make such an offer to purchase would be
substantially reduced.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the MFS
Indentures. Reference is made to the applicable MFS Indenture (Section 101 of
1994 Indenture; Sections 101 and 1(d) of 1996 Indenture) for the full
definition of all such terms, as well as any capitalized terms used herein for
which no definition is provided.
"Accreted Value" of any outstanding MFS Note as of or to any date of
determination means an amount equal to the sum of (i) the issue price of such
MFS Note as determined in accordance with Section 1273 of the Internal Revenue
Code (the "Code") as in effect on the date such MFS Note was first issued plus
(ii) the aggregate of the portions of the original issue discount (the excess
of the amounts considered as part of the "stated redemption price at maturity"
of such MFS Note within the meaning of Section 1273(a)(2) of the Code or any
successor provisions, whether denominated as principal or interest, over the
issue price of such MFS Note) that shall theretofore have accrued pursuant to
Section 1272 of the Code (without regard to Section 1272(a)(7) of the Code)
from the date of issue of such MFS Note (a) for each six-month or shorter
period ending January 15 or July 15 prior to the date of determination and (b)
for the shorter period, if any, from the end of the immediately preceding six-
month or shorter period, as the case may be, to the date of determination,
plus (iii) accrued and unpaid interest to the date such Accreted Value is paid
(without duplication of any amount set forth in (ii) above), minus all amounts
theretofore paid in respect of such MFS Note which amounts are considered as
part of the "stated redemption price at maturity" of such MFS Note within the
meaning of Section 1273(a)(2) of the Code or any successor provisions (whether
such amounts paid were denominated principal or interest).
"Affiliate" means, as to any Person, any other Person which directly or
indirectly controls, or is under common control with, or is controlled by,
such Person. As used in this definition, "control" (including, with its
correlative meanings, "controlled by" and "under common control with") shall
mean possession, directly or indirectly, of power to direct or cause the
direction of management or policies of such Person (whether through ownership
of securities or partnership or other ownership interest, by contract or
otherwise), provided that, in any event, (a) any Person which owns directly or
indirectly 10 percent or more of the securities having ordinary voting power
for the election of directors or other governing body of a corporation or 10
percent or more of the partnership or other ownership interests of any other
Person (other than as a limited partner of such other Person) will be deemed
to control such corporation or other Person and (b) each Unrestricted
Subsidiary shall be deemed to be an
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Affiliate of MFS and of each other Subsidiary. Notwithstanding the foregoing,
no individual shall be deemed to be an Affiliate of a Person solely by virtue
of his or her being an officer or director (or equivalent) of such Person and
neither MFS nor any of its Restricted Subsidiaries shall be deemed to be
Affiliates of each other.
"Asset Sale" means, with respect to any Person, any transfer, conveyance,
sale, lease or other disposition (including, without limitation, dispositions
pursuant to any consolidation or merger, but excluding any Sale and Leaseback
Transaction) by such Person or any of its Restricted Subsidiaries to any
Person other than to such Person or its Restricted Subsidiaries in any single
transaction or series of transactions of (i) shares of Capital Stock or other
ownership interests of another Person (other than directors' qualifying
shares) or (ii) any other Property or assets of such Person or any of its
Restricted Subsidiaries other than sales of Property or assets in the ordinary
course of business and consistent with past practices. For purposes of this
definition, any series of related transactions that, if effected as a single
transaction, would constitute an Asset Sale, shall be deemed to be a single
Asset Sale when the last such transaction which is a part thereof is effected.
The term "Asset Sale" (i) when used with respect to MFS, shall not include any
asset disposition permitted as described above in "The Exchange Offers--
Description of Differences Between the MFS Notes and the WorldCom Notes--
Consolidation, Merger, Conveyance, Transfer or Lease" which constitutes a
disposition of all or substantially all of the assets of MFS and the
Restricted Subsidiaries taken as a whole, (ii) shall
exclude any Asset Sale of less than or equal to $1.0 million, (iii) shall
exclude sales of Investments defined in clause (b) of the definition of
Permitted Investments and (iv) shall exclude the sale, conveyance, disposition
or other transfer of the Capital Stock of an Unrestricted Subsidiary or other
Investment described in clause (iv) of the definition of Restricted Payment,
provided that such Investment was permitted by the terms of the applicable MFS
indenture.
"Average Life" means, as of any date, with respect to any Debt security, the
quotient obtained by dividing (i) the sum of the products of (x) the number of
years from such date to the dates of each scheduled principal payment
(including any sinking fund or mandatory redemption payment requirements) of
such Debt security multiplied in each case by (y) the amount of such principal
payment by (ii) the sum of all such principal payments.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in the Borough of Manhattan,
The City of New York are authorized or obligated by law or executive order to
close.
"Capital Lease Obligation" of any Person means the obligation to pay rent or
other payment amounts under a lease of (or other Debt arrangement conveying
the right to use) real or personal property of such Person which is required
to be classified and accounted for as a capital lease or a liability on the
face of a balance sheet of such Person in accordance with GAAP and the stated
maturity thereof shall be the date of the last payment of rent or any amount
due under such lease prior to the first day upon which such lease may be
terminated by the lessee without payment of a penalty.
"Capital Stock" in any Person means any and all shares, interests,
participations or other equivalents in the equity interest (however
designated) in such Person and any rights (other than Debt securities
convertible into an equity interest), warrants or options to acquire an equity
interest in such Person.
"Cash Proceeds" means, with respect to any Asset Sale by any Person or any
sale of Capital Stock by MFS, the aggregate consideration received for such
sale by such Person in the form of cash or, Eligible Cash Equivalents and, for
a period not to exceed 300 days, in the case of the MFS 2006 Notes, and 360
days, in the case of the MFS 2004 Notes, from the related Asset Sale, Debt or
Capital Stock of a Strategic Equity Investor.
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"Consolidated Net Worth" of any Person means the consolidated stockholders'
equity of such Person and, in the case of the MFS 2006 Notes, its Restricted
Subsidiaries, as determined on a consolidated basis in accordance with GAAP,
less amounts attributable to Redeemable Capital Stock of such Person.
"Credit Agreement" means a secured or unsecured credit agreement providing
for revolving credit loans, term loans and/or letters of credit between MFS
and one or more lenders, as such agreement may be amended, modified,
supplemented, refunded or replaced from time to time.
"Debt" means at any time (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person, and
whether or not contingent, (i) any obligation of such Person for money
borrowed, (ii) any obligation of such Person evidenced by bonds, debentures,
notes, Guarantees or other similar instruments, including, without limitation,
any such obligations Incurred in connection with acquisition of Property,
assets or businesses, excluding trade accounts payable made in the ordinary
course of business, (iii) any reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities
issued for the account of such Person, (iv) any obligation of such Person
issued or assumed as the deferred purchase price of property or services (but
excluding trade accounts payable or accrued liabilities arising in the
ordinary course of business, which in either case are not more than 60 days
overdue or which are being contested in good faith), (v) any Capital Lease
Obligation of such Person, (vi) the maximum fixed redemption or repurchase
price of Redeemable Capital Stock of such Person at the time of determination,
(vii) any Interest Swap Obligations or Currency Hedge Obligations of such
Person at the time of determination, (viii) any obligation to pay rent or
other payment amounts of such Person with respect to any Sale and Leaseback
Transaction to which such Person is a party and (ix) any obligation of the
type referred to in clauses (i) through (viii) of this definition of another
Person and all dividends and distributions of another Person the payment of
which, in either case, such Person has Guaranteed or is responsible or liable,
directly or indirectly, as obligor, Guarantor or otherwise. For purposes of
the preceding sentence, the maximum fixed repurchase price of any Redeemable
Capital Stock that does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Redeemable Capital Stock as if such
Redeemable Capital Stock were repurchased on any date on which Debt shall be
required to be determined pursuant to the applicable MFS Indenture; provided,
however, that if such Redeemable Capital Stock is not then permitted to be
repurchased, the repurchase price shall be the book value of such Redeemable
Capital Stock. The amount of Debt of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability of any Guarantees at such date; and in
furtherance of the foregoing, for purposes of calculating the amount of the
MFS Notes of a series outstanding at any date, the amount of the MFS Notes of
a series shall be the Accreted Value thereof as of such date, unless cash
interest has commenced to accrue prior to January 15, 1999 pursuant to the
1994 Indenture with respect to the MFS 2004 Notes and January 15, 2001
pursuant to the 1996 Indenture with respect to the MFS 2006 Notes, in which
case the amount of the MFS 2004 Notes and the MFS 2006 Notes outstanding will
be determined pursuant to the 1994 Indenture and the 1996 Indenture,
respectively, and will not include any accrued and unpaid cash interest which
would otherwise be included in Accreted Value because of clause (iii) of the
definition thereof.
"Debt to EBITDA Ratio" means, as at any date of determination, the ratio of
(i) the aggregate amount of Debt of MFS and its Restricted Subsidiaries on a
consolidated basis as at the date of determination to (ii) the aggregate
amount of EBITDA of MFS and its Restricted Subsidiaries for the four preceding
fiscal quarters for which financial information is available immediately prior
to the date of determination; provided that any Debt incurred or retired by
MFS or any of its Restricted Subsidiaries during the fiscal quarter in which
the transaction date occurs shall be calculated as if such Debt was so
incurred or retired on the first day of the fiscal quarter in which the date
of determination occurs; and provided further that (x) if the transaction
giving rise to the need to calculate the Debt to EBITDA Ratio would have the
effect of increasing or decreasing Debt or EBITDA in the future, Debt or
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EBITDA shall be calculated on a pro forma basis as if such transaction had
occurred on the first day of such four fiscal quarter period preceding the
date of determination, and (y) if during such four fiscal quarter period, MFS
or any of its Restricted Subsidiaries shall have engaged in any Asset Sale,
EBITDA for such period shall be reduced by an amount equal to the EBITDA (if
positive), or increased by an amount equal to the EBITDA (if negative),
directly attributable to the assets which are the subject of such Asset Sale
and any related retirement of Debt as if such Asset Sale and related
retirement of Debt had occurred on the first day of such period or (z) if
during such four fiscal quarter period, MFS or any of its Restricted
Subsidiaries shall have acquired any material assets out of the ordinary
course of business, EBITDA shall be calculated on a pro forma basis as if such
asset acquisition and related financing had occurred on the first day of such
period.
"Debt to Total Capital Ratio" means as of the date of determination the
ratio of (i) the aggregate amount of Debt of MFS and its Restricted
Subsidiaries on a consolidated basis as at the date of determination to (ii)
the sum of (a) the total equity investment in MFS as of January 26, 1994
($947.1 million), (b) the aggregate net proceeds to MFS from the issuance of
any Qualified Capital Stock (including preferred stock) subsequent to January
26, 1994, (c) Subordinated Debt from a Control Group permitted under clause
(m) of the definition of Permitted Debt and (d) net cash proceeds from the
sales of Redeemable Capital Stock of MFS or Debt securities of MFS convertible
into Qualified Capital Stock, in either case upon conversion thereof into
Qualified Capital Stock; provided, however, that, for purposes of calculation
of the Debt to Total Capital Ratio (i) Debt described by clause (c) above
shall not be included if such Debt shall have been utilized to make a
Permitted Investment under clause (a) of the definition of Permitted
Investments; (ii) the net cash proceeds from the sale of Capital Stock of MFS,
including Capital Stock issued upon the conversion of convertible Debt
described in clauses (b) or (d) above, shall not be included if such proceeds
have been utilized to make a Restricted Payment or a Permitted Investment
under clause (a) of the definition of Permitted Investment and (iii) for
purposes of this definition, notwithstanding the definition of Debt, the
amount of the MFS 2004 Notes shall be the principal amount at the Stated
Maturity of such MFS 2004 Notes.
"Default" means any event, act or condition the occurrence of which is, or
after notice or the passage of time or both would be, an Event of Default.
"EBITDA" means with respect to any Person for any period, the sum for such
Person for such period of Consolidated Net Income plus, to the extent
reflected in the income statement of such Person for such period from which
Consolidated Net Income is determined, without duplication, (i) Consolidated
Interest Expense, (ii) income tax expense, (iii) depreciation expense, (iv)
amortization expense and (v) any charge related to any premium or penalty paid
in connection with redeeming or retiring any Debt prior to its stated
maturity.
"Employee Group" means a group of employees of MFS, which includes the Chief
Executive Officer of MFS, who own, directly or indirectly, through an employee
stock ownership plan or similar employee stock ownership arrangement, shares
of MFS's Capital Stock.
"Fair Market Value" means total consideration received or paid in any
transaction or series of transactions as determined in good faith by the Board
of Directors.
"GAAP" means United States generally accepted accounting principles,
consistently applied, as set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board, or in such other statements by such other entity as may be
approved by a significant segment of the accounting profession of the United
States, that are applicable to the circumstances as of the date of
determination; provided, however, that, except as otherwise specifically
provided, all calculations made for purposes of determining compliance with
the terms of the provisions of the MFS Indentures shall utilize GAAP in effect
at the time of preparation of, and in
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accordance with the GAAP used to prepare, the historical financial statements
of MFS on January 26, 1994.
"Guarantee" means, as applied to any obligation of another Person, (i) a
guarantee (other than by endorsement of negotiable instruments for collection
in the ordinary course of business), direct or indirect, in any manner, of any
part or all of such obligation, (ii) any direct or indirect obligation,
contingent or otherwise, of a Person guaranteeing or having the effect of
guaranteeing the obligations of any other Person in any manner and (iii) an
agreement of a Person, direct or indirect, contingent or otherwise, the
practical effect of which is to assure in any way the payment or performance
(or payment of damages in the event of non-performance) of all or any part of
such obligation of another Person (and "Guaranteed", "Guaranteeing" and
"Guarantor" shall have meanings correlative to the foregoing).
"Interest Payment Date" means January 15 and July 15 in each year.
"Investment" by any Person means any direct or indirect loan, advance (or
other extension of credit) or capital contribution to (by means of any
transfer of cash or other Property to others or any other payments for
Property of services for the account or use of others), the purchase or
acquisition of any Capital Stock, bonds, notes, debentures or other securities
of, the acquisition, by purchase or otherwise, of all or substantially all of
the business or assets or stock or other evidence of beneficial ownership of,
any Person or making of any Investment in any Person. Investments shall
exclude accounts receivable and other extensions of trade credit on
commercially reasonable terms in accordance with normal trade practices.
"Issue Date" means the date on which the MFS Notes of a series are first
authenticated and delivered under the applicable MFS Indenture.
"Joint Venture" means a telecommunications company in which MFS holds not
more than 50 percent of the shares of Voting Stock.
"Lien" means, with respect to any Property or other asset, any mortgage or
deed of trust, pledge, hypothecation, assignment, deposit arrangement,
security interest, lien (statutory or other), charge, easement, encumbrance,
preference, priority or other security or similar agreement or preferential
arrangement of any kind or nature whatsoever on or with respect to such
Property or other asset (including, without limitation, any conditional sale
or other title retention agreement having substantially the same economic
effect as any of the foregoing).
"Maturity", when used with respect to an MFS Note, means the date on which
the principal of such MFS Note becomes due and payable as provided therein or
in the applicable MFS Indenture, whether at the Stated Maturity, on the Change
of Control Payment Date (in the case of the MFS 2006 Notes) or Purchase Date
established pursuant to the terms of the applicable MFS Indenture with regard
to a Change of Control Offer (in the case of the MFS 2006 Notes) or an Asset
Sale Offer (in the case of the MFS 2006 Notes), as applicable, or an Offer to
Purchase (in the case of the MFS 2004 Notes), or by declaration of
acceleration, call for redemption or otherwise.
"MFS Telecom" means MFS Telecom, Inc., a Delaware corporation, and its
successors (including any Restricted Subsidiary to which all or substantially
all of the assets of MFS Telecom are sold, transferred or conveyed).
"Net Cash Proceeds" means, with respect to Asset Sales of any Property or
other assets by a Person or its Restricted Subsidiaries, cash and cash
equivalents received net of (i) all reasonable out-of-pocket expenses of such
Person or such Restricted Subsidiary incurred in connection with such a sale,
including, without limitation, all legal, title and recording tax expenses,
commissions and other fees and expenses incurred (but excluding any finder's
fee or brokers' fee payable to any Affiliate of such Person) and all federal,
state, foreign and local taxes arising in connection with such an Asset
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Sale that are paid or required to be accrued as liability under GAAP by such
Person or its Restricted Subsidiaries, (ii) all payments made by such Person
or its Restricted Subsidiaries on any Debt which is secured by such Properties
or other assets in accordance with the terms of any Lien upon or with respect
to such Properties or other assets or which must, by the terms of such Lien,
or in order to obtain a necessary consent to such transaction or by applicable
law, be repaid in connection with such Asset Sale, and (iii) all contractually
required distributions and other payments made to minority interest holders
(but excluding distributions and payments to Affiliates of such Person) in
Restricted Subsidiaries of such Person as a result of such transaction;
provided that, in the event that any consideration for a transaction (which
would otherwise constitute Net Cash Proceeds) is required to be held in escrow
pending determination of whether a purchase price adjustment will be made,
such consideration (or any portion thereof) shall become Net Cash Proceeds
only at such time as it is released to such Person or its Restricted
Subsidiaries from escrow, and provided that any non-cash consideration
received in connection with any transaction, which is subsequently converted
to cash, shall be deemed to be Net Cash Proceeds at such time, for purposes of
an Asset Sale and shall thereafter be applied in accordance with the covenant
described in "The Exchange Offers -- Description of Differences Between the
MFS Notes and the WorldCom Notes -- Limitation on Asset Sales."
"Outstanding", when used with respect to the MFS Notes of a series, means,
as of the date of determination, all such MFS Notes theretofore authenticated
and delivered under the applicable MFS Indenture, except: (i) MFS Notes of
such series theretofore cancelled by the Trustee or delivered to the Trustee
for cancellation; (ii) MFS Notes of such series for whose payment or
redemption money in the necessary amount has been theretofore deposited with
the Trustee or any Paying Agent (other than MFS or a Restricted Subsidiary) in
trust for the Holders of such Securities; provided that, if such MFS Notes are
to be redeemed, notice of such redemption has been duly given pursuant to the
applicable MFS Indenture or provision therefor satisfactory to the Trustee has
been made; (iii) MFS Notes of such series which have been paid pursuant to
Section 306 of the applicable MFS Indenture or in exchange for or in lieu of
which other MFS Notes of such series have been authenticated and delivered
pursuant to such MFS Indenture, other than any such MFS Notes in respect of
which there shall have been presented to the Trustee proof satisfactory to it
that such MFS Notes are held by a bona fide purchaser in whose hands such MFS
Notes are valid obligations of MFS; and (iv) MFS Notes of such series as to
which Defeasance has been effected pursuant to Section 1202 of the 1994
Indenture or Section 6(b) of the 1996 Indenture; provided, however, that in
determining whether the Holders of the requisite principal amount of the
Outstanding MFS Notes of a series have given, made or taken any request,
demand, authorization, direction, notice, consent, waiver or other action
under the applicable MFS Indenture as of any date, MFS Notes of such series
owned by MFS or any other obligor upon such MFS Notes or any Affiliate or
Restricted Subsidiary of MFS or of such other obligor shall be disregarded and
deemed not to be Outstanding, except that, in determining whether the Trustee
shall be protected in relying upon any such request, demand, authorization,
direction, notice, consent, waiver or other action, only MFS Notes of a series
so owned which have been pledged in good faith may be regarded as Outstanding
if the pledgee establishes to the satisfaction of the Trustee the pledgee's
right so to act with respect to such MFS Notes and that the pledgee is not MFS
or any other obligor upon such MFS Notes or any Affiliate or Restricted
Subsidiary of MFS or of such other obligor.
"Permitted Debt" means (a) Debt permitted to be borrowed under the Credit
Agreement in an aggregate principal amount up to $150.0 million outstanding at
any one time; (b) Debt under Interest Swap Obligations, provided that such
obligations are related to payment obligations on other Permitted Debt, and
Currency Hedge Obligations; (c) Debt of MFS to any Restricted Subsidiary of
MFS (but only so long as such Debt is held by such restricted Subsidiary); (d)
Guarantees and letters of credit incurred in the ordinary course of business
and consistent with industry practices; (e) Debt outstanding under the MFS
Notes of a series; (f) Debt of MFS outstanding as of the Issue Date of the
applicable series of MFS Notes other than Debt to be repaid with the proceeds
of the offering of such series of
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MFS Notes; (g) Debt incurred in connection with a prepayment or redemption of
the MFS Notes of a series pursuant to a Change of Control provided that the
principal amount of such Debt does not exceed 101% of the principal amount of
the MFS Notes of a series prepaid (plus the amount of reasonable expenses
incurred in connection therewith) and that such Debt (i) has an Average Life
to Stated Maturity equal to or greater than the remaining Average Life to
Stated Maturity of the MFS Notes of a series and (ii) does not mature prior to
the Stated Maturity of the MFS Notes of a series; (h) Debt incurred on or
prior to December 31, 1998 if, after giving effect to the incurrence and
application of the proceeds thereof, the Debt to Total Capital Ratio would not
exceed 1.0; (i) Debt incurred after December 31, 1998 if after giving pro
forma effect to the incurrence and application of the proceeds thereof, the
Debt to EBITDA Ratio would not equal or exceed 5 to 1 in the case of any such
incurrence; (j) Debt incurred (including in the case of discount or paid in
kind Debt for the MFS 2006 Notes any accretion on such Debt or notes payable
in respect of such Debt) to finance the construction or acquisition of
Telecommunications Assets, provided that the net cash proceeds from the
issuance of such Debt do not exceed 100 percent of the lesser of cost or Fair
Market Value of such Telecommunications Assets constructed or acquired; (k)
Debt not otherwise permitted by this definition incurred in exchange for, or
the proceeds of which are used to refinance Debt referred to in clauses (d)
through (i) in the case of the MFS 2004 Notes, and (d) through (j) in the case
of the MFS 2006 Notes of this definition, provided that (i) such Debt is in an
aggregate principal amount not in excess of the aggregate principal amount
then outstanding of the Debt being refinanced plus any amounts related to
prepayment or redemption premiums and fees related thereto; (ii) such Debt is
scheduled to mature no earlier than the Debt being refinanced; and (iii) such
Debt has an Average Life at the time such Debt is incurred that is equal to or
greater than the Average Life of the Debt being refinanced; provided, further,
that such Debt does not have a higher relative ranking to the MFS Notes of a
series than the MFS Notes of a series have to the Debt being refinanced and
the covenants relating to such Debt are not materially more restrictive in the
aggregate than those of the Debt being refinanced; (l) Debt not otherwise
described in this definition in an amount not to exceed $25.0 million
outstanding at any one time; and (m) Subordinated Debt invested by a Control
Group.
"Permitted Investments" means (a) Investments in Joint Ventures in an
aggregate amount not to exceed the sum of (i) Invested Capital, (ii) the
aggregate net cash proceeds received by MFS and its Restricted Subsidiaries as
distributions on or from the sale or disposition of any such Investments made
in Joint Ventures since January 26, 1994, and (iii) $25.0 million; (b)
Eligible Cash Equivalents; (c) Investments in assets used in the ordinary
course of business; (d) Investments in any Person as a result of which such
Person becomes a Restricted Subsidiary; (e) Investments pursuant to any
agreement or obligation of MFS or a Restricted Subsidiary, in effect on the
Issue Date, to make such Investments; (f) Investments in prepaid expenses,
negotiable instruments held for collection and lease, utility and workers'
compensation, performance and other similar deposits; (g) loans and advances
to employees made in the ordinary course of business and consistent with past
practice; (h) Interest Swap Obligations and Currency Hedge Obligations; (i)
bonds, notes, debentures or other securities received as a result of Asset
Sales permitted under the covenant limiting MFS' ability to engage in Asset
Sales as described in the applicable covenant; (j) Investments in existence at
January 26, 1994; and (k) Investments incurred in the ordinary course of
business as partial payment for constructing a network using principally
Telecommunications Assets, provided, however, that MFS and its Restricted
Subsidiaries have received at least 85 percent of the aggregate consideration
therefrom in cash or cash equivalents.
"Permitted Liens" means (a) Liens securing Debt incurred under the Credit
Agreement provided that (i) such Debt was incurred in compliance with clause
(a) of the definition of Permitted Debt; (b) Liens securing Debt incurred
under clause (j) of the definition of Permitted Debt and Subsidiary Vendor
Debt; (c) Liens on Property of a Person existing at the time such Person is
merged with or into or consolidated with MFS or becomes a Restricted
Subsidiary (and not incurred in anticipation of such transaction); provided
that such Liens are not extended to the Property and assets of MFS and its
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Restricted Subsidiaries, other than the acquired Restricted Subsidiary; (d)
Liens on Telecommunications Assets existing during the time of the
construction thereof; (e) Liens incurred to secure the performance of
statutory obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business
consistent with industry practice; (f) Liens existing as of the Issue Date;
(g) any Lien on Property and assets of MFS in favor of the United States of
America or any state thereof, or any instrumentality of either, to secure
certain payments pursuant to any contract or statute; (h) any Lien for taxes
or assessments or other governmental charges or levies not then due and
payable (or which, if due and payable, are being contested in good faith and
for which adequate reserves are being maintained, to the extent required by
GAAP); (i) any title exception, easement or other similar Lien that does not
materially impair the use of the property subject thereto in the ordinary
course of business of MFS or any of its Restricted Subsidiaries, as
applicable; (j) any Lien to secure obligations under workmen's compensation
laws or similar legislation, including any Lien with respect to judgments
which are not currently dischargeable; (k) any statutory warehousemen's,
materialmen's or other similar Liens for sums not then due and payable (or
which, if due and payable, are being contested in good faith and with respect
to which adequate reserves are being maintained, to the extent required by
GAAP); (l) Liens on Receivables, provided that the outstanding amount of the
Debt secured by such Liens would not represent more than 80 percent of
Eligible Receivables; and (m) Liens to secure any permitted extension,
renewal, refinancing or refunding (or successive extensions, renewals,
refinancings or refundings), in whole or in part, of any Debt secured by Liens
referred to in the foregoing clauses (b) through (e); provided that such Liens
do not extend to any other Property or assets and the principal amount of the
Debt secured by such Liens is not increased.
"Person" means any individual, Corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Property" means, with respect to any Person, any interest of such Person in
any kind of property or assets, whether real, personal or mixed, or tangible
or intangible, excluding Capital Stock in any other Person.
"Redeemable Capital Stock" of any Person means any equity security of such
Person that by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or otherwise (including on the
happening of an event), is required to be redeemed or is redeemable at the
option of the holder thereof, in whole or in part (including by operation of a
sinking fund), or is exchangeable for Debt, in whole or in part at any time,
prior to the Stated Maturity of the MFS Notes of a series.
"Replacement Asset" means, with respect to any Asset Sale, a Property or
asset that, as determined by the Board of Directors as evidenced by a Board
Resolution, is used or will be used in the telecommunications business of MFS
or a Restricted Subsidiary.
"Restricted Payment" means (i) a dividend or other distribution declared and
paid on the Capital Stock of MFS or to MFS' stockholders (in their capacity as
such), or declared and paid to any Person other than MFS or a Restricted
Subsidiary of MFS on the Capital Stock of any Restricted Subsidiary of MFS, in
each case, other than dividends, distributions or payments made solely in
Qualified Capital Stock of MFS or such Restricted Subsidiary, (ii) a payment
made by MFS (other than a payment made solely in Qualified Capital Stock of
MFS) or any of its Restricted Subsidiaries (other than a payment to MFS or any
Restricted Subsidiary of MFS or a payment made solely in Qualified Capital
Stock of such Restricted Subsidiary or of MFS) to purchase, redeem, acquire or
retire any Capital Stock of MFS or of a Restricted Subsidiary, (iii) a payment
made by MFS or of any of its Restricted Subsidiaries (other than a payment
made solely in Qualified Capital Stock of MFS) to redeem, repurchase, defease
(including an in-substance or legal defeasance) or otherwise acquire or retire
for value (including pursuant to mandatory repurchase covenants), prior to any
scheduled maturity, scheduled sinking fund
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or mandatory redemption payment, Debt of MFS which is subordinate (whether
pursuant to its terms or by operation of law) in right of payment to either
series of the MFS Notes and which was scheduled to mature on or after the
Stated Maturity of either series of the MFS Notes or (iv) an Investment in any
Person, including an Unrestricted Subsidiary, other than (a) a Permitted
Investment, (b) an Investment by MFS in another Restricted Subsidiary or (c)
an Investment by a Restricted Subsidiary in MFS or a Restricted Subsidiary.
For calculation purposes upon any Person becoming a Restricted Subsidiary, all
investments in that person shall not be considered to be Restricted Payments.
"Restricted Subsidiary" of any Person means (i) any corporation other than
an Unrestricted Subsidiary more than 50% of the outstanding shares of Voting
Stock of which is owned or controlled, directly or indirectly, by such person
or (ii) any limited partnership other than an Unrestricted Subsidiary of which
such Person or any Restricted Subsidiary of such Person is a general partner
or (iii) any other Person (other than a corporation or limited partnership)
other than an Unrestricted Subsidiary in which such Person, or one or more
other Restricted Subsidiaries of such Person, or such Person and one or more
other Restricted Subsidiaries thereof, directly or indirectly, have more than
50% of the outstanding partnership or similar interests or have the power, by
contract or otherwise, to direct or cause the direction of the policies,
management and affairs thereof.
"Sale and Leaseback Transaction" means, with respect to any Person, any
direct or indirect arrangement pursuant to which Property is sold or
transferred by such Person or a Restricted Subsidiary of such Person and is
thereafter leased back from the purchaser or transferee thereof by such Person
or one of its Restricted Subsidiaries.
"Stated Maturity" when used with respect to an MFS Note or any installment
of interest thereon, means the date specified in such MFS Note as the fixed
date on which the principal of such MFS Note or such installment of interest
is due and payable.
"Strategic Equity Investor" means a Telecommunications Company rated
investment grade by Standard & Poor's Ratings Group and Moody's Investors
Service, Inc. and having a Total Market Capitalization (as defined) of debt
and equity of at least $10.0 billion.
"Subsidiary" means, with respect to any Person, (i) any corporation more
than 50 percent of the outstanding shares of Voting Stock of which is owned,
directly or indirectly, by such Person, or by one or more other Subsidiaries
of such Person, or by such Person and one or more other Subsidiaries of such
Person, (ii) any general partnership, joint venture or similar entity, more
than 50 percent of the outstanding partnership or similar interests of which
are owned, directly or indirectly, by such Person, or by one or more other
Subsidiaries of such Person, or by such Person and one or more other
Subsidiaries of such Person and (iii) any limited partnership of which such
Person or any Subsidiary of such Person is a general partner.
"Subsidiary Vendor Debt" means Debt incurred (which, with respect to the MFS
2006 Notes, includes in the case of discount or paid in kind Debt any
accretion on such Debt or notes payable in respect of such Debt) by a
Restricted Subsidiary to finance the construction or acquisition of
Telecommunication Assets or the acquisition of the Capital Stock of a
Restricted Subsidiary substantially all the assets of which are
Telecommunications Assets, provided that the net cash proceeds from the
issuance of such Debt do not exceed 100 percent of the lesser of cost or Fair
Market Value of such Telecommunications Assets so constructed or acquired (at
the time of incurrence in the case of the MFS 2004 Notes); provided, further,
however, that if an acquired Restricted Subsidiary has outstanding previously
incurred Debt, such previously incurred Debt will also constitute Subsidiary
Vendor Debt if and only if such previously incurred Debt was not incurred in
contemplation of such acquisition and all such Debt is non-recourse to MFS and
its Restricted Subsidiaries other than the acquired Restricted Subsidiary.
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"Telecommunications Assets" means, with respect to any Person, any asset
that is utilized by such Person, directly or indirectly, for the design,
development, installation, integration, management or provision of
telecommunications systems and/or services, including without limitation, any
businesses or services in which MFS is currently engaged. Telecommunications
Assets shall include stock, joint venture or partnership interests where
substantially all of the assets of the entity being acquired consist of
Telecommunications Assets.
"Unrestricted Subsidiary" means (i) any Subsidiary of MFS (a) which at the
time of determination shall be an Unrestricted Subsidiary (as designated by
the Board of Directors of MFS, as provided below), (b) which shall be engaged
in the same or similar line of business as MFS and its Restricted
Subsidiaries, and (c) all the Debt of which shall be non-recourse to MFS and
its Subsidiaries other than its Unrestricted Subsidiaries and (ii) any
Subsidiary of an Unrestricted Subsidiary; provided that notwithstanding clause
(i)(c) above, MFS or a Restricted Subsidiary of MFS may guarantee, endorse,
agree to provide funds for the payment or maintenance of, or otherwise become
directly or indirectly liable with respect to, Debt of an Unrestricted
Subsidiary but only to the extent that MFS or such Restricted Subsidiary could
make an Investment in such Unrestricted Subsidiary pursuant to the covenant
described under "The Exchange Offers--Description of Differences Between the
MFS Notes and the WorldCom Notes--Limitations on Restricted Payments" and any
such Guarantee, endorsement or agreement shall be deemed an incurrence of Debt
by MFS for purposes of the covenant described under "The Exchange Offers--
Description of Differences Between the MFS Notes and the WorldCom Notes--
Limitation of Debt." The Board of Directors of MFS may designate any newly
acquired or newly formed Subsidiary to be an Unrestricted Subsidiary unless
such Subsidiary owns any capital stock of, or owns or holds any Lien on any
property of, any other Subsidiary of MFS which is not an Unrestricted
Subsidiary (other than a Subsidiary of the type referred to in clause (ii)
above).
"Voting Stock" means, with respect to any Person, securities of any class or
classes of Capital Stock in such Person entitling the holders thereof (whether
at all times or at the times that such class of Capital Stock has voting power
by reason of the happening of any contingency) to vote in the election of
members of the board of directors or comparable body of such Person.
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DESCRIPTION OF THE WORLDCOM NOTES
Upon consummation of the Exchange Offers, the WorldCom Notes will be issued
under the WorldCom Indenture, as supplemented. The following summary of
certain provisions of the WorldCom Indenture does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"), and to all of
the provisions of the WorldCom Indenture, including the definitions of certain
terms therein and those terms made a part of the WorldCom Indenture by
reference to the Trust Indenture Act as in effect on the date of the WorldCom
Indenture. The WorldCom Indenture is by its terms subject to and governed by
the Trust Indenture Act. Unless otherwise indicated, references under this
caption to sections are references to the WorldCom Indenture. Whenever
particular sections or defined terms are referred to, it is intended that such
sections or defined terms shall be incorporated herein by reference. A copy of
the WorldCom Indenture may be obtained from the Company and is also filed as
an exhibit to the Registration Statement of which this Prospectus is a part.
The definitions of certain capitalized terms used in the following summary are
set forth below under "--Certain Definitions." For purposes of the description
of the WorldCom Notes, the term "Company" refers to WorldCom, Inc. and does
not include its subsidiaries except for purposes of financial data determined
on a consolidated basis.
General
The WorldCom 2004 Notes will be limited in aggregate principal amount to
$686,402,000 and will mature on January 15, 2004. Interest on the WorldCom
2004 Notes will accrue at the rate of 9 3/8% per annum. The WorldCom 2006
Notes will be limited in aggregate principal amount to $671,849,000 and will
mature on January 15, 2006. Interest on the WorldCom 2006 Notes will accrue at
the rate of 8 7/8% per annum.
Interest on the WorldCom Notes will be payable semi-annually on January 15
and July 15, commencing on January 15, 1998, to the persons who are registered
holders of the WorldCom Notes at the close of business on the immediately
preceding December 31 and June 30, respectively. Interest on the WorldCom
Notes will accrue from the Interest Accrual Date. Interest will be calculated
on the basis of a 360-day year of twelve 30-day months.
Principal and interest will be payable at one or more offices of the Paying
Agent, one of which will be in the City of New York, but, at the option of the
Company, interest may be paid by check mailed to the registered holders at
their registered addresses. The WorldCom Notes will be issued without coupons
and in book-entry form only, in denominations of $1,000 and integral multiples
thereof. Unless otherwise designated by the Company, the Trustee shall act as
Paying Agent.
Ranking
The WorldCom Notes will be senior, unsecured obligations of the Company,
will rank pari passu in right of payment with all other existing and future
senior, unsecured indebtedness of the Company and will rank senior in right of
payment to any future subordinated obligations of the Company. The WorldCom
Notes will be effectively subordinated to any secured indebtedness of the
Company to the extent of the value of the assets securing such indebtedness.
As of March 31, 1997, after giving effect to the issuance and sale by the
Company of the April WorldCom Notes, the aggregate amount of indebtedness of
the Company to which the WorldCom Notes would have ranked pari passu was
approximately $3.18 billion and the aggregate amount of secured indebtedness
of the Company was approximately $53 million. The WorldCom Notes will be
structurally subordinated to all obligations of the Company's subsidiaries,
including any MFS Notes not exchanged for WorldCom Notes in the Exchange
Offers, to the extent of the assets of such subsidiaries. As of March 31,
1997, the aggregate amount of outstanding obligations of the Company's
subsidiaries to which the holders of WorldCom Notes would have been
structurally subordinated (including trade payables but excluding intercompany
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indebtedness) was approximately $2.66 billion; of this amount, (i) $699.9
million represented the carrying value of the MFS 2004 Notes and (ii) $678.7
million represented the carrying value of the MFS 2006 Notes. See "Risk
Factors."
Optional Redemption
The WorldCom 2004 Notes will not be redeemable at the option of the Company
prior to January 15, 1999. On or after January 15, 1999, the WorldCom 2004
Notes will be redeemable at the option of the Company, in whole at any time or
in part from time to time, at the following prices (expressed in percentages
of the principal amount thereof), if redeemed during the twelve months
beginning January 15 of the years indicated below, in each case together with
interest accrued to the redemption date (subject to the right of holders of
record on the relevant record date to receive interest due on the relevant
interest payment date):
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
1999.......................................................... 103.52%
2000.......................................................... 102.34%
2001.......................................................... 101.17%
2002 and thereafter........................................... 100.00%
</TABLE>
The WorldCom 2006 Notes will not be redeemable at the option of the Company
prior to January 15, 2001. On or after January 15, 2001, the WorldCom 2006
Notes will be redeemable at the option of the Company, in whole at any time or
in part from time to time, at the following prices (expressed in percentages
of the principal amount thereof), if redeemed during the twelve months
beginning January 15 of the years indicated below, in each case together with
interest accrued to the redemption date (subject to the right of holders of
record on the relevant record date to receive interest due on the relevant
interest payment date):
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001.......................................................... 103.32%
2002.......................................................... 102.21%
2003.......................................................... 101.11%
2004 and thereafter........................................... 100.00%
</TABLE>
If less than all of the WorldCom Notes of either series are to be redeemed,
the Trustee will select the WorldCom Notes or portions thereof in each series
to be redeemed pro rata, by lot or by any other method that the Trustee shall
deem fair and appropriate. (Section 1103 of the WorldCom Indenture) Notice of
redemption will be mailed at least 30 days but no more than 60 days before the
redemption date to each Holder of WorldCom Notes to be redeemed at its
registered address. (Section 1104 of the WorldCom Indenture) On or after the
redemption date, the WorldCom Notes shall cease to accrue interest, if the
Company makes the redemption payment.
Consolidation, Merger, Conveyance, Sale or Lease
The Company may consolidate with, or sell, lease or convey all or
substantially all of its assets to, or merge with or into any other
corporation, provided that (a) either the Company shall be the continuing
corporation, or the successor corporation (if other than the Company) formed
by or resulting from any such consolidation or merger or which shall have
received the transfer of such assets shall expressly assume payment of the
principal of (and premium, if any) and interest on all the WorldCom Notes and
the performance and observance of all the covenants and conditions of the
WorldCom Indenture; and (b) the Company or such successor corporation shall
not immediately thereafter be in default under the WorldCom Indenture (Section
801 of the WorldCom Indenture).
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Limitation on Liens
The Company shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, create, or suffer to be created or to exist, any Lien
(other than Permitted Liens) upon any of its Property or assets, whether now
owned or hereafter acquired, or any interest therein or any income or profits
therefrom, unless it has made or will make effective provision whereby the
WorldCom Notes will be secured by such Lien equally and ratably with (or prior
to) all other indebtedness of the Company or any Restricted Subsidiary secured
by such Lien for so long as any such other indebtedness of the Company or any
Restricted Subsidiary shall be so secured. Notwithstanding the foregoing, the
Company may, and may permit any Restricted Subsidiary to, issue, assume or
guarantee indebtedness secured by Liens on Property that are not Permitted
Liens without equally and ratably securing the WorldCom Notes, provided that
the sum of all such indebtedness then being issued, assumed or guaranteed
together with such indebtedness theretofore issued, assumed or guaranteed that
remains outstanding does not exceed 15% of the Consolidated Net Tangible
Assets immediately prior to the time such indebtedness was issued, assumed or
guaranteed (Section 1004 of the WorldCom Indenture).
Events of Default; Notice and Waiver
Each of the following is an "Event of Default" under the WorldCom
Indenture with respect to a series of WorldCom Notes:
(a) default for 30 days in the payment of any installment of interest on
any WorldCom Note of that series;
(b) default in the payment of the principal of (or premium, if any, on)
any WorldCom Note of that series at its Maturity;
(c) default in the performance of any other covenant of the Company in
the WorldCom Indenture with respect to a WorldCom Note of that series
(other than a covenant a default on whose performance is otherwise
specifically dealt with in the provisions relating to Events of Default)
continued for 60 days after written notice as provided in the WorldCom
Indenture;
(d) certain events of default resulting in the acceleration of the
maturity of indebtedness aggregating in excess of $50,000,000 under any
mortgages, indentures (including the WorldCom Indenture) or instruments
under which the Company may have issued, or by which there may have been
secured or evidenced, any other indebtedness (including any other series of
securities issued under the WorldCom Indenture) of the Company, but only if
such indebtedness is not discharged or such acceleration is not rescinded
or annulled; and
(e) certain events of bankruptcy, insolvency or reorganization, or court
appointment of a receiver, liquidator or trustee of the Company or all or
substantially all of its property (Section 501 of the WorldCom Indenture).
Within 90 days after the occurrence of any default under the WorldCom
Indenture, the Trustee shall transmit notice of such default (unless cured or
waived) known to the Trustee to the holders of the WorldCom Notes; provided,
however, the Trustee may withhold notice to the holders of WorldCom Notes of
any default with respect to such series (except a default in the payment of
the principal of (or premium, if any) or interest on any WorldCom Note or in
the payment of any sinking fund installment in respect of any WorldCom Note)
if the Responsible Officers of the Trustee consider such withholding to be in
the interest of such holders (Section 601 of the WorldCom Indenture).
If an Event of Default under the WorldCom Indenture with respect to a series
of WorldCom Notes at the time outstanding occurs and is continuing, then in
every such case the Trustee or the holders of not less than 25% in principal
amount of the Outstanding WorldCom Notes of that series may declare the
principal amount of all of the WorldCom Notes of that series to be due and
payable immediately by written notice thereof to the Company (and to the
Trustee if given by the holders). However, at any
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time after such a declaration of acceleration with respect to such series of
WorldCom Notes (or of all securities then Outstanding under the WorldCom
Indenture, as the case may be) has been made, but before a judgment or decree
for payment of the money due has been obtained by the Trustee prior to the
Stated Maturity thereof, the holders of a majority in principal amount of
Outstanding WorldCom Notes of such series (or of all securities then
Outstanding under the WorldCom Indenture, as the case may be) may, subject to
certain conditions, rescind and annul such acceleration if all Events of
Default, other than the non-payment of accelerated principal (or specified
portion thereof), with respect to WorldCom Notes of such series (or of all
securities then Outstanding under the WorldCom Indenture, as the case may be)
have been cured or waived as provided in the WorldCom Indenture. The WorldCom
Indenture also provides that the holders of not less than a majority in
principal amount of the Outstanding WorldCom Notes of any series issued
thereunder (or of all securities then Outstanding under the WorldCom
Indenture, as the case may be) may waive certain past defaults with respect to
such series and its consequences (Section 513 of the WorldCom Indenture).
Within 120 days after the close of each fiscal year, the Company must file
with the Trustee a statement, signed by specified officers, stating whether or
not such officers have knowledge of any default under the WorldCom Indenture
and, if so, specifying each such default and the nature and status thereof
(Section 1006 of the WorldCom Indenture).
Subject to provisions in the WorldCom Indenture relating to its duties in
case of default, the Trustee is under no obligation to exercise any of its
rights or powers under the WorldCom Indenture at the request or direction of
any holders of any series of WorldCom Notes then Outstanding under the
WorldCom Indenture, unless such holders shall have offered to the Trustee
reasonable security or indemnity (Section 602 of the WorldCom Indenture).
Subject to such provisions for indemnification and certain limitations
contained in the WorldCom Indenture, the holders of not less than a majority
in principal amount of the Outstanding WorldCom Notes of any series issued
thereunder (or of all Securities then Outstanding under the WorldCom
Indenture, as the case may be) shall have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the
Trustee, or of exercising any trust or power conferred upon the Trustee
(Section 512 of the WorldCom Indenture).
Amendment and Supplement
The WorldCom Indenture contains provisions permitting WorldCom and the
Trustee to enter into one or more indentures supplemental to the WorldCom
Indenture without the consent of the holders of the WorldCom Notes for certain
purposes, including the following: (a) to evidence the succession of another
entity to the Company and the assumption by such entity of the covenants of
the Company contained in the WorldCom Indenture and the WorldCom Notes; (b) to
add to the covenants of the Company for the benefit of the holders of the
WorldCom Notes or to surrender any right or power conferred upon the Company
in the WorldCom Indenture; (c) to add any additional Events of Default for the
benefit of the holders of the WorldCom Notes; provided, however, that in
respect of any such additional Events of Default such supplemental indenture
may provide for a particular period of grace after default or may provide for
an immediate enforcement upon such default or may limit the remedies available
to the Trustee upon such default or may limit the right of the holders of a
majority in aggregate principal amount of that or those series of WorldCom
Notes to which such additional Events of Default apply to waive such default;
(d) to add to or change any of the provisions of the WorldCom Indenture to
permit or facilitate the issuance of the WorldCom Notes in uncertificated or
bearer form; (e) to change or eliminate any provisions of the WorldCom
Indenture which do not affect the rights of any holders of securities issued
in connection with the WorldCom Indenture; (f) to provide security for the
WorldCom Notes; (g) to evidence and provide for the acceptance of an
appointment of a successor Trustee with respect to the WorldCom Notes and to
add to or change any of the provisions of the WorldCom Indenture to provide
for or facilitate the administration of the trusts under the WorldCom
Indenture by more than one Trustee; (h) to cure any ambiguity, to correct or
supplement any provision
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of the WorldCom Indenture which may be defective or inconsistent with any
other provision, or to make any other provisions with respect to matters or
questions arising under the WorldCom Indenture which shall not be inconsistent
with the provisions of the WorldCom Indenture and which additional provisions
shall not adversely affect the interests of the holders of the WorldCom Notes;
or (i) to supplement any of the provisions of the WorldCom Indenture to such
extent as shall be necessary to permit or facilitate the defeasance and
discharge of the WorldCom Notes in accordance with terms and conditions of the
WorldCom Indenture provided that any such action shall not adversely affect
the interests of the holders of the WorldCom Notes in any material respect
(Section 901 of the WorldCom Indenture).
The WorldCom Indenture also contains provisions permitting WorldCom and the
Trustee, with the consent of the holders of not less than a majority in
principal amount of all the Outstanding WorldCom Notes affected by the terms
of any such supplemental indenture, to execute supplemental indentures adding
any provisions to or changing in any manner or eliminating any of the
provisions of the WorldCom Indenture or of modifying in any manner the rights
of the holders of such WorldCom Notes, except that, without the consent of the
holders of each such WorldCom Note, no such supplemental indenture shall, (a)
change the Stated Maturity of the principal of (or premium, if any, on) or any
installment of principal of or interest on such WorldCom Notes; (b) reduce the
principal amount of such WorldCom Notes or the rate or amount of interest
thereon or any additional amounts payable in respect thereof pursuant to the
WorldCom Indenture or such WorldCom Notes, or any premium payable upon the
redemption thereof; (c) change any obligation of the Company to pay additional
amounts pursuant to Section 1007 of the WorldCom Indenture (except as
otherwise contemplated by the WorldCom Indenture); (d) adversely affect any
right of repayment at the option of the holder of such WorldCom Notes; (e)
change any place of payment where, or the currency or currencies, currency
unit or units or composite currency or currencies in which, such WorldCom
Notes or any premium or the interest thereon is payable; (f) impair the right
to institute suit for the enforcement of any such payment on or after the
stated maturity thereof (or in the case of redemption or repayment at the
option of the holder of such WorldCom Notes, on or after the Redemption Date
or the Repayment Date, as the case may be); (g) reduce the percentage in
principal amount of the Outstanding WorldCom Notes of such series, the consent
of whose holders is required for any such supplemental indenture, or the
consent of whose holders is required for any waiver with respect to such
series or compliance with certain provisions of the WorldCom Indenture or
certain defaults thereunder and their consequences; (h) reduce the quorum or
voting requirements as contained in the WorldCom Indenture with respect to
such WorldCom Notes; or (i) modify any of the provisions of the WorldCom
Indenture relating to supplemental indentures thereof or waiver of past
defaults with respect to such WorldCom Notes except to increase any such
percentage or to provide that certain other provisions of the WorldCom
Indenture cannot be modified or waived with respect to such WorldCom Notes
without the consent of the holders of each such WorldCom Note (Section 902 of
the WorldCom Indenture).
It is not necessary for the holders of the WorldCom Notes to approve the
particular form of any proposed supplemental indenture, but it is sufficient
if such holders approve the substance thereof. Every supplemental indenture
executed pursuant to the WorldCom Indenture will conform to the requirements
of the Trust Indenture Act as then in effect. (Section 905 of the WorldCom
Indenture)
Satisfaction and Discharge of the WorldCom Indenture, Covenant Defeasance
The Company may, at its option, elect to have either or both of (a) the
defeasance provision of the WorldCom Indenture or (b) the covenant defeasance
provision of the WorldCom Indenture apply to a series of WorldCom Notes upon
compliance with the applicable conditions set forth in the WorldCom Indenture.
(Section 1401 of the WorldCom Indenture) The Company shall be deemed to have
been discharged from its obligations with respect to a series of WorldCom
Notes on the date the conditions set forth below are satisfied (hereinafter,
"defeasance"), except for the following obligations which shall survive until
otherwise terminated or discharged pursuant to the WorldCom Indenture: (i)
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the rights of holders of such WorldCom Notes to receive, solely from the trust
fund described in Section 1404 of the WorldCom Indenture, payments in respect
of the principal of (and premium, if any) and interest, if any, on such
WorldCom Notes when such payments are due, (ii) the Company's obligations with
respect to such WorldCom Notes under Sections 305, 306, 1002 and 1003 of the
WorldCom Indenture and with respect to the payment of additional amounts, if
any, as contemplated by Section 1007 of the WorldCom Indenture, (iii) the
rights, powers, trusts, duties and immunities of the Trustee under the
WorldCom Indenture and (iv) the obligations contained in the article of the
WorldCom Indenture relating to defeasance and covenant defeasance. The Company
shall be released from its obligations under any covenant with respect to such
WorldCom Notes on and after the date the conditions set forth below are
satisfied (hereinafter, "covenant defeasance"). (Sections 1402 and 1403 of the
WorldCom Indenture)
The following are the conditions that must be satisfied prior to defeasance
or covenant defeasance: (a) the Company shall irrevocably have deposited or
caused to be deposited with the Trustee as trust funds in trust for the
purpose of making the following payments, money and/or Government Obligations
sufficient, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered to
the Trustee, to pay and discharge, and which shall be applied by the Trustee
(or other qualifying trustee) to pay and discharge, (i) the principal of (and
premium, if any) and interest, if any, on the WorldCom Notes to be defeased on
the Stated Maturity of such principal or installment of principal or interest
and (ii) any mandatory sinking fund payments or analogous payments applicable
to such WorldCom Notes; (b) such defeasance or covenant defeasance shall not
result in a breach or violation of, or constitute a default under, the
WorldCom Indenture or any other material agreement or instrument to which the
Company is a party or by which it is bound; (c) no Event of Default or event
which with notice or lapse of time or both would become an Event of Default
with respect to such WorldCom Notes shall have occurred and be continuing on
the date of such deposit, or if applicable, at any time during the period
ending on the 91st day after the date of such deposit; (d) the Company shall
have delivered to the Trustee an opinion of counsel to the effect that the
holders of such WorldCom Notes will not recognize income, gain or loss for
Federal income tax purposes as a result of such defeasance or covenant
defeasance, as applicable, and will be subject to Federal income tax on the
same amounts, in the same manner and at the same times as would have been the
case if such defeasance or covenant defeasance, as applicable, had not
occurred; (e) the Company shall have delivered to the Trustee an officers'
certificate and an opinion of counsel, each stating that all conditions
precedent to the defeasance or the covenant defeasance (as the case may be)
have been complied with and an opinion of counsel to the effect that either
(i) as a result of a deposit pursuant to subsection (a) above, registration is
not required under the Investment Company Act of 1940, as amended, by the
Company, with respect to the trust funds representing such deposit or by the
Trustee for such trust funds or (ii) all necessary registrations under said
Act have been effected; and (f) such defeasance or covenant defeasance shall
be effected in compliance with any additional or substitute terms, conditions
or limitations which may be imposed on the Company in connection therewith
pursuant to Section 301 of the WorldCom Indenture. (Section 1404 of the
WorldCom Indenture)
WorldCom may exercise its defeasance option with respect to such WorldCom
Notes notwithstanding its prior exercise of its covenant defeasance option.
In the event the Company effects covenant defeasance with respect to any
WorldCom Notes and such WorldCom Notes are declared due and payable because of
the occurrence of any Event of Default other than the Events of Default
described in clause (c) under "--Events of Default; Notice and Waiver" above,
the amount of money in which such WorldCom Notes are payable, and Government
Obligations on deposit with the Trustee, will be sufficient to pay amounts due
on such WorldCom Notes at the time of their Stated Maturity but may not be
sufficient to pay amounts due on such WorldCom
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Notes at the time of the acceleration resulting from such Event of Default.
However, the Company would remain liable to make payment of such amounts due
at the time of acceleration.
The Trustee
Mellon Bank, N.A., the Trustee under the WorldCom Indenture, from time to
time may extend credit to the Company in the ordinary course of business. The
Trustee's current address is Two Mellon Bank Center, Room 325, Pittsburgh, PA
15259. Except during the continuance of an Event of Default, the Trustee is
required to perform only such duties as are specifically set forth in the
WorldCom Indenture. During the existence of an Event of Default, the Trustee
is required to exercise such of the rights and powers vested in it by the
WorldCom Indenture, and to use the same degree of care and skill in their
exercise, as a prudent person would exercise or use under the circumstances in
the conduct of such person's own affairs.
Any Trustee may resign or be removed with respect to one or both series of
WorldCom Notes, and a successor Trustee may be appointed to act with respect
to such series.
The Trust Indenture Act contains certain limitations on the rights of the
Trustee, should it become a creditor of the Company to obtain payment of
claims in certain cases, or to realize on certain property received in respect
of any such claim as security or otherwise. The Trustee will be permitted to
engage in other transactions; however, if it acquires any "conflicting
interest" (as defined in the Trust Indenture Act) it must eliminate such
conflict within 90 days, apply to the Commission for permission to continue or
resign.
The holders of a majority in principal amount of the Outstanding WorldCom
Notes will have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. (Section 512 of the WorldCom Indenture) The WorldCom
Indenture provides that in case an Event of Default shall occur (which shall
not be cured), the Trustee will be required, in the exercise of its power, to
use the degree of care of a prudent man in the conduct of his own affairs.
Subject to such provisions, the Trustee will be under no obligation to
exercise any of its rights or powers under the WorldCom Indenture at the
request of any of the holders of the WorldCom Notes, unless such holders shall
have offered to the Trustee security and indemnity satisfactory to it against
any loss, liability or expense. (Section 602 of the WorldCom Indenture)
No Personal Liability of Stockholders, Officers or Directors
No stockholder, employee, officer, director or incorporator as such, past,
present or future of the Company shall have any personal liability in respect
of the obligations of the Company under the WorldCom Indenture or the WorldCom
Notes by reasons of his or its status as such stockholder, employee, officer,
director or incorporator.
Delivery and Form
The WorldCom 2004 Notes and the WorldCom 2006 Notes initially will be
represented by one or more global securities ("Global Securities") deposited
with DTC and registered in the name of the nominee of DTC, except as set forth
below. Each of the WorldCom Notes will be issued in denominations of $1,000
and integral multiples thereof, in book-entry form only. Unless and until
certificated WorldCom Notes are issued under the limited circumstances
described below, no beneficial owner of a WorldCom Note shall be entitled to
receive a definitive certificate representing a WorldCom Note.
So long as DTC or any successor depository (collectively, the "Depository")
or its nominee is the registered holder of the Global Securities, the
Depository, or such nominee, as the case may be, will be considered to be the
sole owner or holder of the WorldCom Notes for all purposes of the Indenture.
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Investors' interests in the Global Securities will be represented through
financial institutions acting on their behalf as direct and indirect
participants in the Depository. Such participants may include Morgan Guaranty
Trust Company of New York, Brussels, Belgium office ("Euroclear") or Cedel
Bank societe anonyme. Except as provided below, owners of beneficial interests
in a Global Security will not be entitled to have WorldCom Notes represented
by such Global Security registered in their names, will not receive or be
entitled to receive physical delivery of WorldCom Notes in certificated form
and will not be considered the owners or holders thereof under the WorldCom
Indenture. The laws of some states require that certain purchasers of
securities take physical delivery of such securities in certificated form;
accordingly, such laws may limit the transferability of beneficial interests
in a Global Security. Accordingly, each person owning a beneficial interest in
a Global Security must rely on DTC's procedures and, if such person is not a
participant, on the procedures of the participant through which such person
owns its interest, to exercise any rights of a holder under the WorldCom
Indenture. If the Company requests any action of holders or if an owner of a
beneficial interest in a Global Security desires to take any action that a
holder is entitled to take under the WorldCom Indenture, DTC will authorize
the participants holding the relevant beneficial interests to give or take
such action, and such participants will otherwise act upon the instructions of
beneficial owners holding through them.
If DTC is at any time unwilling or unable to continue as depository or if at
any time DTC ceases to be a clearing agency registered under the Exchange Act
if so required by applicable law or regulation, and, in either case, a
successor depository is not appointed by the Company within 90 days, the
Company will issue individual WorldCom Notes in certificated form in exchange
for the Global Securities. In addition, the Company may at any time, and in
its sole discretion, determine not to have any WorldCom Notes represented by
one or more Global Securities, and, in such event, will issue individual
WorldCom Notes in certificated form in exchange for the relevant Global
Securities. In any such instance, an owner of a beneficial interest in a
Global Security will be entitled to physical delivery of individual WorldCom
Notes in certificated form of like tenor and rank, equal in principal amount
to such beneficial interest and to have such WorldCom Notes in certificated
form registered in its name. WorldCom Notes so issued in certificated form
will be issued in denominations of $1,000 or any integral multiple thereof,
and will be issued in registered form only, without coupons.
The following is based on information furnished by DTC:
DTC will act as securities depository for the WorldCom Notes. The
WorldCom Notes will be issued as fully registered securities registered in
the name of Cede & Co. (DTC's partnership nominee). One fully registered
WorldCom Note certificate is issued with respect to each $200 million of
principal amount of the WorldCom Notes of a series, and an additional
certificate is issued with respect to any remaining principal amount of
such series.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code,
and a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC holds securities that its participants
("Participants") deposit with DTC. DTC also facilitates the settlement
among Participants of securities transactions, such as transfers and
pledges, in deposited securities through electronic computerized book-entry
changes in Participants' accounts, thereby eliminating the need for
physical movement of securities certificates. Direct Participants include
securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations ("Direct Participants"). DTC
is owned by a number of its Direct Participants and by the New York Stock
Exchange, Inc., the American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc. Access to the DTC system is also
available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a
Direct Participant, either directly or indirectly ("Indirect
Participants"). The rules applicable to DTC and its Participants are on
file with the Commission.
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Purchases of WorldCom Notes under the DTC system must be made by or
through Direct Participants, which will receive a credit for the WorldCom
Notes on DTC's records. The ownership interest of each actual purchaser of
each WorldCom Note ("Beneficial Owner") is in turn recorded on the Direct
and Indirect Participants' records. A Beneficial Owner does not receive
written confirmation from DTC of its purchase, but such Beneficial Owner is
expected to receive a written confirmation providing details of the
transaction, as well as periodic statements of its holdings, from the
Direct or Indirect Participant through which such Beneficial Owner entered
into the transaction. Transfers of ownership interests in WorldCom Notes
are accomplished by entries made on the books of Participants acting on
behalf of Beneficial Owners. Beneficial Owners do not receive certificates
representing their ownership interests in WorldCom Notes, except in the
event that use of the book-entry system for the WorldCom Notes is
discontinued.
To facilitate subsequent transfers, the WorldCom Notes are registered in
the name of DTC's partnership nominee, Cede & Co. The deposit of the
WorldCom Notes with DTC and their registration in the name of Cede & Co.
will effect no change in beneficial ownership. DTC has no knowledge of the
actual Beneficial Owners of the WorldCom Notes; DTC records reflect only
the identity of the Direct Participants to whose accounts WorldCom Notes
are credited, which may or may not be the Beneficial Owners. The
Participants remain responsible for keeping account of their holdings on
behalf of their customers.
Delivery of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by
Direct Participants and Indirect Participants to Beneficial Owners are
governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the
WorldCom Notes within an issue are being redeemed, DTC's practice is to
determine by lot the amount of interest of each Direct Participant in such
issue to be redeemed.
Neither DTC nor Cede & Co. consents or votes with respect to the WorldCom
Notes. Under its usual procedures, DTC mails a proxy (an "Omnibus Proxy")
to the issuer as soon as possible after the record date. The Omnibus Proxy
assigns Cede & Co.'s consenting or voting rights to those Direct
Participants to whose accounts the WorldCom Notes are credited on the
record date (identified on a list attached to the Omnibus Proxy).
Principal, premium, if any, and interest payments on the WorldCom Notes
are made to DTC. DTC's practice is to credit Direct Participants' accounts
on the payable date in accordance with their respective holdings as shown
on DTC's records unless DTC has reason to believe that it will not receive
payment on the payable date. Payments by Participants to Beneficial Owners
are governed by standing instructions and customary practices, as is the
case with securities held for the accounts of customers in bearer form or
registered in "street name," and are the responsibility of such Participant
and not of DTC, the applicable Trustee or the Company, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of principal, premium, if any, and interest to DTC is the
responsibility of the Company or the applicable Trustee, disbursement of
such payments to Direct Participants is the responsibility of DTC, and
disbursement of such payments to the Beneficial Owners is the
responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as securities depository with
respect to the WorldCom Notes at any time by giving reasonable notice to
the Company or the applicable Trustee. Under such circumstances, in the
event that a successor securities depository is not appointed, WorldCom
Note certificates are required to be printed and delivered.
The Company may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depository). In that
event, WorldCom Note certificates will be printed and delivered.
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The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources (including DTC) that the Company believes to be
reliable, but the Company takes no responsibility for the accuracy thereof.
None of the Company, the Dealer Managers or any agent, the Trustee or any
applicable paying agent will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
interests in a Global Security, or for maintaining, supervising or reviewing
any records relating to such beneficial interest.
Same-Day Settlement and Payment
So long as the WorldCom Notes are represented by the Global Securities, all
payments of principal and interest will be made by the Company in immediately
available funds. The WorldCom Notes will trade in DTC's Same-Day Funds
Settlement System until maturity, and secondary market trading activity in the
WorldCom Notes that is effected through DTC will be required to settle in
immediately available funds.
Certain Definitions
Set forth below is a summary of certain of the defined terms used herein and
defined in Section 101 of the WorldCom Indenture. Reference is made to the
WorldCom Indenture for the full definition of all such terms, as well as any
capitalized terms used herein for which no definition is provided.
"Capital Lease Obligations" means indebtedness represented by obligations
under a lease that is required to be capitalized for financial reporting
purposes in accordance with GAAP and the amount of such indebtedness shall
be the capitalized amount of such obligations determined in accordance with
GAAP. For purposes of the covenant relating to Limitations on Liens, a
Capital Lease Obligation shall be deemed secured by a Lien on the Property
being leased.
"Capital Stock" means, with respect to any person, any and all shares or
other equivalents (however designated) of corporate stock, partnership
interest or any other participation, right, warrant, option or other
interest in the nature of an equity interest in such person, but excluding
any debt security convertible or exchangeable into such equity interest.
"Consolidated Net Tangible Assets" means the consolidated total assets of
the Company and its Subsidiaries as reflected in the Company's most recent
balance sheet prepared in accordance with GAAP, less (i) current
liabilities (excluding current maturities of long-term debt and Capital
Lease Obligations) and (ii) goodwill, trademarks, patents and minority
interests of others.
"GAAP" means United States generally accepted accounting principles as in
effect as of the date of determination, unless stated otherwise.
"Government Obligations" means securities which are (i) direct
obligations of the United States of America or the government which issued
the foreign currency in which the Debt Securities of a particular series
are payable, for the payment of which its full faith and credit is pledged
or (ii) obligations of a Person controlled or supervised by and acting as
an agency or instrumentality of the United States of America or such
government which issued the foreign currency in which the Debt Securities
of such series are payable, the payment of which is unconditionally
guaranteed as a full faith and credit obligation by the United States of
America or such other government, which, in either case, are not callable
or redeemable at the option of the issuer thereof, and shall also include a
depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific payment of interest
on or principal of any such Government Obligation held by such custodian
for the account of the holder of a depository receipt; provided that
(except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depository receipt
from any
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amount received by the custodian in respect of the Government Obligation or
the specific payment of interest on or principal of the Government
Obligation evidenced by such depository receipt.
"Lien" means, with respect to any Property of any person, any mortgage or
deed of trust, pledge, hypothecation, assignment, deposit arrangement,
security interest, lien, charge, easement or zoning restriction (other than
any easement or zoning restriction not materially impairing usefulness or
marketability), encumbrance, preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever on
or with respect to such Property including any Capital Lease Obligation,
conditional sale or other title retention agreement having substantially
the same economic effect as any of the foregoing or any Sale and Leaseback
Transaction.
"Permitted Liens" means (i) Liens existing on the date of the Indenture;
(ii) Liens on Property existing at the time of acquisition thereof or to
secure the payment of all or any part of the purchase price thereof or to
secure any indebtedness incurred prior to, at the time of or within 270
days after the acquisition of such Property for the purpose of financing
all or any part of the purchase price thereof; (iii) Liens securing
indebtedness owing by a Restricted Subsidiary to the Company or any wholly-
owned Subsidiary of the Company; (iv) Liens on Property of any entity, or
on the stock, indebtedness or other obligations of such entity, existing at
the time (a) such entity becomes a Restricted Subsidiary, (b) such entity
is merged into or consolidated with the Company or a Restricted Subsidiary
or (c) the Company or a Restricted Subsidiary acquires all or substantially
all of the assets of such entity; provided that no such Lien extends to any
other Property; (v) Liens on Property to secure any indebtedness incurred
to provide funds for all or any part of the cost of development of or
improvements to such Property; (vi) Liens on the Property of the Company or
any of its Subsidiaries securing (a) nondelinquent performance of bids or
contracts (other than for borrowed money, obtaining of advances or credit
or the securing of debt), (b) contingent obligations on surety and appeal
bonds and (c) other nondelinquent obligations of a like nature, in each
case, incurred in the ordinary course of business; (vii) Liens securing
Capital Lease Obligations, provided that (a) any such Lien attaches to the
Property within 270 days after the acquisition thereof and (b) such Lien
attaches solely to the Property so acquired; (viii) Liens arising solely by
virtue of any statutory or common law provision relating to banker's liens,
rights of set-off or similar rights and remedies as to deposit account or
other funds, provided that such deposit account is not a dedicated cash
collateral account and is not subject to restrictions against access by the
Company in excess of those set forth by regulations promulgated by the
Federal Reserve Board and such deposit account is not intended by the
Company or any Subsidiary to provide collateral to the depository
institution; (ix) pledges or deposits under worker's compensation laws,
unemployment insurance laws or similar legislation; (x) statutory and tax
Liens for sums not yet due or delinquent or which are being contested or
appealed in good faith by appropriate proceedings; (xi) Liens arising
solely by operation of law and in the ordinary course of business, such as
mechanics', materialmen's, warehousemen's and carriers' Liens and Liens of
landlords or of mortgages of landlords on fixtures and movable Property
located on premises leased in the ordinary course of business; (xii) Liens
on personal Property, other than shares of stock or indebtedness of any
Restricted Subsidiary, to secure loans maturing not more than one year from
the date of the creation thereof and on accounts receivable associated with
a receivables financing program of the Company or any of its Subsidiaries;
and (xiii) any renewal, extension or replacement (in whole or in part) for
any Lien permitted pursuant to exceptions (i) through (xii) above or of any
indebtedness secured thereby, provided that such extension, renewal or
replacement Lien shall be limited to all or any part of the same Property
that secured the Lien extended, renewed or replaced (plus improvements on
such Property).
"Property" means, with respect to any person, any interest of such person
in any kind of property or asset, whether real, personal or mixed, or
tangible or intangible, including, without limitation, Capital Stock in any
other person (but excluding Capital Stock or other securities issued by
such first mentioned person).
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"Receivables Subsidiary" means a special purpose wholly-owned Subsidiary
created in connection with any transactions that may be entered into by the
Company or any of its Subsidiaries pursuant to which the Company or any of
its Subsidiaries may sell, convey, grant a security interest in or
otherwise transfer undivided percentage interests in its receivables.
"Restricted Subsidiary" means any Subsidiary of the Company if (i) such
Subsidiary has substantially all of its Property in the United States
(other than its territories and possessions) and (ii) at the end of the
most recent fiscal quarter of the Company, the aggregate amount, determined
in accordance with GAAP consistently applied, of securities of, loans and
advances to, and other investments in, such Subsidiary held by the Company
and its other Subsidiaries exceeded 10% of the Company's Consolidated Net
Tangible Assets; provided, however, that the term Restricted Subsidiary
shall not include (a) any of MFS Communications Company, Inc. or its
Subsidiaries unless and until such time as such corporation is designated
by the Company as a "Restricted Subsidiary" or otherwise similarly treated
under the Company's $3.75 billion five-year revolving credit facility or
any other agreement of the Company for indebtedness for borrowed money or
(b) any Receivables Subsidiary.
"Sale and Leaseback Transaction" means, with respect to any person, any
direct or indirect arrangement pursuant to which Property is sold or
transferred by such person or a Restricted Subsidiary of such person and is
thereafter leased back from the purchaser or transferee thereof by such
person or one of its Restricted Subsidiaries.
"Subsidiary" means a corporation a majority of the outstanding voting
stock of which is owned, directly or indirectly, by the Company or one or
more other Subsidiaries of the Company. For the purposes of this
definition, "voting stock" means stock having voting power for the election
of directors, whether at all times or only so long as no senior class of
stock has such voting power by reason of any contingency.
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CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of certain material U.S. federal income tax
consequences resulting from the Exchange Offers and Consent Solicitations. The
discussion is based on U.S. federal income tax laws, regulations, rulings and
decisions now in effect, all of which are subject to change possibly with
retroactive effect. The discussion assumes that as to any holder, the WorldCom
Notes and MFS Notes are capital assets as of the Exchange Date. This
discussion does not address state, local, foreign or other tax laws and does
not purport to cover all aspects of U.S. federal income taxation that may be
relevant to, or the actual tax effect that any of the matters described herein
will have on, certain holders (including insurance companies, tax-exempt
organizations, financial institutions, securities- dealers, subsequent
purchasers of WorldCom Notes and taxpayers subject to the alternative minimum
tax) who may be subject to special rules not discussed below. HOLDERS OF MFS
NOTES ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE FEDERAL,
STATE, LOCAL AND OTHER TAX CONSEQUENCES OF THE EXCHANGE OFFERS AND CONSENT
SOLICITATIONS AND OF THE CONTINUED HOLDING AND DISPOSITION OF MFS NOTES.
UNITED STATES HOLDERS
As used herein, the term "U.S. Holder" means the beneficial owner of MFS
Notes or WorldCom Notes that is, for U.S. federal income tax purposes, (i) an
individual citizen or resident of the United States, (ii) a U.S. domestic
corporation or (iii) otherwise subject to U.S. federal income tax on a net
income basis in respect of the MFS Notes or WorldCom Notes.
Tax Consequences of the Exchange Offers and Consent Solicitations
The exchange of MFS Notes for WorldCom Notes (and cash in lieu of a WorldCom
Note in a principal amount that is not an integral multiple of $1,000) and
Consent Payments pursuant to the Exchange Offers and Consent Solicitations
will be a taxable transaction for United States federal income tax purposes.
Accordingly, a tendering U.S. Holder should generally recognize gain or loss
equal to the difference between the sum of the cash (including the Consent
Payments) and the issue price of the WorldCom Notes received (except to the
extent of any accrued original issue discount ("OID") on the MFS Notes not
previously included in the U.S. Holder's income, which will be taxable as
ordinary interest income) and the U.S. Holder's adjusted tax basis in the MFS
Notes. Such gain or loss will be long-term capital gain or loss if the U.S.
Holder's holding period is more than one year, and short-term capital gain or
loss if the U.S. Holder's holding period is one year or less, except such gain
will be subject to tax as ordinary income to the extent of any accrued "market
discount" on the MFS Notes not previously included in income. In general,
unless a U.S. Holder acquired its MFS Notes at their original issuance, market
discount is the excess, if any, of the "adjusted issued price," or Accreted
Value, of such MFS Notes over the U.S. Holder's tax basis therein at the time
of acquisition (unless the amount of such excess is less than a specified de
minimis amount, in which case market discount is considered zero). In general,
market discount accrues on a straight-line basis, unless a taxpayer elects to
accrue market discount on a constant-yield basis.
As illustrated above, the amount of gain or loss recognized as a result of
the exchange of the MFS Notes for WorldCom Notes and cash will depend in part
on the "issue price" of the WorldCom Notes. Where a new debt instrument is
issued in exchange for property (including an old debt instrument), the
determination of the issue price of the new debt instrument depends on whether
either the new debt instrument or the property for which it is exchanged is
"publicly traded." If neither the WorldCom Notes nor the MFS Notes are
publicly traded, the issue price of the WorldCom Notes will be their "stated
principal amount." A debt instrument's stated principal amount is the
aggregate amount of all payments under the debt instrument, excluding any
amount of stated interest. If, however, the WorldCom Notes are publicly
traded, their issue price will be their fair market value at the time they are
issued. If the WorldCom Notes are not publicly traded, but the MFS Notes are
publicly traded, the
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issue price of the WorldCom Notes will be the fair market value of the MFS
Notes exchanged therefor. For purposes of this discussion, a debt instrument
is publicly traded if (i) it is listed on a national securities exchange, an
interdealer quotation system sponsored by a national securities association
(such as NASDAQ), or a designated foreign exchange or board of trade, (ii) it
is traded either on a board of trade designated as a contract market by the
Commodities Futures Trading Commission or on an interbank market, (iii) it
appears on a "quotation medium," i.e., a system of general circulation
(including a computer listing available to subscribing brokers and dealers)
that provides a reasonable basis to determine fair market value by
disseminating either recent price quotations of one or more identified
brokers, dealers or traders or actual prices of recent sales (but not "yellow
sheets") or (iv) it is a debt instrument that is "readily quotable" in that
price quotations are readily available from dealers, brokers or traders. Newly
issued debt instruments are treated as publicly traded property at the time of
their issuance if the debt instruments are publicly traded at any time during
the 60-day period ending 30 days after their issuance. Any temporary
restriction on trading, a purpose of which is to avoid characterization of
debt instruments as publicly traded property for federal income tax purposes,
is ineffective regardless of whether the temporary restriction is imposed by
the issuer. If either the WorldCom Notes or the MFS Notes are publicly traded,
the WorldCom Notes may be treated as having been issued at a discount or at a
premium. U.S. Holders should consult their tax advisors to determine how, and
to what extent, any such discount or premium, if any, will be included in such
U.S. Holder's income (in the case of any discount) or amortized (in the case
of any premium).
Basis and Holding Period
A U.S. Holder's tax basis in the WorldCom Notes will equal the issue price
of the WorldCom Notes. The holding period of the WorldCom Notes will commence
on the day after the WorldCom Notes are acquired by the U.S. Holder.
Payment of Interest
Assuming the WorldCom Notes will not be issued with OID, interest on the
WorldCom Notes generally will be taxable to the U.S. Holder as ordinary income
at the time that it is paid or accrued, in accordance with the U.S. Holder's
method of accounting for U.S. federal income tax purposes.
Sale, Exchange or Redemption
In general, a U.S. Holder of a WorldCom Note will recognize gain or loss
upon the sale, exchange, redemption, retirement or other disposition of the
WorldCom Note measured by the difference between the amount realized on the
disposition (to the extent such amount does not represent accrued but unpaid
interest) and the U.S. Holder's adjusted basis in the WorldCom Note. A U.S.
Holder's adjusted basis in a WorldCom Note will generally equal the issue
price of the WorldCom Note. Such gain or loss will be capital gain or loss and
will be long-term capital gain or loss if the U.S. Holder holds the WorldCom
Note for more than one year prior to disposition, and short-term capital gain
or loss if the U.S. Holder holds the WorldCom Note for less than one year
prior to disposition.
U.S. Holders Not Tendering in an Exchange Offer
For U.S. Holders of the MFS Notes who do not elect to exchange their MFS
Notes for the WorldCom Notes pursuant to the Exchange Offers, the proposed
modifications to the MFS Notes (see "The Proposed Amendments") should not be
treated as a taxable exchange of the MFS Notes for the new MFS Notes.
Backup Withholding
Backup withholding of U.S. federal income tax at a rate of 31% may apply to
payments made pursuant to the Exchange Offers and Consent Solicitations, to
payments of principal and interest made
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in respect of WorldCom Notes, and to payments of proceeds from the sale,
exchange, redemption, retirement or other disposition of WorldCom Notes to or
through certain brokers, unless, in general, the beneficial owner of the MFS
Notes or the WorldCom Notes, as the case may be, complies with certain
information reporting procedures or is an exempt recipient. Any amount
withheld from a payment to a beneficial owner pursuant to these backup
withholding rules may be allowed as a refund or credit against the beneficial
owner's U.S. federal income tax.
NON-U.S. HOLDERS
As used herein, the term "Non-U.S. Holder" means a beneficial owner of MFS
Notes or WorldCom Notes other than a U.S. Holder. For these purposes, a "Non-
U.S. Holder" does not include a nonresident alien, foreign corporation or
other foreign entity, to the extent that the income or gain with respect to
the Exchange Offers and Consent Solicitations or the WorldCom Notes is
"effectively connected with the conduct of a trade or business within the
United States." To the extent that such income or gain is "effectively
connected with the conduct of a trade or business within the United States,"
then the nonresident alien, foreign corporation or other foreign entity,
generally will be subject to tax as discussed above for U.S. Holders except to
the extent that an applicable treaty otherwise provides. In addition, foreign
corporations may also, under certain circumstances, be subject to a "branch
profits tax" at a 30% rate (or, if applicable, a lower treaty rate).
In general, any gain or loss realized on the exchange of MFS Notes for
WorldCom Notes (and cash in lieu of a WorldCom Note in a principal amount that
is not an integral multiple of $1,000) and Consent Payments by a Non-U.S.
Holder pursuant to the Exchange Offers and Consent Solicitations will not be
subject to United States federal income or withholding taxes unless, in the
case of an individual, such holder is present in the United States for 183
days in the taxable year of the Exchange and certain other conditions are met.
Subject to the discussion of backup withholding below, payments of interest
on the WorldCom Notes to a Non-U.S. Holder generally will not be subject to
U.S. federal income or withholding taxes, provided that (i) such Non-U.S.
Holder does not actually or constructively own 10 percent or more of the total
combined voting power of all classes of stock of the Company, (ii) such Non-
U.S. Holder is not a controlled foreign corporation for U.S. tax purposes that
is related to the Company actually or constructively through stock ownership
and (iii) the Non-U.S. Holder certifies, under penalties of perjury, that it
is not a United States person for U.S. federal income tax purposes and
provides its name and address in accordance with applicable requirements.
Any capital gain realized on the sale, exchange, redemption, retirement or
other disposition of WorldCom Notes by a Non-U.S. Holder generally will not be
subject to United States federal income or withholding taxes unless, in the
case of an individual, such holder is present in the United States for 183
days in the taxable year of the Exchange and certain other conditions are met.
Payments made pursuant to the Exchange Offers and Consent Solicitations,
payments of principal and interest made in respect of WorldCom Notes and
payments of proceeds from the sale, exchange, redemption, retirement or other
disposition of WorldCom Notes to a Non-U.S. Holder generally will not be
subject to a backup withholding tax of 31% or to information reporting
requirements unless, in general, the holder fails to comply with certain
reporting procedures or otherwise fails to establish an exemption from such
tax or reporting requirements under applicable provisions of the Internal
Revenue Code of 1986, as amended.
The backup withholding and information reporting rules described above are
under review by the United States Treasury and their application to the
WorldCom Notes could be changed by future regulations.
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INFORMATION REGARDING WORLDCOM
Information regarding the Company is contained in its filings with the
Commission pursuant to the Exchange Act. See "Available Information" and
"Incorporation of Certain Documents by Reference." R. Douglas Bradbury's term
as a director expired at the Company's Annual Meeting of Shareholders in May
1997. On June 30, 1997, the Company reported that James Q. Crowe, who had
accepted the position of President and Chief Executive Officer of Kiewit
Diversified Group, Inc., a coal mining and telecommunications company and
wholly-owned subsidiary of Peter Kiewit Sons', Inc., a construction and mining
company, had therefore resigned as Chairman of the Board and as a director of
the Company. The Company also reported that Walter Scott, Jr., Chairman of the
Board and President of Peter Kiewit Sons', Inc., resigned as a director for
personal reasons.
INFORMATION REGARDING MFS
Information regarding MFS is contained in its filings with the Commission
pursuant to the Exchange Act. See "Available Information" and "Incorporation
of Certain Documents by Reference."
CERTAIN RELATED TRANSACTIONS
During fiscal 1994, 1995 and 1996, WorldCom, MFS and/or UUNET entered into
certain interconnection or other services agreements with each other and
certain of their affiliates in the ordinary course of their businesses.
However, 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, MFS 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. Subsequent to the MFS Merger, WorldCom and MFS have engaged in
customary intercompany transactions, including certain intercompany
indebtedness of WorldCom to MFS represented by a subordinated demand
promissory note issued on March 4, 1997 in an amount not to exceed
$500,000,000 and bearing interest at the rate of 0.5% plus the 30-day LIBOR
rate per annum, and certain intercompany accounts receivable.
ACCOUNTING TREATMENT OF EXCHANGE OFFERS
The Exchange will be accounted for by the Company as an exchange of debt as
provided for under generally accepted accounting principles.
LEGAL MATTERS
Certain legal matters with respect to the Exchange Offers and the Consent
Solicitations will be passed upon for WorldCom by Bryan Cave llp, St. Louis,
Missouri, and for the Dealer Managers by Cleary, Gottlieb, Steen & Hamilton,
New York, New York.
EXPERTS
The consolidated financial statements and schedule of the Company as of
December 31, 1996 and 1995, and for each of the years in the three-year period
ended December 31, 1996, have been audited by Arthur Andersen llp, independent
public accountants, as indicated in their report with respect thereto, and are
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, 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 financial statements of MFS Communications Company, Inc. as
of December 31, 1996 and for the period then ended (See Note 1 to the MFS
Communications Company, Inc. Form
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10-K), and for the year ended December 31, 1996, have been audited by Arthur
Andersen llp, independent public accountants, as indicated in their report
with respect thereto, and are included in the MFS Annual Report on Form 10-K
for the fiscal year ended December 31, 1996, 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 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 registration
statement and the consolidated financial statements of MFS as of December 31,
1995 and for the two years in the period ended December 31, 1995 included in
the MFS Annual Report on Form 10-K for the fiscal year ended December 31, 1996
and incorporated by reference in this registration statement, have been
incorporated in reliance on the report of Coopers & Lybrand l.l.p.,
independent accountants, given upon the authority of that firm as experts in
accounting and auditing.
The consolidated financial statements of UUNET Technologies, Inc. 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 registration statement, have been audited by Arthur Andersen llp,
independent public accountants, as indicated in their reports with respect
thereto and are incorporated herein by reference in reliance upon the
authority of said firm as experts in giving said reports.
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Any questions concerning the terms of the Exchange Offers or the Consent
Solicitations
should be directed to the Joint Dealer Managers,
SALOMON BROTHERS INC GOLDMAN, SACHS & CO.
Seven World Trade Center 85 Broad Street
New York, New York 10048 New York, New York 10004
(212) 783-3738 (collect) (212) 902-8200 (collect)
(800) 558-3745 (toll free) (800) 828-3182 (toll free)
Attention: Liability Management Attention: Liability Management
Group Group
Any questions concerning tender procedures or requests for additional copies of
this Prospectus, the Letters of Transmittal, or Notices of Guaranteed Delivery
should be directed to the Information Agent,
MACKENZIE PARTNERS, INC.
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (collect)
(800) 322-2885 (toll free)
MFS Notes tendered, together with the requisite Letters of Transmittal and any
other required documents, must be delivered to the Exchange Agent,
HARRIS TRUST AND SAVINGS BANK
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By Registered or
Certified Mail: Hand Delivery or Overnight Delivery: By Facsimile:
Harris Trust and Savings
Bank Harris Trust and Savings Bank (212) 701-7636
c/o Harris Trust Company
of New York c/o Harris Trust Company of New York
P.O. Box 1010 77 Water Street Confirm by telephone:
Wall Street Station 4th Floor (212) 701-7624
New York, New York 10268 New York, New York 10004
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