<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 24, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
WORLDCOM, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
GEORGIA 4813 58-1521612
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
515 EAST AMITE STREET
JACKSON, MISSISSIPPI 39201-2702
(601) 360-8600
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------------
BERNARD J. EBBERS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
WORLDCOM, INC.
515 EAST AMITE STREET
JACKSON, MISSISSIPPI 39201-2702
(601) 360-8600
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
<TABLE>
<C> <C> <C>
P. BRUCE BORGHARDT, ESQ. THOMAS A. A. COOK, ESQ. JOHN P. DENNEEN, ESQ.
GENERAL COUNSEL-CORPORATE DEVELOPMENT PEPER, MARTIN, JENSEN, BRYAN CAVE LLP
WORLDCOM, INC. MAICHEL AND HETLAGE 211 NORTH BROADWAY
10777 SUNSET OFFICE DRIVE, SUITE 330 720 OLIVE SUITE 3600
ST. LOUIS, MO 63127 ST. LOUIS, MO 63101 ST. LOUIS, MO 63102
(314) 909-4100 (314) 421-3850 (314) 259-2265
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement is declared effective and all
other conditions to the merger (the "BFP Merger") of a subsidiary of the
Registrant with and into Brooks Fiber Properties, Inc. ("BFP") pursuant to the
Agreement and Plan of Merger described in the enclosed Proxy
Statement/Prospectus have been satisfied or waived.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=================================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT OFFERING AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED(1) TO BE REGISTERED(3) PRICE PER UNIT OFFERING PRICE(4) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01, and
associated Preferred Stock Purchase
Rights(2).......................... 77,771,823 N/A $2,335,782,103 $689,056
=================================================================================================================================
</TABLE>
(1) This Registration Statement relates to the common stock, par value $.01 per
share (the "Common Stock"), of the Registrant issuable to holders of the
common stock, par value $.01 per share ("BFP Common Stock"), of BFP in
connection with the BFP Merger.
(2) Preferred Stock Purchase Rights are attached to and trade with the Common
Stock. Value, if any, attributable to such Preferred Stock Purchase Rights
is reflected in the market price of the Common Stock.
(3) The number of shares to be registered pursuant to this Registration
Statement is based on the maximum number of shares of Common Stock issuable
in the BFP Merger to holders of outstanding BFP Common Stock, options and
warrants at the maximum exchange ratio of 1.85 and assuming that the maximum
number of shares of BFP Common Stock, options and warrants to be acquired in
the BFP Merger for Common Stock is 42,038,823.
(4) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(1) and 457(c) of the Securities Act of 1933, as
amended (the "Securities Act"), based on the product of the estimated
maximum number of shares of BFP Common Stock, options and warrants to be
acquired in the BFP Merger (42,038,823) multiplied by $55.5625, the average
of the high and low prices of BFP Common Stock on December 23, 1997, as
reported on The Nasdaq National Market.
(5) Pursuant to Rule 457(b) under the Securities Act, $417,782 of the
registration fee was paid on November 26, 1997 in connection with the filing
of BFP's Schedule 14A relating to the BFP Merger. Accordingly, the balance
of $271,274 is being paid with this filing.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
BROOKS FIBER PROPERTIES LOGO
December 24, 1997
Dear Stockholder:
You are cordially invited to attend the Special Meeting of Stockholders of
Brooks Fiber Properties, Inc. ("BFP") to be held in the Main Dining Room on the
16th Floor of the St. Louis Club, 7701 Forsyth, St. Louis, Missouri, on
Thursday, January 29, 1998, commencing at 10:00 a.m. St. Louis time (the
"Special Meeting").
The purpose of the Special Meeting is to consider a proposal to approve the
merger of BV Acquisition, Inc. ("Acquisition Subsidiary"), a wholly-owned
subsidiary of WorldCom, Inc. ("WorldCom"), with and into BFP (the "BFP Merger")
pursuant to an Amended and Restated Agreement and Plan of Merger dated as of
October 1, 1997 (the "BFP Merger Agreement") among WorldCom, Acquisition
Subsidiary and BFP, as a result of which BFP will become a wholly-owned
subsidiary of WorldCom.
Subject to the terms and conditions of the BFP Merger Agreement, each share
of common stock, par value $0.01 per share, of BFP ("BFP Common Stock")
outstanding immediately prior to the effective time of the BFP Merger will be
converted into the right to receive shares of common stock, par value $0.01 per
share, of WorldCom ("WorldCom Common Stock"), at the exchange ratio described
below. Cash will be paid in lieu of any fractional share of WorldCom Common
Stock.
The BFP Merger Agreement provides that, if the average trading price per
share of the WorldCom Common Stock during the 20 trading day period ending on
the fourth trading day prior to the closing date of the BFP Merger is $35.15 or
above, the exchange ratio will be fixed at 1.65 shares of WorldCom Common Stock
for each share of BFP Common Stock. This fixed exchange ratio would allow our
stockholders to share in any increase in the average trading price above $35.15.
In addition, the pricing mechanism provides that in the event such average
trading price is below $35.15 per share but equal to or above $31.35 per share,
the exchange ratio would convert to a fluctuating ratio based on a fixed price
of $58.00 per share of BFP Common Stock. If such average trading price is below
$31.35 per share, the pricing structure would convert to a fixed exchange ratio
of 1.85 shares of WorldCom Common Stock for each share of BFP Common Stock.
The actual dollar value of the WorldCom Common Stock to be received by our
stockholders will not be determined until three trading days prior to the
closing date of the BFP Merger and, in the event such average trading price is
below $31.35 per share, would be less than $58.00 per share of BFP Common Stock.
The terms of the BFP Merger Agreement do not permit BFP to terminate in the
event such average trading price is below $31.35 per share. Holders of BFP
Common Stock may call toll free to 1-800-780-6378 at any time between January 5,
1998 and the date that the BFP Merger is consummated to hear a tape recorded
message stating what the average trading price and the resultant exchange ratio
would be if the BFP Merger were to be consummated on that day. Holders of BFP
Common Stock may call the same toll free number from the date the BFP Merger is
consummated until ten business days thereafter to hear a tape recorded message
stating the actual average trading price and exchange ratio.
The BFP Merger Agreement may be terminated (i) by mutual agreement of BFP
and WorldCom, (ii) if the BFP Merger has not been consummated on or before March
31, 1998 (or such other date as may be agreed to by BFP and WorldCom), (iii) if
the requisite approval of the stockholders of BFP is not obtained at the Special
Meeting or (iv) under certain other circumstances described in the accompanying
Proxy Statement/Prospectus.
<PAGE> 3
It is intended that BFP stockholders will not recognize gain or loss for
federal income tax purposes to the extent WorldCom Common Stock is received in
the BFP Merger in exchange for BFP Common Stock, although the receipt of cash in
lieu of fractional shares will be taxable, and that the BFP Merger will be
accounted for as a "pooling of interests."
Attached to this letter is a Proxy Statement/Prospectus which contains a
detailed description of the terms of the BFP Merger and the BFP Merger
Agreement, and other important information relating to WorldCom and BFP. Please
read the Proxy Statement/Prospectus carefully and in its entirety.
FOR THE REASONS DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS,
YOUR BOARD OF DIRECTORS UNANIMOUSLY (I) HAS DETERMINED THAT THE BFP MERGER IS
FAIR TO AND IN THE BEST INTERESTS OF BFP AND ITS STOCKHOLDERS, (II) HAS APPROVED
THE BFP MERGER AGREEMENT AND (III) RECOMMENDS THAT YOU VOTE IN FAVOR OF APPROVAL
AND ADOPTION OF THE BFP MERGER AGREEMENT AT THE SPECIAL MEETING.
In determining that the BFP Merger is fair to and in the best interests of
BFP and its stockholders and to recommend approval and adoption of the BFP
Merger Agreement, your Board of Directors has carefully reviewed and considered
the terms and conditions of the BFP Merger Agreement, as well as other relevant
factors. In addition, the Board of Directors has received the opinions of
Salomon Brothers Inc and Merrill Lynch, Pierce, Fenner & Smith Incorporated,
BFP's financial advisors, that the ratio at which each share of BFP Common Stock
will be converted into shares of WorldCom Common Stock pursuant to the BFP
Merger is fair to BFP's stockholders from a financial point of view. The full
text of such opinions is set forth as Appendices II and III, respectively, to
the accompanying Proxy Statement/Prospectus. It is a condition to the parties'
obligations to effect the BFP Merger that neither of such opinions of Salomon
Brothers and Merrill Lynch shall have been withdrawn at or prior to the
effective time of the BFP Merger.
Your vote is important, regardless of the number of shares you own.
Approval and adoption of the BFP Merger Agreement requires an affirmative vote
of holders of a majority of the outstanding shares of BFP Common Stock.
Accordingly, on behalf of your Board of Directors, we urge you to complete, date
and sign the accompanying proxy and promptly return it in the enclosed
postage-paid envelope. This will not prevent you from attending the Special
Meeting and voting in person if you desire to do so, but will assure that your
vote is counted if you are unable to attend the Special Meeting. You may revoke
your proxy at any time by filing a written notice of revocation, by delivering a
duly executed proxy bearing a later date or by attending the Special Meeting and
voting in person.
On behalf of your Board of Directors, we thank you for your support and
urge you to vote FOR approval and adoption of the BFP Merger Agreement.
Sincerely,
[/s/ ROBERT A. BROOKS]
Robert A. Brooks
Chairman of the Board
[/s/ JAMES C. ALLEN]
James C. Allen
Vice Chairman and Chief Executive
Officer
<PAGE> 4
BROOKS FIBER LOGO
NOTICE OF SPECIAL MEETING OF
THE STOCKHOLDERS OF
BROOKS FIBER PROPERTIES, INC.
TO THE STOCKHOLDERS OF
BROOKS FIBER PROPERTIES, INC.
A Special Meeting of the Stockholders of Brooks Fiber Properties, Inc., a
Delaware corporation ("BFP"), will be held in the Main Dining Room on the 16th
Floor of the St. Louis Club, 7701 Forsyth, St. Louis, Missouri on Thursday,
January 29, 1998, commencing at 10:00 a.m. St. Louis time (the "Special
Meeting"), for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Amended and Restated Agreement and Plan of Merger dated as of October 1,
1997 (the "BFP Merger Agreement") by and among WorldCom, Inc. ("WorldCom"),
BV Acquisition, Inc., a wholly-owned subsidiary of WorldCom ("Acquisition
Subsidiary"), and BFP, which provides for the merger of Acquisition
Subsidiary with and into BFP (the "BFP Merger"), whereupon BFP will become
a wholly-owned subsidiary of WorldCom and the holders of shares of the
common stock, $0.01 par value per share, of BFP ("BFP Common Stock") will
receive, in exchange for each share of BFP Common Stock, a number of shares
of WorldCom common stock, $.01 par value per share ("WorldCom Common
Stock"), determined by the BFP Exchange Ratio described more fully in the
accompanying Proxy Statement/Prospectus (which number will be fixed within
a range of 1.65 to 1.85 shares of WorldCom Common Stock for each share of
BFP Common Stock based upon the average trading price of WorldCom Common
Stock for the twenty consecutive full trading days ending on the day
immediately prior to the third full trading day immediately preceding the
closing date of the BFP Merger); and
2. To transact such other business, if any, as properly may be brought
before the meeting and any postponement or adjournment thereof.
THE BOARD OF DIRECTORS OF BFP HAS UNANIMOUSLY APPROVED THE BFP MERGER
AGREEMENT AND UNANIMOUSLY CONCLUDED THAT THE TERMS OF THE BFP MERGER ARE FAIR TO
AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF BFP. ACCORDINGLY, THE BOARD
UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR APPROVAL AND ADOPTION OF THE BFP MERGER
AGREEMENT.
The Board of Directors of BFP has fixed the close of business on December
23, 1997 as the record date for the determination of stockholders entitled to
receive notice of and to vote at the Special Meeting and any postponement or
adjournment thereof.
By order of the Board of Directors.
John P. Denneen
Secretary
December 24, 1997
St. Louis, Missouri
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED
RETURN ENVELOPE IN ORDER TO ASSURE REPRESENTATION OF YOUR SHARES AT THE SPECIAL
MEETING. NO POSTAGE NEED BE AFFIXED IF MAILED IN THE UNITED STATES. STOCKHOLDERS
WHO ATTEND THE SPECIAL MEETING MAY REVOKE THEIR PROXIES AND VOTE IN PERSON, IF
THEY SHOULD DESIRE TO DO SO.
<PAGE> 5
<TABLE>
<S> <C> <C>
BROOKS FIBER LOGO BROOKS FIBER PROPERTIES, INC.
PROXY STATEMENT FOR
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 29, 1997.
</TABLE>
------------------------
<TABLE>
<S> <C> <C>
WORLDCOM LOGO WORLDCOM, INC.
PROSPECTUS
A MAXIMUM OF 77,771,823 SHARES OF COMMON STOCK
</TABLE>
------------------------
This Proxy Statement/Prospectus (the "Proxy Statement/Prospectus") is being
furnished to the holders of common stock, par value $.01 per share (the "BFP
Common Stock"), of Brooks Fiber Properties, Inc., a Delaware corporation
("BFP"), in connection with the solicitation of proxies by the Board of
Directors of BFP for use at the Special Meeting of Stockholders of BFP to be
held in the Main Dining Room on the 16th Floor of the St. Louis Club, 7701
Forsyth, St. Louis, Missouri 63105 on Thursday, January 29, 1998, at 10:00 a.m.
St. Louis time, and at any and all adjournments or postponements thereof (the
"Special Meeting").
This Proxy Statement/Prospectus relates to the proposed merger of BV
Acquisition, Inc. ("Acquisition Subsidiary"), a wholly-owned Delaware subsidiary
of WorldCom, Inc., a Georgia corporation ("WorldCom"), with and into BFP (the
"BFP Merger") pursuant to an Amended and Restated Agreement and Plan of Merger
dated as of October 1, 1997, by and among BFP, WorldCom, and Acquisition
Subsidiary (the "BFP Merger Agreement"), a copy of which is attached as Appendix
I hereto. Upon consummation of the BFP Merger, BFP will become a wholly-owned
subsidiary of WorldCom. As a result of the BFP Merger, each share of BFP Common
Stock will be converted into the right to receive a number of shares of WorldCom
common stock, par value $.01 per share ("WorldCom Common Stock"), equal to the
BFP Exchange Ratio described in the next sentence. The "BFP Exchange Ratio" will
be determined as follows: (i) if the WorldCom Average Trading Price (defined in
the next sentence) is greater than or equal to $35.15, the BFP Exchange Ratio
will equal 1.65; (ii) if the WorldCom Average Trading Price is greater than or
equal to $31.35 but less than $35.15, the BFP Exchange Ratio will equal a
fraction (rounded to the nearest hundred-thousandth) determined by dividing
$58.00 by the WorldCom Average Trading Price; and (iii) if the WorldCom Average
Trading Price is less than $31.35, the BFP Exchange Ratio will equal 1.85. The
WorldCom Average Trading Price will be the average of the daily closing prices
of a share of WorldCom Common Stock, as quoted on the National Market System of
The Nasdaq Stock Market ("The Nasdaq National Market") and reported in The Wall
Street Journal, Midwestern Edition, or if not reported thereby, in The New York
Times, Chicago Edition, for the twenty consecutive full trading days ending on
the date immediately prior to the third full trading day immediately preceding
the closing date of the BFP Merger.
(continued on following page)
SEE "RISK FACTORS" BEGINNING ON PAGE 19 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE EVALUATED IN CONNECTION WITH THE BFP MERGER.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
This Proxy Statement/Prospectus, the Notice of Special Meeting, the letter
to stockholders and the accompanying form of proxy were first mailed to the
stockholders of BFP on or about December 29, 1997.
The date of this Proxy Statement/Prospectus is December 24, 1997.
<PAGE> 6
(cover page continued)
No fractional shares of WorldCom Common Stock will be issued in the BFP Merger;
instead, holders of shares of BFP Common Stock who would otherwise be entitled
to fractional shares of WorldCom Common Stock will receive cash in lieu of such
fractional shares. The shares of WorldCom Common Stock and cash in lieu of
fractional shares are referred to herein as the "BFP Merger Consideration." For
additional information regarding the BFP Merger Consideration, including the
WorldCom Common Stock, see "Summary -- Market Prices," "Plan of
Merger -- General Description of the BFP Merger," "Plan of Merger -- Terms and
Conditions of the Proposed BFP Merger -- BFP Merger Consideration," "Description
of WorldCom Capital Stock" and "Comparative Rights of Shareholders."
At the Effective Time (as hereinafter defined), the then outstanding and
unexercised options (the "BFP Options") and warrants (the "BFP Warrants")
exercisable for shares of BFP Common Stock will be converted into options
("WorldCom Options") and warrants ("WorldCom Warrants"), respectively,
exercisable for shares of WorldCom Common Stock having the same terms and
conditions as the BFP Options and BFP Warrants, respectively, including such
terms and conditions as may be incorporated by reference into the agreements
evidencing the BFP Options and BFP Warrants, except that the exercise price and
the number of shares issuable upon exercise will be divided and multiplied,
respectively, by the BFP Exchange Ratio. See "Plan of Merger -- Terms and
Conditions of the Proposed BFP Merger -- BFP Options and Warrants" and "Plan of
Merger -- Interests of Certain Persons in the BFP Merger."
Termination of the BFP Merger Agreement by WorldCom or BFP could require
WorldCom, on the one hand, or BFP, on the other hand, depending on the
circumstances, to pay a $40 million termination fee to the other party. See
"Plan of Merger -- Terms and Conditions of the Proposed BFP
Merger -- Termination Fees."
The BFP Merger is intended to qualify as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"). Accordingly, no gain or loss will be recognized by BFP stockholders on
the exchange of their shares of BFP Common Stock for shares of WorldCom Common
Stock ("WorldCom Shares") except to the extent of cash payments received in lieu
of fractional WorldCom Shares. Holders of BFP Common Stock are urged to consult
their tax advisors regarding the federal, state, local and foreign tax
consequences of the BFP Merger. For a more complete discussion of the federal
income tax consequences of the BFP Merger, see "Plan of Merger -- Certain
Federal Income Tax Consequences."
This Proxy Statement/Prospectus also constitutes the Prospectus of WorldCom
with respect to an estimated (as of December 23, 1997) maximum of 77,771,823
shares of WorldCom Common Stock and associated preferred stock purchase rights.
WorldCom Common Stock and BFP Common Stock are traded on The Nasdaq
National Market under the symbols "WCOM" and "BFPT," respectively. On December
23, 1997, the closing sale prices for WorldCom Common Stock and BFP Common
Stock, as reported on The Nasdaq National Market, were $30.56 per share and
$54.88 per share, respectively, and, based on a WorldCom Average Trading Price
as of that date of $32.775, the resultant BFP Exchange Ratio would have been
1.7696.
It is anticipated that the BFP Merger will be consummated on January 29,
1998, if approved at the Special Meeting, provided that the other conditions to
the BFP Merger are then fulfilled or waived (see "Plan of Merger -- Terms and
Conditions of the Proposed BFP Merger"). Since the actual amount of WorldCom
Common Stock to be issued to holders of BFP Common Stock pursuant to the BFP
Merger Agreement will not be determined until three trading days prior to the
closing date of the BFP Merger, holders of BFP Common Stock are urged to obtain
current market information for WorldCom Common Stock. Holders of BFP Common
Stock may call toll free to 1-800-780-6378 at any time between January 5, 1998
and the date that the BFP Merger is consummated to hear a tape recorded message
stating what the WorldCom Average Trading Price and the resultant BFP Exchange
Ratio would be if the BFP Merger were to be consummated on that day. Holders of
BFP Common Stock may call the same toll free number from the date the BFP Merger
is consummated until ten business days thereafter to hear a tape recorded
message stating the actual WorldCom Average Trading Price and BFP Exchange
Ratio.
<PAGE> 7
The Boards of Directors of BFP, WorldCom and Acquisition Subsidiary, and
WorldCom as the sole holder of all of the outstanding capital stock of
Acquisition Subsidiary, have approved the BFP Merger Agreement. THE BOARD OF
DIRECTORS OF BFP UNANIMOUSLY RECOMMENDS THAT HOLDERS OF BFP COMMON STOCK VOTE
FOR APPROVAL AND ADOPTION OF THE BFP MERGER AGREEMENT. See "Plan of
Merger -- BFP Reasons for the BFP Merger; BFP Board Recommendation."
Proxies for the Special Meeting may be revoked, subject to the procedures
described herein, at any time up to and including the date of the Special
Meeting. See "The Special Meeting -- Record Date; Voting Rights; Proxies."
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEX OF DEFINED TERMS........................... ii
AVAILABLE INFORMATION............................ v
INCORPORATION OF DOCUMENTS BY REFERENCE.......... vi
MCI INFORMATION.................................. vii
SUMMARY.......................................... 1
Business of WorldCom........................... 1
Business of BFP................................ 1
The Proposed BFP Merger........................ 2
Conversion of BFP Common Stock in the BFP
Merger; Exchange of Certificates............. 5
Accounting Treatment........................... 5
Certain Federal Income Tax Consequences........ 5
Reasons of WorldCom for the BFP Merger......... 5
Reasons of BFP for the BFP Merger.............. 6
Recommendation of the BFP Board of Directors... 6
Opinions of BFP's Financial Advisors........... 7
The Special Meeting; Required Vote............. 7
Management and Operations After the BFP
Merger....................................... 7
Interests of Certain Persons in the BFP
Merger....................................... 7
Regulatory Filings and Approvals Required for
the BFP Merger............................... 8
Absence of Appraisal Rights.................... 9
Comparison of Shareholder Rights............... 9
Risk Factors................................... 9
Market Prices.................................. 10
Recent WorldCom Developments................... 11
Comparative Per Share Data..................... 14
Selected Historical Financial Data............. 15
Selected Unaudited Pro Forma Financial
Information.................................. 18
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS..................................... 19
RISK FACTORS..................................... 19
Risks Related to the BFP Merger and Other
Acquisitions................................. 19
Risks Related to the Businesses and Operations
of the Combined Companies.................... 21
PLAN OF MERGER................................... 27
General Description of the BFP Merger.......... 27
Background of the BFP Merger................... 29
WorldCom's Reasons for the BFP Merger.......... 31
BFP's Reasons for the BFP Merger; BFP Board
Recommendation............................... 31
Opinions of BFP's Financial Advisors........... 33
Management and Operations After the BFP
Merger....................................... 40
Terms and Conditions of the Proposed BFP
Merger....................................... 40
Interests of Certain Persons in the BFP
Merger....................................... 49
Surrender of Stock Certificates and Receipt of
BFP Merger Consideration..................... 51
Fractional Shares.............................. 52
Certain Regulatory Filings and Approvals....... 52
Accounting Treatment........................... 52
Public Trading Market.......................... 53
Status Under Federal Securities Laws........... 53
Certain Federal Income Tax Consequences........ 53
Effects Under BFP Credit Agreements............ 54
CERTAIN RELATED TRANSACTIONS..................... 55
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE SPECIAL MEETING.............................. 56
General........................................ 56
Date, Time and Place........................... 56
Record Date; Voting Rights; Proxies............ 56
Solicitation of Proxies........................ 56
Quorum......................................... 57
Required Vote.................................. 57
Absence of Appraisal Rights.................... 58
PRO FORMA FINANCIAL INFORMATION.................. 58
INFORMATION REGARDING BFP........................ 68
Business of BFP................................ 68
Security Ownership of BFP Management and
Principal Stockholders....................... 72
INFORMATION REGARDING WORLDCOM................... 75
Business of WorldCom........................... 75
Recent Developments............................ 75
Management and Principal Shareholders.......... 106
Management of WorldCom following the
MCI/WorldCom Merger.......................... 109
DESCRIPTION OF WORLDCOM CAPITAL STOCK............ 112
Common Stock................................... 112
Preferred Stock................................ 112
Series A Preferred Stock....................... 112
Series B Preferred Stock....................... 114
Depositary Shares.............................. 116
WorldCom Series 3 Preferred Stock.............. 117
Preferred Stock Purchase Rights................ 117
Certain Charter and Bylaw Provisions........... 119
COMPARATIVE RIGHTS OF SHAREHOLDERS............... 120
Election of Directors.......................... 120
Removal of Directors........................... 121
Vacancies on the Board of Directors............ 121
Action By Written Consent...................... 121
Amendments to Charter.......................... 122
Amendments to Bylaws........................... 122
Special Meetings of Shareholders............... 122
Vote on Extraordinary Corporate Transactions... 122
Rights of Inspection........................... 123
Dividends...................................... 123
Appraisal Rights of Dissenting Shareholders.... 124
Indemnification and Limitation of Liability of
Directors and Officers....................... 125
Preemptive Rights.............................. 127
Special Redemption Provisions.................. 127
Preferred Stock Purchase Rights................ 127
Stockholder Suits.............................. 129
Business Combination Restrictions.............. 130
Disclosure of Interests........................ 132
LEGAL MATTERS.................................... 133
EXPERTS.......................................... 133
APPENDIX I -- BFP MERGER AGREEMENT
APPENDIX II -- SALOMON BROTHERS OPINION
APPENDIX III -- MERRILL LYNCH OPINION
</TABLE>
i
<PAGE> 9
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
"Acquiring Person"..................... 45
"Acquisition Proposal"................. 4
"Acquisition Subsidiary"...........Cover Page
"ACSI"................................. 34
"Ameritech"............................ 23
"ANS".................................. 13
"Antitrust Division"................... 8
"AOL".................................. 13
"AOL Agreement"........................ 13
"AOL Transaction"...................... 13
"ATC Merger"........................... 16
"AT&T"................................. 25
"AT&T Communications".................. 68
"Base Case"............................ 38
"BellSouth"............................ 24
"Benefits Termination Date"............ 99
"Best BFP Comparables"................. 34
"BFC Tucson"........................... 71
"BFP"..............................Cover Page
"BFP 1996 Form 10-K"................... vi
"BFP Acquiring Person"................. 128
"BFP Acquisition Agreement"............ 45
"BFP By-laws".......................... 8
"BFP Certificate"...................... 8
"BFP Common Stock".................Cover Page
"BFP Comparable Group"................. 34
"BFP Distribution Date"................ 128
"BFP Exchange Ratio"...............Cover Page
"BFP Flip-In Event".................... 128
"BFP Merger".......................Cover Page
"BFP Merger Agreement".............Cover Page
"BFP Merger Consideration".........Cover Page
"BFP Merger Right"..................... 128
"BFP Notes"............................ 54
"BFP Options"......................Cover Page
"BFP Purchase Price"................... 128
"BFP Right"............................ 127
"BFP Rights Agreement"................. 128
"BFP Rights Plan"...................... 127
"BFP Series A Preferred Stock"......... 128
"BFP Stock Acquisition Date"........... 128
"BFP Subscription Right"............... 128
"BFP Superior Proposal"................ 45
"BFP Voting Power"..................... 128
"BFP Warrants".....................Cover Page
"Block Group".......................... 12
"Block Shares"......................... 12
"BOCs"................................. 23
"Brooks Agreement"..................... 50
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
"BT"................................... 12
"BTH".................................. 95
"BT/MCI Joint Venture Agreement"....... 95
"BT/MCI Merger Agreement".............. 12
"BT Agreement"......................... 12
"Call Price"........................... 113
"Century Telephone".................... 73
"Certificate".......................... 83
"Charter Amendment".................... 80
"CLEC"................................. 1
"Closing Date"......................... 4
"Code".............................Cover Page
"COLS"................................. 104
"Commission"........................... v
"Committee"............................ 31
"Comparable Acquisitions".............. 38
"Compensation Committee"............... 106
"Common Equivalent Rate"............... 113
"Communications Act"................... 76
"CompuServe"........................... 12
"CompuServe Common Stock".............. 12
"CompuServe Exchange Ratio"............ 12
"CompuServe Merger".................... 12
"CompuServe Merger Agreement".......... 12
"Concert".............................. 95
"Confidentiality Agreement"............ 88
"Covered Executives"................... 99
"DCF".................................. 35
"Deposit Agreement".................... 116
"Depositary"........................... 116
"Depositary Receipts".................. 116
"DGCL"................................. 9
"Distribution Date".................... 45
"DOJ".................................. 8
"EDGAR"................................ v
"Effective Time"....................... 4
"Eighth Circuit"....................... 23
"Employment Agreements"................ 98
"ESP".................................. 99
"European Commission".................. 12
"Excel"................................ 38
"Excess Payment"....................... 50
"Exchange Act"......................... v
"Exchange Agent"....................... 5
"Executive Retention Program".......... 100
"Executives"........................... 98
"Expected Synergies"................... 37
"Extraordinary Cash Dividend".......... 115
"Fidelity"............................. 107
</TABLE>
ii
<PAGE> 10
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
"Firm Value"........................... 34
"First Tier Comparables"............... 34
"FCC".................................. 8
"Frontier"............................. 34
"FTC".................................. 8
"GBCC"................................. 112
"GLA".................................. 68
"good reason".......................... 50
"Governmental Entity".................. 84
"Gross PP&E"........................... 37
"GST".................................. 34
"GTE".................................. 26
"H&R Block"............................ 12
"Hart-Scott-Rodino Act"................ 8
"ICG".................................. 38
"IDB".................................. 16
"IDB Merger"........................... 16
"ILECs"................................ 1
"Initial Redemption Date".............. 113
"interLATA"............................ 23
"Intermedia"........................... 34
"ISPs"................................. 1
"ISP Exemption"........................ 24
"ISUs"................................. 97
"IXCs"................................. 1
"JV Purchase Date"..................... 95
"JV Shareholders"...................... 95
"Lightwave"............................ 71
"LCI".................................. 34
"LQA Revenue".......................... 34
"Mandatory Conversion Date"............ 112
"MCI".................................. vii
"MCI 1996 Form 10-K"................... vii
"MCI Bylaws"........................... 101
"MCI Capital Stock".................... 11
"MCI Class A Common Stock"............. 11
"MCI Class A Common Stock Merger
Consideration"....................... 11
"MCI Common Stock"..................... 11
"MCI Common Stock Merger
Consideration"....................... 11
"MCI Exchange Ratio"................... 11
"MCI Merger Sub"....................... 11
"MCI Offer"............................ 11
"MCI Measurement Period................ 11
"MCImetro"............................. 68
"MCI Restated Certificate
of Incorporation..................... 101
"MCI Restricted Shares"................ 97
"MCI Right"............................ 85
"MCI Rights"........................... 85
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
"MCI Stock Option"..................... 91
"MCI WorldCom"......................... 75
"MCI/WorldCom Acquisition Proposal".... 89
"MCI/WorldCom Average Price"........... 11
"MCI/WorldCom Closing Date"............ 83
"MCI/WorldCom Effective Time".......... 11
"MCI/WorldCom Material Adverse
Effect".............................. 90
"MCI/WorldCom Merger".................. 11
"MCI/WorldCom Merger Agreement"........ 11
"MCI/WorldCom Merger Consideration".... 11
"MCI/WorldCom Surviving Corporation"... 81
"MCI/WorldCom Termination Date"........ 92
"MCIT"................................. 110
"McLeod"............................... 34
"Merger Control Regulation"............ 20
"Merrill Lynch"........................ 6
"Metromedia"........................... 15
"MFS".................................. 14
"MFS Merger"........................... 14
"NASD"................................. iv
"Net PP&E"............................. 34
"NEXTLINK"............................. 34
"1996A Notes".......................... 54
"1996B Notes".......................... 54
"1997 Notes"........................... 54
"Optional Conversion Rate"............. 114
"Other BFP Comparables"................ 34
"PAC".................................. 72
"PIM".................................. 72
"preferred securities"................. 17
"Previous Synergy Estimates"........... 77
"Proxy Statement/Prospectus".......Cover Page
"PSLRA"................................ 19
"PUCs"................................. 8
"Record Date".......................... 7
"Redemption Price"..................... 115
"Registration Statement"............... iv
"Regulatory Law"....................... 88
"Reimbursement Amount"................. 93
"Resurgens"............................ v
"Revised Synergy Estimates"............ 77
"Run Rate Revenue"..................... 38
"Salomon Brothers"..................... 6
"Salomon Brothers Report".............. 34
"SBC".................................. 23
"Second Tier Comparables".............. 34
"Securities Act"....................... v
"Series B Conversion Rate"............. 115
"Service".............................. 53
"Share Issuance"....................... 12
</TABLE>
iii
<PAGE> 11
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
"Special Meeting"..................Cover Page
"Sprint"............................... 25
"Sprynet".............................. 13
"State Applications"................... 81
"Stock Acquisition Date"............... 117
"Subdivision".......................... 116
"Subsidiary"........................... 84
"Superior Proposal".................... 86
"Surviving Corporation"................ 2
"Surviving Corporation Material Adverse
Effect".............................. 41
"Telecom Act".......................... 23
"Telco"................................ 38
"Teleport"............................. 26
"Tel-Save"............................. 38
"TEP".................................. 71
"Termination Fee"...................... 48
"termination multiplier"............... 50
"The 1818 Funds"....................... 108
"The Nasdaq National Market".......Cover Page
"Triggering Events".................... 48
"Trust"................................ 17
"Upside Case".......................... 38
"USLD"................................. 38
"UUNET"................................ 1
"UUNET Acquisition".................... 64
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
"Ventures"............................. 95
"VGE".................................. 1
"Voting Debt".......................... 85
"Voting Preferred Stock"............... 114
"WorldCom".........................Cover Page
"WorldCom 1996 Form 10-K".............. vi
"WorldCom Acquiring Person"............ 117
"WorldCom Alternative Transaction
Fee"................................. 93
"WorldCom Articles".................... 9
"WorldCom Average Trading Price"...Cover Page
"WorldCom Common Stock"............Cover Page
"WorldCom Comparable Group"............ 34
"WorldCom/CompuServe/BFP".............. 39
"WorldCom Depositary Shares"........... vi
"WorldCom Options".................Cover Page
"WorldCom Pending Acquisitions"........ 85
"WorldCom Right"....................... 117
"WorldCom Rights Agreement"............ 26
"WorldCom Series A Preferred Stock".... vi
"WorldCom Series B Preferred Stock".... vi
"WorldCom Series 3 Preferred Stock".... 117
"WorldCom Shares"..................Cover Page
"WorldCom Special Meeting"............. 80
"WorldCom Warrants"................Cover Page
"WTO Agreement"........................ 24
</TABLE>
iv
<PAGE> 12
NO PERSON HAS BEEN AUTHORIZED BY WORLDCOM OR BFP TO GIVE ANY INFORMATION OR
TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY EITHER WORLDCOM OR BFP. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR A SOLICITATION TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SHARES OF WORLDCOM
COMMON STOCK TO WHICH IT RELATES OR AN OFFER OR SOLICITATION TO ANY PERSON IN
ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER
THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF THE
SECURITIES OFFERED HEREBY SHALL, UNDER ANY CIRCUMSTANCES, IMPLY OR CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF WORLDCOM OR BFP OR
IN THE INFORMATION SET FORTH OR INCORPORATED BY REFERENCE HEREIN SUBSEQUENT TO
THE DATE HEREOF.
AVAILABLE INFORMATION
WorldCom and BFP are each subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file 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 BFP 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. Copies of such materials can also be obtained
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. In addition, material filed by each of WorldCom
and BFP 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.
This Proxy Statement/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 under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the offering of WorldCom Common
Stock in connection with the BFP Merger. As permitted by the rules and
regulations of the Commission, this Proxy Statement/Prospectus omits certain
information contained or incorporated by reference in the Registration
Statement. Reference is made to the Registration Statement for further
information with respect to WorldCom and the WorldCom Common Stock. Statements
contained in this Proxy Statement/Prospectus as to the contents of any contract
or other document filed as an exhibit to the Registration Statement are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement.
Each such statement is qualified in its entirety by such reference. For further
information, reference is hereby made to the Registration Statement.
As used in this Proxy Statement/Prospectus, the term "BFP" means Brooks
Fiber Properties, Inc. and its subsidiaries, and the term "WorldCom" means
WorldCom, Inc. and its subsidiaries. All information contained or incorporated
by reference in this Proxy Statement/Prospectus relating to BFP was provided by
the management and Board of Directors of BFP. WorldCom assumes no responsibility
for the accuracy of such information. All information contained or incorporated
by reference in this Proxy Statement/Prospectus relating to WorldCom was
provided by the management and Board of Directors of WorldCom. BFP assumes no
responsibility for the accuracy of such information or for any of the
information contained or incorporated by reference herein relating to MCI.
v
<PAGE> 13
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents filed with the Commission by WorldCom (formerly
Resurgens Communications Group, Inc. ("Resurgens")) under File No. 0-11258
(formerly File No. 1-10415) and by BFP under File No. 0-28036 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 Reports on Form 10-Q for the quarters ended
March 31, 1997, June 30, 1997 and September 30, 1997;
(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, November 20, 1996 and December 19, 1997), December 31, 1996 (filed
January 15, 1997), March 18, 1997 (filed March 24, 1997), March 26, 1997
(filed April 2, 1997), May 22, 1997 (filed June 6, 1997), June 30, 1997
(filed July 7, 1997), August 5, 1997 (filed August 5, 1997), August 8, 1997
(filed August 11, 1997), August 22, 1997 (filed August 25, 1997), August
28, 1997 (filed September 10, 1997), September 7, 1997 (filed September 17,
1997), October 1, 1997 (filed October 2, 1997), October 3, 1997 (filed
October 3, 1997), October 9, 1997 (filed October 10, 1997), October 10,
1997 (filed October 14, 1997), October 14, 1997 (filed October 14, 1997),
October 15, 1997 (filed October 16, 1997), October 16, 1997 (filed October
17, 1997), October 23, 1997 (filed October 23, 1997), October 31, 1997
(filed November 3, 1997) and November 9, 1997 (filed November 12, 1997);
(4) the description of WorldCom's (formerly Resurgens') Common Stock
as contained in Item 1 of Resurgens' Registration Statement on Form 8-A
dated December 12, 1989, as updated by the descriptions contained in
WorldCom's Registration Statement on Form S-4 (File No. 333-16015), as
declared effective by the Commission on November 14, 1996, which includes
the Joint Proxy Statement/ Prospectus dated November 14, 1996 with respect
to WorldCom's Special Meeting of Shareholders held on December 20, 1996,
under the following captions: "Description of WorldCom Capital Stock" and
"Comparative Rights of Shareholders";
(5) the description of WorldCom's Preferred Stock Purchase Rights
contained in WorldCom's Registration Statement on Form 8-A dated August 26,
1996, as updated by WorldCom's Current Report on Form 8-K dated May 22,
1997 (filed June 6, 1997); and
(6) the descriptions of the WorldCom Series A 8% Cumulative
Convertible Preferred Stock ("WorldCom Series A Preferred Stock"), the
WorldCom Series B Convertible Preferred Stock ("WorldCom Series B Preferred
Stock") and the WorldCom Depositary Shares ("WorldCom Depositary Shares")
contained in WorldCom's Registration Statements on Form 8-A dated November
13, 1996.
(b) (1) BFP's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (the "BFP 1996 Form 10-K");
(2) BFP's Quarterly Reports on Form 10-Q for the fiscal quarters ended
March 31, 1997, June 30, 1997 and September 30, 1997;
(3) BFP's Current Reports on Form 8-K dated March 3, 1997 (filed March
13, 1997), March 28, 1997 (filed April 3, 1997), March 31, 1997 (filed
April 14, 1997), May 5, 1997 (filed May 14, 1997 and as amended on Form
8-K/A filed June 20, 1997), May 29, 1997 (filed June 5, 1997), June 20,
1997 (filed June 22, 1997) and October 1, 1997 (filed October 6, 1997); and
(4) the description of the BFP Common Stock and associated Preferred
Stock Purchase Rights contained in Amendment No. 2 to BFP's Registration
Statement on Form 8-A/A filed with the Commission pursuant to Section 12(g)
of the Exchange Act on April 30, 1997.
vi
<PAGE> 14
All documents filed by WorldCom, BFP and MCI (as defined below) 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 Proxy Statement/Prospectus and to be a part hereof from the date of
filing of such documents. See "Available Information" and "MCI Information." Any
statement contained herein, or in a document incorporated or deemed to be
incorporated herein by reference, shall be deemed to be modified or superseded
for purposes of this Proxy Statement/Prospectus to the extent that a statement
contained herein or in any other subsequently filed document incorporated or
deemed to be incorporated herein by reference, which statement is also
incorporated herein by reference, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF THESE DOCUMENTS
(EXCLUDING EXHIBITS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE INTO THE INFORMATION INCORPORATED HEREIN) WILL BE PROVIDED BY FIRST
CLASS MAIL WITHOUT CHARGE TO EACH PERSON TO WHOM THIS PROXY STATEMENT/PROSPECTUS
IS DELIVERED, INCLUDING ANY BENEFICIAL OWNER OF BFP COMMON STOCK, UPON WRITTEN
OR ORAL REQUEST BY SUCH PERSON AS FOLLOWS: WITH RESPECT TO WORLDCOM OR MCI (AS
DEFINED BELOW), TO WORLDCOM, INC., 515 EAST AMITE STREET, JACKSON, MISSISSIPPI
39201-2702, ATTENTION: STEPHANIE Q. SCOTT, DIRECTOR OF FINANCIAL REPORTING
(TELEPHONE: (601) 360-8600); AND WITH RESPECT TO BFP, TO BROOKS FIBER
PROPERTIES, INC., 425 WOODS MILL ROAD SOUTH, SUITE 300, TOWN & COUNTRY, MISSOURI
63107, ATTENTION: DAVID L. SOLOMON, EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER (TELEPHONE: (314) 878-1616). IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUEST SHOULD BE MADE BY JANUARY 22, 1998.
MCI INFORMATION
As described herein, WorldCom has announced an agreement to acquire MCI
Communications Corporation, a Delaware corporation ("MCI"). See "Information
Regarding WorldCom -- Recent Developments -- The MCI/WorldCom Merger." MCI is
also subject to the informational requirements of the Exchange Act, and in
accordance therewith files reports, proxy statements and other information with
the Commission that may be inspected at the public reference facilities
identified above under "Available Information" under File No. 0-6457, including
the following documents, which are incorporated herein by reference:
(1) MCI's Annual Report on Form 10-K for the year ended December 31,
1996, and the financial information incorporated by reference therein to
MCI's Current Report on Form 8-K dated February 10, 1997 (the "MCI 1996
Form 10-K");
(2) MCI's Quarterly Reports on Form 10-Q for the quarters ended March
31, 1997, June 30, 1997 and September 30, 1997; and
(3) MCI's Current Reports on Form 8-K dated February 10, 1997, July
14, 1997, August 26, 1997 and November 12, 1997, as amended.
vii
<PAGE> 15
SUMMARY
The following is a summary of certain important terms of the proposed BFP
Merger and related information discussed elsewhere in this Proxy
Statement/Prospectus. This summary does not purport to be complete and is
qualified in its entirety by reference to the more detailed information included
in this Proxy Statement/Prospectus and the appendices hereto, including, but not
limited to, the BFP Merger Agreement set forth as Appendix I hereto.
Stockholders of BFP are urged to read this Proxy Statement/Prospectus and the
appendices hereto in their entirety and to consider carefully the information
set forth under the headings "Summary -- Market Prices," "Cautionary Statement
Regarding Forward-Looking Statements" and "Risk Factors."
BUSINESS OF WORLDCOM
WorldCom is one of the largest telecommunications companies in the United
States, serving local, long distance and Internet customers domestically and
internationally. WorldCom 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 back bone service and
interconnection via Network Access Points to Internet service providers
("ISPs"). In addition, WorldCom's subsidiary, UUNET Technologies, Inc.
("UUNET"), is an international ISP.
WorldCom's principal executive offices are located at 515 East Amite
Street, Jackson, Mississippi 39201-2702, and its telephone number is (601)
360-8600. For more information regarding WorldCom and recent developments
regarding WorldCom, see "Summary -- Recent WorldCom Developments" and
"Information Regarding WorldCom."
BUSINESS OF BFP
BFP, founded in November 1993, is a leading facilities-based provider of
competitive local telecommunications services, commonly referred to as a
competitive local exchange carrier ("CLEC"), in selected markets within the
United States. BFP acquires and constructs its own state-of-the-art fiber optic
networks and facilities and leases network capacity from others to provide long
distance carriers ("IXCs"), ISPs, wireless carriers and business, government and
institutional end users with an alternative to the incumbent local exchange
companies (the "ILECs") for a broad array of high quality voice, data, video
transport and other telecommunications services. BFP has assembled an
experienced management, sales and operations team with extensive experience and
strong contacts within the telecommunications industry.
BFP's goal is to become the primary full-service provider of competitive
local telecommunications services to its customers in selected cities by
offering superior products with excellent customer service at prices below those
charged by the ILECs. The principal elements of BFP's strategy include targeting
selected U.S. markets with an emphasis on second- and third-tier markets,
aggressively pursuing switched services opportunities, further building out its
existing systems and expanding its service offerings. As of September 30, 1997,
BFP had networks in operation or under construction in a total of 44 U.S.
cities, with a total of 28 digital telephone switches installed serving a total
of 33 of its operating networks, collocation in a total of 121 ILEC central
offices and a total of 2,177 route miles of optical fiber cable installed,
1,041,275 voice grade equivalent ("VGE") circuits in service, 80,019 CLEC lines
installed and 1,667 on-net and 2,202 off-net buildings connected. BFP's
annualized revenues, based on the revenues for the quarter ended September 30,
1997, are
1
<PAGE> 16
$143.1 million, as compared with total revenues in 1996, 1995 and 1994, BFP's
first full year of operation, of $45.6 million, $14.2 million and $2.8 million,
respectively.
The principal executive offices of BFP are located at 425 Woods Mill Road
South, Suite 300, Town & Country, Missouri 63017, and its telephone number is
(314) 878-1616. See "Information Regarding BFP."
THE PROPOSED BFP MERGER
Subject to satisfaction of the terms and conditions set forth in the BFP
Merger Agreement, which are described below and elsewhere herein, Acquisition
Subsidiary will merge with and into BFP. Upon consummation of the BFP Merger,
Acquisition Subsidiary's separate existence will terminate, and BFP will
continue as the surviving corporation (the "Surviving Corporation") and a
wholly-owned subsidiary of WorldCom. It is anticipated that the BFP Merger will
be consummated on January 29, 1998, if approved at the Special Meeting, provided
that the other conditions to the BFP Merger are then fulfilled or waived (see
"Plan of Merger -- Terms and Conditions of the Proposed BFP Merger").
As a result of the BFP Merger, each share of BFP Common Stock will be
converted into the right to receive a number of shares of WorldCom Common Stock
equal to the BFP Exchange Ratio provided for in the BFP Merger Agreement. The
BFP Exchange Ratio of 1.65 to 1 will allow holders of BFP Common Stock to share
in any increase in the WorldCom Average Trading Price above $35.15. In addition,
the BFP Merger Agreement provides BFP's stockholders with certain protections in
the event the WorldCom Average Trading Price is below $35.15 per share but is
equal to or above $31.35 per share. If the WorldCom Average Trading Price is
equal to or above $31.35 per share but less than $35.15 per share, the BFP
Exchange Ratio would equal a fraction (rounded to the nearest
hundred-thousandth) determined by dividing $58.00 by the WorldCom Average
Trading Price. If the WorldCom Average Trading Price is less than $31.35 per
share, the BFP Exchange Ratio would be 1.85 shares of WorldCom Common Stock for
each share of BFP Common Stock. The BFP Exchange Ratio will not be increased
above 1.85 if the WorldCom Average Trading Price is below $31.35 and the terms
of the BFP Merger Agreement do not permit BFP to terminate in the event the
WorldCom Average Trading Price is below $31.35 per share. Holders of BFP Common
Stock may call toll free to 1-800-780-6378 at any time between January 5, 1998
and the date that the BFP Merger is consummated to hear a tape recorded message
stating what the WorldCom Average Trading Price and the resultant BFP Exchange
Ratio would be if the BFP Merger were to be consummated on that day. Holders of
BFP Common Stock may call the same toll free number from the date the BFP Merger
is consummated until ten business days thereafter to hear a tape recorded
message stating the actual WorldCom Average Trading Price and BFP Exchange
Ratio. BFP Exchange Ratio would be adjusted appropriately in the event of a
stock split, stock dividend or recapitalization of the WorldCom Common Stock or
the BFP Common Stock prior to the closing of the BFP Merger. For additional
information regarding the BFP Merger terms, including the terms of the WorldCom
Common Stock, see "Plan of Merger -- Terms and Conditions of the Proposed BFP
Merger -- BFP Merger Consideration," "Description of WorldCom Capital
Stock -- Common Stock" and "Comparative Rights of Shareholders." No fractional
shares of WorldCom Common Stock will be issued; instead, BFP stockholders who
would otherwise be entitled to a fractional share of WorldCom Common Stock will
receive cash in lieu thereof. See "Plan of Merger -- General Description of the
BFP Merger," "-- Terms and Conditions of the Proposed BFP Merger -- BFP Merger
Consideration" and "-- Fractional Shares."
2
<PAGE> 17
The following table illustrates the number of shares of WorldCom Common
Stock issuable in the BFP Merger (assuming 39,229,867 shares of BFP Common Stock
outstanding, including an estimated 73,000 shares that will be issuable
immediately prior to the Effective Time under BFP's 1996 Employee Stock Purchase
Plan) and the corresponding per share value of the BFP Merger Consideration at
various assumed WorldCom Average Trading Prices:
<TABLE>
<CAPTION>
AGGREGATE
SHARES OF
WORLDCOM WORLDCOM VALUE PER SHARE OF
AVERAGE TRADING BFP COMMON STOCK BFP
PRICE EXCHANGE RATIO ISSUABLE COMMON STOCK
--------------- -------------- ------------ ------------------
<S> <C> <C> <C>
$40.00................................ 1.6500 64,729,280 $66.00
$39.00................................ 1.6500 64,729,280 $64.35
$38.00................................ 1.6500 64,729,280 $62.70
$37.00................................ 1.6500 64,729,280 $61.05
$36.00................................ 1.6500 64,729,280 $59.40
$35.15................................ 1.6500 64,729,280 $58.00
- ----------------------------------------------------------------------------------------------
$35.00................................ 1.6571 65,007,812 $58.00
$34.00................................ 1.7059 66,922,230 $58.00
$33.00................................ 1.7576 68,950,414 $58.00
$32.00................................ 1.8125 71,104,133 $58.00
- ----------------------------------------------------------------------------------------------
$31.35................................ 1.8500 72,575,253 $58.00
$31.00................................ 1.8500 72,575,253 $57.35
$30.00................................ 1.8500 72,575,253 $55.50
$29.00................................ 1.8500 72,575,253 $53.65
$28.00................................ 1.8500 72,575,253 $51.80
</TABLE>
At the Effective Time, each of the then outstanding and unexercised BFP
Options and BFP Warrants will be converted into WorldCom Options and WorldCom
Warrants, respectively, exercisable for shares of WorldCom Common Stock having
the same terms and conditions as the BFP Options and BFP Warrants, respectively,
including such terms and conditions as may be incorporated by reference into the
agreements evidencing the BFP Options and BFP Warrants, and taking into account
the provisions in the BFP Merger Agreement regarding change in control (see
"Plan of Merger -- Interests of Certain Persons in the BFP Merger"), except that
the exercise price and the number of shares issuable upon exercise will be
divided and multiplied, respectively, by the BFP Exchange Ratio. Based on the
number of BFP Options and BFP Warrants outstanding on December 23, 1997 and the
1.65 to 1.85 range of the BFP Exchange Ratio, such BFP Options and BFP Warrants
would have been converted into WorldCom Options and WorldCom Warrants to acquire
between 4,634,777 and 5,196,569 shares, respectively, of WorldCom Common Stock.
See "Plan of Merger -- Terms and Conditions of the Proposed BFP Merger -- BFP
Options and Warrants."
Based on the number of outstanding shares of BFP Common Stock (as of
December 22, 1997), CompuServe Common Stock (as defined herein) (as of December
15, 1997) and MCI Common Stock (as defined herein) (as of October 31, 1997)
(without adjustment for stock options, rights, warrants or convertible
securities) and assuming completion by WorldCom of the BFP Merger, the
CompuServe Merger and the MCI/WorldCom Merger (see "Information Regarding
WorldCom -- Recent Developments"), the number of outstanding shares of WorldCom
Common Stock would increase from 909,044,560 shares outstanding on December 15,
1997 to between 1,715,059,496 shares and 2,022,680,634 shares, respectively, and
the number of shares of WorldCom Common Stock issuable upon exercise of WorldCom
options, rights and warrants would increase from 80,849,248 shares to between
185,934,659 shares and 228,006,125 shares, respectively. A total of 94,992
shares of WorldCom Series A Preferred Stock and 12,427,866 shares of WorldCom
Series B Preferred Stock were also outstanding as of December 15, 1997, which
were convertible into 32,703,276 and 1,210,364 shares, respectively, of WorldCom
Common Stock. Based on the number of outstanding shares of BFP Common Stock (as
of December 22, 1997), CompuServe Common Stock (as of December 15, 1997), MCI
Common Stock (as of October 31, 1997) and WorldCom Common Stock (as of December
15, 1997) (without adjustment for stock options, rights or warrants) and
assuming a BFP Exchange Ratio of 1.85, a CompuServe Exchange Ratio of 0.5 and an
MCI Exchange Ratio of 1.7586, BFP stockholders would hold
3
<PAGE> 18
approximately (a) 7.1%, (b) 6.8% and (c) 3.5% of the outstanding WorldCom Common
Stock after completion of (a) the BFP Merger, (b) the BFP Merger and the
CompuServe Merger and (c) the BFP Merger, the CompuServe Merger and the
MCI/WorldCom Merger, respectively, assuming no exercise of WorldCom options,
rights or warrants, but assuming the conversion of WorldCom convertible
securities. Actual exchange ratios may vary as described herein.
The BFP Merger Agreement provides that the consummation of the BFP Merger
is subject to certain terms and conditions, including: (i) receipt of the
requisite approval of the BFP Merger by the stockholders of BFP; (ii) receipt by
WorldCom and BFP of an opinion of outside tax counsel regarding the tax-free
status of the BFP Merger; (iii) approval of the shares of WorldCom Common Stock
comprising the BFP Merger Consideration for quotation on The Nasdaq National
Market; (iv) receipt of all material consents or approvals of governmental
agencies or bodies required in connection with the BFP Merger (which condition
has been satisfied); (v) receipt of the written opinions of the respective
certified public accountants of WorldCom and BFP that the BFP Merger qualifies
for pooling-of-interests accounting treatment in accordance with Accounting
Principles Board Opinion No. 16 and the accounting staff of the Commission shall
not have asserted or threatened to assert a determination to the contrary which
has not been rescinded; and (vi) satisfaction of other conditions customary to
transactions of this nature. It is also a condition to the parties' obligation
to effect the BFP Merger that neither of the fairness opinions rendered by BFP's
financial advisors shall have been withdrawn at or prior to the Effective Time
(see "Plan of Merger -- Opinions of BFP's Financial Advisors"). Certain of the
terms and conditions of the BFP Merger, other than the requirement of
stockholder approval, may be waived by the parties. The BFP Merger will become
effective at the time of the filing, after satisfaction or waiver of all the
conditions to the BFP Merger, of a Certificate of Merger with the Secretary of
State of the State of Delaware or at such later time as may be specified in the
Certificate of Merger (the "Effective Time"). The date on which the closing of
the BFP Merger occurs is referred to herein as the "Closing Date." See "Plan of
Merger -- Terms and Conditions of the Proposed BFP Merger -- Mutual Conditions,"
"-- WorldCom's Conditions" and "-- BFP's Conditions."
Pursuant to the BFP Merger Agreement, BFP has agreed not to, nor to
authorize or permit its subsidiaries or its officers, directors, employees, or
any investment banker, financial advisor, attorney, accountant or other
representative retained by it, directly or indirectly, to (i) solicit, initiate
or encourage (including by way of furnishing information), or take any other
action designed or reasonably likely to facilitate, any inquiries or the making
of any proposal which constitutes or may reasonably be expected to lead to, or
(ii) participate in any discussions or negotiations regarding, any inquiry,
proposal or offer from any person (an "Acquisition Proposal") relating to (a)
any direct or indirect acquisition or purchase of 15% or more of the assets of
BFP and its subsidiaries, taken as a whole, or 15% or more of any class of
equity securities of BFP or any of its subsidiaries, (b) any tender offer or
exchange offer that if consummated would result in any person beneficially
owning 15% or more of any class of equity securities of BFP or any of its
subsidiaries, (c) any merger, consolidation, share exchange, business
combination, recapitalization, liquidation, dissolution or similar transaction
involving BFP or any of its subsidiaries, other than the transactions
contemplated by the BFP Merger Agreement, or (d) any other transaction, the
consummation of which could reasonably be expected to impede, interfere with,
prevent or materially delay the BFP Merger or which would reasonably be expected
to dilute materially the benefits to WorldCom of the transactions contemplated
by the BFP Merger Agreement; provided, that if, at any time prior to the
Effective Time, the Board of Directors of BFP determines in good faith, after
consultation with outside counsel, that it is necessary to do so in order to
comply with its fiduciary duties to BFP's stockholders under applicable law,
then BFP may, in response to an Acquisition Proposal which was not solicited
subsequent to October 1, 1997, and subject to compliance with certain notice
provisions in the BFP Merger Agreement, (x) furnish information with respect to
BFP and its subsidiaries to any person pursuant to a customary confidentiality
agreement and (y) participate in negotiations regarding such Acquisition
Proposal. See "Plan of Merger -- Terms and Conditions of the Proposed BFP
Merger -- Agreement Not to Solicit Other Offers."
The BFP Merger Agreement may be amended only by written agreement among the
parties. The BFP Merger Agreement may be terminated at any time prior to the
Effective Time (i) by the mutual consent of the parties, (ii) if the BFP Merger
has not been consummated on or before March 31, 1998 (or such other
4
<PAGE> 19
date as may be agreed to by BFP and WorldCom), (iii) if the requisite approval
of the stockholders of BFP is not obtained at the Special Meeting or (iv) under
certain other circumstances. Termination by WorldCom or BFP under certain
circumstances, would require one party to make a $40 million payment to the
other party as a termination fee. See "Plan of Merger -- Terms and Conditions of
the Proposed BFP Merger -- Termination of the BFP Merger Agreement" and
"-- Termination Fees."
CONVERSION OF BFP COMMON STOCK IN THE BFP MERGER; EXCHANGE OF CERTIFICATES
After the Effective Time, each holder of BFP Common Stock will be required
to surrender and deliver the certificates representing BFP Common Stock to The
Bank of New York or such other bank or trust company as may be designated by
WorldCom (the "Exchange Agent"), together with a duly completed and executed
transmittal letter to be provided by the Exchange Agent. BFP stockholders should
not send in their certificates representing shares of BFP Common Stock until
they receive a transmittal letter from the Exchange Agent. Until so surrendered
and exchanged, each outstanding certificate representing BFP Common Stock after
the Effective Time will be deemed for all purposes to evidence the right to
receive that number of whole shares of WorldCom Common Stock into which such
shares of BFP Common Stock have been converted pursuant to the BFP Merger
Agreement plus the amount of cash payable in lieu of any fractional WorldCom
Shares. See "Plan of Merger -- Surrender of Stock Certificates and Receipt of
BFP Merger Consideration" and "-- Fractional Shares."
ACCOUNTING TREATMENT
WorldCom intends to account for the BFP Merger as a pooling of interests
under generally accepted accounting principles. Under this method, the
historical basis of the assets and liabilities of WorldCom and BFP are combined,
on a consolidated basis. See "Plan of Merger -- Accounting Treatment."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Bryan Cave LLP, special tax counsel to BFP, based on the
representations and assumptions referred to in its opinion, the BFP Merger will
qualify as a reorganization under Section 368(a) of the Code. Accordingly, no
gain or loss will be recognized for federal income tax purposes by BFP
stockholders on the exchange of their shares of BFP Common Stock solely for
shares of WorldCom Common Stock in the BFP Merger (except for cash paid in lieu
of fractional WorldCom Shares). Holders of BFP Common Stock are urged to consult
their tax advisors regarding the federal, state, local and foreign tax
consequences of the BFP Merger. For a more complete description of the federal
income tax consequences of the BFP Merger, see "Plan of Merger -- Certain
Federal Income Tax Consequences."
IT IS RECOMMENDED THAT HOLDERS OF SHARES OF BFP COMMON STOCK CONSULT WITH
THEIR OWN TAX ADVISORS REGARDING THE TAX CONSEQUENCES OF THE BFP MERGER TO THEM,
INCLUDING THE APPLICABILITY OF ANY FOREIGN TAX LAWS AS WELL AS OTHER FEDERAL,
STATE AND LOCAL TAX LAWS.
REASONS OF WORLDCOM FOR THE BFP MERGER
In reaching its decision to approve the BFP Merger Agreement, the Board of
Directors of WorldCom consulted with its management team and independently
considered a variety of factors and the businesses and operations of BFP. The
Board of Directors of WorldCom concluded that the BFP Merger is in the best
interests of WorldCom and its shareholders because the BFP Merger would (i)
expand the number of all fiber optic local networks operated in the U.S. by
WorldCom from 52 to 86, (ii) advance WorldCom's entrance into more secondary
U.S. cities by as much as two years, (iii) enhance WorldCom's ability to provide
end-to-end long distance, local and Internet service over a global network, (iv)
increase WorldCom's revenue growth rate, as BFP's anticipated growth rate for
the next few years is expected to be in excess of WorldCom's stand alone rate,
and (v) add a significant number of employees with skills in sales and technical
telecommunications services. There can be no assurance, however, that any of the
potential synergies or opportunities
5
<PAGE> 20
considered by the WorldCom Board of Directors will be achieved through
consummation of the BFP Merger. See "Cautionary Statement Regarding
Forward-Looking Statements," "Risk Factors" and "Plan of Merger -- WorldCom's
Reasons for the BFP Merger."
REASONS OF BFP FOR THE BFP MERGER
In reaching its decision to approve the BFP Merger Agreement, the Board of
Directors of BFP consulted with its management team and advisors and carefully
considered a variety of factors, including the businesses and operations of BFP
and WorldCom. After consideration of such factors, the Board of Directors of BFP
concluded that the BFP Merger is fair to and in the best interests of BFP and
its stockholders. The principal factors considered by the BFP Board of Directors
were (1) the BFP Exchange Ratio and the premium which such ratio represented
over the closing price of the BFP Common Stock on September 30, 1997, the
exchange ratio pricing mechanism which allows BFP stockholders to share in any
increase in the WorldCom Average Trading Price above $35.15 per share and the
provisions in the BFP Merger Agreement designed to protect the value of the
consideration to be received by BFP stockholders in the event the WorldCom
Average Trading Price is below $35.15 per share but is equal to or above $31.35
per share, (2) the favorable comparison of the premium for BFP represented by
the BFP Exchange Ratio to comparable company and transaction valuations, (3) the
businesses, operations, earnings and financial condition, prospects, competitive
position and strategic direction of both BFP and WorldCom, and the significant
additional capital requirements for, and risks inherent in, the successful
implementation of the long range business plans of both companies, (4) the
belief that a combination with WorldCom would create significant potential
synergies and cost savings for the combined company and create a stronger
competitor in the changing telecommunications industry, (5) the belief that the
BFP Merger would afford BFP's stockholders the opportunity through their
ownership of WorldCom Common Stock to realize potential future equity
appreciation based on the favorable prospects for the combined company, (6) the
opinion of Salomon Brothers Inc ("Salomon Brothers") that, on and as of the date
of such opinion, based upon the assumptions made, general procedures followed,
matters considered and limits on the review undertaken as set forth in such
opinion, the BFP Exchange Ratio is fair to the holders of BFP Common Stock from
a financial point of view and the presentation made by Salomon Brothers to the
Board of Directors of BFP, (7) the condition in the BFP Merger Agreement that a
nationally recognized investment banking firm, which has been designated as
Merrill Lynch, Pierce, Fenner & Smith, Incorporated ("Merrill Lynch"), also
render such an opinion at the time of the mailing of this Proxy
Statement/Prospectus and the condition that neither of the fairness opinions of
Salomon Brothers and Merrill Lynch shall have been withdrawn at or prior to the
Effective Time, (8) the expectation that the BFP Merger will be treated as a
tax-free reorganization to BFP's stockholders and to BFP, and be accounted for
as a pooling of interests transaction, (9) the terms and conditions of the BFP
Merger Agreement and the likelihood that the conditions to the BFP Merger will
be satisfied, (10) the willingness of BFP's management to support the BFP Merger
and (11) the potential impact on WorldCom of the CompuServe Merger, the AOL
Transaction and the MCI Offer (as hereinafter defined) (see "Information
Regarding WorldCom -- Recent Developments"), including the fact that
announcement of the MCI Offer might result in fluctuations in the price of the
WorldCom Common Stock. There can be no assurance, however, that any of the
potential synergies or opportunities considered by the BFP Board of Directors
will be achieved through consummation of the BFP Merger. See "Cautionary
Statement Regarding Forward-Looking Statements," "Risk Factors" and "Plan of
Merger -- BFP's Reasons for the BFP Merger; BFP Board Recommendation."
RECOMMENDATION OF THE BFP BOARD OF DIRECTORS
The BFP Board of Directors believes that the BFP Merger is fair to and in
the best interests of BFP and its stockholders and has unanimously approved the
BFP Merger Agreement. THE BFP BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT ITS
STOCKHOLDERS VOTE TO APPROVE AND ADOPT THE BFP MERGER AGREEMENT. See "Plan of
Merger -- Background of the BFP Merger," "-- BFP's Reasons for the BFP Merger;
BFP Board Recommendation" and "-- Interests of Certain Persons in the BFP
Merger."
6
<PAGE> 21
OPINIONS OF BFP'S FINANCIAL ADVISORS
Salomon Brothers and Merrill Lynch, financial advisors to BFP, have
rendered written opinions to the BFP Board of Directors dated September 30, 1997
and December 22, 1997, respectively, that, on and as of the dates of such
opinions, based upon the assumptions made, general procedures followed, matters
considered and limits on the review undertaken as set forth in each of such
opinions, the BFP Exchange Ratio is fair to the holders of BFP Common Stock,
from a financial point of view. A copy of each of their respective opinions is
attached as Appendices II and III, respectively, to this Proxy
Statement/Prospectus, and holders of BFP Common Stock are urged to read each of
such opinions in its entirety. See "Plan of Merger -- Opinions of BFP's
Financial Advisors." It is a condition to the parties' obligations to effect the
BFP Merger that neither of such opinions of Salomon Brothers and Merrill Lynch
shall have been withdrawn at or prior to the Effective Time. See "Plan of
Merger -- Terms and Conditions of the Proposed BFP Merger -- Mutual Conditions."
THE SPECIAL MEETING; REQUIRED VOTE
The Special Meeting will be held on Thursday, January 29, 1998 at 10:00
a.m. St. Louis time, in the Main Dining Room on the 16th Floor of the St. Louis
Club, 7701 Forsyth, St. Louis, Missouri. At the Special Meeting, holders of BFP
Common Stock will be asked to (i) approve and adopt the BFP Merger Agreement and
(ii) transact such other business as may properly be brought before the Special
Meeting or any adjournment or postponement thereof. The BFP Board of Directors
knows of no business that will be presented for consideration at the Special
Meeting other than approval and adoption of the BFP Merger Agreement.
Approval and adoption of the BFP Merger Agreement requires the affirmative
vote of a majority of the votes entitled to be cast by the holders of all
outstanding shares of BFP Common Stock. The BFP Board of Directors has fixed the
close of business on December 23, 1997 as the record date for determining
holders entitled to notice of and to vote at the Special Meeting (the "Record
Date"). As of the Record Date, there were 39,156,867 shares of BFP Common Stock
issued and outstanding. Each share of BFP Common Stock is entitled to one vote
on each matter to be voted upon at the Special Meeting.
As of the Record Date, the directors and executive officers of BFP and
their affiliates (as a group) were entitled to vote shares of BFP Common Stock
representing approximately 11% of the outstanding BFP Common Stock. Each of
BFP's directors has agreed to vote his or her beneficially owned shares of BFP
Common Stock for the approval and adoption of the BFP Merger Agreement. See "The
Special Meeting -- Required Vote."
MANAGEMENT AND OPERATIONS AFTER THE BFP MERGER
After the BFP Merger, WorldCom is expected to continue to operate BFP's
current business as a wholly-owned subsidiary of WorldCom. See "Plan of
Merger -- Management and Operations After the BFP Merger."
INTERESTS OF CERTAIN PERSONS IN THE BFP MERGER
In considering the recommendation of the BFP Board of Directors with
respect to the BFP Merger, holders of BFP Common Stock should be aware that
certain members of BFP's management, some of whom are members of the BFP Board
of Directors, have certain interests in the BFP Merger, in addition to those of
the stockholders generally. The BFP Board of Directors was aware of these
interests when it considered and approved the BFP Merger and the BFP Merger
Agreement.
WorldCom and BFP have acknowledged that the BFP Merger and the consummation
of the other transactions contemplated thereby will be treated as a "change in
control" for purposes of certain BFP benefit plans, option agreements and other
compensation arrangements, and have agreed to abide by the provisions of any
such plans, agreements and arrangements which relate to a change in control,
including the accelerated vesting and/or payment of equity-based awards and
gross-up payments. Certain members of the BFP Board of Directors and other
executive officers of BFP are holders of BFP Options and BFP Warrants. The
members of
7
<PAGE> 22
the BFP Board of Directors were aware that the BFP Options and BFP Warrants held
by these individuals would fully vest and appreciate in value as a result of the
BFP Merger.
BFP and Mr. Robert A. Brooks, Chairman of the Board of BFP, are parties to
an Employment, Consulting and Non-Competition Agreement which provides for
certain benefits following a change of control of BFP, which includes the
Effective Time. BFP and seven other executive officers are parties to Change of
Control Severance Agreements which also provide for certain benefits in the
event of termination of employment under certain circumstances within a
specified period of time following a change of control of BFP, which includes
the Effective Time.
In connection with the negotiation and approval of the BFP Merger
Agreement, Mr. Bernard J. Ebbers, President and Chief Executive Officer of
WorldCom, indicated his expectation that the WorldCom Board of Directors would
consider the nomination of an individual designated by the BFP Board of
Directors (who is expected be Mr. James C. Allen, Vice Chairman and Chief
Executive Officer of BFP) for election as a director of WorldCom following the
Effective Time.
The BFP Merger Agreement provides that, with respect to matters occurring
through the Effective Time, WorldCom and the Surviving Corporation will jointly
and severally indemnify, defend and hold harmless the directors, officers,
employees and agents of BFP as and to the extent provided in BFP's Second
Restated Certificate of Incorporation (the "BFP Certificate") or BFP's By-laws
(the "BFP By-laws"), as in effect as of October 1, 1997. WorldCom has also
agreed to cause the Surviving Corporation to maintain in effect for not less
than three years after the Effective Time, policies of directors' and officers'
liability insurance comparable to those maintained by BFP with carriers
comparable to BFP' existing carriers, subject to certain limitations.
See "Plan of Merger -- Terms and Conditions of the Proposed BFP
Merger -- Employee Benefit Matters" and "-- Interests of Certain Persons in the
BFP Merger."
REGULATORY FILINGS AND APPROVALS REQUIRED FOR THE BFP MERGER
Hart-Scott-Rodino Act
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "Hart-Scott-Rodino Act"), and the rules promulgated thereunder by the
Federal Trade Commission (the "FTC"), the BFP Merger may not be consummated
until notifications have been given and certain information has been furnished
to the FTC and the Antitrust Division (the "Antitrust Division") of the
Department of Justice (the "DOJ") and specified waiting period requirements have
been satisfied. WorldCom and BFP filed notification and report forms under the
Hart-Scott-Rodino Act with the FTC and the Antitrust Division on November 14,
1997. The waiting period for such filings expired on December 14, 1997. However,
at any time before or after the Effective Time of the BFP Merger, and
notwithstanding that the Hart-Scott-Rodino Act waiting period has expired, the
FTC, the Antitrust Division or any state could take such action under applicable
antitrust laws as it deems necessary or desirable in the public interest. Such
action could include seeking to enjoin the consummation of the BFP Merger or
seeking divestiture of BFP or businesses of WorldCom or BFP as a result of the
BFP Merger.
Other Regulatory Filings and Approvals
Consummation of the BFP Merger is also contingent upon the receipt of
approvals from the Federal Communications Commission (the "FCC"), various state
public utility or service commissions ("PUCs") and certain local government
authorities with respect to the BFP Merger. WorldCom and BFP have previously
made the necessary filings with these government agencies and have received all
of the approvals they deem necessary for the BFP Merger.
See "Plan of Merger -- Terms and Conditions of the Proposed BFP
Merger -- Mutual Conditions" and "-- Certain Regulatory Filings and Approvals."
8
<PAGE> 23
ABSENCE OF APPRAISAL RIGHTS
Holders of BFP Common Stock will not be entitled to any dissenters' or
appraisal rights under Section 262 of the General Corporation Law of the State
of Delaware (the "DGCL") in connection with the BFP Merger because: (i) shares
of BFP Common Stock were, at the Record Date, designated as Nasdaq National
Market securities; (ii) BFP stockholders will not be required to accept anything
in exchange for their shares of BFP Common Stock other than shares of WorldCom
Common Stock, which will be designated as Nasdaq National Market securities as
of the Effective Time, and cash in lieu of fractional shares of such stock; and
(iii) the BFP Certificate does not otherwise provide BFP stockholders with
dissenters' or appraisal rights applicable to the BFP Merger. See "The Special
Meeting -- Absence of Appraisal Rights."
COMPARISON OF SHAREHOLDER RIGHTS
The rights of BFP stockholders currently are governed by Delaware law, the
BFP Certificate and the BFP By-laws. Upon consummation of the BFP Merger,
stockholders of BFP will become shareholders of WorldCom, which is a Georgia
corporation, and their rights as shareholders of WorldCom will be governed by
Georgia law, the Second Amended and Restated Articles of Incorporation of
WorldCom (the "WorldCom Articles") and the WorldCom Bylaws. See "Description of
WorldCom Capital Stock" and "Comparative Rights of Shareholders" for a summary
of certain differences between the rights of holders of BFP Common Stock and
WorldCom Common Stock.
RISK FACTORS
Holders of BFP Common Stock, in voting on the adoption of the BFP Merger
Agreement, should consider, among other things, the following: (i) uncertainties
in integrating acquired companies and achieving cost savings, (ii) risks
associated with obtaining governmental approvals in connection with the
MCI/WorldCom Merger, (iii) the potential effect of stock price fluctuations on
the BFP Merger Consideration, (iv) interests of certain persons in the BFP
Merger, (v) risks associated with WorldCom's debt service, interest rate
fluctuations, other restrictive covenants, and capital spending, (vi) the risks
of the combined company's acquisition strategy, (vii) risks of international
business, (viii) risks of overseas business operations, (ix) risks of rapid
technological change and dependence on product development, (x) regulation
risks, (xi) risks of competition and (xii) the anti-takeover provisions in the
WorldCom Articles and the WorldCom Bylaws. See "Cautionary Statement Regarding
Forward-Looking Statements" on page 19 and "Risk Factors" beginning on page 19.
9
<PAGE> 24
MARKET PRICES
The WorldCom Common Stock and the BFP Common Stock are traded on The Nasdaq
National Market under the symbols "WCOM" and "BFPT," respectively. The following
table sets forth the high and low intra-day sales prices per share of such stock
as reported on The Nasdaq National Market based on published financial sources,
for the periods indicated. Because the BFP Common Stock was not publicly traded
prior to May 3, 1996, no market prices for BFP Common Stock are shown prior to
such date. Neither WorldCom nor BFP has ever paid any cash dividends on its
respective common stock. The existing credit facilities and indentures of BFP
restrict the payment of cash dividends on the BFP Common Stock without the prior
consent of its lenders. The per share information presented below and elsewhere
in this Proxy Statement/Prospectus has been adjusted to reflect all stock splits
and stock dividends of WorldCom.
<TABLE>
<CAPTION>
WORLDCOM BFP
COMMON STOCK COMMON STOCK
------------------ ------------------
HIGH LOW HIGH LOW
------ ------ ------ ------
<S> <C> <C> <C> <C>
1995:
First Quarter..................................... $13.13 $ 9.56 $-- $ --
Second Quarter.................................... 13.69 11.56 -- --
Third Quarter..................................... 17.06 13.38 -- --
Fourth Quarter.................................... 17.94 14.88 -- --
1996:
First Quarter..................................... 23.31 16.25 -- --
Second Quarter.................................... 27.72 21.31 36.50 27.75
Third Quarter..................................... 28.88 18.38 34.00 27.25
Fourth Quarter.................................... 26.13 21.00 34.13 25.50
1997:
First Quarter..................................... 27.88 21.75 30.00 17.50
Second Quarter.................................... 32.97 21.25 34.38 15.75
Third Quarter..................................... 37.75 29.88 49.25 32.38
Fourth Quarter (through December 23, 1997)........ 39.88 28.50 62.75 49.50
</TABLE>
WorldCom and BFP announced they had entered into the BFP Merger Agreement
on October 1, 1997. The following table sets forth the closing prices for a
share of WorldCom Common Stock and a share of BFP Common Stock, as reported by
The Nasdaq National Market, on September 30, 1997, the last trading day
preceding the public announcement of the execution of the BFP Merger Agreement,
and on December 23, 1997, the last practicable trading day before the printing
of this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
CLOSING PRICE OF
WORLDCOM CLOSING PRICE OF BFP
DATE COMMON STOCK COMMON STOCK
---- ---------------- --------------------
<S> <C> <C>
September 30, 1997.................................. $35.38 $46.69
December 23, 1997................................... $30.56 $54.88
</TABLE>
Based on an assumed BFP Exchange Ratio of 1.65, the pro forma equivalent
per share value of BFP Common Stock was $58.38 on September 30, 1997 and was
$50.43 on December 23, 1997. The pro forma equivalent per share value of BFP
Common Stock on any date, based on an assumed BFP Exchange Ratio of 1.65, equals
the closing price of WorldCom Common Stock on such date multiplied by 1.65.
The actual dollar value of the WorldCom Common Stock to be issued to the
holders of BFP Common Stock pursuant to the BFP Merger Agreement will not be
determined until three trading days prior to the closing date of the BFP Merger,
and may be substantially more or less than the pro forma equivalent per share
value of BFP Common Stock on September 30, 1997 or December 23, 1997. For
example, between October 1, 1997 and December 23, 1997, the closing sales price
of the WorldCom Common Stock has ranged from a high of $39.88 to a low of
$28.50, and as of December 23, 1997 the WorldCom Average Trading Price would
have been $32.775 and the resultant BFP Exchange Ratio would have been 1.7696.
THE BFP EXCHANGE RATIO WILL NOT BE INCREASED IF THE WORLDCOM AVERAGE TRADING
PRICE IS BELOW $31.35 PER SHARE.
10
<PAGE> 25
BFP STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR WORLDCOM
COMMON STOCK AND BFP COMMON STOCK. NO ASSURANCE CAN BE GIVEN AS TO THE MARKET
PRICES OF WORLDCOM COMMON STOCK OR BFP COMMON STOCK AT THE EFFECTIVE TIME.
BECAUSE THE BFP EXCHANGE RATIO IS NOT CORRELATED DIRECTLY TO THE MARKET VALUE OF
WORLDCOM COMMON STOCK AND BECOMES FIXED IF THE WORLDCOM AVERAGE TRADING PRICE IS
LESS THAN $31.35 OR GREATER THAN OR EQUAL TO $35.15, THE MARKET VALUE OF SHARES
OF WORLDCOM COMMON STOCK THAT HOLDERS OF BFP COMMON STOCK WILL RECEIVE UPON
CONSUMMATION OF THE BFP MERGER MAY VARY SIGNIFICANTLY FROM THE MARKET VALUE OF
THE SHARES OF WORLDCOM COMMON STOCK THAT HOLDERS OF BFP COMMON STOCK WOULD HAVE
RECEIVED IF THE BFP MERGER WERE CONSUMMATED ON THE DATE OF THIS PROXY
STATEMENT/PROSPECTUS. HOLDERS OF BFP COMMON STOCK MAY CALL TOLL FREE TO
1-800-780-6378 AT ANY TIME BETWEEN JANUARY 5, 1998 AND THE DATE THAT THE BFP
MERGER IS CONSUMMATED TO HEAR A TAPE RECORDED MESSAGE STATING WHAT THE WORLDCOM
AVERAGE TRADING PRICE AND THE RESULTANT BFP EXCHANGE RATIO WOULD BE IF THE BFP
MERGER WERE TO BE CONSUMMATED ON THAT DAY. HOLDERS OF BFP COMMON STOCK MAY CALL
THE SAME TOLL FREE NUMBER FROM THE DATE THE BFP MERGER IS CONSUMMATED UNTIL TEN
BUSINESS DAYS THEREAFTER TO HEAR A TAPE RECORDED MESSAGE STATING THE ACTUAL
WORLDCOM AVERAGE TRADING PRICE AND BFP EXCHANGE RATIO.
RECENT WORLDCOM DEVELOPMENTS
THE MCI/WORLDCOM MERGER. On October 1, 1997, WorldCom announced its
intention to commence an exchange offer to acquire all of the outstanding shares
of MCI common stock, par value $.10 per share ("MCI Common Stock"), for $41.50
of WorldCom Common Stock, subject to adjustment in certain circumstances as set
forth in materials filed by WorldCom with the Commission (the "MCI Offer"). On
November 9, 1997, WorldCom entered into an Agreement and Plan of Merger (the
"MCI/WorldCom Merger Agreement") with MCI and a wholly-owned acquisition
subsidiary of WorldCom ("MCI Merger Sub"), providing for the merger (the
"MCI/WorldCom Merger") of MCI with and into MCI Merger Sub, with MCI Merger Sub
surviving as a wholly-owned subsidiary of WorldCom. As a result of the
MCI/WorldCom Merger, the separate corporate existence of MCI will cease, and MCI
Merger Sub (which will be renamed "MCI Communications Corporation") will succeed
to all the rights and be responsible for all the obligations of MCI in
accordance with the DGCL. Subject to the terms and conditions of the
MCI/WorldCom Merger Agreement, each share of MCI Common Stock outstanding
immediately prior to the effective time of the MCI/WorldCom Merger (the
"MCI/WorldCom Effective Time") will be converted into the right to receive that
number of shares of WorldCom Common Stock equal to the MCI Exchange Ratio (as
defined below) (the "MCI Common Stock Merger Consideration"), and each share of
MCI Class A common stock, par value $.10 per share ("MCI Class A Common Stock"
and, together with the MCI Common Stock, the "MCI Capital Stock"), outstanding
immediately prior to the MCI/WorldCom Effective Time will be converted into the
right to receive $51.00 in cash, without interest thereon (the "MCI Class A
Common Stock Merger Consideration" and, collectively with the MCI Common Stock
Merger Consideration, the "MCI/WorldCom Merger Consideration"). The "MCI
Exchange Ratio" means the quotient (rounded to the nearest (1)/10,000)
determined by dividing $51.00 by the average of the high and low sales prices of
WorldCom Common Stock (the "MCI/WorldCom Average Price") as reported on The
Nasdaq National Market on each of the 20 consecutive trading days ending with
the third trading day immediately preceding the MCI/WorldCom Effective Time (the
"MCI Measurement Period"); provided, however, that the MCI Exchange Ratio will
not be less than 1.2439 or greater than 1.7586. Cash will be paid in lieu of the
issuance of any fractional share of WorldCom Common Stock in the MCI/WorldCom
Merger.
Based on the number of shares MCI Common Stock outstanding as of October
31, 1997 and assumed MCI Exchange Ratios of 1.2439 and 1.7586, approximately
703,178,763 shares and 994,139,540 shares, respectively, of WorldCom Common
Stock would be issued in the MCI/WorldCom Merger. In addition, outstanding
rights and options to purchase shares of MCI Common Stock would be converted in
the MCI/ WorldCom Merger to rights and options to acquire an aggregate of
approximately 100,263,626 shares and 141,750,634 shares, respectively, of
WorldCom Common Stock, and the exercise price would be adjusted to reflect the
MCI Exchange Ratio, so that, on exercise, the holders would receive, in the
aggregate, the same number of shares of WorldCom Common Stock as they would have
received had they exercised prior to the MCI/WorldCom Merger, at the same
exercise price.
11
<PAGE> 26
The MCI/WorldCom Merger is subject to the approvals of the MCI stockholders
and the WorldCom shareholders as well as approvals from the FCC, the DOJ and
various state government bodies. In addition, the MCI/WorldCom Merger is subject
to review by the Commission of the European Communities (the "European
Commission"). WorldCom anticipates that the MCI/WorldCom Merger will close
within six to nine months.
Termination of the MCI/WorldCom Merger Agreement by MCI or WorldCom under
certain conditions, including the failure to receive the approval of MCI's
stockholders of the MCI/WorldCom Merger or the MCI/WorldCom Merger Agreement,
will require MCI to pay WorldCom $750 million as a termination fee and to
reimburse WorldCom the $450 million alternative transaction fee paid by WorldCom
to British Telecommunications plc ("BT"). Further, termination of the
MCI/WorldCom Merger Agreement by MCI or WorldCom under certain conditions,
including the failure to receive the approval of WorldCom's shareholders of the
issuance of shares pursuant to the MCI/WorldCom Agreement (the "Share
Issuance"), will require WorldCom to pay MCI $1.635 billion as a termination
fee.
Pursuant to an agreement (the "BT Agreement") among MCI, WorldCom and BT,
the prior merger agreement between BT and MCI (the "BT/MCI Merger Agreement")
was terminated, and WorldCom agreed to pay BT an alternative transaction fee of
$450 million and expenses of $15 million payable to BT in accordance with the
BT/MCI Merger Agreement. These fees were paid on November 12, 1997. WorldCom
also agreed to pay to BT an additional payment of $250 million in the event that
WorldCom is required to make the $1.635 billion payment to MCI in accordance
with the MCI/WorldCom Merger Agreement. In addition, pursuant to the BT
Agreement, BT agreed to vote (or cause to be voted) its shares of MCI Class A
Common Stock in favor of the MCI/WorldCom Merger Agreement, the adoption by MCI
of the MCI/WorldCom Merger Agreement and the approval of the other transactions
contemplated by the MCI/WorldCom Merger Agreement.
THE COMPUSERVE MERGER. On September 7, 1997, WorldCom entered into an
Agreement and Plan of Merger (the "CompuServe Merger Agreement") with H&R Block,
Inc. ("H&R Block"), H&R Block Group, Inc. ("Block Group"), CompuServe
Corporation ("CompuServe") and a wholly-owned acquisition subsidiary of
WorldCom, providing for the merger (the "CompuServe Merger") of the wholly-owned
acquisition subsidiary of WorldCom into CompuServe. In the CompuServe Merger,
each share of CompuServe common stock ("CompuServe Common Stock") will be
converted into a fraction of a share of WorldCom Common Stock equal to the
CompuServe exchange ratio (the "CompuServe Exchange Ratio"), which will be
determined as follows: (i) if the average trading price (generally based on the
average reported closing prices for a specified twenty day period prior to
closing) of a share of WorldCom Common Stock is greater than or equal to $29.54,
the CompuServe Exchange Ratio will be 0.40625; (ii) if such average trading
price is greater than or equal to $24.00 but less than $29.54, the CompuServe
Exchange Ratio will equal a fraction determined by dividing $12.00 by such
average trading price; and (iii) if such average trading price is less than
$24.00, the CompuServe Exchange Ratio will be 0.5, provided that CompuServe has
the right to terminate the CompuServe Merger Agreement if such average trading
price is less than $24.00. Based on (i) the number of shares of CompuServe
Common Stock outstanding as of December 15, 1997 (assuming the conversion of
CompuServe stock options into WorldCom Common Stock) and (ii) assumed CompuServe
Exchange Ratios of 0.40625 and 0.5, 38,293,901 shares and 47,130,956 shares,
respectively, of WorldCom Common Stock will be issued in the CompuServe Merger.
Consummation of the CompuServe Merger is subject to certain conditions,
including the approval of the stockholders of CompuServe. The applicable waiting
period under the Hart-Scott-Rodino Act has expired. The CompuServe Merger
Agreement may be terminated if the effective time has not occurred on or before
March 1, 1998 and under certain other circumstances. Termination of the
CompuServe Merger Agreement by WorldCom or CompuServe under certain
circumstances, including failure to receive the approval of CompuServe's
stockholders, will require one party to make a $15 million payment to the other
party as a termination fee. H&R Block and Block Group have agreed to vote all of
the CompuServe shares directly or indirectly owned by it (the "Block Shares,"
which, as of September 30, 1997, represented approximately 80.1% of the
outstanding CompuServe shares) in favor of the CompuServe Merger, which number
of shares is sufficient for such approval. In addition, H&R Block and Block
Group have irrevocably appointed WorldCom or its nominee as proxy to vote the
Block
12
<PAGE> 27
Shares at any stockholder meeting or otherwise as described in the preceding
sentence, and have granted WorldCom an option to purchase the Block Shares under
certain circumstances. The closing of the CompuServe Merger, which will be
accounted for as a purchase, is expected to occur on or about January 30, 1998,
provided that the conditions to the CompuServe Merger are then fulfilled or
waived. Neither WorldCom nor BFP assumes any responsibility for the accuracy of
any of the information contained herein relating to CompuServe.
THE AOL TRANSACTION. On September 7, 1997, WorldCom also entered into a
Purchase and Sale Agreement (the "AOL Agreement") with America Online, Inc.
("AOL"), under which WorldCom agreed to (a) transfer to AOL the online services
businesses of CompuServe and Spry, Inc., a CompuServe subsidiary ("Sprynet"),
which WorldCom will acquire as a result of the CompuServe Merger, and (b)
acquire all outstanding shares of ANS Communications, Inc. ("ANS"), a
wholly-owned subsidiary of AOL which provides Internet and other networking
services to AOL and other customers. In addition to the transfer of the online
services businesses of CompuServe and Sprynet, WorldCom will pay AOL $175
million in cash, subject to certain adjustments specified in the AOL Agreement.
The closing of the transactions contemplated by the AOL Agreement (collectively,
the "AOL Transaction") is conditioned on, and is expected to occur immediately
after, the closing of the CompuServe Merger. The closing of the AOL Transaction,
which will be accounted for as a purchase, is subject to certain other
conditions. The applicable waiting period under the Hart-Scott-Rodino Act with
respect to the AOL Transaction has expired. Neither WorldCom nor BFP assumes any
responsibility for the accuracy of any of the information contained herein
relating to AOL.
See "Information Regarding WorldCom -- Recent Developments" for more
information regarding the recent developments of WorldCom.
13
<PAGE> 28
COMPARATIVE PER SHARE DATA
The following table sets forth for WorldCom Common Stock and BFP Common
Stock, for the periods indicated, selected historical per share data and the
corresponding unaudited pro forma combined and pro forma equivalent per share
amounts, calculated assuming a BFP Exchange Ratio of 1.65 shares of WorldCom
Common Stock and giving effect to the proposed BFP Merger. The actual BFP
Exchange Ratio may vary as described herein. The data presented are based upon
the historical consolidated financial statements and related notes of each of
WorldCom and BFP incorporated by reference in this Proxy Statement/Prospectus.
This information should be read in conjunction with and is qualified in its
entirety by reference to the historical financial statements of WorldCom and BFP
and related notes thereto. The data presented is not necessarily indicative of
the future results of operations of the consolidated companies or the actual
results that would have occurred if the BFP Merger had been consummated prior to
the periods indicated. No adjustment has been included for any anticipated cost
savings or other synergies or in respect of the CompuServe Merger, the AOL
Transaction or the MCI/WorldCom Merger. See "Available Information" and
"Incorporation of Documents By Reference."
<TABLE>
<CAPTION>
WORLDCOM
/BFP
WORLDCOM BFP PRO FORMA BFP PRO FORMA
HISTORICAL HISTORICAL COMBINED EQUIVALENT(1)
---------- ---------- --------- -------------
<S> <C> <C> <C> <C>
Book value per common share:
December 31, 1996.............................. $13.75 $ 9.17 $13.33 $21.99
September 30, 1997............................. 13.44 8.24 12.92 21.32
Cash dividends per common share:
Year ended December 31, 1994................... -- -- -- --
Year ended December 31, 1995................... -- -- -- --
Year ended December 31, 1996(3)................ -- -- -- --
Nine months ended September 30, 1996........... -- -- -- --
Nine months ended September 30, 1997........... -- -- -- --
Income (loss) per common share from continuing
operations (after preferred dividend
requirement):
Primary:
Year ended December 31, 1994................... (0.48) -- (0.48) (0.79)
Year ended December 31, 1995................... 0.64 (0.49) 0.61 1.01
Year ended December 31, 1996 (2)(3)............ (5.50) (1.71) (5.07) (8.37)
Nine months ended September 30, 1996........... (0.12) (1.10) (0.17) (0.28)
Nine months ended September 30, 1997(3)........ 0.25 (2.69) 0.12 0.20
Fully Diluted:
Year ended December 31, 1994................... (0.48) -- (0.48) (0.79)
Year ended December 31, 1995................... 0.64 (0.49) 0.60 0.99
Year ended December 31, 1996 (2)(3)............ (5.50) (1.71) (5.07) (8.37)
Nine months ended September 30, 1996........... (0.12) (1.10) (0.17) (0.28)
Nine months ended September 30, 1997(3)........ 0.25 (2.69) 0.12 0.20
</TABLE>
- ---------------
(1) The BFP pro forma equivalent represents the WorldCom/BFP pro forma combined
book value, dividends and income (loss) per common share multiplied by an
assumed BFP Exchange Ratio of 1.65. If the maximum BFP Exchange Ratio of
1.85 is assumed, the BFP Pro Forma Equivalent book value per share as of
December 31, 1996 and September 30, 1997 would be $24.66 and $23.90,
respectively, the BFP Pro Forma Equivalent primary income (loss) per share
would be $(9.38) and $0.22 for the year ended December 31, 1996 and nine
months ended September 30, 1997, respectively, and the BFP Pro Forma
Equivalent fully diluted income (loss) per share would be $(9.38) and $0.22
for the year ended December 31, 1996 and nine months ended September 30,
1997, respectively. The actual BFP Exchange Ratio may vary as described
herein.
(2) In December 1996, WorldCom acquired MFS Communications Company, Inc. ("MFS")
in a transaction accounted for as a purchase (the "MFS Merger"). WorldCom's
historical results for 1996 include a $2.14 billion charge for in-process
research and development related to the MFS Merger. The charge was based
upon a valuation analysis of the technologies of MFS' worldwide information
system, the Internet
14
<PAGE> 29
network expansion system of UUNET, and certain other identified research and
development projects purchased in the MFS Merger. 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 WorldCom's non-core businesses. On a
pre-tax basis, these charges totaled $600.1 million.
(3) The data in the table excludes the MCI/WorldCom Merger, as well as the
CompuServe Merger and the AOL Transaction. If the MCI/WorldCom Merger were
included, selected pro forma combined per share amounts would reflect a book
value per common share of $23.66 as of September 30, 1997, primary income
(loss) per share of $(1.32) and $0.01 for the year ended December 31, 1996
and the nine months ended September 30, 1997, respectively, and fully
diluted income (loss) per share of $(1.32) and $0.01 for the year ended
December 31, 1996 and the nine months ended September 30, 1997,
respectively.
SELECTED HISTORICAL FINANCIAL DATA
The summary below sets forth selected historical financial data. This
historical financial data should be read in conjunction with and is qualified in
its entirety by reference to the historical financial statements and notes
thereto contained in the WorldCom 1996 Form 10-K, BFP 1996 Form 10-K and MCI
1996 Form 10-K, all incorporated by reference herein. See "Available
Information," "Incorporation of Documents by Reference" and "MCI Information."
Selected Historical Financial Data of WorldCom. The selected historical
financial data of WorldCom set forth below has been derived from financial
statements of WorldCom as they appeared in WorldCom's Annual Reports on Form
10-K filed with the Commission for each of the five fiscal years in the period
ended December 31, 1996 and WorldCom's Quarterly Reports on Form 10-Q filed with
the Commission for the periods ending September 30, 1997 and September 30, 1996.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED AND AT DECEMBER 31, AND AT SEPTEMBER 30,
--------------------------------------------------------------- ------------------------
1996 1995 1994 1993 1992 1997 1996
----------- ---------- ---------- ---------- ---------- ----------- ----------
(THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
WORLDCOM -- HISTORICAL
Revenues............................ $ 4,485,130 $3,696,345 $2,245,663 $1,474,257 $ 948,060 $ 5,348,522 $3,251,026
Income (loss) from continuing
operations (after preferred
dividend requirement):
Total............................. (2,189,804) 233,080 (151,779) 112,638 6,232 220,889 (48,466)
Per common share:
Primary......................... (5.50) 0.64 (0.48) 0.41 0.03 0.25 (0.12)
Fully diluted................... (5.50) 0.64 (0.48) 0.40 0.03 0.25 (0.12)
Dividends per common share.......... -- -- -- -- -- -- --
Total assets........................ 19,861,977 6,656,629 3,441,474 3,236,718 1,241,278 20,813,368 6,854,966
Long-term debt...................... 4,803,581 3,391,598 794,001 730,023 448,496 5,348,638 3,276,641
Shareholders' investment............ 12,959,976 2,187,681 1,827,410 1,911,800 478,823 13,366,000 2,442,342
</TABLE>
- ---------------
(1) On December 31, 1996, WorldCom completed the MFS Merger. The MFS Merger was
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 was 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.
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 WorldCom'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 WorldCom Common Stock, exercised warrants to acquire WorldCom
Common Stock and immediately sold its position of 61,699,096 shares of
WorldCom Common Stock in a public offering. In connection with the
15
<PAGE> 30
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"), WorldCom 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,
WorldCom 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, WorldCom 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 under
WorldCom's previous credit facilities which were classified as a current
maturity on the December 31, 1995 balance sheet.
Selected Historical Financial Data of BFP. The selected historical
financial data of BFP set forth below has been derived from financial statements
of BFP for each of the three fiscal years in the period ended December 31, 1996
and BFP's Quarterly Reports on Form 10-Q filed with the Commission for the
periods ending September 30, 1997 and September 30, 1996. The BFP network data
set forth below has been derived from the operations records of BFP.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- ---------------------
1996 1995 1994 1997 1996
-------- -------- ------- ---------- --------
(THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
BFP -- HISTORICAL
Revenues................................ $ 45,574 $ 14,160 $ 2,809 $ 84,192 $ 28,147
Income (loss) from continuing
operations............................ (43,843) (9,551) (3,897) (95,469) (26,387)
Per common share:
Primary............................ (1.71) (0.49) -- (2.69) (1.10)
Fully diluted...................... (1.71) (0.49) -- (2.69) (1.10)
Dividends per common share.............. -- -- -- -- --
Current assets.......................... 470,162 63,099 20,096 274,293 346,656
Networks and equipment, net............. 290,341 50,042 20,720 607,677 210,874
Total assets............................ 879,581 146,610 71,325 1,167,255 637,350
Long term debt.......................... 552,810 43,977 29,403 796,080 314,440
Stockholders' equity(1)................. 291,834 93,455 36,699 325,825 290,759
</TABLE>
- ---------------
(1) Amount represents paid-in-capital less accumulated deficit.
16
<PAGE> 31
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
--------------------------------------- SEPTEMBER 30,
1996 1995 1994 1997
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
BFP NETWORK DATA:
Cities in operation........................... 23 11 5 34
Cities under construction..................... 7 10 6 10
On-net buildings connected.................... 883 216 62 1,667
Route miles................................... 1,059 262 107 2,177
Fiber miles................................... 71,292 17,111 6,437 180,179
VGE circuits(1)............................... 516,743 122,617 59,208 1,041,275
Switches installed............................ 20 1 -- 28
CLEC lines in service......................... 21,013 3,187(2) -- 80,019
Employees..................................... 789 165 89 1,605
</TABLE>
- ---------------
(1) Voice grade equivalent circuits.
(2) On a pro forma basis giving effect to the acquisition of City Signal, Inc.
on January 31, 1996.
Selected Historical Financial Data of MCI. The selected historical
financial data of MCI set forth below has been derived from the financial
statements of MCI as they appeared in MCI's Annual Reports on Form 10-K filed
with the Commission for each of the five fiscal years in the period ended
December 31, 1996 and MCI's Quarterly Reports on Form 10-Q filed with the
Commission for the periods ending September 30, 1997 and September 30, 1996.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED AND AT DECEMBER 31, AND AT SEPTEMBER 30,
------------------------------------------------------------------- -------------------------
1996 1995 1994 1993 1992 1997 1996
----------- ----------- ----------- ----------- ----------- ----------- -----------
(THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
MCI -- HISTORICAL
Revenues...................... $18,494,000 $15,265,000 $13,338,000 $11,921,000 $10,562,000 $14,545,000 $13,741,000
Income from continuing
operations (after preferred
dividend requirement):
Total....................... 1,202,000 548,000 794,000 626,000 589,000 393,000 899,000
Per common share:
Primary................... 1.73 0.80 1.32 1.12 1.11 0.56 1.29
Fully diluted............. 1.72 0.79 1.32 1.11 1.10 0.56 1.29
Dividends per common share.... 0.05 0.05 0.05 0.05 0.05 0.025 0.025
Total assets.................. 22,978,000 19,301,000 16,366,000 11,276,000 9,678,000 24,717,000 21,509,000
Long-term debt................ 4,798,000 3,444,000 2,997,000 2,366,000 3,432,000 3,282,000 3,722,000
Stockholders' equity.......... 10,661,000 9,602,000 9,004,000 4,713,000 3,150,000 11,321,000 10,329,000
</TABLE>
- ---------------
(1) In May 1996, MCI Capital I, a wholly-owned Delaware statutory business trust
("Trust"), issued $750 million aggregate principal amount of 8% Cumulative
Quarterly Income Preferred Securities, Series A ("preferred securities") due
June 30, 2026. The Trust exists for the sole purpose of issuing the
preferred securities and investing the proceeds in MCI's 8% Junior
Subordinated Deferrable Interest Debentures, Series A due June 30, 2026.
(2) In September and November 1995, MCI acquired all of the outstanding shares
of common stock of Nationwide Cellular Service, Inc. and SHL Systemhouse
Inc., respectively. These acquisitions were accounted for as purchases;
accordingly, the net assets and results of operations of the acquired
companies are included in the information above since their respective
acquisition dates.
(3) In 1994, BT completed the purchase of 136 million shares of MCI Class A
Common Stock for $4.3 billion, which resulted in a 20% voting interest in
MCI. This purchase was achieved by MCI's issuance of 108.5 million shares of
MCI Class A Common Stock to BT for $3.5 billion on September 30, 1994 and
BT's conversion on that date of 13,736 shares of MCI Series D convertible
preferred stock, purchased for $830 million in June 1993, into 27.5 million
shares of MCI Class A Common Stock. This investment is included in MCI's
stockholders' equity.
17
<PAGE> 32
SELECTED UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following selected unaudited pro forma financial information presents
the combined consolidated balance sheets and income statements of WorldCom and
MCI as if the MCI/WorldCom Merger had occurred for the periods indicated. The
MCI/WorldCom Merger will be treated as a purchase for financial accounting
purposes. This information should be read in conjunction with and is qualified
in its entirety by reference to the consolidated financial statements and
accompanying notes of WorldCom and MCI included in the documents described under
"Incorporation of Documents by Reference" and "MCI Information" and the
unaudited pro forma condensed combined financial statements and accompanying
discussion and notes set forth under "Pro Forma Financial Information." The pro
forma amounts in the table below are presented for informational purposes and
are not necessarily indicative of the financial position or the results of
operations of the combined company that would have actually occurred had the
MCI/WorldCom Merger been consummated as of the dates or for the periods
presented. The pro forma amounts are also not necessarily indicative of the
financial position or future results of operations of the combined company. No
adjustment has been included in the pro forma amounts for any anticipated cost
savings or other synergies. The Selected Pro Forma Financial Information also
does not reflect amounts with respect to the BFP Merger, the CompuServe Merger
or the AOL Transaction because they are not material to WorldCom. See "Pro Forma
Financial Information."
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED AND AT
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(IN MILLIONS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
MCI WORLDCOM PRO FORMA COMBINED
Revenues.................................................... $22,421 $19,614
Income (loss) from continuing operations (after preferred
dividend requirement):
Total..................................................... (1,663) 108
Per common share:
Primary................................................ (1.33) 0.06
Fully diluted.......................................... (1.33) 0.06
Dividends per common share.................................. -- --
Total assets................................................ 71,451
Long-term debt.............................................. 16,077
Shareholders' equity........................................ 44,177
</TABLE>
18
<PAGE> 33
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The following statements are or may constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 (the
"PSLRA"):
(i) certain statements, including possible or assumed future results of
operations of WorldCom, BFP, MCI, CompuServe and ANS, contained in "Risk
Factors," "Plan of Merger -- WorldCom's Reasons for the BFP Merger," "Plan of
Merger -- BFP's Reasons for the BFP Merger; BFP Board Recommendation," "Plan of
Merger -- Opinions of BFP's Financial Advisors," "Information Regarding
WorldCom -- Recent Developments -- The MCI/WorldCom Merger -- Effects of
MCI/WorldCom Merger; Estimated Synergies," and "Information Regarding
WorldCom -- Management and Principal Shareholders -- Information Regarding
Stephen M. Case," including any forecasts, projections and descriptions of
anticipated cost savings or other synergies referred to therein, and certain
statements incorporated by reference from documents filed with the Commission by
WorldCom, BFP and MCI, including any statements contained herein or therein
regarding the development of possible or assumed future results of operations of
WorldCom's, BFP's and MCI's businesses, the markets for WorldCom's, BFP's and
MCI's services and products, anticipated capital expenditures, regulatory
developments, competition or the effects of the BFP Merger, the MCI/WorldCom
Merger, the CompuServe Merger or the AOL Transaction;
(ii) any statements preceded by, followed by or that include the words
"believes," "expects," "anticipates," "intends" or similar expressions; and
(iii) other statements contained or incorporated by reference herein
regarding matters that are not historical facts.
Because such statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements; factors that could cause actual results to differ
materially include, but are not limited to, those discussed under "Risk
Factors." BFP stockholders are cautioned not to place undue reliance on such
statements, which speak only as of the date thereof.
All subsequent written and oral forward-looking statements attributable to
WorldCom or BFP or persons acting on its or their behalf are expressly qualified
in their entirety by the cautionary statements contained or referred to in this
section. Neither WorldCom nor BFP undertakes any obligation to release publicly
any revisions to such forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
RISK FACTORS
Holders of BFP Common Stock should consider carefully all of the
information contained in this Proxy Statement/Prospectus, including the
following factors:
RISKS RELATED TO THE BFP MERGER AND OTHER ACQUISITIONS
Uncertainties in Integrating the Acquired Companies and Achieving Cost Savings
WorldCom and BFP have entered into the BFP Merger Agreement, and WorldCom
has entered into the MCI/WorldCom Merger Agreement, the CompuServe Merger
Agreement and the AOL Agreement, in each case, with the expectation that the
transactions will result in certain benefits, including, without limitation,
cost savings, operating efficiencies, revenue enhancements and other synergies.
See "Plan of Merger -- WorldCom's Reasons for the BFP Merger," " -- BFP's
Reasons for the BFP Merger; BFP Board Recommendation" and "Information Regarding
WorldCom -- Recent Developments -- The MCI/WorldCom Merger -- Effects of the
MCI/WorldCom Merger; Estimated Synergies." Achieving the benefits of the BFP
Merger, as well as of the MCI/WorldCom Merger (which would be significantly
larger than previous acquisitions completed by WorldCom), the CompuServe Merger
and the AOL Transaction, will depend in part upon the integration of the
businesses of WorldCom and BFP, together with MCI, CompuServe and ANS, in an
efficient manner, and there can be no assurance that this will occur. The
consolidation of operations will require substantial attention from management.
The diversion of management attention and
19
<PAGE> 34
any difficulties encountered in the transition and integration processes could
have a material adverse effect on the revenues, levels of expenses and operating
results of the combined companies. There can be no assurance that the combined
companies will realize any of the anticipated benefits of the BFP Merger, the
MCI/ WorldCom Merger, the CompuServe Merger or the AOL Transaction. For a
discussion of other factors and assumptions related to the synergy estimates,
see "Information Regarding WorldCom -- Recent Developments -- The MCI/WorldCom
Merger -- Effects of the MCI/WorldCom Merger; Estimated Synergies."
Necessity of Receiving Governmental Approvals Prior to the MCI/WorldCom
Merger; Risks Associated with Failure to Obtain Approvals of Certain
Governmental Authorities
The consummation of the MCI/WorldCom Merger is conditioned upon the
expiration or termination of the applicable waiting period under the
Hart-Scott-Rodino Act and confirmation from the European Commission by way of a
decision under Council Regulation 4064/89 (the "Merger Control Regulation") that
the MCI/WorldCom Merger does not create or strengthen a dominant position as a
result of which competition would be significantly impeded in the common market.
In addition, other filings with, notifications to and authorizations and
approvals of, various governmental agencies, both domestic and foreign, with
respect to the transactions contemplated by the MCI/WorldCom Merger Agreement,
relating primarily to the FCC or PUCs, must be made and received prior to
consummation of the MCI/WorldCom Merger. There can be no assurance that such
authorizations, approvals or decisions will be granted, or, if granted will not
contain certain material conditions or restrictions, that an injunction will not
be issued before or after receipt of MCI and WorldCom shareholder approval by a
court of competent jurisdiction enjoining the consummation of the MCI/WorldCom
Merger or that a challenge to the MCI/WorldCom Merger on the grounds that it is
not compatible with the common market will not be made, or if a challenge is
made, what the result will be.
Consummation of the MCI/WorldCom Merger is subject to additional approvals
from certain governmental authorities. If such approvals have not been received
at such time as all other material conditions to the MCI/WorldCom Merger have
been satisfied or waived, MCI and WorldCom may nonetheless determine to
consummate the MCI/WorldCom Merger. Although MCI and WorldCom are seeking such
approvals, it is uncertain whether such approvals will be timely received from,
among others, every jurisdiction in which MCI and WorldCom are authorized to do
business. If MCI and WorldCom determine to consummate the MCI/ WorldCom Merger
without having received all such approvals, no assurance can be given that any
resulting loss of business would not have a material adverse effect on the
businesses, prospects, financial condition or results of operations of WorldCom
and MCI on a combined basis. See "Information Regarding WorldCom -- Recent
Developments -- The MCI/WorldCom Merger -- Certain Regulatory Filings and
Approvals."
The Effect of Stock Price Fluctuations on the Consideration to be Received by
the Holders of BFP Common Stock in the BFP Merger
The relative stock prices of the BFP Common Stock and the WorldCom Common
Stock on the date of the Special Meeting and at the Effective Time may vary
significantly from the prices as of the date of execution of the BFP Merger
Agreement or the date hereof. These variances may be due to changes in the
businesses, operations, results and prospects of BFP or WorldCom, as well as
MCI, CompuServe and ANS, market assessments of the likelihood that the BFP
Merger, the MCI/WorldCom Merger, the CompuServe Merger and the AOL Transaction
will be consummated and the timing thereof, the effect of any conditions or
restrictions imposed on or proposed with respect to any of the combined
companies by regulatory agencies in connection with or following consummation of
the BFP Merger, the MCI/WorldCom Merger, the CompuServe Merger or the AOL
Transaction, general market and economic conditions, and other factors. For
example, between September 30, 1997 and December 23, 1997, the closing sales
price of WorldCom Common Stock has ranged from a high of $39.88 to a low of
$28.50; the closing sales price of the BFP Common Stock during the same period
has ranged from a high of $62.75 to a low of $49.50. In addition, the stock
market generally has experienced significant price and volume fluctuations.
These market fluctuations could have a material adverse effect on the market
price or liquidity of WorldCom Common Stock. The BFP Exchange Ratio becomes
fixed if the WorldCom Average Trading Price is less than $31.35 or greater than
$35.15. If the WorldCom Average Trading Price is less than $31.35 or greater
than $35.15, holders of BFP Common Stock
20
<PAGE> 35
will receive for each share of BFP Common Stock held by them a number of shares
of WorldCom Common Stock that is likely to have an initial value that is less
than or greater than $58.00, as the case may be. The actual number of shares of
WorldCom Common Stock to be issued to the holders of BFP Common Stock pursuant
to the BFP Merger Agreement will not be determined until three trading days
prior to the Closing Date. Holders of BFP Common Stock may call toll free to
1-800-780-6378 at any time between January 5, 1998 and the date that the BFP
Merger is consummated to hear a tape recorded message stating what the WorldCom
Average Trading Price and the resultant BFP Exchange Ratio would be if the BFP
Merger were to be consummated on that day. Holders of BFP Common Stock may call
the same toll free number from the date the BFP Merger is consummated until ten
business days thereafter to hear a tape recorded message stating the actual
WorldCom Average Trading Price and BFP Exchange Ratio.
Interests of Certain Persons in the BFP Merger
In considering the recommendation of the BFP Merger by the BFP Board of
Directors, the stockholders of BFP should be aware that certain directors and
executive officers of BFP have certain interests in the BFP Merger, in addition
to those of the BFP stockholders generally. Such interests, together with other
relevant factors, were considered by the BFP Board when it considered and
approved the BFP Merger Agreement and determined to recommend its approval and
adoption by holders of BFP Common Stock. See "Plan of Merger -- Interests of
Certain Persons in the BFP Merger."
RISKS RELATING TO THE BUSINESSES AND OPERATIONS OF THE COMBINED COMPANIES
Debt Service, Interest Rate Fluctuations, Other Restrictive Covenants and
Capital Spending
In connection with the MCI/WorldCom Merger, WorldCom has agreed to pay BT
$51.00 in cash without interest for each share of MCI Class A Common Stock it
owns, or $6.94 billion in the aggregate. Additionally, WorldCom has paid BT fees
of $465 million. See "Information Regarding WorldCom -- Recent
Developments -- The MCI/WorldCom Merger." WorldCom expects to fund this
commitment through a combination of bank and bond financing and believes that
the indebtedness incurred in connection with WorldCom's proposed acquisitions
may have an effect on WorldCom's credit rating. Increases in interest rates on
the Company's debt would have an adverse effect upon WorldCom's reported net
income and cash flow. WorldCom believes that the combined operations of
WorldCom, MCI, CompuServe, ANS and BFP would generate sufficient cash flow to
service WorldCom's debt and capital requirements upon consummation of the
MCI/WorldCom Merger, the CompuServe Merger, the AOL Transaction and the BFP
Merger; however, economic downturns, increased interest rates and other adverse
developments, including factors beyond WorldCom's control, could impair its
ability to service its indebtedness. In addition, the cash flow required to
service WorldCom's debt may reduce its ability to fund internal growth,
additional acquisitions and capital improvements.
The development of the businesses of the combined companies (including MCI,
BFP, CompuServe and ANS) and the installation and expansion of their domestic
and international networks would continue to require significant capital
expenditures. Failure to have access to sufficient funds on acceptable terms or
the failure to achieve capital expenditure synergies may require the combined
companies to delay or abandon some of their plans, which could have a material
adverse effect on the success of the proposed mergers and the combined
companies.
Acquisition Integration
A major portion of WorldCom's growth 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 WorldCom's management, while WorldCom would continue
to incur operating expenses to provide the services formerly provided by the
acquired company. Financial risks involve the incurrence of indebtedness as a
result of 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, WorldCom
21
<PAGE> 36
attempts to minimize the risk of unexpected liabilities and contingencies
associated with acquired businesses through planning, investigation and
negotiation, but there can be no assurance that it will be successful in doing
so. Nor can there be any assurance that WorldCom will be successful in
identifying attractive acquisition candidates or completing additional
acquisitions on favorable terms.
Risks of International Business
WorldCom and MCI derive substantial revenues from 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, carrier alliances and currency fluctuations. In
particular, WorldCom's and MCI's revenues and costs of sales are sensitive to
changes in international settlement rates and international traffic routing
patterns. The rates that WorldCom and MCI can charge their 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 to
provide switched voice services, the provision of international services via
non-traditional means including the Internet, the consummation of mergers, joint
ventures and alliances 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
WorldCom and MCI derive substantial revenues from providing services to
customers in overseas locations, particularly the United Kingdom, Germany and
Mexico. 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 dispute arising
from foreign operations, WorldCom and MCI 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 and MCI may also be hindered or prevented from enforcing their 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 or MCI'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 the combined
companies.
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 the combined companies cannot be predicted.
The market for the data communications products and services of MCI, UUNET,
CompuServe and ANS, including Internet access and related products, is
characterized by rapidly changing technology, evolving industry standards,
emerging competition and frequent new product and service introductions. There
can be no assurance that the combined companies will successfully identify new
product and service opportunities and develop and bring new products and
services to market in a timely manner. The combined companies also will be at
risk from fundamental changes in the way data communications, including Internet
access, services are marketed and delivered. The combined companies' 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 wireless cable modems and satellite delivery of Internet
22
<PAGE> 37
information; alternative open protocol and proprietary protocol standards have
been or are being developed. WorldCom's pursuit of necessary technological
advances may require substantial time and expense, and there can be no assurance
that WorldCom will succeed in adapting its data communications services business
to alternate access devices, conduits and protocols.
Regulation Risks
WorldCom's and MCI's operating subsidiaries are subject to varying degrees
of federal, state, local and international regulation. In the United States,
WorldCom's and MCI's subsidiaries are most heavily regulated by the states,
especially for the provision of local exchange services. Each such subsidiary
must be separately certified in each state to offer local exchange and
intrastate long distance services. No state, however, subjects WorldCom or MCI
to price cap or rate of return regulation, nor is WorldCom or MCI currently
required to obtain FCC authorization for installation or operation of its
network facilities used for domestic services, other than licenses for specific
terrestrial microwave and satellite earth station facilities which utilize radio
frequency spectrum. FCC approval is required, however, for the installation and
operation of international facilities and services. WorldCom and MCI are also
subject to varying degrees of regulation in the foreign jurisdictions in which
they conduct business including authorization for the installation and operation
of 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 WorldCom.
On February 8, 1996, President Clinton signed the Telecommunications Act of
1996 (the "Telecom Act"), which permits the Bell Operating Companies (the
"BOCs") to provide domestic and international long distance services to
customers located outside of the BOC's home regions; permits a petitioning BOC
to provide domestic and international long distance service to customers within
its operating area on a state by state basis 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 were significant changes in: the manner in
which carrier-to-carrier arrangements are regulated at the federal and state
level; procedures to revise universal service standards; and penalties for
unauthorized switching of customers. The FCC has instituted and, in most
instances completed, proceedings addressing the implementation of this
legislation.
In implementing the Telecom Act, the FCC established nationwide rules
designed to encourage new entrants to participate in the local services markets
through interconnection with the ILECs, resale of ILECs' retail services, and
use of individual and combinations of unbundled network elements. These rules
set the groundwork for the statutory criteria governing BOC entry into the long
distance market. Appeals of the FCC order adopting those rules were consolidated
before the United States Court of Appeals for the Eighth Circuit (the "Eighth
Circuit"). The Eighth Circuit found constitutional challenges to certain
practices implementing cost provisions of the Telecom Act that were ordered by
certain state PUCs to be premature, but vacated significant portions of the
FCC's nationwide pricing rules, and vacated an FCC rule requiring that unbundled
network elements be provided on a combined basis. The Solicitor General, on
behalf of the FCC, and certain other parties, including WorldCom and MCI, sought
certiorari in the United States Supreme Court. Certain BOC's have also raised
constitutional challenges to restrictions in the Telecom Act preventing BOCs
from entering the long distance market in their home regions. WorldCom cannot
predict either the outcome of these or future challenges to the Telecom Act, any
related appeals of regulatory or court decisions, or the eventual effect on its
business or the industry in general.
The FCC has denied applications filed by Ameritech Corporation
("Ameritech") and SBC Corporation ("SBC") seeking authority to provide inter
local access transport area ("interLATA") long distance service in Michigan and
Oklahoma, respectively. SBC has appealed the FCC's denial of its application to
the Eighth Circuit. In its denial of an Ameritech application, the FCC provided
detailed guidance to applicants regarding the obligations of the applicants, the
format of future applications, the content of future applications, and the
review standards that it will apply in evaluating any future applications. The
National Association of
23
<PAGE> 38
Regulatory Utility Commissioners and several state regulatory commissions have
appealed jurisdictional aspects of that Ameritech application denial to the
Eighth Circuit. WorldCom cannot predict either the outcome of these appeals, or
the BOCs' willingness to abide by these FCC guidelines, or the timing or outcome
of future applications submitted to the FCC. Additionally, the FCC is presently
considering BellSouth Corporation ("BellSouth") applications for authority to
provide interLATA service in South Carolina and Louisiana. Other BOCs have
either filed or announced their intention to file applications at the FCC for
authority to provide interLATA services. WorldCom cannot predict the outcome of
these proceedings.
On May 7, 1997, the FCC announced that it will issue a series of orders
that will reform Universal Service Subsidy allocations and adopted various
reforms to the existing rate structure for interstate access services provided
by the ILECs that are designed to reduce access charges, over time, to more
economically efficient levels and rate structures. It also affirmed that
information service providers (including, among others, ISPs) should not be
subject to existing access charges ("ISP Exemption"). Petitions for
reconsideration of, among other things, the access service and ISP Exemption
related actions were filed before the FCC and appeals taken to various United
States Courts of Appeals. On reconsideration, the FCC in significant part
affirmed the access charge and ISP Exemption actions, and the court appeals have
been consolidated before the Eighth Circuit. Also, several state agencies have
started proceedings to address the reallocation of implicit subsidies contained
in access rates and retail service rates to state universal service funds.
Access charges are a principal component of the combined companies' line cost
expense. Additionally, modification of the ISP Exemption could have an adverse
effect on the combined companies' Internet-related services business. WorldCom
cannot predict either the outcome of these appeals or whether or not the
result(s) will have a material impact upon its consolidated financial position
or results of operations.
The FCC issued on December 24, 1996 a Notice of Inquiry to seek comment on
whether it should consider various actions relating to interstate information
services and the Internet. The FCC recognized that these services and recent
technological advances may be constrained by current regulatory practices that
have their foundations in traditional circuit switched telecommunications
services and technologies. Based upon this and other proceedings, the FCC may
permit telecommunications companies, BOCs or others to increase the scope or
reduce the cost of their Internet access services. WorldCom cannot predict the
effect that the Notice of Inquiry, the Telecom Act or any future legislation,
regulation or regulatory changes may have on its consolidated financial position
or results of operations.
In December 1996, the FCC adopted a new policy that makes 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. In June 1997, in order to comply
with United States commitments to the WTO Agreement, the FCC proposed to
implement new rules that would liberalize existing policies regarding (i) the
services that may be provided by foreign affiliated United States international
common carriers, including carriers owned in part 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. The FCC voted on November 25, 1997 to adopt
these new rules.
In August 1997, the FCC adopted mandatory settlement rate benchmarks. These
benchmarks will reduce the rates that U.S. carriers pay foreign carriers, and
that foreign carriers pay United States carriers, to terminate traffic in their
home countries. The FCC will also prohibit a United States carrier affiliated
with a foreign carrier from providing facilities-based service to the foreign
carrier's home market until and unless the foreign carrier has implemented a
settlement rate within the benchmark. The FCC also adopted new rules that will
liberalize the provision of switched services over private lines, by allowing
such services on routes where 50% or more of United States billed traffic is
being terminated in the foreign country at or below the applicable settlement
rate benchmark.
24
<PAGE> 39
Although the FCC's new policies and implementation of the WTO Agreement may
result in lower costs to the combined companies, including MCI, to terminate
international traffic, there is a risk that the revenues that the combined
companies, including MCI, receive 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 the combined companies, which may continue to face substantial
obstacles in obtaining from foreign governments and foreign carriers the
authority and facilities to provide such end-to-end services. Further, many
foreign carriers have challenged, in court and at the FCC, the FCC's order
adopting mandatory settlement rate benchmarks. If the FCC's settlement rate
benchmark order were to be overturned, it would accelerate the full-fledged
entry of foreign carriers into the United States and make it far easier for
foreign carriers to route international traffic into the United States at low,
cost-based termination rates, while United States carriers would continue to
have little choice but to route international traffic into most foreign
countries at much higher, above cost, settlement rates.
Competition
Virtually every aspect of the telecommunications industry is extremely
competitive, and WorldCom expects that competition will intensify in the future.
The combined companies (including MCI, BFP, CompuServe and ANS) face significant
competition from carriers and other companies with greater market share and
financial resources. The combined companies compete domestically with incumbent
providers, which have historically dominated local telecommunications, and with
long distance carriers, for the provision of long distance services. Sometimes
the incumbent provider offers both local and long distance services. The ILECs
presently have numerous advantages as a result of their historic monopoly
control over local exchanges. A continuing trend toward business combinations
and alliances in the telecommunications industry may create significant new
competitors to the combined companies. Many of the combined companies' existing
and potential competitors have financial, personnel and other resources
significantly greater than those of the combined companies. The subsidiaries of
the combined companies also face competition from one or more competitors in
most markets in which it operates, including CLECs operating fiber optic
networks, in some cases in conjunction with the local cable television operator.
AT&T Corp. ("AT&T") and Sprint Corporation ("Sprint") have indicated their
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, subsidiaries of the combined companies
compete with equipment vendors and installers and telecommunications management
companies with respect to certain portions of their businesses.
Overseas, subsidiaries of the combined companies compete 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
dominated their local, domestic long distance and international services
business. These incumbent providers have numerous advantages, including existing
facilities, customer loyalty and substantial financial resources. The combined
companies also compete with other service providers, many of which are
affiliated with incumbent providers in other countries. Typically, the combined
companies must devote extensive resources to obtaining regulatory approvals
necessary to operate overseas, and then to obtaining access to interconnection
with the incumbent's network on a non-discriminatory basis.
The combined companies 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 WorldCom, are now widely used for long distance
transmission, it is possible that the desirability of such networks could be
adversely affected by changing technology. The telecommunications industry is in
a period of rapid technological evolution, marked by the introduction of new
product and service offerings and increasing satellite and fiber optic
transmission capacity for services similar to those provided by subsidiaries of
the combined companies. WorldCom cannot predict which of many possible future
product and service offerings will be important to maintain its competitive
position or what expenditures will be required to develop and provide such
products and services.
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, in part, the
25
<PAGE> 40
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 source local and long distance service similar
to that being offered by the combined companies. WorldCom 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 combined companies will also compete in offering data communications
services, including Internet access and related services. This is also an
extremely competitive business. WorldCom expects that competition will continue
to intensify in the future. WorldCom believes that the ability of the combined
companies to compete successfully in this arena depends on a number of factors,
including: industry 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 combined companies and their competitors; the combined
companies' ability to support industry standards; and industry and general
economic trends. The success of the combined companies will depend heavily upon
the combined companies' ability to provide high quality data communication
services, including Internet connectivity and value-added Internet services, at
competitive prices.
Major telecommunications companies have expanded their current services to
compete fully in offering data communication services, including Internet
services, and WorldCom expects additional telecommunications companies to
continue to compete in this arena. WorldCom believes that new competitors,
including large computer hardware, software, media and other technology and
telecommunications companies, will also offer data communications services,
resulting in even greater competition for the combined companies. Certain
companies, including AT&T, GTE Corporation ("GTE"), Intermedia Communications,
Inc., Teleport Communications Group ("Teleport") 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 the
combined companies' competitors to devote greater resources to the development
and marketing of new competitive products and services and the marketing of
existing competitive products and services. WorldCom expects these acquisitions
and strategic investments to increase, thus creating significant new competitors
to the combined companies.
As the combined companies continue to expand data communications operations
outside of the United States, the combined companies will be forced to compete
with and buy services from incumbent providers, many of which are
government-owned and/or still have special regulatory status and the exclusive
rights to provide certain essential services. The combined companies will also
encounter competition from companies whose operating styles are substantially
different from those that they usually encounter. For example, in Europe,
WorldCom's subsidiaries compete directly with: (1) telecommunications companies,
such as BT, Deutsche Telecom and others; (2) other Internet access providers,
such as Demon Internet Limited and EUnet GB Limited; and (3) on-line services
providers, such as AT&T. Foreign competitors may also possess a better
understanding of their local markets and may have better working relationships
with, or control of, local telecommunications companies. There can be no
assurance that the combined companies can obtain similar levels of local
knowledge, and failure to obtain that knowledge could place the combined
companies at a serious competitive disadvantage.
Anti-Takeover Provisions
The WorldCom Articles contain provisions (a) requiring a 70% vote for
approval of certain business combinations with certain 10% shareholders unless
approved by a majority of the continuing members of the WorldCom Board of
Directors or unless certain minimum price, procedural and other requirements are
met; (b) restricting aggregate beneficial ownership of the capital stock of
WorldCom by foreign shareholders to 20% of the total outstanding capital stock,
and subjecting excess shares to redemption; and (c) authorizing 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 entered into the Rights
Agreement between WorldCom and The Bank of New York, as Rights Agent, dated as
of August 25, 1996, as amended (the "WorldCom Rights
26
<PAGE> 41
Agreement"), 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 Agreement, may have an "anti-takeover" effect. See "Description of
WorldCom Capital Stock" and "Comparative Rights of Shareholders."
PLAN OF MERGER
The following is a summary of the material terms and conditions of the BFP
Merger Agreement, a copy of which is attached as Appendix I to this Proxy
Statement/Prospectus and incorporated herein by reference. The information
regarding the BFP Merger Agreement in this Proxy Statement/Prospectus does not
purport to be complete and is qualified in its entirety by reference to the full
text of the BFP Merger Agreement.
GENERAL DESCRIPTION OF THE BFP MERGER
Pursuant to the BFP Merger Agreement, at the Effective Time, WorldCom will
acquire BFP through the merger of Acquisition Subsidiary with and into BFP. If
the BFP Merger Agreement is approved and adopted by the stockholders of BFP, and
if the other conditions to the BFP Merger are satisfied or waived, the BFP
Merger will become effective upon the filing by the Surviving Corporation with
the Secretary of State of the State of Delaware of a duly executed Certificate
of Merger or at such later time as may be specified in the Certificate of
Merger. It is anticipated that the BFP Merger will be consummated on January 29,
1998, if approved at the Special Meeting, provided that the other conditions to
the BFP Merger are then fulfilled or waived.
At the Effective Time, each share of BFP Common Stock will be converted
into the right to receive a number of shares of WorldCom Common Stock equal to
the BFP Exchange Ratio provided for in the BFP Merger Agreement. The BFP
Exchange Ratio of 1.65 to 1 will allow holders of BFP Common Stock to share in
any increase in the WorldCom Average Trading Price above $35.15. In addition,
the BFP Merger Agreement provides BFP's stockholders with certain protections in
the event the WorldCom Average Trading Price is below $35.15 per share but is
equal to or above $31.35 per share. If the WorldCom Average Trading Price is
equal to or above $31.35 per share but less than $35.15 per share, the BFP
Exchange Ratio will equal a fraction (rounded to the nearest hundred thousandth)
determined by dividing $58.00 by the WorldCom Average Trading Price. If the
WorldCom Average Trading Price is less than $31.35 per share, the BFP Exchange
Ratio will be 1.85 shares of WorldCom Common Stock for each share of BFP Common
Stock. The BFP Exchange Ratio will not be increased above 1.85 if the WorldCom
Average Trading Price is below $31.35 and the terms of the BFP Merger Agreement
do not permit BFP to terminate in the event the WorldCom Average Trading Price
is below $31.35 per share. The BFP Exchange Ratio will be adjusted appropriately
in the event of a stock split, stock dividend or recapitalization of the
WorldCom Common Stock or the BFP Common Stock prior to the closing of the BFP
Merger. No fractional shares of WorldCom Common Stock will be issued in the BFP
Merger; instead, BFP stockholders who would otherwise be entitled to fractional
shares of WorldCom Common Stock will receive cash in lieu thereof. See
"-- Fractional Shares." Any shares of BFP Common Stock held in the treasury of
BFP or by a wholly-owned subsidiary of BFP will be canceled as of the Effective
Time, and no payment will be made with respect thereto.
Holders of BFP Common Stock may call toll free to 1-800-780-6378 at any
time between January 5, 1998 and the date that the BFP Merger is consummated to
hear a tape recorded message stating what the WorldCom Average Trading Price and
the resultant BFP Exchange Ratio would be if the BFP Merger were to be
consummated on that day. Holders of BFP Common Stock may call the same toll free
number from the date the BFP Merger is consummated until ten business days
thereafter to hear a tape recorded message stating the actual WorldCom Average
Trading Price and BFP Exchange Ratio.
The following table illustrates the number of shares of WorldCom Common
Stock issuable in the BFP Merger (assuming 39,229,867 shares of BFP Common Stock
outstanding, including an estimated 73,000 shares that will be issuable
immediately prior to the Effective Time under BFP's 1996 Employee Stock
27
<PAGE> 42
Purchase Plan) and the corresponding per share value of the BFP Merger
Consideration at various assumed WorldCom Average Trading Prices:
<TABLE>
<CAPTION>
AGGREGATE
WORLDCOM WORLDCOM VALUE PER SHARE OF
AVERAGE TRADING BFP COMMON STOCK BFP
PRICE EXCHANGE RATIO ISSUABLE COMMON STOCK
- --------------- -------------- ------------ ------------------
<S> <C> <C> <C> <C>
$40.00..................................... 1.6500 64,729,280 $66.00
$39.00..................................... 1.6500 64,729,280 $64.35
$38.00..................................... 1.6500 64,729,280 $62.70
$37.00..................................... 1.6500 64,729,280 $61.05
$36.00..................................... 1.6500 64,729,280 $59.40
$35.15..................................... 1.6500 64,729,280 $58.00
- ---------------------------------------------------------------------------------------------------
$35.00..................................... 1.6571 65,007,812 $58.00
$34.00..................................... 1.7059 66,922,230 $58.00
$33.00..................................... 1.7576 68,950,414 $58.00
$32.00..................................... 1.8125 71,104,133 $58.00
- ---------------------------------------------------------------------------------------------------
$31.35..................................... 1.8500 72,575,253 $58.00
$31.00..................................... 1.8500 72,575,253 $57.35
$30.00..................................... 1.8500 72,575,253 $55.50
$29.00..................................... 1.8500 72,575,253 $53.65
$28.00..................................... 1.8500 72,575,253 $51.80
</TABLE>
At the Effective Time, each of the then outstanding and unexercised BFP
Options and BFP Warrants will be converted into WorldCom Options and WorldCom
Warrants, respectively, exercisable for shares of WorldCom Common Stock having
the same terms and conditions as the BFP Options and BFP Warrants, respectively,
including such terms and conditions as may be incorporated by reference into the
agreements evidencing the BFP Options and BFP Warrants, and taking into account
the provisions in the BFP Merger Agreement regarding change in control (see
"-- Interests of Certain Persons in the BFP Merger"), except that the exercise
price and the number of shares issuable upon exercise will be divided and
multiplied, respectively, by the BFP Exchange Ratio. Based on the number of BFP
Options and BFP Warrants outstanding on December 23, 1997 and the 1.65 to 1.85
range of the BFP Exchange Ratio, such BFP Options and BFP Warrants would have
been converted into WorldCom Options and WorldCom Warrants to acquire between
4,634,777 and 5,196,569 shares, respectively, of WorldCom Common Stock. See
"Plan of Merger -- Terms and Conditions of the Proposed BFP Merger -- BFP
Options and Warrants."
Based on the number of outstanding shares of BFP Common Stock (as of
December 22, 1997), CompuServe Common Stock (as of December 15, 1997) and MCI
Common Stock as of October 31, 1997 (without adjustment for stock options,
warrants, rights or convertible securities) and assuming completion by WorldCom
of the BFP Merger, the CompuServe Merger and the MCI/WorldCom Merger (see
"Information Regarding WorldCom -- Recent Developments"), the number of
outstanding shares of WorldCom Common Stock would increase from 909,044,560
shares outstanding on December 15, 1997 to between 1,715,059,496 shares and
2,022,680,634 shares, respectively, and the number of shares of WorldCom Common
Stock issuable upon exercise of WorldCom options, rights and warrants would
increase from 80,849,248 shares to between 185,934,659 shares and 228,006,125
shares, respectively. A total of 94,992 shares of WorldCom Series A Preferred
Stock and 12,427,866 shares of WorldCom Series B Preferred Stock were also
outstanding as of December 15, 1997, which were convertible into 32,703,276 and
1,210,364 shares, respectively, of WorldCom Common Stock. Based on the number of
outstanding shares of BFP Common Stock (as of December 22, 1997), CompuServe
Common Stock (as of December 15, 1997), MCI Common Stock (as of October 31,
1997) and WorldCom Common Stock (as of December 15, 1997) (without adjustment
for stock options, rights or warrants) and assuming a BFP Exchange Ratio of
1.85, a CompuServe Exchange Ratio of 0.5, and an MCI Exchange Ratio of 1.7586,
BFP stockholders would hold approximately (a) 7.1%, (b) 6.8% and (c) 3.5% of the
outstanding WorldCom Common Stock after completion of (a) the BFP Merger, (b)
the BFP Merger and the CompuServe Merger, and (c) the BFP Merger, the CompuServe
28
<PAGE> 43
Merger and the MCI/WorldCom Merger, respectively, assuming no exercise of
WorldCom options, rights or warrants, but assuming the conversion of WorldCom
convertible securities. Actual exchange ratios may vary as described herein.
Following the Effective Time, each holder of BFP Common Stock will be
required to surrender the certificates which theretofore represented shares of
BFP Common Stock to the Exchange Agent, together with a duly completed and
executed transmittal letter to be provided by the Exchange Agent. The shares of
WorldCom Common Stock to be issued pursuant to the BFP Merger will be freely
transferable except by certain stockholders of BFP who are deemed to be
"affiliates" of BFP. The shares of WorldCom Common Stock issued to such
affiliates will be restricted in their transferability in accordance with rules
and regulations promulgated by the Commission. See "-- Status Under Federal
Securities Laws." Until so surrendered and exchanged, each outstanding
certificate representing BFP Common Stock after the Effective Time will be
deemed for all purposes to evidence the right to receive that number of whole
shares of WorldCom Common Stock into which the shares of BFP Common Stock have
been converted pursuant to the BFP Merger Agreement, plus cash in lieu of any
fractional share of WorldCom Common Stock. See "-- Surrender of Stock
Certificates and Receipt of BFP Merger Consideration" and "-- Fractional
Shares."
BFP STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A
TRANSMITTAL LETTER FROM THE EXCHANGE AGENT.
BACKGROUND OF THE BFP MERGER
Mr. Bernard J. Ebbers, President and Chief Executive Officer of WorldCom,
contacted Mr. James C. Allen, Vice Chairman and Chief Executive Officer of BFP,
in early July 1997, to initiate discussions regarding a possible strategic
combination of the two companies.
At a special meeting of the Finance Committee of the Board of Directors of
BFP on July 16, 1997, at which all of the members thereof were present, together
with Mr. Robert A. Brooks, Chairman of the Board of BFP, the directors of BFP
that were present considered various strategic issues. The BFP Finance Committee
recommended the selection of Salomon Brothers as financial advisor to BFP in
connection with any possible transaction with WorldCom, and on July 23, 1997,
BFP retained Salomon Brothers to act as its financial advisor, subject to the
approval of the Board of Directors of BFP.
With the approval of the BFP Finance Committee, Mr. Allen attended an
initial meeting with Mr. Ebbers in Destin, Florida on July 23, 1997 at which Mr.
Ebbers expressed an interest in exploring a strategic combination with BFP and
asked Mr. Allen to request the BFP Board of Directors to suggest a fair price at
which the BFP Board of Directors would be willing to recommend a combination.
The BFP Board of Directors met to consider Mr. Ebbers' request on July 28,
1997. At this meeting, the Board approved the retention of Salomon Brothers as
BFP's financial advisor and Bryan Cave LLP as BFP's outside legal counsel in
connection with any possible transaction with WorldCom, and presentations were
given to the BFP Board by management and said financial advisor and legal
counsel. Representatives of Salomon Brothers presented and discussed analyses of
the relative trading prices of the WorldCom Common Stock and the BFP Common
Stock and comparable company valuation statistics. Salomon Brothers recommended
that the BFP Board not specify a price to WorldCom but rather suggest a fixed
exchange ratio. The Salomon Brothers representatives suggested a recommended
range of possible exchange ratios as well as various terms and conditions to be
considered for any potential merger agreement. It was the consensus of the BFP
Board that Mr. Allen be authorized to suggest to Mr. Ebbers that the BFP Board
would be willing to consider a fixed exchange ratio of 2 to 1 (equivalent to
$65.38 per share of BFP Common Stock based on the closing price of the WorldCom
Common Stock on July 25, 1997, the last trading day before the meeting).
On July 30, 1997, the parties then entered into an agreement pursuant to
which, among other things, the parties agreed to make certain information
available to each other on a confidential basis. Mr. Allen then met with Mr.
Ebbers at WorldCom's offices in Jackson, Mississippi. At that meeting, Mr.
Ebbers rejected the suggested 2 to 1 fixed exchange ratio and stated he had
expected a ratio in the range of 1.3 to 1.5 to 1 (equivalent to $43.63 to $50.34
per share of BFP Common Stock based on the closing price of WorldCom Common
Stock on July 28, 1997). Given the wide differences of opinion on valuation, Mr.
Allen indicated to Mr. Ebbers that he believed the parties had nothing further
to discuss.
29
<PAGE> 44
Mr. Ebbers subsequently called Mr. Allen and indicated that WorldCom might
be able to justify a more favorable valuation if BFP would agree to make certain
information about BFP's operations and prospects available to WorldCom under the
confidentiality agreement referenced above to enable WorldCom to refine its own
analyses.
During the month of August, there were a series of meetings between
representatives of WorldCom and Salomon Brothers at which various matters
relevant to a possible transaction were discussed. On September 2, 1997,
representatives of BFP and Salomon Brothers met with representatives of WorldCom
to discuss such matters further.
On September 10, 1997, representatives of WorldCom indicated to
representatives of Salomon Brothers that WorldCom was considering a fixed
exchange ratio in the range of 1.6 to 1.7 to 1 (equivalent to $57.10 to $60.67
per share of BFP Common Stock based on the closing price of WorldCom Common
Stock on September 9, 1997). On September 11, 1997, representatives of WorldCom
and BFP discussed a fixed exchange ratio of 1.65 to 1 (equivalent to $59.30
based on the closing price of WorldCom Common Stock on September 10, 1997, or a
premium of 61.4% above the closing price of BFP Common Stock on September 10,
1997).
The BFP Board of Directors met on September 11, 1997 to consider the 1.65
to 1 exchange ratio. At this meeting, representatives of Salomon Brothers
discussed analyses of the premium being considered by WorldCom and historical
trading data of the stock of both companies. Following a detailed discussion of
the WorldCom proposal, the BFP Board authorized its management to proceed with
reciprocal due diligence reviews with WorldCom and with the negotiation of the
terms of a definitive merger agreement, subject to approval by the Board of
Directors of BFP.
Concurrently with the due diligence process, representatives of WorldCom
and BFP exchanged drafts of the BFP Merger Agreement on September 15, 1997,
September 18, 1997 and September 19, 1997. On September 18, 1997, Mr. Ebbers and
Mr. Scott D. Sullivan, Chief Financial Officer of WorldCom, met with Mr. Allen
and Mr. David L. Solomon, Executive Vice President and Chief Financial Officer
of BFP, in St. Louis, Missouri to inform Mr. Allen and Mr. Solomon that WorldCom
was contemplating a significant transaction and that, as a result, WorldCom's
due diligence of BFP and the negotiation of a definitive agreement with BFP
would progress more slowly than originally anticipated. Mr. Allen speculated
that WorldCom might be considering a transaction with MCI. On September 19,
1997, Messrs. Ebbers and Allen met in Jackson, Mississippi and agreed that they
would endeavor to conclude the negotiations on the BFP Merger in order that the
BFP Merger might be announced concurrently with an announcement of such other
transaction.
Due to the uncertainties regarding the effect on the price of the WorldCom
Common Stock of the other contemplated transaction, Mr. Ebbers agreed to
increase BFP's fixed exchange ratio to up to 1.85 to 1 in the event of a decline
in the WorldCom Common Stock price below $31.35 per share. On September 23,
1997, representatives of WorldCom delivered a revised draft of the BFP Merger
Agreement to representatives of BFP which the parties discussed at meetings on
September 25 and September 26, 1997.
In connection with the negotiation and approval of the BFP Merger
Agreement, Mr. Ebbers indicated his expectation that the WorldCom Board of
Directors would consider the nomination of an individual designated by the BFP
Board of Directors (who is expected to be Mr. Allen), for election as a director
of WorldCom following the Effective Time.
On September 30, 1997, the BFP Board of Directors held a special meeting in
New York City. At this meeting, which began at 9:00 a.m., Salomon Brothers
presented and discussed additional information regarding the BFP Merger terms,
as well as information regarding the CompuServe Merger, the AOL Transaction and
the MCI Offer. Additional presentations were given by management and a
representative of Bryan Cave LLP, including a detailed review of the proposed
BFP Merger terms. Representatives of Salomon Brothers and Bryan Cave LLP advised
the BFP Board of Directors that their firms were advising WorldCom in connection
with the MCI Offer, and the BFP Board consented to such firms' representation of
WorldCom in connection with such matter. All of the members of the BFP Board of
Directors were present at this meeting, except Mr. Glen F. Post, III (who was
absent for family reasons). Salomon Brothers delivered its written
30
<PAGE> 45
opinion to the BFP Board of Directors, dated September 30, 1997, that the BFP
Exchange Ratio was fair to the holders of BFP Common Stock from a financial
point of view. There was a full and complete discussion of the BFP Merger
proposal during which the directors asked numerous questions which were
responded to by the representatives of management and BFP's financial and legal
advisors. Following the presentations and discussions described above, the BFP
Board adjourned in the early afternoon to give the directors additional time to
review the materials distributed at the meeting and to deliberate on the BFP
Merger proposal. Later that day, the meeting was reconvened, and the directors
continued their discussions into the evening and additional questions were posed
to and answered by representatives of BFP's management and financial and legal
advisors. In view of the fact that Salomon Brothers was advising WorldCom in
connection with the MCI Offer and was advising H&R Block in connection with the
CompuServe Merger, and in view of the uncertain impact of those proposals on the
trading price of the WorldCom Common Stock, BFP's management recommended and the
BFP Board approved the retention of a second financial advisor to the BFP Board
to evaluate the fairness of the BFP Exchange Ratio to holders of the BFP Common
Stock, from a financial point of view, as of the time of the mailing of this
Proxy Statement/Prospectus. See "-- Opinions of BFP's Financial Advisors." After
such discussions, the directors who were present unanimously concluded that the
BFP Merger was fair to and in the best interests of BFP and its stockholders and
unanimously approved the BFP Merger Agreement and related actions and authorized
officers of BFP to execute the BFP Merger Agreement.
Following adjournment of the BFP Board meeting, WorldCom and BFP executed
the BFP Merger Agreement, and WorldCom and BFP each issued a press release prior
to the opening of trading on The Nasdaq National Market on October 1, 1997
announcing the BFP Merger, and WorldCom concurrently issued its announcement of
the MCI Offer.
WORLDCOM'S REASONS FOR THE BFP MERGER
On September 29, 1997, the WorldCom Board of Directors held a meeting to
consider the BFP Merger Agreement and by a unanimous vote approved the
delegation of authority to approve the definitive terms of the BFP Merger
Agreement to a committee of the Board of Directors of WorldCom (the
"Committee"). The Committee approved the BFP Merger Agreement by unanimous
action taken on September 30, 1997. In reaching their decisions, the Board of
Directors of WorldCom and the Committee consulted with WorldCom's management
team and independently considered a variety of factors and the businesses and
operations of BFP. The Board of Directors of WorldCom and the Committee
concluded that the BFP Merger is in the best interests of WorldCom and its
shareholders because the BFP Merger would (i) expand the number of all fiber
optic local networks operated in the U.S. by WorldCom from 52 to 86, (ii)
advance WorldCom's entrance into more secondary U.S. cities by as much as two
years, (iii) enhance WorldCom's ability to provide end-to-end long distance,
local and Internet service over a global network, (iv) increase WorldCom's
revenue growth rate, as BFP's anticipated growth rate for the next few years is
expected to be in excess of WorldCom's stand alone rate, and (v) add a
significant number of employees with skills in sales and technical
telecommunications services. There can be no assurance, however, that any of the
potential synergies or opportunities considered by the WorldCom Board of
Directors and the Committee will be achieved through consummation of the BFP
Merger. See "Cautionary Statement Regarding Forward-Looking Statements" and
"Risk Factors."
BFP'S REASONS FOR THE BFP MERGER; BFP BOARD RECOMMENDATION
In reaching its decision to approve the BFP Merger Agreement, the Board of
Directors of BFP consulted with its management team and advisors and carefully
considered a variety of factors, including the businesses and operations of BFP
and WorldCom. After consideration of such factors, the Board of Directors of BFP
concluded that the BFP Merger is fair to and in the best interests of BFP and
its stockholders. The principal factors considered by the BFP Board of Directors
are listed below:
(1) The BFP Exchange Ratio represents a significant premium over
$46.69, which was the closing price of BFP Common Stock on September 30,
1997, the last trading day before the announcement of the execution of the
BFP Merger Agreement. The exchange rate pricing mechanism allows BFP
stockholders
31
<PAGE> 46
to share in any increase in the WorldCom Average Trading Price above
$35.15. Furthermore, the BFP Merger Agreement contains provisions designed
to protect the value of the consideration to be received by BFP
stockholders. Specifically, under certain circumstances associated with a
decline in the price of WorldCom Common Stock, the BFP Exchange Ratio
formula contained in the BFP Merger Agreement would result in an increase
in the number of shares of WorldCom Common Stock payable per share of BFP
Common Stock, up to a maximum BFP Exchange Ratio of 1.85 shares of WorldCom
Common Stock for each share of BFP Common Stock in the event the WorldCom
Average Trading Price is equal to or below $31.35 per share.
(2) The premium to be received by BFP stockholders, if valued at
$58.00 per share, compares favorably to comparable company and transaction
valuations.
(3) The BFP Board reviewed the businesses, operations, earnings and
financial condition and competitive position of both BFP and WorldCom, on
both an historical and a prospective basis. The BFP Board of Directors also
considered the prospects and strategic direction of the BFP and WorldCom
businesses, and the significant additional capital requirements for, and
risks inherent in, the successful implementation of the long range business
plans of both companies.
(4) The BFP Board of Directors believes that a combination with
WorldCom could create significant potential synergies and cost savings for
the combined company and create a stronger competitor in the changing
telecommunications industry.
(5) The BFP Board of Directors believes that the BFP Merger will allow
BFP's stockholders the opportunity through their ownership of WorldCom
Common Stock to realize potential future equity appreciation based on the
favorable prospects for the combined company.
(6) Salomon Brothers delivered to the BFP Board of Directors, its
opinion dated as of September 30, 1997 to the effect that, on and as of the
date of such opinion, based upon the assumptions made, general procedures
followed, matters considered and limits on the review undertaken as set
forth in such opinion, the BFP Exchange Ratio is fair to the holders of BFP
Common Stock from a financial point of view. See "-- Opinions of BFP's
Financial Advisors -- Salomon Brothers" and Appendix II to this Proxy
Statement/Prospectus. The BFP Board of Directors also considered the
presentation made by Salomon Brothers to the BFP Board of Directors on
September 30, 1997.
(7) The condition in the BFP Merger Agreement that another nationally
recognized investment banking firm also render such an opinion at the time
of the mailing of this Proxy Statement/Prospectus. See "-- Opinions of
BFP's Financial Advisors -- Merrill Lynch" and Appendix III to this Proxy
Statement/Prospectus.
(8) The BFP Merger is expected to be treated as a tax-free
reorganization to BFP's stockholders and to BFP, and is expected to be
accounted for as a pooling of interests transaction (which avoids reduction
in future earnings that would result from the creation and amortization of
goodwill under purchase accounting).
(9) The terms and conditions of the BFP Merger Agreement and the
likelihood that the conditions to the BFP Merger will be satisfied.
(10) The willingness of BFP's management to support the BFP Merger.
(11) The potential impact on WorldCom of the CompuServe Merger, the
AOL Transaction and the MCI Offer, including the fact that announcement of
the MCI Offer might result in fluctuations in the price of the WorldCom
Common Stock.
There can be no assurance, however, that any of the potential synergies or
opportunities considered by the BFP Board of Directors will be achieved through
consummation of the BFP Merger. See "Cautionary Statement Regarding
Forward-Looking Statements" and "Risk Factors."
32
<PAGE> 47
In view of the variety of factors considered in connection with its
evaluation of the BFP Merger, the Board of Directors of BFP did not find it
practicable to and did not quantify or otherwise assign relative weights to the
specific factors considered in reaching its determination.
The BFP Board of Directors believes that the BFP Merger is fair to and in
the best interests of BFP and its stockholders. FOR THE REASONS DISCUSSED ABOVE,
THE BFP BOARD OF DIRECTORS HAS APPROVED THE BFP MERGER AGREEMENT BY A UNANIMOUS
VOTE OF THE DIRECTORS AND UNANIMOUSLY RECOMMENDS THAT BFP'S STOCKHOLDERS VOTE TO
APPROVE AND ADOPT THE BFP MERGER AGREEMENT.
OPINIONS OF BFP'S FINANCIAL ADVISORS
Salomon Brothers and Merrill Lynch have each acted as financial advisors to
BFP in connection with the BFP Merger. Salomon Brothers delivered its written
opinion dated September 30, 1997 at the September 30, 1997 special meeting of
the BFP Board of Directors, and Merrill Lynch delivered its written opinion
dated December 22, 1997 in connection with the printing and mailing of this
Proxy Statement/Prospectus. Both opinions are to the effect that, on and as of
the dates of such opinions, based upon the assumptions made, general procedures
followed, matters considered and limits on the review undertaken as set forth in
such opinions, the BFP Exchange Ratio is fair to the holders of the BFP Common
Stock from a financial point of view. No limitations were imposed by the BFP
Board of Directors upon either Salomon Brothers or Merrill Lynch with respect to
the investigations made or the procedures followed by them in rendering their
respective opinions.
THE FULL TEXT OF THE WRITTEN OPINIONS OF SALOMON BROTHERS DATED SEPTEMBER
30, 1997 AND MERRILL LYNCH DATED DECEMBER 22, 1997, WHICH SET FORTH THE
PROCEDURES FOLLOWED, ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON THE
REVIEW UNDERTAKEN, ARE ATTACHED AS APPENDICES II AND III, RESPECTIVELY, TO THIS
PROXY STATEMENT/PROSPECTUS AND ARE INCORPORATED HEREIN BY REFERENCE. BFP
STOCKHOLDERS ARE URGED TO READ EACH OF SUCH OPINIONS CAREFULLY AND IN ITS
ENTIRETY. SUCH OPINIONS ARE DIRECTED ONLY TO THE FAIRNESS OF THE BFP EXCHANGE
RATIO FROM A FINANCIAL POINT OF VIEW, HAVE BEEN PROVIDED TO THE BFP BOARD OF
DIRECTORS IN CONNECTION WITH ITS EVALUATION OF THE BFP MERGER AND DO NOT
CONSTITUTE A RECOMMENDATION CONCERNING HOW HOLDERS OF BFP COMMON STOCK SHOULD
VOTE WITH RESPECT TO THE BFP MERGER AGREEMENT. REFERENCES TO AND THE SUMMARY OF
EACH OF SUCH OPINIONS SET FORTH IN THIS PROXY STATEMENT/PROSPECTUS ARE QUALIFIED
IN THEIR ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINIONS. IT IS A
CONDITION TO THE PARTIES' OBLIGATIONS TO EFFECT THE BFP MERGER THAT NEITHER OF
SUCH OPINIONS OF SALOMON BROTHERS AND MERRILL LYNCH SHALL HAVE BEEN WITHDRAWN AT
OR PRIOR TO THE EFFECTIVE TIME (SEE "-- TERMS AND CONDITIONS OF THE PROPOSED BFP
MERGER --MUTUAL CONDITIONS").
The forecasts and projections furnished to Salomon Brothers and Merrill
Lynch for each of WorldCom and BFP and estimates of synergies and potential cost
savings resulting from the BFP Merger were prepared by the respective
managements of each company. As a matter of policy, neither WorldCom nor BFP
publicly discloses internal management forecasts, projections or estimates of
the type furnished to Salomon Brothers and Merrill Lynch in connection with
their analyses of the BFP Merger terms, and such forecasts, projections and
estimates were not prepared with a view towards public disclosure. These
forecasts, projections and estimates were based on numerous variables and
assumptions which are inherently uncertain and which may not be within the
control of the management of either WorldCom or BFP, including, without
limitation, factors related to the integration of WorldCom and BFP and general
economic, regulatory and competitive conditions. Accordingly, actual results
could vary materially from those set forth in such forecasts, projections and
estimates. See "Cautionary Statement Regarding Forward-Looking Statements" and
"Risk Factors."
Salomon Brothers. In connection with rendering its opinion, Salomon
Brothers reviewed certain publicly available information concerning BFP and
WorldCom and certain other financial information concerning BFP and WorldCom,
including financial forecasts, that were provided to Salomon Brothers by BFP and
WorldCom, respectively. Salomon Brothers discussed the past and current business
operations, financial condition and prospects of BFP and WorldCom with certain
officers and employees of BFP and WorldCom, respectively. In addition, Salomon
Brothers reviewed information provided to it by WorldCom regarding certain
companies that WorldCom is currently contemplating acquiring and the expected
effect on WorldCom
33
<PAGE> 48
of such acquisitions, if consummated. Salomon Brothers also considered such
other information, financial studies, analyses, investigations and financial,
economic and market criteria that it deemed relevant.
In its review and analysis and in arriving at its opinion, Salomon Brothers
assumed and relied on the accuracy and completeness of the information reviewed
by it for the purposes of its opinion and Salomon Brothers did not assume any
responsibility for independent verification of such information. With respect to
the financial forecasts of WorldCom and BFP, Salomon Brothers assumed that they
had been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the respective managements of WorldCom or BFP, and
Salomon Brothers expressed no opinion with respect to such forecasts or the
assumptions on which they were based. Salomon Brothers also assumed that the
announced transactions among WorldCom, CompuServe and AOL will be consummated on
substantially the same terms as announced. Salomon Brothers did not assume any
responsibility for any independent evaluation or appraisal of any of the assets
(including properties and facilities) or liabilities of BFP or WorldCom. Salomon
Brothers was not asked to, and did not, solicit other proposals to acquire BFP.
Salomon Brothers' opinion was necessarily based upon conditions as they
existed on the date of such opinion and can be evaluated only as of such date.
Salomon Brothers' opinion did not imply any conclusion as to the likely trading
range for the WorldCom Common Stock following the consummation of the BFP
Merger, which may vary depending upon, among other factors, tactics chosen by
WorldCom in connection with proposed acquisitions, changes in interest rates,
dividend rates, market conditions, general economic conditions and other factors
that generally influence the price of securities. Salomon Brothers' opinion did
not address BFP's underlying business decision to effect the BFP Merger and
related transactions. Salomon Brothers' opinion was directed only to the
fairness, from a financial point of view, of the BFP Exchange Ratio to holders
of BFP Common Stock and did not constitute a recommendation concerning how
holders of BFP Common Stock should vote with respect to the BFP Merger Agreement
or the BFP Merger.
The following is a summary of the material analyses presented and discussed
by Salomon Brothers with the BFP Board of Directors at its special meeting on
September 30, 1997 (the "Salomon Brothers Report") in connection with the
delivery of Salomon Brothers' fairness opinion.
Comparable Public Company Analyses. Salomon Brothers reviewed and compared
the financial and market performance of the following group of seven publicly
traded CLECs with those of BFP: IntelCom Group (U.S.A.), Inc., Intermedia
Communications of Florida, Inc. ("Intermedia") and Teleport (the "Best BFP
Comparables") and American Communications Services Incorporated ("ACSI"), GST
Telecommunications, Inc. ("GST"), McLeod, Inc. ("McLeod") and NEXTLINK
Incorporated ("NEXTLINK") (the "Other BFP Comparables" and, together with the
Best BFP Comparables, the "BFP Comparable Group"). For BFP and each company in
the BFP Comparable Group, Salomon Brothers calculated multiples of firm value
(calculated as debt value plus equity value less cash) ("Firm Value") to last
quarter annualized revenue ("LQA Revenue"), and to net property plant and
equipment ("Net PP&E"). These analyses yielded the following multiple ranges for
the BFP Comparable Group and multiples for BFP: Firm Value to LQA Revenue (5.7x
to 29.2x, with a median of 6.2x for the Best BFP Comparables and 12.7x for the
Other BFP Comparables, compared to a BFP multiple of 19.1x) and Firm Value to
Net PP&E (2.9x to 14.1x, with a median of 3.9x for the Best BFP Comparables and
5.8x for the Other BFP Comparables, compared to a BFP multiple of 4.3x). Salomon
Brothers also computed ratios of Firm Value to each of route miles, buildings
connected, fiber miles and voice grade equivalent circuits for the BFP
Comparable Group and compared them to similar ratios for BFP. These analyses
resulted in an equity value reference range per share of BFP Common Stock of
$26.79 to $66.72.
Salomon Brothers performed similar analyses with respect to WorldCom.
Salomon Brothers reviewed and compared the financial and market performance of
the following group of five publicly traded long distance companies with those
of WorldCom: AT&T, MCI and Sprint (the "First Tier Comparables") and Frontier
Corporation ("Frontier") and LCI International, Inc. ("LCI") (the "Second Tier
Comparables" and, together with the First Tier Comparables, the "WorldCom
Comparable Group"). For WorldCom and each company in the WorldCom Comparable
Group, Salomon Brothers calculated the ratio of price-earnings multiples to
estimated 5-year earnings per share growth rate and the ratio of current stock
market price to estimated 1997 earnings and estimated 1998 earnings. Estimated
figures were based on published research
34
<PAGE> 49
reports of certain analysts covering the WorldCom Comparable Group. These
analyses yielded the following multiple and percentage ranges for the WorldCom
Comparable Group and multiples and percentages for WorldCom: estimated ratio of
price-earnings multiples to 5-year earnings per share growth rate (for 1997,
1.0x to 2.5x, with a mean of 2.3x for the First Tier Comparables and 1.3x for
the Second Tier Comparables, compared to 3.2x for WorldCom; for 1998, 0.8x to
2.4x, with a mean of 2.2x for the First Tier Comparables and 1.0x for the Second
Tier Comparables, compared to 1.4x for WorldCom); ratio of current stock market
price to estimated 1997 earnings (17.6x to 26.4x, with a mean of 21.5x for the
First Tier Comparables and 22.9x for the Second Tier Comparables, compared to
95.6x for WorldCom); and ratio of current stock market price to estimated 1998
earnings (16.5x to 26.9x, with a mean of 21.3x for the First Tier Comparables
and 17.9x for the Second Tier Comparables, compared to 42.7x for WorldCom).
Salomon Brothers also calculated the Equity Value for the long distance
businesses of the companies in the WorldCom Comparable Group.
Discounted Cash Flow Analyses. Using a discounted cash flow ("DCF")
analysis, Salomon Brothers calculated the present value of the estimated
unlevered free cash flows of BFP (on a stand-alone basis, without giving effect
to any operating or other efficiencies arising from the BFP Merger) from 1998
through 2005 based on forecasts developed by BFP's management through 2005.
Salomon Brothers determined certain equity market value reference ranges for BFP
based upon the sum of (i) the discounted value (using various discount rates
ranging from 13% to 15%) of the estimated unlevered free cash flows of BFP, plus
(ii) the discounted value (using various discount rates ranging from 13% to 15%)
of the product of (a) estimated EBITDA for 2005 and (b) various terminal value
multiples (ranging from 7.5x to 9.5x). These analyses resulted in an equity
value reference range per share of BFP Common Stock of $50.00 to $72.00.
Salomon Brothers also performed a similar DCF analysis with respect to
WorldCom. Salomon Brothers calculated the present value of the estimated
unlevered free cash flows of WorldCom (on a stand-alone basis including the
impact of the CompuServe Merger and the AOL Transaction but without giving
effect to any operating or other efficiencies arising from the BFP Merger and
without giving effect to the MCI Offer) from 1998 through 2002 based on
forecasts developed by WorldCom's management through 2002. Salomon Brothers
determined certain equity market value reference ranges for WorldCom based upon
the sum of (i) the discounted value (using various discount rates ranging from
11% to 13%) of the estimated unlevered free cash flows of WorldCom, plus (ii)
the discounted value (using various discount rates ranging from 11% to 13%) of
the product of (a) estimated EBITDA for 2002 and (b) various terminal value
multiples (ranging from 7.0x to 9.0x). These analyses resulted in an equity
value reference range per share of WorldCom Common Stock of $40.00 to $54.00.
Precedent Transaction Analysis. Salomon Brothers reviewed the consideration
paid in two other acquisitions of CLECs. Specifically, Salomon Brothers reviewed
the acquisitions of Metro Access Networks, Inc. by BFP (announced March 31,
1997) and MFS by WorldCom (announced August 26, 1996; does not include the
acquisition of UUNET). The analysis considered the multiple of Firm Value to LQA
Revenue and Net PP&E, resulting in a median multiple of Firm Value to LQA
Revenue of 16.2x and Net PP&E of 5.4x. This analysis resulted in an implied
share price range for BFP Common Stock of $56.96 per share.
Neither of the transactions used in the precedent transaction analysis
summarized above is identical to the BFP Merger. Accordingly, any such analysis
of the value of the BFP Merger involves complex considerations and judgments
concerning differences in the potential financial and operating characteristics
and other factors in relation to the trading and acquisition value of the
publicly announced transactions.
Exchange Ratio Analyses. Salomon Brothers reviewed and analyzed the
historical ratio of the daily closing prices of BFP Common Stock to WorldCom
Common Stock during the period from January 2, 1997 through September 26, 1997.
The exchange ratios of the daily closing price of one share of BFP Common Stock
to one share of WorldCom Common Stock ranged from a low of 0.70 to a high of
1.20, with an average ratio of 0.96, over the period analyzed, as compared to
the BFP Exchange Ratio of 1.65 to 1.85 shares of WorldCom Common Stock to each
share of BFP Common Stock in the BFP Merger.
Other Factors and Analyses. In the Salomon Brothers Report, Salomon
Brothers also (i) reviewed the historical and projected (including projected pro
forma) financial results of WorldCom, (ii) reviewed the historical trading
prices and volumes for the WorldCom Common Stock and the BFP Common Stock, and
the performance of the WorldCom Common Stock and the BFP Common Stock relative
to companies in the
35
<PAGE> 50
BFP Comparable Group and the WorldCom Comparable Group, respectively, and (iii)
analyzed the relevant implied WorldCom and BFP trading multiples at various
prices of each.
In arriving at its fairness opinion and in preparing the Salomon Brothers
Report, Salomon Brothers performed a variety of financial analyses, the material
portions of which are summarized above. The summary set forth above does not
purport to be a complete description of the analyses performed by Salomon
Brothers or of Salomon Brothers' presentation to the BFP Board of Directors. In
addition, Salomon Brothers believes that its analyses must be considered as a
whole and that selecting portions of such analyses and the factors considered by
it, without considering all such analyses and factors, could create an
incomplete view of the process underlying its analyses set forth in its fairness
opinion and the Salomon Brothers Report. The preparation of a fairness opinion
is a complex process and is not necessarily susceptible to partial analysis or
summary description. With regard to the comparable public company analyses
summarized above, Salomon Brothers selected comparable public companies on the
basis of various factors, including the size of the public company and
similarity of the line of business; however, no public company utilized as a
comparison is identical to BFP or WorldCom. Accordingly, an analysis of the
foregoing is not mathematical; rather, it involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the comparable companies and other factors that could affect the acquisition or
public trading value of the comparable companies to which BFP and WorldCom were
compared.
In performing its analyses, Salomon Brothers made numerous assumptions with
respect to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
BFP or WorldCom. Any estimates contained in such analyses are not necessarily
indicative of actual past or future results or values, which may be
significantly more or less than such estimates. Actual values will depend upon
several factors, including events affecting the local, long distance and
Internet industries, general economic, market and interest rate conditions and
other factors which generally influence the prices of securities. Estimated
values do not purport to be appraisals and do not necessarily reflect the prices
at which businesses or companies may trade or be sold in the future.
Salomon Brothers is an internationally recognized investment banking firm
and regularly engages, among other things, in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. The BFP Board of Directors selected Salomon Brothers to act as its
financial advisor on the basis of Salomon Brothers' international reputation and
Salomon Brothers' familiarity with WorldCom, BFP and the local, long distance
and Internet industries. In the ordinary course of its business, Salomon
Brothers actively trades the debt and equity securities of WorldCom and BFP for
Salomon Brothers' own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
Salomon Brothers has previously rendered investment banking and financial
advisory services to WorldCom for which it has received customary compensation.
Salomon Brothers is also advising WorldCom in connection with the MCI/WorldCom
Merger and H&R Block in connection with the CompuServe Merger for which it
expects to receive customary compensation.
Salomon Brothers has acted as financial advisor to BFP in connection with
the BFP Merger and will receive a fee for its services. Pursuant to a letter
agreement dated July 23, 1997, as amended, between BFP and Salomon Brothers, BFP
has paid Salomon Brothers total fees of $1,000,000 in connection with the BFP
Merger. BFP has also agreed to pay Salomon Brothers an additional fee of
$6,000,000, contingent upon consummation of the BFP Merger. BFP has agreed to
reimburse Salomon Brothers for its reasonable fees and disbursements of counsel
and its reasonable travel and other expenses incurred in connection with its
engagement, and to indemnify Salomon Brothers and its affiliates, their
respective directors, officers, agents and employees and each person, if any,
controlling Salomon Brothers or any of its affiliates against certain
liabilities, including liabilities under the Federal securities laws, relating
to, or arising out of, its engagement.
As noted under the caption "-- BFP's Reasons for the BFP Merger; BFP Board
Recommendation" above, the fairness opinion of Salomon Brothers was only one of
many factors considered by the BFP Board of Directors in determining to approve
the BFP Merger Agreement
36
<PAGE> 51
Merrill Lynch. In arriving at its opinion, Merrill Lynch, among other
things, (i) reviewed certain publicly available business and financial
information relating to BFP, WorldCom and MCI as well as the MCI/WorldCom Merger
that it deemed to be relevant; (ii) reviewed certain information, including
financial forecasts, relating to the businesses, earnings, cash flow, assets,
liabilities and prospects of BFP furnished to Merrill Lynch by BFP as well as
the amount and timing of cost savings and related expenses and synergies
expected to result from the BFP Merger (the "Expected Synergies") furnished to
Merrill Lynch by WorldCom; (iii) conducted discussions with members of senior
management of BFP and WorldCom concerning the matters described in clauses (i)
and (ii) above, as well as BFP's businesses and prospects before and after
giving effect to the BFP Merger and the Expected Synergies; (iv) reviewed the
market prices and valuation multiples for the BFP Common Stock and the WorldCom
Common Stock and compared them with those of certain publicly traded companies
that Merrill Lynch deemed to be relevant; (v) reviewed the results of operations
of BFP and WorldCom and compared them with those of certain publicly traded
companies that Merrill Lynch deemed to be relevant; (vi) compared the proposed
financial terms of the BFP Merger with the financial terms of certain other
transactions that Merrill Lynch deemed to be relevant; (vii) reviewed the
potential pro forma impact of the BFP Merger and the MCI/WorldCom Merger; and
(viii) reviewed the BFP Merger Agreement.
In preparing its opinion, Merrill Lynch assumed and relied on the accuracy
and completeness of all information supplied or otherwise made available to it,
discussed with or reviewed by or for it, or publicly available, and Merrill
Lynch did not assume any responsibility for independently verifying such
information or undertake an independent evaluation or appraisal of any of the
assets or liabilities of BFP, WorldCom or MCI. In addition, Merrill Lynch did
not assume any obligation to conduct, nor has it conducted, any physical
inspection of the properties or facilities of BFP, WorldCom or MCI. Merrill
Lynch also assumed, with BFP's permission, that WorldCom does not own any BFP
Common Stock. With respect to the financial forecast information furnished to or
discussed with it by BFP, Merrill Lynch assumed that it has been reasonably
prepared and reflects the best currently available estimates and judgment of
BFP's management as to the expected future financial performance of BFP. Merrill
Lynch has further assumed that the BFP Merger will be accounted for as a pooling
of interests under generally accepted accounting principles and that it will
qualify as a tax-free reorganization for U.S. federal income tax purposes.
Merrill Lynch's opinion is necessarily based upon market, economic and
other conditions as they existed and could be evaluated on, and on the
information made available to Merrill Lynch as of, its date. Merrill Lynch
assumed that in the course of obtaining the necessary regulatory or other
consents or approvals (contractual or otherwise) for the BFP Merger, no
restriction, including any divestiture requirements or amendments or
modifications, will be imposed that will have an adverse effect on the
contemplated benefits of the BFP Merger.
In connection with the preparation of its opinion, Merrill Lynch was not
authorized by BFP or the BFP Board of Directors to solicit, nor has it
solicited, third-party indications of interest for the acquisition of all or any
part of BFP.
The following is a summary of the material financial and comparative
analyses performed by Merrill Lynch, which were presented and discussed with the
BFP Board of Directors at its regular meeting on December 16, 1997, in arriving
at its opinion delivered to BFP on December 22, 1997.
Trading Range Analysis. Merrill Lynch reviewed the per share daily closing
market price movement of BFP Common Stock for the period beginning May 3, 1996
(the date of BFP's initial public offering) and ending December 8, 1997. Merrill
Lynch noted that the trading range for the BFP Common Stock in the nine months
preceding the announcement of the BFP Merger and in the period since BFP's
initial public offering ranged from approximately $15.88 to $46.88 per share.
Merrill Lynch discussed the relationship of the implied offer premium based on a
price of $58.00 to various historical daily and weekly pre-announcement closing
price averages for the BFP Common Stock.
Comparable Public Market Analysis. Merrill Lynch compared the ratios of
market capitalization (market value of equity and debt and redeemable preferred
stock less cash and cash equivalents) to gross property, plant and equipment
("Gross PP&E"), estimated 1998 revenues, route miles and access lines as of
37
<PAGE> 52
December 8, 1997 for BFP (4.5x, 8.6x, 1,354x and $36,834, respectively) to
similar ratios for certain CLECs (American Communications Services Incorporated
("ACSI"), Electric Lightwave, Inc., GST Telecommunications, Inc. ("GST"),
IntelCom Group (U.S.A.), Inc. ("ICG"), Intermedia Communications of Florida,
Inc. ("Intermedia"), McLeod, Inc. ("McLeod") and NEXTLINK Incorporated
("NEXTLINK")). The Gross PP&E ratios for these CLECs ranged from 2.6x to 3.9x
(mean 3.3x), the estimated 1998 revenue ratios from 3.7x to 12.8x (mean 7.2x),
the route mile ratios from 522x to 1,404x (mean 857x) and the access line ratios
from $11,083 to $53,669 (mean $31,164).
Utilizing this methodology, Merrill Lynch determined that the Gross PP&E
multiples were the most relevant and, applying the high and low comparable
multiples, derived an estimated public market range of $29 to $49 per share of
BFP Common Stock.
Comparable Private Market Transactions Analysis. Using publicly available
information, Merrill Lynch reviewed three recent transactions involving the
acquisition of CLEC companies (the "Comparable Acquisitions"), in each case to
derive estimates of per share valuations for the BFP Common Stock. The
Comparable Acquisitions (and announcement date for each such transaction) were
WorldCom/MFS (August 1996) (which did not include the value of UUNET),
Teleport/Eastern Telelogic Corporation (October 1996) and BFP/Metro Access
Networks (March 1997).
With respect to each of the Comparable Acquisitions, Merrill Lynch compared
the transaction value as a multiple of the Gross PP&E and latest quarter
revenues annualized ("Run Rate Revenue") of each acquired company. For the
Comparable Acquisitions, the minimum and maximum multiple ranges were 2.7x to
6.4x for the Gross PP&E and 11.4x to 23.9x for the Run Rate Revenue. Utilizing
this methodology, Merrill Lynch derived estimated per share valuations for the
BFP Common Stock ranging from approximately $30 to $88 per share. Merrill Lynch
noted that it believed that these transactions were of limited relevance given
the lack of direct comparability to the BFP Merger.
Discounted Cash Flow Analysis. Merrill Lynch performed a DCF analysis for
BFP using management projections for the years 1998 through 2005 (the "Upside
Case"). The DCF was calculated assuming discount rates ranging from 14% to 16%
and was comprised of the sum of the net present value of (i) the projected
unlevered free cash flow for the years 1998 through 2005 and (ii) the year 2005
terminal value, based upon a range of multiples of 7x to 9x projected EBITDA.
Merrill Lynch also performed a DCF analysis for BFP using management
projections, as adjusted by Merrill Lynch to reflect margin and penetration
projections which were more consistent with published analyst estimates (the
"Base Case"), utilizing the same discount rates and terminal year value
multiples of EBITDA. Utilizing this methodology, Merrill Lynch derived estimated
per share valuations for the BFP Common Stock ranging from approximately $33 to
$54 per share for the Base Case and $44 to $69 for the Upside Case.
Analyst Target Price Analysis. Reviewing selected research analyst reports
published prior to the BFP Merger announcement date, Merrill Lynch also noted
the minimum, mean and maximum target prices of BFP Common Stock of $36, $44 and
$49, respectively, and private market value estimates of $39, $52 and $58,
respectively.
Review of WorldCom. Merrill Lynch also reviewed WorldCom's market
capitalization (both "standalone" (pro forma for the CompuServe Merger and the
AOL Transaction) and pro forma for the MCI/ WorldCom Merger) as a multiple of
estimated WorldCom 1998 and 1999 earnings per share and EBITDA, as well as stock
price trading history of WorldCom Common Stock for the last three years. Merrill
Lynch compared WorldCom's stock price history to BFP's and to a group of CLEC
companies (ACSI, GST, ICG, Intermedia, McLeod, NEXTLINK and Teleport) and to two
groups of long distance carriers (AT&T, MCI and Sprint and ACC Corp., EXCEL
Communications Inc. Holding Co. ("Excel"), Frontier, LCI, MidCom Communications,
Inc., USLD Communications Corp. ("USLD"), Telco Communications Group, Inc.
("Telco") and Tel-Save Holdings, Inc. ("Tel-Save")) and reviewed recent analyst
research reports and target prices with respect to WorldCom.
Merrill Lynch reviewed revenues, EBITDA, net income and earnings per share
estimates for WorldCom (both (i) pre-MCI and pro forma for BFP and CompuServe
and (ii) pro forma for BFP, CompuServe and
38
<PAGE> 53
MCI). Merrill Lynch compared estimated ratios of 1998 estimated price/earnings
to total return (calculated based on estimated five year compound annual growth
rates plus dividend yield) for WorldCom to those for the "IXC First Tier" (AT&T,
MCI and Sprint) and "IXC Second Tier" (Excel, Frontier, LCI, Pacific Gateway
Exchange Inc., Teleglobe Inc., Tel-Save and USLD), the Regional Bell Operating
Companies/GTE (Ameritech, Bell Atlantic Corporation, BellSouth, GTE, SBC and
U S West Communications Group) and the Independent Telcos (Aliant Communications
Co., ALLTEL Corporation, Century Communications Corp., Cincinnati Bell Inc. and
Southern New England Telecom).
Pro Forma Merger Analysis. Merrill Lynch compared the estimated earnings
per share ("EPS") and net income growth from 1998 through 2002 for
WorldCom/CompuServe both before and after the BFP Merger. This analysis
indicated that the BFP Merger was dilutive to the EPS of WorldCom/CompuServe in
each year, both with and without the synergies of the BFP Merger, within a range
of 10.3% to 3.3% and 6.4% to 0.6%, respectively. Merrill Lynch also reviewed the
impact of the acquisition of MCI on WorldCom/CompuServe assuming the acquisition
of BFP (assuming the synergies of the BFP Merger) ("WorldCom/CompuServe/ BFP").
This analysis indicated that the MCI/WorldCom Merger was dilutive to
WorldCom/CompuServe/ BFP pro forma EPS without the synergies of the MCI/WorldCom
Merger within a range of 32.7% to 30.0%, but was accretive to the
WorldCom/CompuServe/BFP pro forma EPS with the synergies of the MCI/ WorldCom
Merger within a range of 7.0% to 18.5%. This analysis also indicated that the
estimated net income growth rate for WorldCom increased with the MCI/WorldCom
Merger, both with and without the MCI synergies.
The summary set forth above does not purport to be a complete description
of the analyses performed by Merrill Lynch, although it is a summary of the
material financial and comparative analyses performed by Merrill Lynch in
arriving at its opinion. Arriving at a fairness opinion is a complex process not
necessarily susceptible to partial analysis or summary description. Merrill
Lynch believes that its analyses must be considered as a whole and that
selecting portions of its analyses and of the factors considered by it, without
considering all such factors and analyses, could create a misleading view of the
processes underlying its opinion. Merrill Lynch did not assign relative weights
to any of its analyses in preparing its opinion. The matters considered by
Merrill Lynch in its analyses were based on numerous macroeconomic, operating
and financial assumptions with respect to industry performance, general business
and economic conditions and other matters, many of which are beyond BFP's
control and involve the application of complex methodologies and educated
judgment. Any estimates incorporated in the analyses performed by Merrill Lynch
are not necessarily indicative of actual past or future results or values, which
may be significantly more or less favorable than such estimates. Estimated
values do not purport to be appraisals and do not necessarily reflect the prices
at which businesses or companies may be sold in the future, and such estimates
are inherently subject to uncertainty. No public company utilized as a
comparison is identical to BFP, and none of the Comparable Acquisitions or other
business combinations utilized is identical to the proposed BFP Merger.
Accordingly, an analysis of publicly traded comparable companies and comparable
business combinations is not mathematical; rather it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the comparable companies and other factors that could affect
the public trading value of the comparable companies or company to which they
are being compared.
Pursuant to a letter agreement dated November 3, 1997, BFP agreed to pay
Merrill Lynch a fee of $2 million, which became payable upon the delivery of the
Merrill Lynch opinion. In addition, BFP has agreed to reimburse Merrill Lynch
for its reasonable expenses (including the reasonable fees and disbursements of
its legal counsel) and to indemnify Merrill Lynch and certain related parties
from and against certain liabilities, including liabilities under the federal
securities laws, arising out of its engagement.
In May 1997, Merrill Lynch acted as co-manager in the issuance by BFP of
Senior Notes. Merrill Lynch has provided financing services to MCI in the past
and has received fees for rendering such services.
39
<PAGE> 54
MANAGEMENT AND OPERATIONS AFTER THE BFP MERGER
After the BFP Merger, WorldCom is expected to continue to operate BFP's
current business as a subsidiary of WorldCom. In connection with the negotiation
and approval of the BFP Merger Agreement, Mr. Ebbers indicated his expectation
that WorldCom's Board of Directors would consider the nomination of an
individual designated by the BFP Board of Directors (who is expected to be Mr.
Allen, Vice Chairman and Chief Executive Officer of BFP), for election as a
director of WorldCom following the Effective Time. See "Information Regarding
WorldCom -- Management and Principal Shareholders -- Information Regarding James
C. Allen."
TERMS AND CONDITIONS OF THE PROPOSED BFP MERGER
Set forth below is a description of the material terms and conditions of
the BFP Merger Agreement, which description does not purport to be complete and
is qualified in its entirety by reference to the BFP Merger Agreement, a copy of
which is attached hereto as Appendix I and incorporated herein by reference.
Unless otherwise indicated, references under this caption to sections are
references to sections in the BFP Merger Agreement. Capitalized terms appearing
below that are not otherwise defined herein have the same meanings as are given
to such terms in the BFP Merger Agreement. Whenever particular sections or
defined terms are referred to, it is intended that such sections or defined
terms shall be incorporated herein by reference.
BFP Merger Consideration. As of the Effective Time, each share of BFP
Common Stock will be converted into the right to receive that number of shares
of WorldCom Common Stock equal to the BFP Exchange Ratio, plus cash in lieu of
any fractional share. The BFP Exchange Ratio will be determined as follows: (i)
if the WorldCom Average Trading Price is equal to or greater than $35.15, the
BFP Exchange Ratio will equal 1.65; (ii) if the WorldCom Average Trading Price
is equal to or above $31.35 but less than $35.15, the BFP Exchange Ratio will
equal a fraction (rounded to the nearest hundred-thousandth) determined by
dividing $58.00 by the WorldCom Average Trading Price; and (iii) if the WorldCom
Average Trading Price is less than $31.35, the BFP Exchange Ratio will equal
1.85. The BFP Exchange Ratio will not be increased above 1.85 if the WorldCom
Average Trading Price is below $31.35 and the terms of the BFP Merger Agreement
do not permit BFP to terminate in the event the WorldCom Average Trading Price
is below $31.35 per share. The BFP Exchange Ratio is subject to appropriate
adjustment in the event of a stock split, stock dividend or recapitalization
after the date of the BFP Merger Agreement applicable to shares of the WorldCom
Common Stock or the BFP Common Stock. (Section 1.3)
No fractional shares of WorldCom Common Stock will be issued pursuant to
the BFP Merger nor will any fractional share interest involved entitle the
holder thereof to vote, to receive dividends or to exercise any other rights of
a shareholder of WorldCom. In lieu thereof, any person who would otherwise be
entitled to a fractional share of WorldCom Common Stock pursuant to the
provisions of the BFP Merger Agreement will receive an amount in cash equal to
the value of such fractional share. The value of such fractional share will be
the product of such fraction multiplied by the WorldCom Average Trading Price.
(Section 1.3)
BFP Options and Warrants. At the Effective Time, WorldCom will cause each
holder of a then-outstanding and unexercised BFP Option or BFP Warrant to
receive, by virtue of the BFP Merger and without any action on the part of the
holder thereof, a WorldCom Option or a WorldCom Warrant, respectively, having
the same terms and conditions as the BFP Option or BFP Warrant, respectively,
including such terms and conditions as may be incorporated by reference into the
agreements evidencing the BFP Options and BFP Warrants and taking into account
the provisions in the BFP Merger Agreement regarding change in control (see
"-- Employee Benefit Plan Matters" below), except that the exercise price and
the number of shares issuable upon exercise shall be divided and multiplied,
respectively, by the BFP Exchange Ratio, with the resulting number of shares and
exercise price being rounded down to the nearest whole share and up to the
nearest cent. WorldCom has agreed to take all corporate action necessary to
reserve for issuance a sufficient number of shares of WorldCom Common Stock for
delivery upon the exercise of BFP Options and BFP Warrants after the Effective
Time. WorldCom has agreed to file or cause to be filed, immediately after the
Effective Time, all registration statements on Form S-8 or other appropriate
form as may be necessary in
40
<PAGE> 55
connection with the purchase and sale of WorldCom Common Stock contemplated by
such WorldCom Options and WorldCom Warrants subsequent to the Effective Time,
and WorldCom has agreed to maintain the effectiveness of such registration
statements for so long as any of the WorldCom Options and WorldCom Warrants
registered thereunder remain outstanding. (Section 1.6)
Mutual Conditions. The respective obligations of WorldCom, Acquisition
Subsidiary and BFP to effect the BFP Merger are subject to the fulfillment or
waiver on or prior to the Closing Date of the following conditions: (i) the BFP
Merger Agreement shall have been adopted by the requisite vote of the holders of
BFP Common Stock in accordance with the DGCL; (ii) no order, statute, rule,
regulation, executive order, stay, decree, judgment or injunction shall have
been enacted, entered, promulgated or enforced by any court or other
governmental authority, which prohibits or prevents the consummation of the BFP
Merger and which has not been vacated, dismissed or withdrawn by the Closing
Date; (iii) all consents of any governmental authority regarding BFP or WorldCom
required for the consummation of the BFP Merger and the transactions
contemplated by the BFP Merger Agreement shall have been obtained by Final Order
(as defined in the BFP Merger Agreement) except for consents the failure of
which to be obtained, in the reasonable judgment of WorldCom, would not
reasonably be expected to have a material adverse effect on the business,
assets, condition (financial or otherwise), properties, liabilities or the
result of operations of the Surviving Corporation and its subsidiaries taken as
a whole (a "Surviving Corporation Material Adverse Effect") (which condition has
been satisfied); (iv) any required consents of any person (other than a
governmental authority) to the BFP Merger or the transactions contemplated
thereby shall have been obtained on terms and conditions reasonably acceptable
to WorldCom and be in full force and effect, except for those the failure of
which to obtain, in the reasonable judgment of WorldCom, would not reasonably be
expected to have a Surviving Corporation Material Adverse Effect; (v) no action
shall have been instituted by either the Antitrust Division or the FTC to
prevent the consummation of the transactions contemplated by the BFP Merger
Agreement or to materially modify or amend such transactions, or such action, if
instituted, shall have been withdrawn or final judgment entered against the
Antitrust Division or the FTC permitting the consummation of the transactions
contemplated thereby; (vi) no stop order suspending the effectiveness of the
Registration Statement shall have been issued, and no proceeding for that
purpose shall have been initiated or threatened by the Commission; (vii)
WorldCom shall have received all applicable state securities law authorizations
necessary to consummate the transactions contemplated by the BFP Merger
Agreement (which condition has been satisfied); (viii) neither of the respective
fairness opinions of Salomon Brothers and another nationally recognized
investment banking firm shall have been withdrawn at or prior to the Effective
Time; (ix) WorldCom and BFP shall have received an opinion from Bryan Cave LLP,
counsel to BFP, based on customary representations of WorldCom and BFP, to the
effect that, if the BFP Merger is consummated in accordance with the provisions
of the BFP Merger Agreement, under current law, for federal income tax purposes,
the BFP Merger will qualify as a reorganization within the meaning of Section
368(a) of the Code (see "-- Certain Federal Income Tax Consequences"); and (x)
the shares of WorldCom Common Stock comprising the BFP Merger Consideration
shall have been approved for quotation on The Nasdaq National Market. (Section
6.1)
WorldCom's Conditions. The obligation of WorldCom and Acquisition
Subsidiary to consummate the BFP Merger is also subject to the fulfillment or
waiver on or prior to the Closing Date, of the following conditions: (i) none of
the representations and warranties of BFP made in the BFP Merger Agreement,
disregarding any qualifications therein regarding materiality, BFP Material
Adverse Effect (as defined in Section 2.1 of the BFP Merger Agreement) or
Surviving Corporation Material Adverse Effect, shall be untrue or incorrect to
the extent that such untrue or incorrect representations or warranties, when
taken together as a whole, have had or would reasonably be expected to have a
BFP Material Adverse Effect or a Surviving Corporation Material Adverse Effect;
(ii) BFP shall have performed and complied with all covenants and agreements in
the BFP Merger Agreement in all material respects and satisfied in all material
respects all the conditions required by the BFP Merger Agreement to be performed
or complied with or satisfied by BFP on or prior to the Closing Date; (iii) no
event that has or reasonably would be expected to have a BFP Material Adverse
Effect or a Surviving Corporation Material Adverse Effect shall have occurred;
(iv) BFP shall have delivered, or caused to be delivered, to WorldCom an
officer's certificate to the effect that the conditions described in clauses
(i), (ii) and (iii) have been satisfied and such other documents and instruments
as
41
<PAGE> 56
WorldCom may reasonably request; (v) WorldCom shall have received the opinion of
Bryan Cave LLP, counsel to BFP, regarding certain matters; (vi) WorldCom shall
have complied with any requirements under the WorldCom Credit Agreements (as
defined in Section 3.6 of the BFP Merger Agreement); (vii) at least thirty days
prior thereto, WorldCom shall have received the agreements described under "--
Status Under Federal Securities Laws" and (viii) WorldCom shall have received
the written opinion of the respective independent certified public accountants
of WorldCom and BFP that the BFP Merger qualifies for pooling of interests
accounting treatment in accordance with Accounting Principles Board Opinion No.
16, and the accounting staff of the Commission shall not have asserted or
threatened to assert a determination to the contrary which has not been
rescinded (See "-- Accounting Treatment"). (Section 6.3)
BFP's Conditions. BFP's obligation to consummate the BFP Merger is also
subject to the fulfillment or waiver on or prior to the Closing Date of the
following conditions: (i) none of the representations and warranties of WorldCom
made in the BFP Merger Agreement, disregarding any qualifications herein
regarding materiality or WorldCom Material Adverse Effect, shall be untrue or
incorrect to the extent that such untrue or incorrect representations or
warranties, when taken together as a whole, have had or would reasonably be
expected to have a WorldCom Material Adverse Effect (as defined in Section 3.1
of the BFP Merger Agreement); (ii) WorldCom shall have performed and complied
with all covenants and agreements in the BFP Merger Agreement in all material
respects and satisfied in all material respects all the conditions required by
the BFP Merger Agreement to be performed or complied with or satisfied by
WorldCom on or prior to the Closing Date; (iii) no event that has or reasonably
would be expected to have a WorldCom Material Adverse Effect shall have
occurred; (iv) WorldCom shall have delivered to BFP an officer's certificate to
the effect that the conditions described in clauses (i), (ii) and (iii) have
been satisfied, and such other documents and instruments as BFP may reasonably
request; and (v) BFP shall have received an opinion of counsel to WorldCom
regarding certain matters. (Section 6.2)
Certain Reciprocal Covenants. WorldCom and BFP have each agreed to give
prompt notice to the other of the occurrence of certain events, including,
without limitation, the following: (i) any notice of, or other communication
relating to, a default or an event which, with notice or the lapse of time or
both, would become a default under any material contract which would, in the
case of WorldCom, have a WorldCom Material Adverse Effect or which would, in the
case of BFP, give rise to a right of termination; (ii) receipt of any notice or
any other written communication from any third party alleging that the consent
of such third party is or may be required in connection with the transactions
contemplated by the BFP Merger Agreement, other than a consent disclosed
pursuant to the BFP Merger Agreement; (iii) receipt of any material notice or
other communication from any governmental authority in connection with the
transactions contemplated by the BFP Merger Agreement; (iv) the occurrence of
any event which would reasonably be expected to have a WorldCom Material Adverse
Effect or a BFP Material Adverse Effect, respectively; (v) the commencement or
threat of any litigation involving or threatening such party or any of its
subsidiaries, or any of their respective properties or assets, or, to its
knowledge, its employees, agents, directors or officers, in their capacity as
such, which, if pending on the date of the BFP Merger Agreement, would have been
required to be disclosed, or which relates to the consummation of the BFP Merger
or any material development in connection with any litigation disclosed in or
pursuant to the BFP Merger Agreement or such party's public filings under the
Exchange Act; and (vi) the occurrence of any event which would reasonably be
expected to cause a breach of any provision of the BFP Merger Agreement.
(Sections 4.2 and 5.2)
WorldCom and BFP have each agreed to use their reasonable business efforts
to take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable to consummate and make effective as
promptly as practicable the BFP Merger and the other transactions contemplated
thereby. Such actions include obtaining the consent of third parties to the BFP
Merger Agreement, defending any litigation against such party or any of its
subsidiaries challenging the BFP Merger Agreement or the consummation of the
transactions contemplated thereby, obtaining all consents from governmental
authorities required for the consummation of the BFP Merger and the transactions
contemplated thereby and timely making all necessary filings under the
Hart-Scott-Rodino Act. (Sections 4.5 and 5.11)
BFP Stockholder Meeting; Voting of Shares. BFP has agreed to take all steps
necessary to duly call, give notice of, convene and hold the Special Meeting for
the purposes described herein and, subject to the
42
<PAGE> 57
provisions described below in "-- Agreement Not to Solicit Other Offers," to
recommend to its stockholders that they adopt the BFP Merger Agreement and
approve the transactions contemplated thereby and to use its reasonable best
efforts to obtain any necessary adoption and approval by BFP's stockholders of
the BFP Merger Agreement and the transactions contemplated thereby. Furthermore,
each of BFP's directors has agreed to vote his or her beneficially owned shares
of BFP Common Stock for such adoption and approval. (Section 4.4)
Conduct of BFP Business Prior to the BFP Merger. Except as expressly
contemplated by the BFP Merger Agreement, BFP has agreed, until the Effective
Time, to conduct, and to cause its subsidiaries to conduct, its or their
businesses in the ordinary course and consistent with past practice, subject to
the limitations contained in the BFP Merger Agreement, and to use its or their
reasonable business efforts to preserve intact its or their business
organizations, to keep available the services of its or their officers, agents
and employees and to maintain satisfactory relationships with all persons with
whom any of them does business. Until the Effective Time and except as otherwise
provided by the BFP Merger Agreement, BFP has agreed that neither it nor any of
its subsidiaries will, among other things, without the prior written consent of
WorldCom: (i) amend or propose to amend its certificate or articles of
incorporation or by-laws in any material respect; (ii) authorize for issuance,
issue, grant, sell, pledge, dispose of or propose to issue, grant, sell, pledge
or dispose of any shares of, or any options, warrants, commitments,
subscriptions or rights of any kind to acquire or sell any shares of, the
capital stock or other securities of BFP or any of its subsidiaries, except for
the issuance of shares of BFP Common Stock pursuant to the exercise of BFP
Options and BFP Warrants outstanding on the date of the BFP Merger Agreement in
accordance with their present terms and except for the grant of employee stock
options to employees of BFP hired on or after October 1, 1997 in the ordinary
course of business consistent with past practice and the issuance of BFP Common
Stock pursuant to the exercise thereof, and except for the issuance of shares of
BFP Common Stock in accordance with the terms of acquisitions approved by
WorldCom and except for the issuance of debt securities as described in clause
(iv) below; (iii) split, combine or reclassify any shares of its capital stock
or declare, pay or set aside any dividend or other distribution in respect of
its capital stock, other than dividends or distributions to BFP or a
wholly-owned subsidiary of BFP or redeem, purchase or otherwise acquire or offer
to acquire any shares of BFP capital stock or other securities; (iv) (A) except
for debt (including, but not limited to, obligations in respect of capital
leases) not in excess of $5,000,000 in the aggregate for all persons combined,
or as provided in the budget and business plan of BFP, create, incur or assume
any debt or obligations in respect of capital leases, (B) assume, guarantee,
endorse or otherwise become liable or responsible for any material obligation of
any person other than BFP or any wholly-owned subsidiary of BFP, (C) make any
capital expenditures or make any loans, advances or capital contributions to, or
investments in, any other person (other than to a wholly-owned BFP subsidiary or
pursuant to the terms of agreements as in effect on the date hereof and/or
customary advances to employees made in the ordinary course of business
consistent with past practice), provided BFP will continue to make capital
expenditures, maintain, upgrade and expand its facilities and those of its
subsidiaries and otherwise operate in accordance with its business plan, (D)
acquire the stock or assets of, or merge or consolidate with, any other person
or business, or (E) other than as provided in its business plan, voluntarily
incur any material liability or obligation; (v) sell, transfer, mortgage, pledge
or otherwise dispose of or encumber, or agree to sell, transfer, mortgage,
pledge or otherwise dispose of or encumber, any assets or properties, real,
personal or mixed, other than in the ordinary course of business consistent with
past practice or having a net book value in excess of $500,000 individually or
$2,000,000 in the aggregate, and other than to secure indebtedness permitted as
described in the preceding clause (iv) of this paragraph; (vi) increase in any
manner the compensation of any of its officers, agents or employees other than
any increases required pursuant to the terms of agreements in effect on the date
of the BFP Merger Agreement and increases in the ordinary course of business
consistent with past practice not in excess on an individual basis of the lesser
of 10% of the current compensation of such individual or $20,000 per annum;
(vii) enter into, establish, amend, make material interpretations or
determinations with respect to, or terminate any employment, consulting,
retention, change in control, collective bargaining, bonus or other incentive
compensation, profit sharing, health or other welfare, stock option, stock
purchase, restricted stock, or other equity, pension, retirement, vacation,
severance, deferred compensation or other compensation or benefit plan, policy,
agreement, trust, fund or arrangement with, for or in respect of, any officer,
director, other employee, agent, consultant or affiliate other than as
43
<PAGE> 58
required pursuant to the terms of agreements in effect on the date of the BFP
Merger Agreement and the actions with respect to BFP's 1996 Employee Stock
Purchase Plan as contemplated by the BFP Merger Agreement; (viii) make any
material elections with respect to taxes that are inconsistent with the prior
elections reflected in BFP's financial statements as of and for the period ended
December 31, 1996; (ix) compromise, settle, forgive, cancel, grant any waiver or
release relating to or otherwise adjust any debts, claims, rights or litigation,
except routine debts, claims, rights or litigation in the ordinary course of
business consistent with past practice, involving only a payment not in excess
of $100,000 individually or $500,000 when aggregated with all such payments by
BFP and its subsidiaries combined; (x) take any action or omit to take any
action, which action or omission, if taken prior to, on or after the date of the
BFP Merger Agreement, would result in a material breach of any of the covenants,
representations or warranties of BFP set forth in the BFP Merger Agreement or
would have a BFP Material Adverse Effect; (xi) enter into any lease or other
agreement, or amend in any respect materially adverse to BFP or a subsidiary of
BFP any lease or other agreement, with respect to real property, not
contemplated by BFP's business plan, or which obligates BFP or any of its
subsidiaries to pay total rent in excess of $2,000,000; (xii) enter into, or
amend in any respect materially adverse to BFP or a subsidiary of BFP, any
agreement or transaction (A) pursuant to which the aggregate financial
obligation of BFP or a BFP subsidiary or the value of the services to be
provided could exceed $20,000,000 individually or $50,000,000 in the aggregate
for all such agreements or transactions, (B) having a term of more than 12
months and pursuant to which the aggregate financial obligation of BFP or a BFP
subsidiary or the value of the services to be provided could exceed $10,000,000
per year individually or $25,000,000 per year in the aggregate for all such
agreements or transactions, or (C) which is not terminable upon no more than 90
days' notice by BFP or the BFP subsidiary involved without penalty in excess of
$1,000,000 individually or $3,000,000 when aggregated with the penalties under
all such agreements or transactions, except, in each case, as required pursuant
to the terms of agreements as in effect on October 1, 1997 and as required by
law (in which case BFP is required to promptly notify WorldCom); (xiii) take any
action with respect to the indemnification of any current or former director,
officer, employee or agent; (xiv) change any accounting practices or policies or
depreciation or amortization rates, except as required by generally accepted
accounting principles or laws or as agreed to or requested by BFP's auditors
after consultation with WorldCom's auditors; (xv) enter into, amend, modify,
terminate or waive any material rights under any material contract or any
material agreement or other material obligation that restricts, in any material
respect, the activities of BFP or a subsidiary of BFP or amend, modify,
terminate or waive any such right, agreement or obligation that restricts in any
material respect any other person; (xvi) adopt a plan of liquidation,
dissolution, merger, consolidation, share exchange, restructuring,
recapitalization, or other reorganization, except for the reorganization
contemplated as part of BFP's pending bank revolving credit agreement as
described in the BFP Merger Agreement; or (xvii) resolve, agree, commit or
arrange to do any of the foregoing.
BFP has also agreed that from and after the date of the BFP Merger
Agreement, unless WorldCom otherwise expressly consents in writing, BFP will,
and will cause each of its subsidiaries to (i) keep in full force and effect
insurance comparable in amount and scope of coverage to insurance now carried by
it or its subsidiaries; (ii) pay all accounts payable and other obligations in
the ordinary course of business consistent with past practice, except if the
same are contested in good faith, and, in the case of the failure to pay any
material accounts payable or other material obligations which are contested in
good faith, only after consultation with WorldCom; and (iii) comply in all
material respects with all laws applicable to any of them or their respective
properties, assets or businesses and maintain in full force and effect all
permits necessary for, or otherwise material to, such businesses. (Section 4.1)
Conduct of WorldCom Business Prior to the BFP Merger. WorldCom has agreed
that from and after the date of the BFP Merger Agreement, unless BFP otherwise
expressly consents in writing, WorldCom will, and will cause each of its
subsidiaries to use its or their reasonable business efforts to comply in all
material respects with all laws applicable to them or their respective
properties, assets or businesses and maintain in full force and effect all
permits necessary for, or otherwise material to, such businesses. (Section 5.1)
Agreement Not To Solicit Other Offers. BFP has agreed to, and agreed to
direct and use reasonable efforts to cause its officers, directors, employees,
representatives and agents to, immediately cease any
44
<PAGE> 59
discussions or negotiations with any parties that may have been ongoing with
respect to an Acquisition Proposal. Further, BFP has agreed not to, nor to
permit any of its subsidiaries to, nor to authorize or permit its officers,
directors, employees, or any investment banker, financial advisor, attorney,
accountant or other representative retained by it, directly or indirectly, to
(i) solicit, initiate or encourage (including by way of furnishing information),
or take any other action designed or reasonably likely to facilitate, any
inquiries or the making of any proposal which constitutes, or may reasonably be
expected to lead to, any Acquisition Proposal or (ii) participate in any
discussions or negotiations regarding any inquiry, proposal or offer from any
person relating to (a) any direct or indirect acquisition or purchase of 15% or
more of the assets of BFP and its subsidiaries, taken as a whole, or 15% or more
of any class of equity securities of BFP or any of its subsidiaries, (b) any
tender offer or exchange offer that if consummated would result in any person
beneficially owning 15% or more of any class of equity securities of BFP or any
of its subsidiaries, (c) any merger, consolidation, share exchange, business
combination, recapitalization, liquidation, dissolution or similar transaction
involving BFP or any of its subsidiaries, other than transactions contemplated
by the BFP Merger Agreement, or (d) any other transaction, the consummation of
which would reasonably be expected to impede, interfere with, prevent or
materially delay the BFP Merger or which would reasonably be expected to dilute
materially the benefits to WorldCom of the transactions contemplated by the BFP
Merger Agreement (each such inquiry, proposal or offer being hereinafter
referred to as an "Acquisition Proposal"); provided, that if, at any time prior
to the Effective Time, BFP's Board of Directors determines in good faith, after
consultation with outside counsel, that it is necessary to do so in order to
comply with its fiduciary duties to its stockholders under applicable law, then
BFP may, in response to such an Acquisition Proposal which was not solicited
subsequent to October 1, 1997, and subject to compliance with certain notice
provisions in the BFP Merger Agreement, (x) furnish information with respect to
BFP and its subsidiaries to any person pursuant to a customary confidentiality
agreement and (y) participate in negotiations regarding such Acquisition
Proposal. (Section 4.9(a))
The BFP Merger Agreement additionally provides that, except as otherwise
expressly provided, neither BFP's Board of Directors nor any committee thereof
shall (i) withdraw or modify, or propose publicly to withdraw or modify, in a
manner adverse to WorldCom, its approval or recommendation relating to the BFP
Merger Agreement, (ii) approve or recommend, or propose publicly to approve or
recommend, any Acquisition Proposal or (iii) cause BFP to enter into any letter
of intent, agreement in principle, acquisition agreement or other similar
agreement (each, a "BFP Acquisition Agreement") relating to an Acquisition
Proposal; provided that, in the event that prior to the Effective Time the Board
of Directors of BFP determines, in good faith, after consultation with outside
counsel, that it is necessary to do so in order to comply with its fiduciary
duties to its stockholders under applicable law, BFP's Board of Directors, may
subject to compliance with the BFP Merger Agreement, withdraw or modify its
approval or recommendation of the BFP Merger or recommend a BFP Superior
Proposal (as defined below), or terminate the BFP Merger Agreement, but in each
case only at a time that is after 10 business days following WorldCom's receipt
of written notice of such BFP Superior Proposal, its material terms and
conditions and the identity of the person making such BFP Superior Proposal. Any
such withdrawal or modification of the recommendation of the BFP Merger will not
change the approval of BFP's Board of Directors for purposes of causing Section
203 of the DGCL to be inapplicable to the BFP Merger or the status of WorldCom
as other than an "Acquiring Person" under BFP's Rights Plan and shall not
directly or indirectly cause a "Stock Acquisition Date" or a "Distribution Date"
(as such terms are defined in BFP's Rights Plan) to occur. A "BFP Superior
Proposal" means any bona fide proposal made by a third party to acquire,
directly or indirectly, for consideration consisting of cash and/or securities,
more than 15% of the combined voting power of the shares of BFP Common Stock
then outstanding or all or substantially all the assets of BFP and otherwise on
terms which the BFP Board of Directors determines in its good faith judgment to
be materially more favorable to BFP's stockholders than the BFP Merger and for
which financing, to the extent required, is then committed or which, in the good
faith judgment of the BFP Board of Directors, is reasonably capable of being
financed by such third party. (Section 4.9(b))
In addition to the foregoing obligations, BFP is obligated (i) to
immediately advise WorldCom orally and in writing of any request for information
or of any Acquisition Proposal, the material terms and conditions of such
request or Acquisition Proposal and the identity of the person making such
request or Acquisition
45
<PAGE> 60
Proposal and (ii) to keep WorldCom fully informed of the status and details of
any such request or Acquisition Proposal. (Section 4.9(c))
The BFP Merger Agreement provides that BFP is not prohibited from taking
and disclosing to its stockholders a position contemplated by Rule 14e-2(a)
promulgated under the Exchange Act or from making any disclosure to its
stockholders if, in the good faith judgment of BFP's Board of Directors, after
consultation with outside counsel, failure so to disclose would be inconsistent
with its fiduciary duties to its stockholders under applicable law. Neither BFP
nor its Board of Directors nor any committee thereof may, however, except as
permitted by the BFP Merger Agreement, withdraw or modify, or propose publicly
to withdraw or modify, its position with respect to the BFP Merger Agreement or
approve or recommend, or propose publicly to approve or recommend, an
Acquisition Proposal. (Section 4.9(d))
Confidentiality. Subject to certain limitations, the BFP Merger Agreement
and any information or documents furnished in connection therewith is required
to be kept strictly confidential by BFP, WorldCom, their respective subsidiaries
and their respective officers, directors, employees and agents unless otherwise
required to comply with accounting, Commission and other disclosure obligations
imposed by applicable law. Prior to any disclosure, the party intending to make
such disclosure is required to consult with the other party regarding the nature
and extent of the disclosure. Subject to certain limitations, in the event the
BFP Merger is not consummated, each party is required to return to the other any
documents furnished by the other and all copies thereof any of them may have
made and to hold in absolute confidence any information obtained from the other
party. (Section 8.1)
Employee Benefit Plan Matters. WorldCom has agreed, after the Effective
Time, to arrange for each employee participating in any benefit plans of BFP as
are in effect at the Effective Time to participate in any counterpart benefit
plans of WorldCom in accordance with the eligibility criteria thereof, provided
that (a) such participants will receive full credit for years of service with
BFP or its subsidiaries prior to the BFP Merger for all purposes for which such
service was recognized under the BFP benefit plans, including, but not limited
to, recognition of service for eligibility, vesting and, to the extent not
duplicative of benefits received under such BFP benefit plans, the amount of
benefits; (b) such participants will participate in the benefit plans of
WorldCom on terms no less favorable than those offered by WorldCom to similarly
situated employees of WorldCom; and (c) WorldCom will cause any and all
pre-existing condition limitations (to the extent such limitations did not apply
to a pre-existing condition under BFP's benefit plans) and eligibility waiting
periods under any group health plans to be waived with respect to such
participants and their eligible dependents. WorldCom and BFP acknowledged that
the BFP Merger and consummation of the other transactions contemplated by the
BFP Merger Agreement will be treated as a "change in control" for purposes of
certain BFP benefit plans, option agreement and other compensation arrangements
and have agreed to abide by the provisions of any such plans, agreements and
arrangements which relate to a change in control, including, but not limited to,
the accelerated vesting and/or payment of equity-based awards and gross-up
payments on account of Sections 280G or 4999 of the Code. WorldCom and BFP have
also acknowledged that resignations of officers and/or directors of BFP and its
subsidiaries requested by WorldCom required pursuant to the terms of the BFP
Merger Agreement will not be treated as a voluntary termination of employment of
such officer or director for purposes of any BFP benefit plan, employment
agreement or other compensation arrangement and will not otherwise adversely
affect the material rights of such officers or directors under any such plan,
agreement or arrangement. (Section 5.10)
Indemnification. The BFP Merger Agreement provides that, with respect to
matters occurring from and after the Effective Time, WorldCom and the Surviving
Corporation will jointly and severally indemnify, defend and hold harmless the
directors, officers and agents of BFP as provided in BFP's Certificate of
Incorporation or BFP's By-laws, as in effect as of October 1, 1997. WorldCom
also agreed to cause the Surviving Corporation to maintain in effect for not
less than three years after the Effective Time, policies of directors' and
officers' liability insurance comparable to those maintained by BFP with
carriers comparable to BFP's existing carriers and containing terms and
conditions which are no less advantageous in any material respect to the
officers, directors, employees and agents of BFP, provided that the Surviving
Corporation will not be required to pay an annual premium in excess of two times
BFP's last annual premium paid prior to
46
<PAGE> 61
October 1, 1997; provided that if such coverage is not available for such
amount, WorldCom has agreed to purchase as much coverage as possible for such
amount. (Section 5.9)
Termination of the BFP Merger Agreement. The BFP Merger Agreement may be
terminated at any time prior to the Effective Time, whether before or after
approval of the stockholders of BFP, by the mutual written consent of BFP and
WorldCom, duly authorized by the Board of Directors of each. (Section 7.1(a))
The BFP Merger Agreement may also be terminated at any time prior to the
Effective Time, whether before or after approval of the stockholders of BFP, by
either BFP or WorldCom if: (i) the BFP Merger shall not have been consummated on
or prior to March 31, 1998 (or such other date as may be agreed to by BFP and
WorldCom), provided that the right to so terminate is not available to any party
whose breach of the BFP Merger Agreement resulted in the failure of the BFP
Merger to be consummated by such time; (ii) if a court of competent jurisdiction
or other governmental authority shall have issued an order, decree or ruling or
taken any other action permanently enjoining, restraining or otherwise
prohibiting the consummation of the BFP Merger and such order, decree or ruling
or other action shall have become final and nonappealable; or (iii) if the
stockholders of BFP fail to approve and adopt the BFP Merger Agreement, the BFP
Merger and other transactions contemplated thereby, at the Special Meeting or at
any adjournment or postponement thereof. (Sections 7.1(b), 7.1(e) and 7.1(f))
Further, the BFP Merger Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval of the stockholders of BFP,
by WorldCom if (i) (a) the condition specified in Section 6.3.1 of the BFP
Merger Agreement (relating to BFP's representations and warranties) has not been
satisfied or waived, or (b) BFP has breached or failed to perform, in any
material respect, any of its material covenants or other agreements in the BFP
Merger Agreement, which breach or failure to perform has not been cured within
30 days after the receipt of written notice by WorldCom; or (ii) (a) BFP or its
Board of Directors breaches in any material respect any provision of Section 4.4
of the BFP Merger Agreement, (relating to BFP's covenant regarding stockholder
approval (see "-- BFP Stockholder Meeting; Voting of Shares")) or Section 4.9 of
the BFP Merger Agreement (relating to BFP's covenant not to solicit Acquisition
Proposals (see "-- Agreement Not To Solicit Other Offers")), (b) BFP shall have
received any Acquisition Proposal as to which BFP's Board of Directors has taken
a position other than to reject the same or stockholders holding at least 50% of
the BFP Common Stock have tendered such shares in connection with such
Acquisition Proposal (which tenders have been accepted), (c) BFP or its
stockholders have agreed to or consummated any BFP Acquisition Agreement or (d)
if BFP's Board of Directors or any committee thereof has otherwise declined to
make, withdrawn or modified, or proposed publicly to withdraw or modify, its
recommendation for BFP's stockholders to adopt the BFP Merger Agreement.
(Sections 7.1(d) and 7.1(g))
Further, the BFP Merger Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval of the stockholders of BFP,
by BFP if (i) (a) the condition specified in Section 6.2.1 of the BFP Merger
Agreement (relating to WorldCom's representations and warranties) has not been
satisfied or waived, or (b) WorldCom has breached or failed to perform, in any
material respect, any of its material covenants or other agreements in the BFP
Merger Agreement, which breach or failure to perform has not been cured within
30 days after the receipt of written notice by BFP; (ii) the BFP Board of
Directors, after determining in good faith, after consultation with outside
counsel, that it is necessary to do so in order to comply with its fiduciary
duties to BFP's stockholders under applicable law, determines to terminate the
BFP Merger Agreement, but only at a time that is after the tenth business day
following receipt by WorldCom of written notice advising WorldCom that the BFP
Board of Directors has received a BFP Superior Proposal, provided that BFP
complies with all the provisions relating to a BFP Superior Proposal, including
the notice provisions (see "-- Agreement Not To Solicit Other Offers"), and the
applicable requirements relating to the payment of the Termination Fee
(discussed below under "-- Termination Fees") to WorldCom in connection
therewith; (iii) WorldCom has not received, on or prior to March 31, 1998, the
requisite approval of the lenders under the WorldCom Credit Agreements for any
amendments to the schedules to the WorldCom Credit Agreements required as a
result of the transactions contemplated by the BFP Merger Agreement or has not
waived such condition of closing and if all other conditions contained in the
BFP Merger Agreement have been satisfied or waived. (Sections 7.1(c), 7.1(h) and
7.1(i))
47
<PAGE> 62
Termination Fees. The BFP Merger Agreement provides that BFP shall promptly
pay to WorldCom a fee equal to $40 million (the "Termination Fee"), payable by
wire transfer of immediately available funds, (i) in the event that the BFP
Merger Agreement is terminated by WorldCom if (a) the condition specified in
Section 6.3.1 of the BFP Merger Agreement (relating to BFP's representations and
warranties) has not been satisfied or waived or (b) BFP has breached or failed
to perform, in any material respect, any of its material covenants or other
agreements in the BFP Merger Agreement, which breach or failure to perform has
not been cured within 30 days after the receipt of written notice by WorldCom;
(ii) in the event that the BFP Merger Agreement is terminated by WorldCom if (a)
BFP or its Board of Directors breaches in any material respect any provision of
Section 4.4 of the BFP Merger Agreement (relating to BFP's covenant regarding
stockholder approval (see "-- BFP Stockholder Meeting; Voting of Shares")) or
Section 4.9 of the BFP Merger Agreement (relating to BFP's covenant not to
solicit Acquisition Proposals (see "-- Agreement Not To Solicit Other Offers")),
(b) BFP shall have received any Acquisition Proposal as to which BFP's Board of
Directors has taken a position other than to reject the same or stockholders
holding at least 50% of the BFP Common Stock have tendered such shares in
connection with such Acquisition Proposal (which tenders have been accepted),
(c) BFP or its stockholders have agreed to or consummated any BFP Acquisition
Agreement or (d) if BFP's Board of Directors or any committee thereof has
otherwise declined to make, withdrawn or modified, or proposed publicly to
withdraw or modify, its recommendation for BFP's stockholders to adopt the BFP
Merger Agreement; or (iii) in the event the BFP Merger Agreement is terminated
by BFP because the BFP Board of Directors, after determining in good faith,
after consultation with outside counsel, that it is necessary to do so in order
to comply with its fiduciary duties to BFP's stockholders under applicable law,
after 10 business days notice to WorldCom of the material terms of and identity
of the third party making a BFP Superior Proposal, as described above under
"-- Termination of the BFP Merger Agreement." (Section 7.2(c))
The BFP Merger Agreement further provides that WorldCom shall promptly pay
to BFP the Termination Fee, payable by wire transfer of immediately available
funds, in the event that the BFP Merger Agreement is terminated by BFP because
(i) (a) the condition specified in Section 6.2.1 of the BFP Merger Agreement
(relating to WorldCom's representations and warranties) has not been satisfied
or waived, or (b) WorldCom has breached or failed to perform, in any material
respect, any of its material covenants or other agreements in the BFP Merger
Agreement, which breach or failure to perform has not been cured within 30 days
after the receipt of written notice by BFP; or (ii) WorldCom has not received,
on or prior to March 31, 1998, the requisite approval of the lenders under the
WorldCom Credit Agreements for any amendments to the schedules to the WorldCom
Credit Agreements required as a result of the transactions contemplated by the
BFP Merger Agreement or has not waived such condition of closing and if all
other conditions contained in the BFP Merger Agreement have been satisfied or
waived. (Section 7.2(b))
In addition, in the event of the occurrence of any of the following events
("Triggering Events"): (i) any other person shall have made a bona fide
Acquisition Proposal, whether or not conditional, and BFP terminates the BFP
Merger Agreement as a result of the BFP Merger not having been consummated on or
before March 31, 1998, notwithstanding satisfaction or due waiver of all
conditions to the Closing set forth in the BFP Merger Agreement (subject to
specified exceptions), and a transaction pursuant to or constituting a BFP
Acquisition Agreement shall be consummated by BFP with that person at any time
before January 1, 1999; (ii) BFP enters into a BFP Acquisition Agreement or the
directors or stockholders of BFP shall have authorized or approved the entering
into any such BFP Acquisition Agreement; (iii) a transaction pursuant to or
constituting a BFP Acquisition Agreement shall be consummated by BFP at any time
before January 1, 1999, except if the BFP Merger Agreement is terminated under
certain circumstances; or (iv) BFP's Board of Directors or any committee thereof
publicly proposes to decline to make, withdraw or amend or declines to make,
withdraws or amends its recommendation to BFP's stockholders to adopt the BFP
Merger Agreement; WorldCom shall have the right, at its option to: (A) terminate
the BFP Merger Agreement if not previously terminated, and in the event of such
termination or a previous termination requiring payment of the Termination Fee,
BFP will promptly pay to WorldCom, by wire transfer of immediately available
funds, the Termination Fee (but not in duplication of any termination fee
previously paid by BFP); and (B) in addition, have the right, whether or not the
BFP Merger Agreement is terminated, exercisable by notice to BFP at any time not
more than 180 days after WorldCom is advised of the occurrence of a Triggering
Event, to:
48
<PAGE> 63
(a) extend the term of any or all outstanding contracts, leases, tariffed
services, or other commercial arrangements between BFP or its subsidiaries and
WorldCom or any affiliate of WorldCom, for a period of not more than five (5)
years from the current termination dates; or (b) terminate, with 60 days'
advance notice to BFP, any or all such contracts, leases, tariffed services, or
other commercial arrangements, without early termination or other charges or
penalties. (Section 7.2(d))
The BFP Merger Agreement also provides that to the extent the Agreement is
terminated solely pursuant to the provisions described above in the first two
paragraphs under "-- Termination of the BFP Merger Agreement," and provided a
Triggering Event has not occurred, no termination fees will be payable to any
party and the BFP Merger Agreement will become void and of no effect, provided
that no such termination will relieve any party from any liability relating to
the confidentiality or expense provisions of the BFP Merger Agreement or for any
breach thereof.
Non-Survival of Representations and Warranties. The respective
representations and warranties of BFP and WorldCom contained in the BFP Merger
Agreement or in any certificates or other documents delivered prior to or upon
consummation of the BFP Merger will terminate at the Effective Time. (Section
8.4)
Amendment of the BFP Merger Agreement. The BFP Merger Agreement may be
amended, modified or supplemented only by a written agreement among BFP,
WorldCom and Acquisition Subsidiary. (Section 8.2)
Closing Date and Effective Time. WorldCom, after consultation with BFP,
shall determine the Closing Date. The BFP Merger will become effective at the
time of filing of a Certificate of Merger with the Secretary of State of
Delaware in accordance with the applicable provisions of the DGCL or at such
later time as may be specified in the Certificate of Merger. The Certificate of
Merger will be filed as soon as practicable on or after the Closing Date and
after all the conditions set forth in the BFP Merger Agreement have been
satisfied or waived by the party or parties entitled to the benefit of the same,
but not before January 2, 1998. (Section 1.2)
Expenses. All costs and expenses incurred in connection with the BFP Merger
Agreement and the transactions contemplated thereby will be paid by the party
incurring such costs or expenses, subject to the provisions described in
"-- Termination Fees." (Section 8.7)
INTERESTS OF CERTAIN PERSONS IN THE BFP MERGER
In considering the recommendation of the BFP Board of Directors with
respect to the BFP Merger, holders of BFP Common Stock should be aware that
certain members of BFP's management, some of whom are members of the BFP Board
of Directors, have certain interests in the BFP Merger, in addition to those of
the BFP stockholders generally. The BFP Board of Directors was aware of these
interests when it considered and approved the BFP Merger and the BFP Merger
Agreement.
Certain members of the BFP Board of Directors and other executive officers
of BFP are holders of BFP Options and BFP Warrants. The members of the BFP Board
of Directors were aware that the BFP Options and BFP Warrants held by these
individuals could fully vest and appreciate in value as a result of the BFP
Merger. See "-- Terms and Conditions of the Proposed BFP Merger -- BFP Options
and Warrants" and "-- Employee Benefit Plan Matters." The BFP Merger would
result in the vesting of otherwise unexercisable BFP Options held, as of
November 30, 1997, by the five most highly compensated executive officers of
BFP, all non-executive directors of BFP as a group (8 persons) and all executive
officers of BFP as a group (11 persons) as follows: Robert A. Brooks (Chairman
of the Board) -- 66,667 shares at $12.50 per share; James C. Allen (Vice
Chairman and Chief Executive Officer) -- 66,667 shares at $12.50 per share; D.
Craig Young (President and Chief Operating Officer) -- 66,667 shares at $4.00
per share and 13,334 shares at $12.50 per share; David L. Solomon (Executive
Vice President and Chief Financial Officer ) -- 20,000 shares at $6.60 per share
and 66,667 shares at $12.50 per share; John C. Shapleigh (Executive Vice
President -- Regulatory and Corporate Development) -- 53,334 shares at $12.50
per share; all non-executive directors as a group -- 47,328 shares at a weighted
average exercise price of $22.50 per share; and all executive officers as a
group -- 546,175 shares at a weighted average exercise price of $16.90 share.
49
<PAGE> 64
BFP and Robert A. Brooks entered into an Employment, Consulting and
Non-Competition Agreement as of March 11, 1997 (the "Brooks Agreement") which
provides for his employment as chairman of the BFP Board of Directors through
December 31, 1997 and for a consulting term commencing at the expiration of the
employment term and expiring on December 31, 2002. The Brooks Agreement provides
for payments of a salary of $400,000 for 1997 and an annual bonus for 1997 of
not less than $400,000 and consulting fees for each of 1998 and 1999 of
$250,000, consulting fees for each of 2000 and 2001 of $200,000 and a consulting
fee for 2002 of $150,000. The Brooks Agreement also contains a non-competition
provision restricting Mr. Brooks from competing with BFP within the United
States until December 31, 2002. In consideration for agreeing to these
restrictions, BFP has agreed to pay Mr. Brooks $250,000 in each of 1998 and
1999, $200,000 in each of 2000 and 2001 and $150,000 in 2002. If Mr. Brooks
elects to resign within one year following a Change of Control (as defined in
the Brooks Agreement), which includes the Effective Time, the Surviving
Corporation would be obligated to (a) continue his medical insurance benefits
through December 31, 2002 and (b) pay him a lump sum cash payment equal to the
present value of his then unpaid consulting fees, subject to reduction to the
extent such payment exceeds the amount deductible by the Surviving Corporation
for federal income tax purposes because of Section 280G of the Code (an "Excess
Payment"). If the Brooks Agreement is terminated by the Surviving Corporation
prior to December 31, 2002 for any reason other than death, disability or cause,
or in the event of a material breach by the Surviving Corporation, the Surviving
Corporation would be obligated to (a) continue his medical insurance benefits
through December 31, 2002, and (b) pay him a lump sum cash payment equal to the
present value of his then unpaid consulting fees and certain other benefits,
without reduction for any Excess Payment, plus, if such payment would be subject
to the excise tax imposed by Section 4999 of the Code or any interest or
penalties with respect to such tax, an additional payment (net of income and
excise taxes) to compensate Mr. Brooks for such tax, interest or penalties.
BFP and seven other executive officers (including the four other executive
officers named above) entered into Change of Control Severance Agreements as of
April 8, 1997 which generally provide that if the executive's employment is
terminated by the Surviving Corporation within a specified period following a
change of control, which includes the Effective Time (three years for Messrs.
Allen, Young and Solomon and two years in the case of the other four executives)
for any reason other than for death, disability or cause or by the executive
during such specified period for "good reason" (including changes in status,
office, title or reporting requirements, other than any change which is inherent
in the BFP Merger, and/or compensation or geographic location) an amount equal
to the product of the sum of the executive's annual base salary rate and annual
bonus target in effect on the date of termination and a "termination multiplier"
(which, in the event of a termination of either Mr. Allen or Mr. Young occurring
within the first eighteen months following the Effective Time, would be three,
and, in the event of a termination of any of the other four executive officers
within the first year following the Effective Time, would be two, and, in the
event of a termination of any of said six executive officers at any time
thereafter during said three or two year period, respectively, and in the event
of a termination of Mr. Solomon at any time during the three year period
following the Effective Time, would be a fraction the numerator of which would
be the number of days remaining in said three or two year period and the
denominator of which would be 365). The annual base salary rates and annual
bonus targets of each of the named executives for 1997 are as follows: Mr.
Allen -- $375,000 and $281,000; Mr. Young -- $240,000 and $180,000; Mr.
Solomon -- $216,000 and $162,000; and Mr. Shapleigh -- $182,000 and $36,480. In
the case of Messrs. Allen, Young and Solomon, if any payment would be subject to
the excise tax imposed by Section 4999 of the Code or any interest or penalties
with respect to such tax, the executive would also be entitled to receive an
additional payment (net of income and excise taxes) to compensate the executive
for such tax, interest or penalties. The payments to the other executives would
be subject to reduction to the extent such payment constitutes an Excess
Payment. In the event of a termination occurring within the first eighteen
months following the Effective Time, the Surviving Corporation would be
obligated to continue the executive's medical insurance benefits for the three
or two year period following termination and, in the event of a termination
thereafter during said three or two year period, would be obligated to continue
such benefits until the end of said three or two year period. Under the terms of
such Change of Control Severance Agreements, BFP has agreed to require the
Surviving Corporation to expressly assume and agree to perform said agreements.
Each of the Change of Control Severance Agreements contains non-competition and
non-
50
<PAGE> 65
solicitation provisions binding on the executive in the event of payment of
benefits thereunder until the sooner to occur of (i) the end of the eighteen
month period following the date of termination or (ii) the end of such three or
two year period.
In connection with the negotiation and approval of the BFP Merger
Agreement, Mr. Ebbers indicated his expectation that the WorldCom Board of
Directors would consider the nomination of an individual designated by the BFP
Board of Directors (who is expected to be Mr. Allen) for election as a director
of WorldCom following the Effective Time.
The BFP Merger Agreement provides that, with respect to matters occurring
through the Effective Time, WorldCom and the Surviving Corporation will jointly
and severally indemnify, defend and hold harmless the directors, officers,
employees and agents of BFP as and to the extent provided in the BFP Certificate
and the BFP By-laws, as in effect as of October 1, 1997. WorldCom also agreed to
cause the Surviving Corporation to maintain in effect for not less than three
years after the Effective Time, policies of directors' and officers' liability
insurance comparable to those maintained by BFP with carriers comparable to
BFP's existing carriers and containing terms and conditions which are no less
advantageous in any material respect to the officers, directors, employees and
agents of BFP, provided that the Surviving Corporation will not be required to
pay an annual premium in excess of two times BFP's last annual premium paid
prior to October 1, 1997; provided that if such coverage is not available for
such amount, WorldCom has agreed to purchase as much coverage as possible for
such amount. (Section 5.9) See "-- Terms and Conditions of the Proposed BFP
Merger -- Indemnification."
SURRENDER OF STOCK CERTIFICATES AND RECEIPT OF BFP MERGER CONSIDERATION
After the Effective Time, each holder of BFP Common Stock will be required
to surrender and deliver the certificates representing such holder's shares of
BFP Common Stock to the Exchange Agent together with a duly completed and
executed transmittal letter to be provided by the Exchange Agent. Each holder of
BFP Common Stock, upon surrender of a stock certificate or certificates
representing such stock, together with the transmittal letter provided by the
Exchange Agent duly completed and executed by such holder, will be entitled to
receive a stock certificate or certificates representing the number of the whole
shares of WorldCom Common Stock (together with cash in lieu of fractional
shares) to which such holder is entitled. (Section 1.5). For additional
information regarding the WorldCom Common Stock issuable in the BFP Merger, see
"Description of WorldCom Capital Stock -- Common Stock."
BFP STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A
TRANSMITTAL LETTER FROM THE EXCHANGE AGENT.
From and after the Effective Time, the stock transfer books of BFP will be
closed, and there will be no further transfers on the BFP stock transfer books
of any shares of BFP Common Stock. In the event that, after the Effective Time,
certificates evidencing shares of BFP Common Stock are presented to the
Surviving Corporation, they shall be canceled and exchanged for shares of
WorldCom Common Stock and cash in lieu of fractional shares. (Section 1.3).
Until so surrendered and exchanged, each outstanding certificate
representing BFP Common Stock after the Effective Time will be deemed for all
purposes to evidence the right to receive that number of whole shares of
WorldCom Common Stock into which such shares of BFP Common Stock have been
converted pursuant to the BFP Merger Agreement plus the amount of cash payable
in lieu of any fractional share of WorldCom Common Stock. However, no dividends
or other distributions, if any, in respect of the shares of WorldCom Common
Stock, declared after the Effective Time and payable to holders of record after
the Effective Time, will be paid to the holders of any unsurrendered
certificates representing BFP Common Stock until such certificates representing
BFP Common Stock and transmittal letters are surrendered and delivered as
provided in the BFP Merger Agreement. Subject to applicable law, after the
surrender and exchange of the certificates representing BFP Common Stock, the
record holders thereof will be entitled to receive any such dividends or other
distributions without interest thereon, which theretofore have become payable
with respect to the number of shares of WorldCom Common Stock for which such
certificates representing BFP Common Stock were exchangeable. Holders of any
unsurrendered certificates representing BFP Common Stock will not
51
<PAGE> 66
be entitled to vote the WorldCom Common Stock to which they are entitled until
such certificates are exchanged for certificates representing WorldCom Common
Stock. (Section 1.5)
FRACTIONAL SHARES
No fractional shares of WorldCom Common Stock will be issued in connection
with the BFP Merger nor will any fractional share interest involved entitle the
holder thereof to vote, to receive dividends or to exercise any other rights of
a shareholder of WorldCom. When the BFP Merger Consideration would otherwise
require the issuance of a fractional share of WorldCom Common Stock, cash equal
to the value of such fractional interest will be paid to the holder of such
interest in lieu of such fractional share. The value of such fractional interest
will be the product of such fraction multiplied by the WorldCom Average Trading
Price. (Section 1.3)
CERTAIN REGULATORY FILINGS AND APPROVALS
Consummation of the BFP Merger is contingent upon the receipt of approvals
from the FCC, various state PUCs and certain local government authorities with
respect to the BFP Merger. WorldCom and BFP have previously made the necessary
filings with these government agencies and have received all of the approvals
they deem necessary for the BFP Merger.
Under the Hart-Scott-Rodino Act and the rules promulgated thereunder by the
FTC, the BFP Merger may not be consummated until notifications have been given
and certain information has been furnished to the FTC and the Antitrust Division
and specified waiting period requirements have been satisfied. WorldCom and BFP
filed notification and report forms under the Hart-Scott-Rodino Act with the FTC
and the Antitrust Division on November 14, 1997. The waiting period for such
filings under the Hart-Scott-Rodino Act expired on December 14, 1997. However,
at any time before or after the Effective Time of the BFP Merger, and
notwithstanding that the Hart-Scott-Rodino Act waiting period has expired, the
FTC, the Antitrust Division or any state could take such action under applicable
antitrust laws as it deems necessary or desirable in the public interest. Such
action could include seeking to enjoin the consummation of the BFP Merger or
seeking divestiture of BFP or businesses of WorldCom or BFP as a result of the
BFP Merger.
ACCOUNTING TREATMENT
The BFP Merger is designed to qualify as a "pooling of interests" for
accounting and financial reporting purposes. Under this method of accounting,
the recorded assets and liabilities of WorldCom and BFP will be carried forward
to the combined organization at their recorded amounts; income of the combined
organization will include income of WorldCom and BFP for the entire fiscal year
in which the BFP Merger occurs; and the reported income of the separate
corporations for prior periods will be combined and restated as income of the
combined organization. Among the conditions to pooling of interests accounting
treatment of the BFP Merger is the requirement that WorldCom issue WorldCom
Common Stock in exchange for at least 90% of the BFP Common Stock outstanding on
the date the BFP Merger is consummated. The obligation of WorldCom to consummate
the BFP Merger is subject to the receipt by WorldCom from Arthur Andersen LLP,
the independent auditor of WorldCom, and KPMG Peat Marwick LLP, the independent
auditor of BFP, of their opinions that the BFP Merger will qualify as a pooling
of interests. See "-- Terms and Conditions of the Proposed BFP
Merger -- WorldCom's Conditions."
Pursuant to the BFP Merger Agreement, BFP has agreed to use reasonable
business efforts to ensure that each person who is or may be an "affiliate" (as
defined in the rules under the Securities Act) enters into an agreement that
they will not transfer any shares of WorldCom Common Stock received in the BFP
Merger until WorldCom has published financial statements containing at least 30
days of combined results of operations after the Effective Time. Such
restriction on transfer is necessary to account for the BFP Merger as a pooling
of interests. See "-- Status Under Federal Securities Laws." WorldCom's
obligation to consummate the BFP Merger is subject to the condition that it
shall have received such agreements at least 30 days prior to Closing. See
"-- Terms and Conditions of the Proposed BFP Merger -- WorldCom's Conditions."
52
<PAGE> 67
PUBLIC TRADING MARKET
WorldCom anticipates that the shares of WorldCom Common Stock to be issued
and reserved for issuance in connection with the BFP Merger and upon exercise of
the WorldCom Options and WorldCom Warrants will be traded on The Nasdaq National
Market, and approval of such trading in the case of WorldCom Common Stock by The
Nasdaq National Market is a condition precedent to the effectiveness of the BFP
Merger (Section 6.1.10). See "-- Terms and Conditions of the Proposed BFP
Merger -- Mutual Conditions."
STATUS UNDER FEDERAL SECURITIES LAWS
The shares of WorldCom Common Stock to be issued to stockholders of BFP
pursuant to the BFP Merger Agreement have been registered under the Securities
Act, thereby allowing such shares to be freely traded without restriction by
persons who will not be "affiliates" of WorldCom after the BFP Merger or who
were not "affiliates" of BFP on the date of the Special Meeting. All directors
and certain officers of BFP may be deemed to have been "affiliates" of BFP
within the meaning of such rules. Any such person may resell the WorldCom Common
Stock received by him or her in the BFP Merger only if such shares are
registered under the Securities Act or an exemption from registration under the
Securities Act is available. Such persons may be able to effect resales under
the safe harbor provisions of Rule 145 under the Securities Act (or Rule 144 in
the case of such persons who become "affiliates" of WorldCom) or as otherwise
permitted under the Securities Act. Persons who may be deemed affiliates of BFP
or WorldCom generally include individuals or entities that control, are
controlled by, or are under common control with, such party, and may include
certain officers and directors of such party as well as principal stockholders
of such party. It is recommended that any such person obtain advice of
securities counsel prior to effecting any resales.
The BFP Merger Agreement requires, as a condition to closing, that each
"affiliate" of BFP execute a written agreement to the effect that such person
will not offer or sell or otherwise dispose of any of the WorldCom Common Stock
received in the BFP Merger (i) in violation of the Securities Act or the rules
and regulations thereunder and (ii) in any event, until the time that financial
results covering at least 30 days of post-Merger combined operations of BFP and
WorldCom have been published within the meaning of the accounting policies of
the Commission relating to pooling of interests. (Section 6.3.7) See "-- Terms
and Conditions of the Proposed BFP Merger -- WorldCom's Conditions."
This Proxy Statement/Prospectus does not cover resales of WorldCom Common
Stock received by any person who may be deemed to be an affiliate of WorldCom or
BFP.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discusses only the federal income tax consequences of the BFP
Merger to United States persons who hold shares of BFP Common Stock as capital
assets. It does not discuss all the tax consequences that might be relevant to
BFP stockholders entitled to special treatment under the federal income tax laws
or to BFP stockholders who acquired their shares of BFP Common Stock through the
exercise or cancellation of employee stock options or otherwise as compensation.
WorldCom and BFP have received an opinion from Bryan Cave LLP to the effect
that, if the BFP Merger is consummated in accordance with the terms of the BFP
Merger Agreement and as described in this Proxy Statement/Prospectus, under
current law, for federal income tax purposes, the BFP Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code. The opinion is
conditioned upon the receipt and accuracy of customary representations made by
BFP and WorldCom to Bryan Cave LLP with respect to certain factual matters
required to qualify the BFP Merger as a reorganization under the Code. Moreover,
the opinion is based on the Code, regulations and rulings in effect as of the
date of such opinion, current administrative rulings and practice and judicial
precedent, all of which are subject to change. Any such change, which may or may
not be retroactive, could alter the tax consequences discussed herein. Such
opinions neither bind the Internal Revenue Service (the "Service") nor preclude
the Service from adopting a contrary position. The parties will not request, and
the BFP Merger is not conditioned upon, a ruling from the Service with respect
to any of the federal income tax consequences of the BFP Merger.
53
<PAGE> 68
Accordingly, if the BFP Merger qualifies as a reorganization under the
Code, (i) no gain or loss will be recognized by the stockholders of BFP with
respect to the shares of WorldCom Common Stock received in the BFP Merger, (ii)
the tax basis of the shares of WorldCom Common Stock received by a BFP
stockholder (including any fractional interest) will be equal to the tax basis
of the shares of BFP Common Stock exchanged therefor, (iii) for purposes of
determining whether a gain or loss on a disposition of shares of WorldCom Common
Stock is long-term or short-term, the holding period of the shares of WorldCom
Common Stock received pursuant to the BFP Merger by the BFP stockholders will
include the holding period of the BFP Common Stock exchanged therefor, provided
the shares of BFP Common Stock were held as a capital asset on the date of the
BFP Merger, and (iv) the receipt of cash in lieu of fractional shares of
WorldCom Common Stock by a stockholder of BFP will be treated as if the
fractional shares were distributed as part of the exchange and then were
redeemed by WorldCom.
The receipt of cash in lieu of a fractional share of WorldCom Common Stock
by a BFP stockholder pursuant to the BFP Merger will generally result in taxable
gain or loss to such stockholder for federal income tax purposes based on the
difference between the amount of cash received by such stockholder and such
stockholder's basis in such fractional share as set forth above. Such gain or
loss should be a capital gain or loss, provided the shares of BFP Common Stock
were held as a capital asset on the date of the BFP Merger.
BECAUSE OF THE COMPLEXITY OF THE TAX LAWS, AND BECAUSE THE TAX CONSEQUENCES
OF ANY PARTICULAR BFP STOCKHOLDER MAY BE AFFECTED BY MATTERS NOT DISCUSSED
HEREIN, IT IS RECOMMENDED THAT EACH BFP STOCKHOLDER CONSULT HIS OR HER PERSONAL
TAX ADVISOR CONCERNING THE APPLICABILITY OF ANY FOREIGN LAWS AS WELL AS OTHER
FEDERAL, STATE AND LOCAL INCOME TAX CONSEQUENCES OF THE BFP MERGER.
EFFECTS UNDER BFP CREDIT AGREEMENTS
BFP has three issues of public debt outstanding: $425 million aggregate
principal amount of 10 7/8% Senior Discount Notes Due 2006, which were issued on
February 26, 1996 (the "1996A Notes"), $400 million aggregate principal amount
of 11 7/8% Senior Discount Notes Due 2006, which were issued on November 7, 1996
(the "1996B Notes"), and $250 million aggregate principal amount of 10% Senior
Notes Due 2007, which were issued on May 29, 1997 (the "1997 Notes," and
together with the 1996A Notes and the 1996B Notes, the "BFP Notes"). Pursuant to
the terms of the 1996A Notes and the 1996B Notes, cash interest is not payable
until March 1, 2001 with respect to the 1996A Notes, and May 1, 2002 with
respect to the 1996B Notes. As of September 30, 1997, the indebtedness under the
BFP Notes (accreted in the case of the 1996A Notes and 1996B Notes) totalled
$796.1 million.
Pursuant to the terms of the Indentures governing the terms of the BFP
Notes, if the BFP Merger is consummated, BFP will be required to give each
holder of the BFP Notes the option to have BFP repurchase such holder's BFP
Notes, for cash, at 101% of the accreted value, in the case of the 1996A and
1996B Notes, or at 101% of the principal amount plus accrued interest, in the
case of the 1997 Notes, on the date of such repurchase. Such offer to purchase
must generally be made to the holders of the BFP Notes within 30 days of the
Effective Time with all cash payments completed within approximately 60 days of
such offer. WorldCom believes that such repurchase can be made by BFP, together
with WorldCom, after consummation of the BFP Merger without materially adversely
affecting the financial condition of the combined company.
BFP has a $250 million senior secured revolving credit facility which has a
provision which requires BFP to prepay the loan in full upon a change of control
(which includes the BFP Merger) unless (1) BFP gives notice to the lenders at
least 30 days prior to the occurrence of the change of control and (2) a
majority of lenders do not request that all outstanding loans under the credit
facility be paid in full. As of December 22, 1997, approximately $75 million was
drawn under the credit facility. BFP does not expect any material financial
implication to the combined company if the credit facility is terminated.
The BFP indentures and credit agreement contain certain covenants which,
among other things, restrict BFP's ability to incur additional debt, create
liens, enter into sale-leaseback transactions, pay dividends (including to
WorldCom subsequent to the BFP Merger), make certain restricted payments and
enter into transactions with affiliates.
54
<PAGE> 69
CERTAIN RELATED TRANSACTIONS
As of the date hereof, neither WorldCom nor BFP is aware of any material
relationship between WorldCom or its directors or executive officers and BFP or
its directors or executive officers, except as contemplated by the BFP Merger
Agreement or as described herein or in the documents incorporated by reference
herein.
WorldCom and BFP are parties to certain interconnection or other services
agreements entered into with each other and certain of their affiliates in the
ordinary course of their respective businesses. During fiscal 1996 and the nine
months ended September 30, 1997, WorldCom received revenues from BFP of
approximately $0.7 million and $3.4 million, respectively. During fiscal 1995
and 1994, WorldCom received revenues from BFP of approximately $0.09 million and
$0.02 million, respectively. Each of WorldCom and BFP believes that the terms
and conditions of such interconnection or other services agreements were no less
favorable to WorldCom or BFP than those that would have been available to
WorldCom or BFP in comparable, arm's-length transactions at the date of such
agreements.
55
<PAGE> 70
THE SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished to holders of BFP Common
Stock in connection with the solicitation of proxies by the BFP Board of
Directors for use at the Special Meeting and any adjournment or postponement
thereof. At the Special Meeting, the stockholders of BFP will consider and vote
upon (i) a proposal to approve and adopt the BFP Merger Agreement and (ii) any
other business which may properly be brought before the Special Meeting or any
adjournment or postponement thereof. Each copy of this Proxy
Statement/Prospectus which is being mailed or delivered to BFP stockholders is
accompanied by a BFP proxy card and a Notice of Special Meeting.
THE BFP BOARD OF DIRECTORS HAS APPROVED THE BFP MERGER AGREEMENT BY
UNANIMOUS VOTE OF THE DIRECTORS AND UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL
AND ADOPTION OF THE BFP MERGER AGREEMENT.
DATE, TIME AND PLACE
The Special Meeting will be held in the Main Dining Room on the 16th Floor
of the St. Louis Club, 7701 Forsyth, St. Louis, Missouri on Thursday, January
29, 1998, commencing at 10:00 a.m. St. Louis time.
RECORD DATE; VOTING RIGHTS; PROXIES
The BFP Board of Directors has fixed the close of business on December 23,
1997 as the Record Date for determining holders entitled to notice of and to
vote at the Special Meeting. Accordingly, only holders of record of shares of
BFP Common Stock on the Record Date will be entitled to notice of and to vote at
the Special Meeting.
As of the Record Date, there were 39,156,867 shares of BFP Common Stock
issued and outstanding. Each share of BFP Common Stock is entitled to one vote
on each matter to be voted upon at the Special Meeting. All shares of BFP Common
Stock represented by properly executed proxies will, unless such proxies have
been previously revoked, be voted in accordance with the instructions indicated
in such proxies. IF NO INSTRUCTIONS ARE INDICATED (OTHER THAN IN THE CASE OF
BROKER NON-VOTES), SUCH SHARES OF BFP COMMON STOCK WILL BE VOTED FOR APPROVAL
AND ADOPTION OF THE BFP MERGER AGREEMENT AND IN THE DISCRETION OF THE PROXIES
WITH RESPECT TO SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE SPECIAL
MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
BFP does not know of any matters other than as described in the Notice of
Special Meeting that are to come before the Special Meeting. If any other matter
or matters are properly presented for action at the Special Meeting, the persons
named in the enclosed form of proxy and acting thereunder will have the
discretion to vote on such matters in accordance with their best judgment,
unless such authorization is withheld. A stockholder who has given a proxy may
revoke it at any time prior to its exercise by giving written notice thereof to
ChaseMellon Shareholder Services, by signing and returning a later dated proxy
or by voting in person at the Special Meeting; however, mere attendance at the
Special Meeting will not in and of itself have the effect of revoking the proxy.
Any written notice of revocation should be sent to ChaseMellon Shareholder
Services, P.O. Box 3316, South Hackensack, N.J. 07606-1016. If a proxy is
revoked, the stockholder may submit a later dated proxy or vote in person at the
Special Meeting. If the stockholder does not submit a later dated proxy or vote
in person at the Special Meeting, such revocation will have the effect of the
stockholder not being treated as present for purposes of determining the
presence of a quorum at the Special Meeting and the effect of a vote against the
approval and adoption of the BFP Merger Agreement.
SOLICITATION OF PROXIES
BFP will bear its own cost of solicitation of proxies. In addition to the
use of the mails, proxies may be solicited by the directors, officers and other
selected employees of BFP by personal interview, telephone,
56
<PAGE> 71
telegram or e-mail. Such directors and officers will not receive additional
compensation for such solicitation but may be reimbursed for out-of-pocket
expenses incurred in connection therewith. Arrangements may also be made with
brokerage firms and other custodians, nominees and fiduciaries to forward
solicitation materials to the beneficial owners of shares of BFP Common Stock
held of record by such persons, in which case BFP will reimburse such brokerage
firms, custodians, nominees and fiduciaries for reasonable out-of-pocket
expenses incurred by them in connection therewith.
In addition, Georgeson & Company Inc. has been retained by BFP to assist in
the solicitation of proxies. Georgeson & Company Inc. may contact holders of
shares of BFP Common Stock by mail, telephone, facsimile, telegraph and personal
interviews and may request brokers, dealers and other nominee stockholders to
forward materials to beneficial owners of shares of BFP Common Stock. Georgeson
& Company Inc. will receive reasonable and customary compensation for its
services (estimated at $10,000), will be reimbursed for certain reasonable
out-of-pocket expenses and will be indemnified against certain liabilities and
expenses in connection therewith, including certain liabilities under the
federal securities laws.
QUORUM
The presence in person or by properly executed proxy of holders of a
majority of the issued and outstanding shares of BFP Common Stock entitled to
vote as of the Record Date is necessary to constitute a quorum at the Special
Meeting. As of the Record Date, there were outstanding and entitled to vote,
39,156,867 shares of BFP Common Stock held by approximately 400 stockholders of
record. Votes cast by proxy or in person at the Special Meeting will be
tabulated by the election inspectors appointed for the Special Meeting who will
determine whether or not a quorum is present. Under the applicable provisions of
the DGCL, abstentions and "broker non-votes" (that is, proxies from brokers or
nominees indicating that such persons have not received instructions from the
beneficial owner or other persons entitled to vote shares as to a matter with
respect to which the brokers or nominees do not have discretionary power to
vote) will be treated as present for purposes of determining the presence of a
quorum at the Special Meeting.
If less than a quorum of all shares eligible to vote is present at the
Special Meeting, any officer entitled to preside at, or to act as secretary of,
such meeting may adjourn the Special Meeting until a quorum of all shares
eligible to vote is present.
REQUIRED VOTE
The approval and adoption of the BFP Merger Agreement requires the
affirmative vote of a majority of votes entitled to be cast by the holders of
all outstanding shares of BFP Common Stock. Since the affirmative vote of a
majority of votes entitled to be cast by the holders of all outstanding shares
of BFP Common Stock is required to approve and adopt the BFP Merger Agreement,
abstentions and broker non-votes will have the effect of a vote against the
approval and adoption of the BFP Merger Agreement.
As of the Record Date, all directors and executive officers of BFP and
their affiliates, as a group, were entitled to vote shares of BFP Common Stock
representing approximately 11% of the BFP Common Stock. Each of BFP's directors
has agreed to vote his or her beneficially owned shares of BFP Common Stock for
adoption and approval of the BFP Merger Agreement.
APPROVAL AND ADOPTION OF THE BFP MERGER AGREEMENT IS A MATTER OF GREAT
IMPORTANCE TO THE STOCKHOLDERS OF BFP. ACCORDINGLY, STOCKHOLDERS OF BFP ARE
URGED TO READ AND CONSIDER CAREFULLY THE INFORMATION PRESENTED IN THIS PROXY
STATEMENT/PROSPECTUS, AND TO COMPLETE, SIGN, DATE AND PROMPTLY RETURN THE
ENCLOSED PROXY IN THE ENCLOSED POSTAGE PAID ENVELOPE. BFP STOCKHOLDERS SHOULD
NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS.
57
<PAGE> 72
ABSENCE OF APPRAISAL RIGHTS
Holders of the BFP Common Stock will not be entitled to any dissenter's or
appraisal rights under Section 262 of the DGCL in connection with the BFP Merger
because: (i) shares of BFP Common Stock were, at the Record Date for the Special
Meeting, designated as Nasdaq National Market securities; (ii) BFP stockholders
will not be required to accept anything in exchange for their shares of BFP
Common Stock other than shares of WorldCom Common Stock, which will be
designated as Nasdaq National Market securities as of the Effective Time, and
cash in lieu of fractional shares of such stock; and (iii) the BFP Certificate
does not otherwise provide BFP stockholders with dissenters' or appraisal rights
applicable to the BFP Merger.
PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma condensed combined financial statements combine the
consolidated balance sheets and statements of operations of WorldCom and MCI as
if the MCI/WorldCom Merger had occurred for the periods indicated. The
MCI/WorldCom Merger will be treated as a purchase for financial reporting
purposes. No adjustment has been included in the pro forma amounts for any
anticipated cost savings or other synergies. The Pro Forma Financial Information
also does not include amounts with respect to the BFP Merger, the AOL
Transaction or the CompuServe Merger because they are individually, and in the
aggregate, not material to WorldCom.
WORLDCOM PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited Pro Forma Condensed Combined Balance Sheet as of
September 30, 1997 and unaudited Pro Forma Condensed Combined Statements of
Operations for the nine months ended September 30, 1997 and for the year ended
December 31, 1996, illustrate the effect of the MCI/WorldCom Merger as if the
MCI/WorldCom Merger had occurred on September 30, 1997, for the Pro Forma
Condensed Combined Balance Sheet and as of the earliest date presented for the
Pro Forma Condensed Combined Statements of Operations. No adjustment has been
included in the pro forma amounts for any anticipated cost savings or other
synergies. The Pro Forma Condensed Combined Financial Statements also do not
include amounts with respect to the BFP Merger, the AOL Transaction or the
CompuServe Merger because they are individually, and in the aggregate, not
material to WorldCom.
Pursuant to the terms of the MCI/WorldCom Merger, each share of MCI Common
Stock will be converted into the right to receive that number of shares of
WorldCom Common Stock equal to the Exchange Ratio. The holder of MCI Class A
Common Stock will be entitled to receive $51.00 per share in cash for each of
the MCI Class A Common Stock shares it owns, or approximately $7 billion in the
aggregate. The Pro Forma Condensed Combined Financial Statements have been
prepared assuming the MCI/WorldCom Average Price to be $33.13, resulting in an
assumed MCI Exchange Ratio of 1.5396. The actual MCI Exchange Ratio may vary as
described herein. The MCI/WorldCom Merger will be accounted for as a purchase.
These Pro Forma Condensed Combined Financial Statements should be read in
conjunction with the historical financial statements of WorldCom and MCI which
are incorporated by reference herein and the Additional Pro Forma Presentation
which is set forth elsewhere herein.
The Pro Forma Condensed Combined Financial Statements are presented for
comparative purposes only and are not intended to be indicative of actual
results had the transactions occurred as of the dates indicated above nor do
they purport to indicate results which may be attained in the future.
58
<PAGE> 73
WORLDCOM PRO FORMA CONDENSED COMBINED BALANCE SHEET(1)
AS OF SEPTEMBER 30, 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
MCI WORLDCOM
WORLDCOM MCI PRO FORMA PRO FORMA
HISTORICAL(2) HISTORICAL(3) ADJUSTMENTS COMBINED
------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Current assets.......................... $ 1,625 $ 4,603 $ 7,446(5) $ 6,228
(7,446)(4)
Property, plant and equipment, net...... 5,419 13,783 (2,700)(4) 16,502
Goodwill and other intangibles, net..... 13,002 2,366 28,621(4) 43,989
Other assets............................ 767 3,965 -- 4,732
------- ------- ------- -------
Total assets.................. $20,813 $24,717 $25,921 $71,451
======= ======= ======= =======
Current liabilities..................... $ 1,870 $ 7,327 $ -- $ 9,197
Long-term debt.......................... 5,349 3,282 7,446(5) 16,077
Other liabilities....................... 228 2,037 (1,015)(4) 1,250
Mandatorily redeemable preferred
stock................................. -- 750 -- 750
Shareholders' equity:
Preferred stock....................... -- -- -- --
Class A common stock.................. -- 14 (14)(6) --
Common stock.......................... 9 60 (60)(6) 18
9(7)
Paid in capital....................... 15,036 6,394 (6,394)(6) 45,838
30,802(7)
Retained earnings (deficit)........... (1,713) 5,607 (5,607)(6) (1,713)
Other................................. 34 (754) 754(6) 34
------- ------- ------- -------
Total shareholders' equity.... 13,366 11,321 19,490 44,177
------- ------- ------- -------
Total liabilities and
shareholders' equity........ $20,813 $24,717 $25,921 $71,451
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
59
<PAGE> 74
WORLDCOM PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS(1)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MCI WORLDCOM
WORLDCOM MCI PRO FORMA PRO FORMA
HISTORICAL(2) HISTORICAL(3) ADJUSTMENTS COMBINED
------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues................................. $5,349 $14,545 $(280)(8) $19,614
Operating expenses:
Line costs............................. 2,806 8,090 (280)(8) 10,616
Selling, general and administrative.... 1,141 4,028 5,169
Depreciation and amortization.......... 682 1,475 537(9) 2,281
(413)(10)
------ ------- ----- -------
Operating income......................... 720 952 (124) 1,548
Other income (expense):
Interest expense....................... (235) (174) (363)(11) (772)
Other.................................. 17 (94) -- (77)
------ ------- ----- -------
Income before income taxes............... 502 684 (487) 699
Provision for income taxes............... 261 246 19(12) 526
------ ------- ----- -------
Income from continuing operations........ 241 438 (506) 173
Preferred dividend requirements.......... 20 45 -- 65
------ ------- ----- -------
Net income applicable to common
shareholders........................... $ 221 $ 393 $(506) $ 108
====== ======= ===== =======
Number of shares issued and outstanding:
Primary................................ 955 705 1,831
====== ======= =======
Fully diluted.......................... 959 706 1,838
====== ======= =======
Earnings per share(13):
Primary................................ $ 0.25 $ 0.56 $ 0.06
Fully diluted.......................... $ 0.25 $ 0.56 $ 0.06
</TABLE>
The accompanying notes are an integral part of this statement.
60
<PAGE> 75
WORLDCOM PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS(1)
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MCI WORLDCOM
WORLDCOM MCI PRO FORMA PRO FORMA
HISTORICAL(2) HISTORICAL(3) ADJUSTMENTS COMBINED
------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Revenues.................................. $ 4,485 $18,494 $(558)(8) $22,421
Operating expenses:
Line costs.............................. 2,457 9,489 (500)(8) 11,446
Selling, general and administrative..... 829 5,028 5,857
Depreciation and amortization........... 303 1,664 716(9) 2,133
(550)(10)
Charge for in-process research and
development.......................... 2,140 -- -- 2,140
Other................................... 600 -- (58)(8) 542
------- ------- ----- -------
Operating income (loss)................... (1,844) 2,313 (166) 303
Other income (expense):
Interest expense........................ (222) (196) (484)(11) (902)
Other................................... 6 (127) -- (121)
------- ------- ----- -------
Income (loss) before income taxes......... (2,060) 1,990 (650) (720)
Provision for income taxes................ 129 753 25(12) 907
------- ------- ----- -------
Income (loss) from continuing
operations.............................. (2,189) 1,237 (675) (1,627)
Preferred dividend requirements........... 1 35 -- 36
------- ------- ----- -------
Net income (loss) applicable to common
shareholders............................ $(2,190) $ 1,202 $(675) $(1,663)
======= ======= ===== =======
Number of shares issued and outstanding:
Primary................................. 398 695 1,246
======= ======= =======
Fully diluted........................... 398 701 1,246
======= ======= =======
Earnings (loss) per share(13):
Primary................................. $ (5.50) $ 1.73 $ (1.33)
Fully diluted........................... $ (5.50) $ 1.72 $ (1.33)
</TABLE>
The accompanying notes are an integral part of this statement.
61
<PAGE> 76
NOTES TO WORLDCOM PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
1. The unaudited pro forma financial data do not give effect to any
restructuring costs, nor any potential cost savings or other synergies that
could result from the MCI/WorldCom Merger. WorldCom is in the process of
developing its plan to integrate the operations of MCI which may include
certain exit costs. As a result of this plan, a charge, which may be
material but which cannot now be quantified, is expected to be recognized in
the period in which such a restructuring occurs. Furthermore, the pro forma
financial data do not reflect any expense of intangible assets attributable
to the value of any in-process research and development projects of MCI at
the time of the MCI/WorldCom Merger. However, WorldCom has undertaken a
study to determine the allocation of the total purchase price to the various
assets acquired, including in- process research and development, and the
liabilities assumed. To the extent that a portion of the purchase price is
allocated to in-process research and development projects of MCI, a charge,
which may be material, would be recognized in the period in which the
MCI/WorldCom Merger occurs. The pro forma data are not necessarily
indicative of the operating results or financial position that would have
occurred had the MCI/WorldCom Merger been consummated at the dates
indicated, nor necessarily indicative of future operating results or
financial position.
2. On December 31, 1996, WorldCom completed the MFS Merger. The MFS Merger was
accounted for as a purchase; accordingly, the operating results for MFS are
not reflected in the historical results of WorldCom for the year ended
December 31, 1996. See "Additional Pro Forma Presentation," which should be
read in conjunction with these pro forma financial statements.
3. These columns represent historical results of operations and financial
position.
4. This adjustment reflects the excess of consideration over net assets
acquired. The following is a calculation (in millions except per share
data):
<TABLE>
<S> <C>
MCI Common Stock outstanding at September 30, 1997.......... 560
Shares issuable (treasury stock method) upon exercise of MCI
options................................................... 44
--------
MCI Common Stock assumed outstanding at September 30,
1997...................................................... 604
MCI Exchange Ratio per share................................ 1.5396
--------
WorldCom Common Stock assumed to be issuable................ 930
WorldCom per share closing price on November 7, 1997........ $ 33.13
--------
Sub-total................................................... $ 30,811
Payment to MCI Class A Common Stockholder................... 6,936
Inducement fee and other estimated transaction costs........ 510
--------
Total consideration......................................... $ 38,257
Preliminary purchase accounting adjustments:
Fair value adjustment to property, plant and equipment...... 2,700
Deferred tax impact of fair value adjustment................ (1,015)
--------
39,942
Historical net book value of MCI net assets acquired........ (11,321)
--------
Excess of consideration over net assets acquired............ $ 28,621
========
</TABLE>
The total consideration will be allocated to the assets and liabilities of
MCI based on their estimated fair value. A preliminary allocation of the
purchase price has been presented in the pro forma condensed combined
financial statements in which the historical MCI property, plant and
equipment has been adjusted to its estimated fair value based upon its
depreciated replacement cost. The impact of this fair value adjustment has
also been reflected in pro forma deferred tax balances. The excess of
consideration over the historical book value of MCI net assets acquired has
been preliminarily allocated to goodwill and other intangible assets. A
final allocation of the purchase price to the MCI assets acquired and
liabilities assumed is dependent upon certain valuations and studies that
have not progressed to a stage where there
62
<PAGE> 77
is sufficient information to make such an allocation in the accompanying pro
forma financial information. WorldCom's management believes that the
consideration in excess of the historical book value of MCI's net assets
acquired, primarily comprises goodwill, certain in-process research and
development projects and other intangible assets. In-process research and
development projects may include projects for which technological
feasibility has not been established and the technology has no future
alternative use. To the extent that a portion of the purchase price is
allocated to such in-process research and development projects, a charge,
which may be material to WorldCom's results of operations, would be
recognized in the period in which the MCI/WorldCom Merger occurs. (See Note
1).
5. This adjustment represents additional borrowings of $7.4 billion for the
purpose of financing the cash payment to the holder of the MCI Class A
Common Stock of $6.9 billion, and other estimated transaction costs of $510
million (which includes a $465 million inducement fee paid to BT).
6. These adjustments represent the elimination of MCI's stockholders' equity
accounts.
7. These adjustments represent the issuance of approximately 930 million shares
of WorldCom Common Stock in connection with the MCI/WorldCom Merger and an
assumed MCI Exchange Ratio of 1.5396 shares of WorldCom Common Stock for
each share of MCI Common Stock outstanding. The actual MCI Exchange Ratio
may vary as described herein.
8. These estimated adjustments eliminate the revenues and corresponding line
costs and other charges attributable to the intercompany transactions
between WorldCom and MCI.
9. This entry reflects the adjustment to amortization for the effect of the
excess of consideration over net assets acquired in the MCI/WorldCom Merger.
For purposes of the Pro Forma Condensed Combined Financial Statements, the
excess consideration has been amortized over an estimated life of 40 years.
WorldCom management expects that amounts allocated to goodwill and trade
names will be amortized over 40 years while other intangible assets may be
amortized over shorter periods consequently reducing net income reported by
MCI WorldCom. A final determination of the lives attributable to the
intangible assets has not yet been made (See Note 1). As discussed in Note
4, a portion of the excess consideration may be allocated to certain
in-process research and development projects. To the extent amounts are
allocated to certain in-process research and development projects, pro forma
amortization expense would be ratably reduced accordingly.
10. This entry reflects the adjustment to depreciation expense for the effect of
the fair value adjustment of MCI's property, plant and equipment based on a
preliminary evaluation of depreciated replacement cost (See Note 4).
11. These adjustments represent the recognition of interest expense on the
additional borrowings of WorldCom to finance the cash payment to the holder
of the MCI Class A Common Stock and transaction costs (see Note 5). The
interest expense was calculated based on WorldCom's incremental borrowing
rate of 6.5%. A change of 1/8% in the incremental rate would affect
interest expense by $7.0 million for the nine months ended September 30,
1997, and $9.3 million for the year ended December 31, 1996.
12. These entries represent the tax effect of the pro forma adjustments.
13. Pro forma per share data are based on the number of WorldCom common and
common equivalent shares that would have been outstanding had the
MCI/WorldCom Merger occurred on the earliest date presented.
63
<PAGE> 78
ADDITIONAL PRO FORMA PRESENTATION
The following unaudited Additional Pro Forma Presentation illustrates the
effect of the MCI/WorldCom Merger and the MFS Merger as well as MFS's earlier
acquisition of UUNET (the "UUNET Acquisition") on the results of operations of
WorldCom for the year ended December 31, 1996, as if the transactions had
occurred on January 1, 1996. The Additional Pro Forma Presentation is presented
for purposes of additional analysis due to the significance of the MFS Merger.
Pursuant to the terms of the MCI/WorldCom Merger, each share of MCI Common
Stock will be converted into the right to receive that number of shares of
WorldCom Common Stock equal to the MCI Exchange Ratio. The holder of MCI Class A
Common Stock will be entitled to receive $51.00 per share in cash for each of
the MCI Class A Common Stock shares it owns, or approximately $7 billion in the
aggregate. The pro forma financial statements have been prepared assuming the
MCI/WorldCom Average Price to be $33.13 resulting in an assumed MCI Exchange
Ratio of 1.5396. The actual MCI Exchange Ratio may vary as described herein. The
MCI/WorldCom Merger will be accounted for as a purchase.
On December 31, 1996, WorldCom through a wholly owned subsidiary merged
with MFS. 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 or
approximately 471.0 million shares of WorldCom Common Stock in the aggregate.
Each share of MFS Series A 8% Cumulative Convertible Preferred Stock was
converted into the right to receive one share of WorldCom Series A Preferred
Stock or 94,992 shares of WorldCom Series A Preferred Stock. Each share of MFS
Series B Convertible Preferred Stock was converted into the right to receive one
share of WorldCom Series B Preferred Stock or approximately 12.7 million shares
of WorldCom Series B Preferred Stock. 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.
On August 12, 1996 and prior to the MFS Merger, MFS issued approximately 58
million shares of MFS common stock and options valued at approximately $2.1
billion in connection with its acquisition of UUNET.
The Additional Pro Forma Presentation should be read in conjunction with
the historical financial statements of WorldCom, MCI, MFS and UUNET which are
incorporated by reference herein.
The Additional Pro Forma Presentation is presented for comparative purposes
only and is not intended to be indicative of actual results had the transactions
occurred as of the dates indicated above nor do they purport to indicate results
which may be attained in the future. No adjustment has been included in the pro
forma amounts for any anticipated cost savings or other synergies. The
Additional Pro Forma Presentation also does not include amounts with respect to
the BFP Merger, the AOL Transaction or the CompuServe Merger because they are
individually, and in the aggregate, not material to WorldCom.
64
<PAGE> 79
ADDITIONAL PRO FORMA PRESENTATION(1)
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
UUNET WORLDCOM/
HISTORICAL(2) MFS/UUNET
WORLDCOM MFS JANUARY 1, 1996 - PRO FORMA PRO FORMA MCI
HISTORICAL(2) HISTORICAL(2) AUGUST 12, 1996 ADJUSTMENTS COMBINED HISTORICAL(2)
------------- ------------- ----------------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues........................... $ 4,485 $1,115 $129 $ (94)(3) $ 5,635 $18,494
Operating expenses:
Line costs....................... 2,457 687 71 (94)(3) 3,121 9,489
Selling, general and
administrative................. 829 493 44 -- 1,366 5,028
Depreciation and amortization.... 303 286 12 237(4) 838 1,664
Charge for in-process research
and development................ 2,140 -- -- -- 2,140 --
Other............................ 600 -- -- -- 600 --
------- ------ ----- ----- ------- -------
Operating income (loss)............ (1,844) (351) 2 (237) (2,430) 2,313
Other income (expense):
Interest expense................. (222) (62) (1) -- (285) (196)
Other............................ 6 (3) -- -- 3 (127)
------- ------ ----- ----- ------- -------
Income (loss) before income
taxes............................ (2,060) (416) 1 (237) (2,712) 1,990
Provision for income taxes......... 129 1 -- (125)(5) 5 753
------- ------ ----- ----- ------- -------
Income (loss) from continuing
operations....................... (2,189) (417) 1 (112) (2,717) 1,237
Preferred dividend requirements.... 1 29 -- -- 30 35
------- ------ ----- ----- ------- -------
Net income (loss) applicable to
common shareholders.............. $(2,190) $ (446) $ 1 $(112) $(2,747) $ 1,202
======= ====== ===== ===== ======= =======
Number of shares issued and
outstanding:
Primary.......................... 398 N/M N/M 869 695
======= ======= =======
Fully diluted.................... 398 N/M N/M 869 701
======= ======= =======
Earnings (loss) per share (6):
Primary.......................... $ (5.50) N/M N/M $ (3.16) $ 1.73
Fully diluted.................... $ (5.50) N/M N/M $ (3.16) $ 1.72
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
----------- ---------
<S> <C> <C>
Revenues........................... $(558)(3) $23,571
Operating expenses:
Line costs....................... (500)(3) 12,110
Selling, general and
administrative................. -- 6,394
Depreciation and amortization.... 716(7) 2,668
(550)(8)
Charge for in-process research
and development................ -- 2,140
Other............................ (58)(3) 542
----- -------
Operating income (loss)............ (166) (283)
Other income (expense):
Interest expense................. (484)(9) (965)
Other............................ -- (124)
----- -------
Income (loss) before income
taxes............................ (650) (1,372)
Provision for income taxes......... 25(5) 783
----- -------
Income (loss) from continuing
operations....................... (675) (2,155)
Preferred dividend requirements.... -- 65
----- -------
Net income (loss) applicable to
common shareholders.............. $(675) $(2,220)
===== =======
Number of shares issued and
outstanding:
Primary.......................... 1,718
=======
Fully diluted.................... 1,718
=======
Earnings (loss) per share (6):
Primary.......................... $ (1.29)
Fully diluted.................... $ (1.29)
</TABLE>
The accompanying notes are an integral part of this statement.
65
<PAGE> 80
NOTES TO ADDITIONAL
PRO FORMA PRESENTATION
1. The unaudited Additional Pro Forma Presentation does not give effect to any
potential cost savings or other synergies that could result from the
MCI/WorldCom Merger, the MFS Merger and UUNET Acquisition. WorldCom's
results for 1996 do not include charges related to extraordinary items of
$24.4 million, net of taxes. Furthermore, the pro forma financial data do
not reflect any expense of intangible assets attributable to the value of
any in-process research and development projects of MCI at the time of the
MCI/WorldCom Merger. However, WorldCom has undertaken a study to determine
the allocation of the total purchase price to the various assets acquired,
including in-process research and development, and the liabilities assumed.
To the extent that a portion of the purchase price is allocated to certain
in-process research and development projects of MCI, a charge, which may be
material, would be recognized in the period in which the MCI/WorldCom
Merger occurs. The pro forma data are not necessarily indicative of the
operating results or financial position that would have occurred had the
MCI/WorldCom Merger, MFS Merger and UUNET Acquisition been consummated at
the date indicated, nor necessarily indicative of future operating results
or financial position.
2. These columns represent historical results of operations.
3. These estimated adjustments eliminate the revenues, corresponding line
costs and other charges attributable to the intercompany transactions among
WorldCom, MFS, UUNET and MCI.
4. This entry reflects the adjustment to amortization for the effect of the
intangible assets acquired. For purposes of allocating the acquisition
costs among the various assets acquired in the MFS Merger and UUNET
Acquisition, the carrying value of the acquired assets approximated their
fair value, with all of the excess of such acquisition costs being
attributed to in-process research and development (network design and
development projects in-process), goodwill, network technology and
assembled workforce. It is WorldCom's intention to continue to evaluate the
acquired assets and, as a result, the allocation of the acquisition costs
among the tangible and intangible assets acquired may change. Goodwill
attributable to MFS is being amortized over 40 years while goodwill
attributable to UUNET is being amortized over 5 years. Network technology
and assembled work force are being amortized over 5 years and 10 years,
respectively.
5. These entries represent the tax effect of the pro forma adjustments.
6. Pro forma per share data is based on the number of shares of WorldCom
Common Stock that would have been outstanding had the MCI/WorldCom Merger,
the MFS Merger and UUNET Acquisition occurred on the earliest date
presented. The per share data also includes the effect of the $2.14 billion
charge for in-process research and development related to the MFS Merger.
Excluding this non-recurring charge from the pro forma data would have
resulted in loss per share of $(0.05).
7. This entry reflects the adjustment to amortization for the effect of the
excess of consideration over net assets acquired in the MCI/WorldCom
Merger. The total consideration of the MCI/WorldCom Merger will be
allocated to the assets and liabilities of MCI based on their estimated
fair value. The excess of consideration over the historical book value of
MCI net assets acquired has been preliminarily allocated to goodwill and
other intangible assets. A final allocation of the purchase price to the
MCI assets acquired and liabilities assumed is dependent upon certain
valuations and studies that have not progressed to a stage where there is
sufficient information to make such an allocation in the accompanying pro
forma financial information. WorldCom's management believes that the
consideration in excess of the historical book value of MCI's net assets
acquired, primarily comprises goodwill, certain in-process research and
development projects and other intangible assets. In-process research and
development projects may include projects for which technological
feasibility has not been established and the technology has no future
alternative use. To the extent that a portion of the purchase price is
allocated to such in-process research and development projects, a charge,
which may be material to WorldCom's results of operations, would be
recognized in the period in which the MCI/WorldCom Merger occurs. For
purposes of the Additional Pro Forma Presentation, the excess consideration
has been amortized over an estimated life of
66
<PAGE> 81
40 years. WorldCom management expects that amounts allocated to goodwill
and trade names will be amortized over 40 years while other intangible
assets may be amortized over shorter periods consequently reducing net
income reported by the combined company. A final determination of lives
attributable to the intangible assets has not yet been made (See Note 1).
To the extent amounts are allocated to certain in-process research and
development projects, pro forma amortization expense would be ratably
reduced accordingly.
8. This entry reflects the adjustment to depreciation expense for the effect of
the fair value adjustment of MCI's property, plant and equipment based on a
preliminary evaluation of depreciated replacement cost (See Note 7).
9. These adjustments represent the recognition of interest on the additional
borrowings of WorldCom to finance the cash payment to the holder of the MCI
Class A Common Stock and other estimated transaction costs of $510 million
(which includes a $465 million inducement fee paid to BT). The interest
expense was calculated at WorldCom's incremental borrowing rate of 6.5%. A
change of 1/8% in the incremental rate would affect interest expense by $9.3
million for the year ended December 31, 1996.
67
<PAGE> 82
INFORMATION REGARDING BFP
The following briefly describes BFP's business and the security ownership
of BFP's management and principal stockholders of BFP. Additional information
regarding BFP is contained in its filings with the Commission pursuant to the
Exchange Act. See "Additional Information" and "Incorporation of Documents by
Reference."
BUSINESS OF BFP
Overview
BFP, founded in November 1993, is a leading full service facilities-based
provider of competitive local telecommunications services to IXCs, ISPs,
wireless carriers and business, government and institutional end users in
selected cities within the United States. BFP is organized as a holding company
with individual operating subsidiaries which focus on specific market segments.
Through its operating subsidiaries, BFP acquires and constructs its own
state-of-the-art digital optical fiber telecommunications networks and
facilities and leases network capacity from others to provide IXCs, ISPs,
wireless carriers and business, government and institutional end users with an
alternative source for a broad array of high quality voice, data and other
telecommunications services. Certain of BFP's subsidiaries located in California
currently provide single source integrated local and long distance
telecommunications services and facilities management for medium and small
businesses utilizing the facilities of other providers.
BFP's networks are organized to take advantage of ongoing technological,
competitive and regulatory changes. BFP sells its services primarily to high
volume users of telecommunications services. Through the deployment of
state-of-the-art fiber optic networks and switches, BFP is able to provide
customers served by its networks with high quality, reliable services at prices
less than those the regulated ILECs currently charge. BFP can expand its
capabilities to offer these services beyond the locations served by its networks
by interconnecting its facilities with the facilities of the ILECs, IXCs and
other providers of telecommunications services.
At September 30, 1997, BFP had a total of 28 digital telephone switches
installed serving a total of 33 of its operating networks, and plans to leverage
its networks and customer relationships by offering local dial tone, switched
access termination and origination services, centrex and desktop products in all
of its networks. As of September 30, 1997, BFP had collocation in a total of 121
ILEC central offices and had increased the number of CLEC lines in service from
13,107 at September 30, 1996 to 80,019 at September 30, 1997, with annualized
switched services revenues increasing from $8.8 million based on quarter ended
September 30, 1996 revenues to $44.0 million based on quarter ended September
30, 1997 revenues.
Through GLA International, Inc., a wholly-owned subsidiary of BFP ("GLA"),
BFP provides a full range of consulting, network engineering, construction,
design and strategic planning services, as well as financial and management
software products (including specifically designed software for billing systems,
toll rating, plant records and financial applications) for a wide variety of
telecommunications providers. GLA's capabilities also serve as an internal
source for the telecommunications infrastructure support needed for BFP's CLEC
business.
Strategic Relationships
In order to capitalize on the competitive dynamics of the changing IXC/ILEC
relationships, BFP has established close business alliances with major IXCs,
including joint ventures and preferred vendor relationships. In accordance with
this strategy, (i) BFP and MCImetro Access Transmission Services, Inc.
("MCImetro"), a wholly-owned subsidiary of MCI, have entered into agreements
which provide that, until September 30, 2001, BFP will be MCImetro's preferred
provider of certain local access services in a number of BFP's markets and
pursuant to which MCImetro has acquired 958,720 shares of the BFP Common Stock,
(ii) BFP has concluded a national preferred vendor agreement with AT&T
Communications Inc. ("AT&T Communications"), a wholly-owned subsidiary of AT&T,
pursuant to which BFP has become AT&T Communications' preferred supplier of
local access services in most of BFP's markets, and (iii) in
68
<PAGE> 83
February 1997, BFP concluded an agreement with AT&T pursuant to which BFP will
provide switched access origination and termination of AT&T's long distance
customer calls through BFP's local networks in most of BFP's markets. BFP
believes preferred vendor relationships with IXCs provide opportunities to
leverage its partners' sales channels and market support to sell BFP's products
and services and expand BFP's potential revenue base. In addition, BFP believes
that relationships with IXCs facilitate its entry into new markets by providing
access between the IXCs and their customers. BFP has organized a national
account marketing organization to manage such relationships.
On February 25, 1997, BFP acquired a 60% interest in a company formed by
MaineCom Services, a subsidiary of Central Maine Power Co., for the purposes of
constructing, owning, operating and developing networks in Maine and New
Hampshire.
BFP is not able to predict the effect that the BFP Merger and/or the
MCI/WorldCom Merger may have on these strategic relationships.
Cities Served
As of September 30, 1997, BFP subsidiaries had systems in operation or
under construction in the following cities:
<TABLE>
<CAPTION>
OTHER CLEC
NETWORKS IN CITY
--------------------
CURRENT ANNOUNCED
------- ---------
<S> <C> <C>
EASTERN REGION
Springfield, Massachusetts................................ 0 0
Providence, Rhode Island.................................. 1 0
Hartford, Connecticut(3)(4)............................... 3 0
Grand Rapids, Michigan.................................... 0 1
Lansing, Michigan......................................... 0 1
Traverse City, Michigan................................... 0 0
Toledo, Ohio.............................................. 1 0
White Plains, New York(3)................................. 1 0
Stamford, Connecticut(3).................................. 2 1
Long Island, New York(1)(3)............................... 3 2
Portland, Maine(1)(2)..................................... 0 1
Nashua, New Hampshire(1)(2)............................... 1 0
Manchester, New Hampshire(1)(2)........................... 0 1
CENTRAL REGION
Oklahoma City, Oklahoma................................... 2 1
Tulsa, Oklahoma........................................... 1 1
Little Rock, Arkansas..................................... 3 0
Tucson, Arizona........................................... 2 0
Albuquerque, New Mexico................................... 2 0
Knoxville, Tennessee...................................... 0 2
Jackson, Mississippi...................................... 1 1
Kansas City, Missouri..................................... 3 0
Springfield, Missouri(1).................................. 1 1
Minneapolis, Minnesota(1)(3)(4)........................... 2 2
St. Paul, Minnesota(1)(3)(4).............................. 0 1
Austin, Texas............................................. 2 1
Dallas, Texas(3)(4)....................................... 4 1
Fort Worth, Texas......................................... 2 0
San Antonio, Texas(4)..................................... 2 1
</TABLE>
69
<PAGE> 84
<TABLE>
<S> <C> <C>
Corpus Christi, Texas(1)....................................................... 2 0
Houston, Texas(3)(4)........................................................... 4 0
Waco, Texas(1)................................................................. 0 0
WESTERN REGION
Sacramento, California......................................................... 3 2
San Jose, California(3)........................................................ 3 0
Sunnyvale, California.......................................................... 3 0
Santa Clara, California........................................................ 3 0
Stockton, California........................................................... 0 0
Fresno, California............................................................. 1 0
Bakersfield, California........................................................ 1 0
Milpitas, California........................................................... 3 0
Palo Alto, California.......................................................... 3 0
Salt Lake City, Utah........................................................... 3 1
San Mateo, California(1)....................................................... 2 0
Reno, Nevada................................................................... 0 0
San Francisco and Los Angeles, California(3)(4)(5)............................. N/A N/A
</TABLE>
- ---------------
(1) Networks under construction.
(2) Majority-owned joint venture.
(3) City where WorldCom has a network.
(4) City where MCImetro has a network.
(5) Facilities management operations.
BFP believes its regional aggregation strategy will yield economies of
scale in service costs and allow service-affecting decisions to occur closer to
its customers.
Customers
BFP seeks to leverage its networks through sales and marketing activities
targeted at two separate customer groups: wholesale and retail. Wholesale
customers consist of IXCs and information service providers. Retail customers
are composed primarily of businesses, government and institutional
telecommunications end-users that have high volume dedicated telecommunications
requirements and, to a lesser extent, include residential customers for switched
services.
For the three months ended September 30, 1997, approximately 19.3% of BFP's
consolidated revenues were attributable to access services provided to IXCs
pursuant to numerous individual service orders. Approximately 8.0% and 7.4% of
such consolidated revenues were attributable to services provided to AT&T and
MCI, respectively, and their respective affiliates pursuant to numerous
individual service orders. One of BFP's agreements with AT&T permits AT&T to
terminate such agreement in the event of a "change of control" of BFP (which
would include the BFP Merger). The loss of access revenues from either AT&T or
MCI as a customer could have a material adverse effect on BFP's
telecommunications business.
GLA's sales and marketing efforts are directed towards a wide variety of
telephone, cable television and power companies, wireless providers and other
telecommunications infrastructure owners and operators in the United States and
elsewhere. GLA offers multi-faceted solutions to customers' telecommunications
infrastructure requirements utilizing its varied technical and engineering
expertise to offer a complete package of consulting, field service and
information systems support. GLA's engineering and technical personnel include
professionals who have significant technical and engineering expertise in most
of the critical voice, video, data and wireless telecommunications technologies.
70
<PAGE> 85
Network Operations
BFP's networks consist of fiber optic digitally-based communications paths
which allow for high-speed, high quality transmission of voice, data and video
communications. BFP typically installs backbone fiber optic cables containing
either 96 or 144 fiber strands, which have significantly greater bandwidth
carrying capacity than traditional analog copper cables. Using current
electronic transmitting devices, a single pair of glass fibers on BFP's networks
can transmit up to 32,256 simultaneous voice conversations, whereas a typical
pair of wires in a traditional analog copper cable installed in many current
ILEC networks can currently carry only a maximum of 24 simultaneous voice
conversations. BFP expects that continuing developments in compression
technology and multiplexing equipment will increase the capacity of each fiber,
thereby providing more bandwidth carrying capacity at relatively low incremental
cost.
BFP offers end-to-end fully protected fiber services utilizing SONET ring
architecture which routes customer traffic simultaneously in both directions
around the ring to provide protection against fiber cuts. Back-up electronics
for high-speed circuits become operational in the event of failure of the
primary components adding further redundancy to BFP's networks.
BFP's networks are monitored seven days per week, 24 hours per day by BFP's
NOC Centers (Network Operations Control Centers) in St. Louis, Missouri and
Grand Rapids, Michigan. The NOC Centers provide a single point of contact for
network monitoring, troubleshooting and dispatching, as well as capabilities for
"electronic bonding" with BFP's customers.
BFP has recently entered into a $30 million agreement with Lucent
Technologies, Inc. to provide BFP with the CLEC industry's first
fully-integrated customer care, provisioning, network management and billing
capability.
Corporate Office
BFP's principal executive offices are located at 425 Woods Mill Road South,
Suite 300, Town & Country, Missouri 63017, and its telephone number at those
offices is (314) 878-1616. BFP owns a 23 acre parcel of land in Town & Country,
Missouri, on which it is constructing its new 150,000 square foot corporate
headquarters building.
Network Facilities and Offices
BFP leases network hub sites and other facility locations and sales and
administrative offices in each of the cities in which it has operations. A
wholly-owned subsidiary of BFP owns a 42,000 square foot office building in
Grand Rapids, Michigan that houses a switch, NOC Center and office facilities.
Employees
At September 30, 1997, BFP had approximately 1,605 full-time employees.
None of BFP's employees is represented by a union or covered by a collective
bargaining agreement. BFP believes it has a highly capable and motivated work
force with whom relations are good. In connection with the construction and
maintenance of its fiber optic networks, BFP uses third-party contractors, some
of whose employees may be represented by unions or covered by collective
bargaining agreements.
Legal Proceedings
On September 22, 1995, GST Tucson Lightwave, Inc. ("Lightwave") was
permitted to intervene in litigation originally filed by Brooks Fiber
Communications of Tucson, Inc., a wholly-owned subsidiary of BFP ("BFC Tucson"),
styled Brooks Fiber Communications of Tucson, Inc. v. City of Tucson, cause No.
CIV 95-655-TUC-RMB, U.S. District Court, District of Arizona. On October 2,
1995, Lightwave filed a counterclaim against BFC Tucson, BFP and Tucson Electric
Power Company ("TEP"), charging BFC Tucson, BFP and TEP with violations of
antitrust laws, all of which alleged violations stem from an agreement between
BFC Tucson and TEP that allowed BFC Tucson exclusive rights, for one year, to
utilize certain of TEP's rights of way. The original causes of action have been
settled; however, the counterclaim by Lightwave
71
<PAGE> 86
is currently still pending. The counterclaim seeks treble damages, attorneys'
fees, costs and such other relief as the court deems proper. BFP believes the
claims are without merit and intends to defend vigorously against this action.
BFP believes that resolution of the matter will not have a material adverse
effect on the consolidated financial condition or results of operations of BFP.
From time to time BFP or a subsidiary of BFP is named as a defendant in
routine lawsuits incidental to their respective businesses. Based on the
information currently available, BFP believes that none of such current
proceedings, individually or in the aggregate, will have a material adverse
effect on BFP and its subsidiaries, taken as a whole.
SECURITY OWNERSHIP OF BFP MANAGEMENT AND PRINCIPAL STOCKHOLDERS
As of November 30, 1997, the following persons, individually or as a group,
were known to BFP to be deemed to be the beneficial owners of more than five
percent of the issued and outstanding BFP Common Stock, each of which persons
has sole voting and investment power over such BFP Common Stock, except as set
forth in the footnotes hereto:
<TABLE>
<CAPTION>
AMOUNT AND
NAME AND ADDRESS OF NATURE OF EXISTING PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OF CLASS(1)
------------------- ----------------------- -----------
<S> <C> <C>
FMR Corp............................................ 4,198,100(2) 10.77%
82 Devonshire Street
Boston, Massachusetts 02109
Putnam Investments, Inc............................. 2,284,448(3) 5.86%
One Post Office Square
Boston, Massachusetts 02109
</TABLE>
- ---------------
(1) Based upon 38,993,410 shares of BFP Common Stock issued and outstanding
plus, as to the holder thereof only, exercise or conversion of all
derivative securities that are exercisable or convertible currently or
within 60 days after November 30, 1997.
(2) Based upon shares of BFP Common Stock owned as of September 30, 1997, as
provided by FMR Corp., including 4,073,000 shares beneficially owned by
Fidelity Management & Research Company, as a result of its serving as
investment adviser to various investment companies registered under Section
8 of the Investment Company Act of 1940; and 125,100 shares beneficially
owned by Fidelity Management Trust Company, as a result of its serving as
investment manager of certain institutional accounts. FMR Corp. has sole
voting power with respect to 125,100 shares and sole dispositive power with
respect to 4,198,100 shares.
(3) Based upon shares of BFP Common Stock owned as of January 27, 1997, as
provided by Putnam Investments, Inc., including (i) 2,225,548 shares of BFP
Common Stock beneficially owned by Putnam Investment Management, Inc.
("PIM") and (ii) 58,900 shares of Common Stock beneficially owned by The
Putnam Advisory Company, Inc. ("PAC"). Putnam Investments, Inc., a
wholly-owned subsidiary of Marsh & McLennen Companies, Inc., wholly owns PIM
and PAC, each of which is a registered investment adviser. Putnam
Investments, Inc. has neither sole voting power nor sole dispositive power
with respect to any shares.
72
<PAGE> 87
The following table sets forth the beneficial ownership of BFP Common
Stock, as of November 30, 1997, by each director, the named executive officers
and by all persons, as a group, who are currently directors and executive
officers of BFP. Each director or executive officer has sole voting and
investment power over the shares listed opposite his name except as set forth in
the footnotes hereto.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OF CLASS(1)
------------------------ --------------------- -----------
<S> <C> <C>
James C. Allen.............................................. 319,885(2) *
Robert F. Benbow............................................ 11,387(3) *
William J. Bresnan.......................................... 56,634(4) *
Robert A. Brooks............................................ 856,022(5) 2.19%
W. Bruce Hanks.............................................. 556,776(6) 1.43%
Jonathan M. Nelson.......................................... 324,631(7) *
Glen F. Post, III........................................... 556,776(8) 1.43%
John C. Shapleigh........................................... 227,444(9) *
David L. Solomon............................................ 101,403(10) *
G. Jackson Tankersley, Jr................................... 19,249(11) *
Ronald H. Vander Pol........................................ 1,809,400(12) 4.64%
Carol deB. Whitaker......................................... 5,329(13) *
D. Craig Young.............................................. 136,100(14) *
All directors and executive officers as a group (19
persons).................................................. 4,626,498 11.75%
</TABLE>
- ---------------
* Less than one percent.
(1) Based upon 38,993,410 shares of BFP Common Stock issued and outstanding
plus, as to the holder thereof only, exercise or conversion of all
derivative securities that are exercisable or convertible currently or
within 60 days after November 30, 1997.
(2) Includes (i) 319,515 shares of BFP Common Stock held by Mr. Allen and (ii)
370 shares of BFP Common Stock owned by Linda Allen, wife of Mr. Allen. Mr.
Allen disclaims beneficial ownership of the shares owned by Mrs. Allen.
(3) Represents 6,387 shares of BFP Common Stock and 5,000 shares of BFP Common
Stock subject to an option which is exercisable within 60 days.
(4) Represents 47,934 shares of BFP Common Stock and 8,700 shares of BFP Common
Stock subject to options which are exercisable within 60 days.
(5) Includes (i) 736,882 shares of BFP Common Stock and warrants to purchase
107,200 shares of BFP Common Stock held by Mr. Brooks and (ii) 11,940
shares of BFP Common Stock held by The Brooks Foundation, of which Mr.
Brooks is a trustee.
(6) Includes (i) 5,000 shares of BFP Common Stock subject to an option which is
exercisable within 60 days held by Mr. Hanks and (ii) 551,776 shares of BFP
Common Stock owned by Century Telephone Enterprises, Inc. ("Century
Telephone"). Mr. Hanks is a director of Century Telephone. Mr. Hanks
disclaims beneficial ownership of shares beneficially owned by Century
Telephone.
(7) Includes (i) 15,190 shares of BFP Common Stock held by Mr. Nelson and (ii)
309,441 shares of BFP Common Stock owned by Providence Media Partners L.P.
Mr. Nelson is a managing general partner of Providence Ventures, L.P.,
which is the general partner of the general partner of Providence Media
Partners L.P. Mr. Nelson disclaims beneficial ownership of shares
beneficially owned by Providence Media Partners L.P.
(8) Includes (i) 5,000 shares of BFP Common Stock subject to an option which is
exercisable within 60 days held by Mr. Post and (ii) 551,776 shares of BFP
Common Stock owned by Century Telephone. Mr. Post is a director of Century
Telephone. Mr. Post disclaims beneficial ownership of shares beneficially
owned by Century Telephone.
(9) Includes (i) 213,804 shares of BFP Common Stock held by Mr. Shapleigh, (ii)
410 shares of BFP Common Stock and warrants to purchase 520 shares of BFP
Common Stock held by Mr. Shapleigh's
73
<PAGE> 88
Individual Retirement Account, (iii) 8,080 shares of BFP Common Stock held
by John C. Shapleigh Holdings, L.P., of which Mr. Shapleigh is the General
Partner and (iv) 4,630 shares of BFP Common Stock owned by Anne T.
Shapleigh, wife of Mr. Shapleigh. Mr. Shapleigh disclaims beneficial
ownership of the shares owned by Mrs. Shapleigh.
(10) Represents 62,364 shares of BFP Common Stock, warrants to purchase 20
shares of BFP Common Stock and 39,019 shares of BFP Common Stock subject to
options which are exercisable within 60 days which are held by Mr. Solomon.
(11) Includes (i) 16,549 shares of BFP Common Stock held by Mr. Tankersley and
(ii) 2,700 shares of BFP Common Stock held by The Tankersley Family Limited
Partnership, of which Mr. Tankersley is the General Partner.
(12) Includes (i) 1,442,500 shares of BFP Common Stock and 5,000 shares of BFP
Common Stock subject to an option which is exercisable within 60 days held
by Mr. Vander Pol and (ii) 361,900 shares of BFP Common Stock held by
Rushing Wind Ltd., Mr. Vander Pol's private foundation. Mr. Vander Pol has
entered into certain hedging arrangements with respect to 719,676 of such
shares but retains sole voting and dispositive power.
(13) Represents 329 shares of BFP Common Stock and 5,000 shares of BFP Common
Stock subject to an option which is exercisable within 60 days which are
held by Ms. Whitaker.
(14) Includes (i) 3,204 shares of BFP Common Stock and 84,084 shares of BFP
Common Stock subject to options which are exercisable within 60 days held
by Mr. Young, (ii) 26,449 shares of BFP Common Stock held by Mr. Young and
Joan L. Young JTWROS, (iii) 833 shares of BFP Common Stock held by Mr.
Young's Individual Retirement Account, (iv) 19,620 shares of BFP Common
Stock held by The Joan L. Young Revocable Trust, of which Joan L. Young,
the wife of Mr. Young, is trustee, (v) 550 shares of BFP Common Stock held
by Joan L. Young's Individual Retirement Account, (vi) 680 shares of BFP
Common Stock held by the Andrew G. Young Trust and (vii) 680 shares of BFP
Common Stock held by the Troy D. Young Trust. Andrew G. Young and Troy D.
Young are children of Mr. Young. Mr. Young disclaims beneficial ownership
of the shares owned by The Joan L. Young Revocable Trust, Joan L. Young's
Individual Retirement Account, the Andrew G. Young Trust and the Troy D.
Young Trust.
74
<PAGE> 89
INFORMATION REGARDING WORLDCOM
The following briefly describes the businesses, management and principal
shareholders of WorldCom, as well as information regarding the MCI/WorldCom
Merger, the CompuServe Merger and the AOL Transaction. Additional information
regarding WorldCom is contained in its filings with the Commission pursuant to
the Exchange Act. See "Available Information" and "Incorporation of Documents by
Reference."
BUSINESS OF WORLDCOM
WorldCom is one of the largest telecommunications companies in the United
States, serving local, long distance and Internet customers domestically and
internationally. WorldCom 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 ISPs. In addition, WorldCom's
subsidiary, UUNET, is an international ISP.
WorldCom's principal executive offices are located at 515 East Amite
Street, Jackson, Mississippi 39201-2702, and its telephone number is (601)
360-8600.
RECENT DEVELOPMENTS
The MCI/WorldCom Merger
General. On October 1, 1997, WorldCom announced its intention to make the
MCI Offer. On November 9, 1997, WorldCom entered into the MCI/WorldCom Merger
Agreement with MCI and MCI Merger Sub, a wholly-owned acquisition subsidiary of
WorldCom, providing for the MCI/WorldCom Merger, in which MCI would merge with
and into MCI Merger Sub, with MCI Merger Sub surviving as a wholly-owned
subsidiary of WorldCom. If the Charter Amendment (defined below) is approved,
WorldCom will change its name as of the MCI/WorldCom Effective Time to "MCI
WorldCom, Inc." As a result of the MCI/WorldCom Merger, the separate corporate
existence of MCI will cease, and MCI Merger Sub (which will be renamed "MCI
Communications Corporation") will succeed to all the rights and be responsible
for all the obligations of MCI in accordance with the DGCL. Subject to the terms
and conditions of the MCI/ WorldCom Merger Agreement, each share of MCI Common
Stock outstanding immediately prior to the MCI/WorldCom Effective Time will be
converted into the right to receive the MCI Common Stock Merger Consideration
equal to the MCI Exchange Ratio, and each share of MCI Class A Common Stock
outstanding immediately prior to the MCI/WorldCom Effective Time will be
converted into the MCI Class A Common Stock Merger Consideration. The "MCI
Exchange Ratio" means the quotient (rounded to the nearest (1)/10,000)
determined by dividing $51.00 by the average of the high and low sales prices of
WorldCom Common Stock (previously defined as the "MCI/WorldCom Average Price")
as reported on The Nasdaq National Market on each of the 20 consecutive trading
days ending with the third trading day immediately preceding the MCI/ WorldCom
Effective Time; provided, however, that the MCI Exchange Ratio will not be less
than 1.2439 or greater than 1.7586. Cash will be paid in lieu of any fractional
share of WorldCom Common Stock in the MCI/WorldCom Merger. See "-- Other Terms
of the MCI/WorldCom Merger Agreement -- Conversion of Shares in the MCI/WorldCom
Merger."
Based on the number of shares MCI Common Stock outstanding as of October
31, 1997 and assumed MCI Exchange Ratios of 1.2439 and 1.7586, approximately
703,178,763 shares and 994,139,540 shares, respectively, of WorldCom Common
Stock will be issued in the MCI/WorldCom Merger. In addition,
75
<PAGE> 90
outstanding rights and options to purchase shares of MCI Common Stock would be
converted in the MCI/WorldCom Merger to rights and options to acquire an
aggregate of approximately 100,263,626 shares and 141,750,634 shares,
respectively, of WorldCom Common Stock, and the exercise price would be adjusted
to reflect the MCI Exchange Ratio, so that, on exercise, the holders would
receive, in the aggregate, the same number of shares of WorldCom Common Stock as
they would have received had they exercised prior to the MCI/WorldCom Merger, at
the same exercise price.
The MCI/WorldCom Merger will become effective upon the filing of a
Certificate of Merger with the Secretary of State of the State of Delaware or at
such subsequent time as WorldCom and MCI may agree and is specified in the
Certificate of Merger. The filing of the Certificate of Merger will occur as
soon as practicable following the closing of the MCI/WorldCom Merger, which will
occur on the fifth business day after the satisfaction or waiver of the
conditions set forth in the MCI/WorldCom Merger Agreement, unless otherwise
agreed by the parties. Consummation of the MCI/WorldCom Merger, however, is
dependent upon the requisite approvals and authorizations for the MCI/WorldCom
Merger under the Hart-Scott-Rodino Act, the Communications Act of 1934, as
amended (the "Communications Act"), and other applicable federal, state or other
applicable regulatory laws. There can be no assurance as to (i) if or when such
approvals will be obtained or that, if obtained, such approvals will satisfy the
conditions to the consummation of the MCI/ WorldCom Merger set forth in the
MCI/WorldCom Merger Agreement or (ii) whether all of the other conditions
precedent to the MCI/WorldCom Merger will be satisfied or waived by the party
permitted to do so. If the MCI/WorldCom Merger is not effected on or before
December 31, 1998, the MCI/WorldCom Merger Agreement can be terminated by either
MCI or WorldCom, unless the failure to effect the MCI/ WorldCom Merger by such
date is due to the failure of the party seeking to terminate the MCI/WorldCom
Merger Agreement to fulfill its obligations under the MCI/WorldCom Merger
Agreement (including without limitation its obligation to use its best efforts
to consummate the MCI/WorldCom Merger). See "-- Other Terms of the MCI/WorldCom
Merger Agreement -- Conditions Precedent to the MCI/WorldCom Merger" and
"-- Termination."
Effects of the MCI/WorldCom Merger; Estimated Synergies
The WorldCom Board of Directors believes that the MCI/WorldCom Merger will
create a fully integrated communications company that will be well positioned to
take advantage of growth opportunities in global telecommunications. The
combined company ("MCI WorldCom") is expected to have over $30 billion in 1998
pro forma revenues and will provide a complete range of local, long distance,
Internet and international communications services. In addition, the WorldCom
Board has concluded that the MCI/ WorldCom Merger presents significant
opportunities for cost savings and operating efficiencies. WorldCom estimates
that annual cash operating cost synergies of $2.5 billion are achievable in
1999, increasing to $5.6 billion by 2002. In addition, capital expenditure
savings of $2 billion per year are expected in 1999 and beyond. There can,
however, be no assurance that any specific level of cost savings or other
synergies will be achieved or that such cost savings or other synergies will be
achieved within the time period contemplated.
76
<PAGE> 91
Set forth below are the synergies originally estimated by WorldCom to be
achievable as a result of the MCI/WorldCom Merger (the "Previous Synergy
Estimates") and the revised synergy estimates prepared by WorldCom following the
exchange of information between MCI and WorldCom (the "Revised Synergy
Estimates"). Both the Previous Synergy Estimates and the Revised Synergy
Estimates are net of the expenses WorldCom estimates will be incurred to achieve
such savings. WorldCom is in the process of developing its plan to integrate the
operations of MCI which may include certain exit costs. As a result of this
plan, a charge, which may be material but which cannot now be quantified is
expected to be recognized in the period in which such a restructuring occurs.
The information contained in this section "Effects of the MCI/WorldCom
Merger; Estimated Synergies" (pages 76-80) was not prepared with a view toward
compliance with published guidelines of the Commission or the American Institute
of Certified Public Accountants regarding forward-looking information or
generally accepted accounting principles and was not examined, reviewed or
compiled by independent public accountants, and, accordingly, the independent
public accountants do not express an opinion or any other form of assurance with
respect thereto. The estimates of achievable cost synergies ("synergies") were
based upon a variety of estimates and assumptions. The estimates and assumptions
underlying the synergies which involved judgments with respect to, among other
things, future economic, competitive, regulatory and financial market conditions
and future business decisions which may not be realized and are inherently
subject to significant business, economic, competitive and regulatory
uncertainties, all of which are difficult to predict and many of which are
beyond the control of WorldCom, MCI and BFP and will be beyond the control of
the combined companies. There can be no assurance that the synergies will be
realized, and actual results may vary materially from those shown. Additionally,
the synergies do not reflect revised prospects for WorldCom's, MCI's or the
combined companies' businesses, changes in general business and economic
conditions, or any other transaction or event that has occurred or that may
occur and that was not anticipated at the time such information was prepared.
None of the synergies were intended to be a forecast of profits by WorldCom, MCI
and the combined companies or any of their directors, and in deciding whether or
not to approve the BFP Merger, stockholders of BFP should not put undue reliance
upon any such synergies. Neither WorldCom, BFP nor MCI have updated or
supplemented this information or intend to do so. This section contains "forward
looking statements" within the meaning of the PSLRA. See "Cautionary Statement
Regarding Forward-Looking Statements" and "Risk Factors."
ESTIMATES OF ACHIEVABLE COST SYNERGIES
PREVIOUS SYNERGY ESTIMATES
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
--------------------------------
1999 2000 2001 2002
----- ----- ----- -----
(DOLLARS IN BILLIONS)
<S> <C> <C> <C> <C>
Network synergies and avoided local losses.................. $1.5 $2.0 $2.7 $3.2
Core SG&A................................................... 0.9 1.0 1.1 1.2
---- ---- ---- ----
Total pre-tax cash operating synergies...................... $2.4 $3.0 $3.8 $4.4
As a % of combined revenues............................... 6% 6% 7% 7%
As a % of combined operating expenses..................... 8% 8% 9% 9%
Capital expenditure savings................................. $1.5 $1.6 $1.5 $1.5
As a % of combined revenues............................... 4% 3% 3% 2%
As a % of combined capital expenditures................... 20% 21% 19% 18%
</TABLE>
77
<PAGE> 92
REVISED SYNERGY ESTIMATES
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
--------------------------------
1999 2000 2001 2002
----- ----- ----- -----
(DOLLARS IN BILLIONS)
<S> <C> <C> <C> <C>
Network synergies and avoided local losses.................. $1.6 $2.6 $3.5 $4.4
Core SG&A................................................... 0.9 1.0 1.1 1.2
---- ---- ---- ----
Total pre-tax cash operating synergies...................... $2.5 $3.6 $4.6 $5.6
As a % of combined revenues............................... 6% 8% 8% 8%
As a % of combined operating expenses..................... 8% 10% 11% 12%
Capital expenditure savings................................. $2.0 $2.0 $2.0 $2.0
As a % of combined revenues............................... 5% 4% 4% 3%
As a % of combined capital expenditures................... 26% 26% 24% 23%
</TABLE>
The Previous Synergy Estimates were developed by WorldCom prior to October
1, 1997 based on publicly available information, WorldCom's general knowledge of
the telecommunications industry and WorldCom's experience in prior merger and
acquisition transactions. The Revised Synergy Estimates were developed
subsequently by WorldCom following an exchange of information between MCI and
WorldCom and discussions between the companies' respective management teams. As
a result of the information obtained by WorldCom and the discussions with the
MCI management team, the Revised Synergy Estimates include certain new
categories of potential savings, such as cost savings relating to the
elimination of duplicated information technology costs. In addition, categories
of savings included in the Previous Synergy Estimates were revised by WorldCom
in light of improved knowledge about MCI's business and prospects.
The Previous Synergy Estimates and the Revised Synergy Estimates are net of
the expenses WorldCom believes will be incurred to achieve the estimated costs
synergies.
Network Synergies and Avoided Local Losses. In both the Previous
Synergy Estimates and the Revised Synergy Estimates, network synergies and
avoided local losses were anticipated to be realized in three areas:
reduced domestic network costs, reduced cost of terminating international
traffic and avoided costs in MCI's local activities.
Reduced domestic network costs. As a result of WorldCom's existing
extensive local network, the combined company will carry an increased
proportion of its domestic traffic on its own local network facilities
resulting in a reduction in leased line costs and access costs
associated with switched traffic. By combining WorldCom's and MCI's
traffic, a reduction in variable network costs such as In-WATS, Out-WATS
and directory services are expected as a result of the combined
company's greater purchasing power. Assumptions used by WorldCom to
estimate the magnitude of potential cost savings in this area included:
(i) the magnitude of MCI's and WorldCom's projected costs for
terminating traffic domestically; (ii) the mix of these costs between
different categories such as access, direct access lines and leased
lines, Out-WATS and In-WATS, and entrance facilities; and (iii) the
proportion of the projected costs that net of implementation costs could
be eliminated as a result of combining MCI's and WorldCom's activities.
Reduced cost of terminating international traffic. MCI currently
has more extensive settlement agreements for international traffic than
does WorldCom. The combined company will benefit from these settlement
agreements. In addition, as a result of construction of transatlantic
facilities and network facilities in Europe, the combined company will
be able to lower MCI's average costs of terminating certain traffic in
Europe. Assumptions used by WorldCom to estimate the magnitude of
potential costs savings in this area included: (i) the magnitude of
MCI's and WorldCom's projected costs for terminating traffic overseas on
a country-by-country basis; (ii) the magnitude of MCI's and WorldCom's
projected international traffic on a country-by-country basis; and (iii)
the proportion of MCI's international traffic that could be carried on
WorldCom's facilities in Europe.
Avoided costs in MCI's local activities. As a result of WorldCom's
existing extensive local network and operations, the combined company
will be able to execute MCI's plans to expand in the local market at a
lower cost than MCI would be able to on a stand-alone basis. The
combined
78
<PAGE> 93
company will avoid the need to duplicate certain sales, marketing and
administrative functions and will have reduced network costs resulting
from the more rapid transfer of traffic to the combined company's
network facilities. Assumptions used by WorldCom to estimate the
magnitude of potential cost savings in this area included: (i) the
projected operating costs associated with MCI's plans to expand its
presence in the local market; and (ii) the proportion of these costs
that net of implementation costs could be avoided by combining MCI's and
WorldCom's businesses.
Comparing the Previous Synergy Estimates and the Revised Synergy
Estimates, network synergies and avoided local losses increased by $100
million in 1999 and by $1.2 billion in 2002. These changes occurred as a
result of a substantial increase in estimated reduced costs of terminating
international traffic and a modest increase in reduced domestic network
costs offset by a modest reduction in avoided costs in MCI's local
activities.
Core SG&A. The increased scale of activities in the combined company's
operations will result in opportunities to reduce costs by avoiding
expenditures on duplicative activities, greater purchasing power and the
adoption of best practices in cost containment across the combined company
resulting in a reduction in core sales, general and administrative
expenses. Assumptions used by WorldCom to estimate the magnitude of
potential cost savings in this area included: (i) the magnitude of MCI's
and WorldCom's sales, general and administrative expense by category such
as sales, accounting and finance and information services; and (ii) the
proportion of the projected costs that net of implementation costs could be
eliminated as a result of combining MCI's and WorldCom's activities, based
in part on a comparison to other comparable companies' levels of sales,
general and administrative expenses as a percentage of sales.
Core sales, general and administrative cost synergies did not change
materially between the Previous Synergy Estimates and the Revised Synergy
Estimates.
Capital Expenditure Savings. Capital expenditure savings are expected
to be realized primarily in three areas: domestic long distance network
activities, local network buildout and information technology. Capital
expenditures relating to the combined company's long distance activities
will be reduced primarily as a result of avoided duplicative fixed capital
expenses and the cost benefits realized from greater purchasing
efficiencies. Capital expenditures relating to the combined company's local
and information technology activities will be reduced primarily as a result
of avoided duplicative capital expenditures. Assumptions used by WorldCom
to estimate the magnitude of potential cost savings in this category
included: (i) the magnitude of MCI's and WorldCom's long distance, local
and information technology related capital expenditures; and (ii) the
proportion of the projected costs that net of implementation costs could be
eliminated as a result of combining MCI's and WorldCom's activities.
Comparing the Previous Synergy Estimates and the Revised Synergy
Estimates, capital expenditure savings increased by approximately $500
million per year primarily as a result of significant anticipated savings
in the area of information technology that were not included in the
Previous Synergy Estimates and a modest increase in anticipated long
distance savings. In the Revised Synergy Estimates, in 1999 approximately
45% of total capital expenditure savings relate to long distance, 35% to
local and 20% to information technology. In 2002, approximately 65% of
total capital expenditure savings relate to long distance, 15% to local and
20% to information technology.
The combined company would be the second largest long distance carrier in
the United States. The combined company would begin operations with one of the
industry's strongest bases of business customers and more than 22 million small
business and residential customers.
The WorldCom Board believes that the MCI/WorldCom Merger would create a
company strongly positioned to fulfill the promise of the Telecom Act and
accelerate the onset of competition in local telecommunications. WorldCom
believes that the combined company can expand further and faster into local
service areas now dominated by incumbent local exchange carriers than either
company could on a stand-alone basis because of the efficiencies that WorldCom
believes the combined company will achieve through, among other things as
described above, reduced capital expenditures in the deployment of the same
amount
79
<PAGE> 94
of, or more, network capacity than the total of what the two companies would
deploy on a stand-alone basis. The new company would offer local service over
its own facilities, including more than 9,000 route miles of local fiber, in
more than 100 markets.
The combined company, with offices in 65 countries, would be the second
largest carrier of international voice traffic in the world. The WorldCom Board
believes that the combination of WorldCom and MCI will position MCI WorldCom as
a powerful competitor in the $670 billion global telecom industry.
MCI WorldCom would bring together the Internet expertise of UUNET and MCI
to create one of the world's largest providers of Internet services. The
combined company's advanced portfolio of Internet/data services would include
access, web hosting and development, intranet applications as well as high-speed
virtual data services.
The WorldCom Board believes that MCI WorldCom will provide global customers
with unparalleled networking strength and more than 20 years of experience in
systems integration, superior outsourcing capabilities and technology support
and implementation.
Charter Amendment
The WorldCom Board of Directors intends to propose an amendment to the
WorldCom Articles (the "Charter Amendment") and directed that the Charter
Amendment be submitted to the shareholders of WorldCom for approval at a special
meeting of the stockholders of WorldCom (the "WorldCom Special Meeting") called
to obtain shareholder approval of the Share Issuance. The Charter Amendment
would change the name of WorldCom to "MCI WorldCom, Inc." from "WorldCom, Inc."
Approval of the Charter Amendment by the WorldCom shareholders is not a
condition precedent to the consummation of the MCI/ WorldCom Merger.
If approved by the shareholders at the WorldCom Special Meeting, the
Charter Amendment will become effective upon the filing of an amendment to the
WorldCom Articles with the Georgia Secretary of State.
The change in WorldCom's corporate name will not affect the validity or
transferability of stock certificates presently outstanding, or any certificates
issued in connection with the BFP Merger, and WorldCom's shareholders, both
prior to and following consummation of the BFP Merger, will not be required to
exchange any certificates presently held by them.
Management After the MCI/WorldCom Merger
WorldCom has further agreed to take all necessary action as of the
MCI/WorldCom Effective Time to reconstitute the Board of Directors of WorldCom
to consist of fifteen members, eight of whom will be designated by WorldCom from
among the directors of WorldCom, five of whom will be designated by MCI from
among the directors of MCI and two of whom shall be directors designated by
WorldCom from among pending acquisitions of WorldCom, provided that the persons
designated by each party are reasonably acceptable to the other party. WorldCom
has further agreed to cause Bert C. Roberts, Jr. to be appointed Chairman of
WorldCom and to cause the senior management of WorldCom to be as previously
agreed between the parties. See "-- Management of WorldCom Following the
MCI/WorldCom Merger."
Accounting Treatment
The MCI/WorldCom Merger will be accounted for as a purchase for financial
accounting purposes in accordance with generally accepted accounting principles.
For purposes of preparing WorldCom's consolidated financial statements, WorldCom
will establish a new accounting basis for MCI's assets and liabilities based
upon the fair values thereof, the MCI/WorldCom Merger Consideration and the
costs of the MCI/ WorldCom Merger. WorldCom's management believes that any
excess of cost over the fair value of the net assets of MCI will be recorded as
goodwill, in-process research and development, and other intangible assets.
In-process research and development projects may include projects for which
technological feasibility has not been established and the technology has no
future alternative use. To the extent that a portion of the purchase
80
<PAGE> 95
price is allocated to such in-process research and development projects, a
charge, which may be material to WorldCom's results of operations, would be
recognized in the period in which the MCI/WorldCom Merger occurs. A final
determination of the intangible asset lives and required purchase accounting
adjustments, including the allocation of the purchase price to the assets
acquired and liabilities assumed based on their respective fair values, has not
yet been made. Accordingly, the purchase accounting adjustments made in
connection with the development of the unaudited pro forma condensed combined
financial information appearing elsewhere in this Proxy Statement/Prospectus are
preliminary and have been made solely for purposes of developing such unaudited
pro forma condensed combined financial information. WorldCom has undertaken a
study to determine the fair value of certain of MCI's assets and liabilities and
will make appropriate purchase accounting adjustments upon completion of that
study. For financial reporting purposes, the results of operations of MCI will
be included in the WorldCom consolidated statement of operations following the
MCI/WorldCom Effective Time. See "Pro Forma Financial Information."
Certain Regulatory Filings and Approvals
FCC Transfer Approvals. Certain activities of WorldCom and MCI are
regulated by the FCC. Provisions of Title 47 of the United States Code,
including Sub-Titles II and III and the Cable Landing License Act, require the
prior approval of the FCC for the acquisition of control of a company such as
MCI that holds various licenses and authorizations issued by the FCC. The FCC
traditionally grants approval of such transactions if it determines that the
transfer of control is consistent with the public interest, convenience and
necessity, without consideration of the relative merits of such a transfer of
control vis-a-vis those of any other possible transfers of control that may be
pending or contemplated. On October 1, 1997, WorldCom requested FCC approval for
both stages of a two-step transfer of control of MCI to WorldCom that
contemplated as a first step an interim transfer of control to a "caretaker"
voting trustee empowered to acquire and hold shares of MCI tendered pursuant to
the MCI Offer. Subsequently, WorldCom and MCI agreed upon the terms of the
MCI/WorldCom Merger and in light of the MCI/WorldCom Merger Agreement, MCI and
WorldCom jointly requested that the request for a voting trust be withdrawn and
jointly submitted amendments to WorldCom's October 1, 1997 applications under
Title III of the Communications Act relating to MCI's radio licenses, requesting
approval of transfer of control of MCI to WorldCom. WorldCom and its
Subsidiaries already hold certain similar authorizations issued by the FCC, and
WorldCom believes it is likely that the transfer applications will be granted.
However, the transfer applications are subject to public comment, petitions to
deny and informal objections by third parties, which may interpose objections in
an attempt to delay or impede approval by the FCC. Accordingly, there can be no
assurance that the FCC will timely grant the transfer applications or not
subject their approval to various conditions and restrictions. The MCI/WorldCom
Merger is conditioned on receipt of approval of the transfer applications, other
than those the failure of which to be obtained would not reasonably be expected
to have individually or, together with any approvals from the PUCs which shall
not have been obtained, in the aggregate a MCI/WorldCom Material Adverse Effect
(defined below) on WorldCom and its Subsidiaries (defined below) (including the
surviving corporation of the MCI/WorldCom Merger (the "MCI/WorldCom Surviving
Corporation")).
State Regulatory Transfer Approval. WorldCom has amended or expects shortly
to amend pending state transfer applications and to file additional state
applications (the "State Applications") that seek prior approval of the
contemplated acquisition of control of MCI by WorldCom from multiple state PUCs,
whose governing statutes and rules require their consent for transfers of
control of common carriers such as MCI, that provide intrastate local and
interexchange telecommunications services within their respective states. The
State Applications are subject to public comment and objections and oppositions
of third parties which may interpose objections in an attempt to delay or impede
approval by the state PUCs. Notwithstanding any such challenges, WorldCom
believes it is likely that the state PUCs will grant all State Applications
other than those the failure of which to be obtained would not reasonably be
expected to have individually or in the aggregate an MCI/WorldCom Material
Adverse Effect. WorldCom's subsidiaries hold authorizations from the state PUCs,
and most of those authorizations convey the same or similar authority as the
corresponding authorizations held by MCI. There can be no assurance, however,
that the state PUCs will timely grant the transfer applications or not subject
their approval to various conditions and restrictions. The MCI/WorldCom Merger
is conditioned on receipt of approval of the transfer applications, other than
those the failure of which
81
<PAGE> 96
to be obtained would not reasonably be expected to have individually or,
together with any approvals from the FCC which shall not have been obtained, in
the aggregate an MCI/WorldCom Material Adverse Effect on WorldCom and its
Subsidiaries (including the MCI/WorldCom Surviving Corporation).
Hart-Scott-Rodino Act and European Commission Approvals. Under the
Hart-Scott-Rodino Act and the rules promulgated thereunder by the FTC, the
MCI/WorldCom Merger may not be consummated until notifications have been given
and certain information has been furnished to the FTC and specified waiting
period requirements have been satisfied. WorldCom filed notification and report
forms under the Hart-Scott-Rodino Act with the FTC and the DOJ on October 1,
1997. On October 31, 1997, each of WorldCom and MCI received a request for
additional information from the DOJ.
The consummation of the MCI/WorldCom Merger is also contingent upon
confirmation from the European Commission under the Merger Control Regulation
that the MCI/WorldCom Merger does not create or strengthen a dominant position
as a result of which effective competition would be significantly impeded in the
common market. MCI and WorldCom jointly filed with the European Commission the
required notification of the MCI/WorldCom Merger on November 20, 1997. On
December 18, 1997, the European Commission advised WorldCom and MCI that it
sought additional information regarding the merger. The parties plan to provide
the requested information in mid-January 1998. If, following a one-month period
after the submission of the additional information, the European Commission
considers that it needs to examine the MCI/WorldCom Merger more closely, it may
initiate a Phase II investigation; if it does initiate a Phase II investigation,
the European Commission must make a final determination as to whether or not the
MCI/WorldCom Merger is compatible with the common market no later than four
months after the initiation of such investigation. If the European Commission
were not to make a decision within this four month period, the MCI/WorldCom
Merger would automatically be deemed to be compatible with the common market and
would be allowed to proceed. WorldCom and MCI believe it is likely that the
European Commission will determine that the MCI/WorldCom Merger is compatible
with the common market. However, no assurance can be given that the European
Commission will not impose certain conditions or restrictions on the
MCI/WorldCom Merger.
At any time before or after the MCI/WorldCom Effective Time, and
notwithstanding that the Hart-Scott-Rodino Act waiting period may have expired,
the MCI/WorldCom Merger may have been approved by the European Commission
pursuant to the Merger Control Regulation or the MCI/WorldCom Merger may have
been consummated, the DOJ or any state could take such action under applicable
laws as it deems necessary or desirable. Such action could include seeking to
enjoin the consummation of the MCI/WorldCom Merger or seeking divestiture of MCI
or businesses of WorldCom or MCI acquired as a result of the MCI/ WorldCom
Merger. Private parties may also bring legal actions under the antitrust laws
under certain circumstances.
Percentage Ownership Interest of MCI Stockholders After the MCI/WorldCom
Merger
The number of shares of WorldCom Common Stock to be issued in the
MCI/WorldCom Merger will depend on the actual MCI Exchange Ratio, which will not
be known until the end of the MCI Measurement Period (which ends three trading
days preceding the MCI/WorldCom Effective Time). If the minimum MCI Exchange
Ratio (1.2439) is applicable, and assuming that there will be 942,958,200 shares
of WorldCom Common Stock and 565,301,683 shares of MCI Common Stock outstanding
immediately prior to the MCI/ WorldCom Effective Time (which numbers are based
on the number of shares outstanding on December 15, 1997, in the case of
WorldCom, and October 31, 1997, in the case of MCI, without regard to shares
issuable upon exercise of options, rights or warrants but assuming the
conversion of WorldCom convertible securities), the number of shares of WorldCom
Common Stock to be issued in the MCI/WorldCom Merger would be 703,178,163, which
would represent 42.7% of the outstanding shares of WorldCom Common Stock
immediately after the MCI/WorldCom Effective Time. If the maximum MCI Exchange
Ratio (1.7586) is applicable, and based on the same assumptions, the number of
shares of WorldCom Common Stock to be issued in the MCI/WorldCom Merger would be
994,139,540, which would represent 51.3% of the outstanding shares of WorldCom
Common Stock immediately after the MCI/WorldCom Effective Time. These figures do
not reflect the BFP Merger or the CompuServe Merger.
82
<PAGE> 97
Other Terms of the MCI/WorldCom Merger Agreement
The description of the MCI/WorldCom Merger and the MCI/WorldCom Merger
Agreement contained in this Proxy Statement/Prospectus describes the material
terms of the MCI/WorldCom Merger Agreement but does not purport to be complete
and is qualified in its entirety by reference to the MCI/WorldCom Merger
Agreement, a copy of which is attached as an exhibit to the Registration
Statement and incorporated herein by reference. Capitalized terms appearing
below that are not otherwise defined herein have the same meanings as are given
such terms in the MCI/WorldCom Merger Agreement. Whenever particular sections or
defined terms are referred to, it is intended that such sections or defined
terms shall be incorporated by reference.
Conversion of Shares in the MCI/WorldCom Merger. At the MCI/WorldCom
Effective Time, by virtue of the MCI/WorldCom Merger and without any further
action on the part of the holder thereof:
(i) each share of common stock of MCI Merger Sub issued and
outstanding immediately prior to the MCI/WorldCom Effective Time will
remain issued, outstanding and unchanged as validly issued, fully paid and
nonassessable shares of common stock, par value $.01 per share, of the
MCI/WorldCom Surviving Corporation;
(ii) each share of MCI Capital Stock issued and owned or held by
WorldCom, MCI Merger Sub or MCI at the MCI/WorldCom Effective Time will, by
virtue of the MCI/WorldCom Merger, cease to be outstanding and will be
canceled and retired, and no stock of WorldCom or other consideration will
be delivered in exchange therefor;
(iii) each share of MCI Common Stock issued and outstanding
immediately prior to the MCI/ WorldCom Effective Time (other than any
shares to be canceled as described in subparagraph (ii) above) will be
converted into the right to receive that number of shares of WorldCom
Common Stock equal to the MCI Exchange Ratio; provided, however, that cash
will be paid in lieu of any fractional share of WorldCom Common Stock (see
"-- No Fractional Shares"); and
(iv) each share of MCI Class A Common Stock issued and outstanding
immediately prior to the MCI/WorldCom Effective Time (other than shares to
be canceled as described in paragraph (ii) above) will be converted into
the right to receive $51.00 in cash, without interest thereon.
As a result of the MCI/WorldCom Merger and without any action on the part
of the holders thereof, all shares of MCI Capital Stock will cease to be
outstanding and will be canceled and retired and will cease to exist, and each
holder of a certificate which immediately prior to the MCI/WorldCom Effective
Time represented any such shares of MCI Capital Stock (a "Certificate") will
cease to have any rights with respect thereto, except the right to receive, as
hereinafter described: (i) a certificate representing the number of whole shares
of WorldCom Common Stock (or the amount in cash, as applicable) into which any
such shares of MCI Common Stock have been converted, (ii) certain dividends and
other distributions and (iii) the cash, without interest, into which the shares
of MCI Class A Common Stock have been converted and the cash in lieu of any
fractional shares of WorldCom Common Stock that would otherwise be issued.
No Fractional Shares
No certificates or scrip or shares of WorldCom Common Stock representing
fractional shares of WorldCom Common Stock will be issued upon the surrender for
exchange of Certificates, and such fractional share interests will not entitle
the owner thereof to vote or have any other rights of a stockholder of WorldCom.
In lieu of any such fractional share, each holder of shares of MCI Common Stock
exchanged pursuant to the MCI/WorldCom Merger Agreement who would otherwise have
been entitled thereto (after taking into account all Certificates) will be paid
cash (without interest) in an amount equal to the product of (i) such fractional
part of a share of WorldCom Common Stock multiplied by (ii) the last sales price
per share of WorldCom Common Stock quoted on The Nasdaq National Market on the
closing date of the MCI/ WorldCom Merger Agreement (the "MCI/WorldCom Closing
Date").
83
<PAGE> 98
Representations and Warranties
The MCI/WorldCom Merger Agreement contains various representations and
warranties of WorldCom, MCI and MCI Merger Sub relating, among other things, to
the following: (i) their incorporation, existence, good standing, corporate
power and similar corporate matters; (ii) their capitalization; (iii) their
authorization, execution, delivery and performance and the enforceability of the
MCI/WorldCom Merger Agreement and related matters; (iv) the absence of
conflicts, violations and defaults under their certificates, or articles of
incorporation and bylaws and certain other agreements and documents; (v) the
absence of required consents, approvals, orders or authorizations of, or
registration, declaration or filing with certain governmental entities; (vi) the
documents and reports filed with the Commission and the accuracy and
completeness of the information contained therein; (vii) the registration
statement and the joint proxy statement/prospectus contained therein relating to
the MCI/WorldCom Merger and the accuracy and completeness of the information
contained therein; (viii) the absence of certain material changes or events with
respect to WorldCom since December 31, 1996; (ix) the stockholder votes required
to approve the MCI/WorldCom Merger; (x) the inapplicability of MCI's stockholder
rights plan to the MCI/WorldCom Merger; (xi) brokers or finders fees and
expenses; (xii) the receipt of fairness opinions by MCI from its financial
advisors; and (xiii) the receipt of letters identifying "affiliates" of each
company for purposes of Rule 145 under the Securities Act.
All representations and warranties of WorldCom, MCI and MCI Merger Sub
expire at the MCI/ WorldCom Effective Time.
Conduct of Business Pending the MCI/WorldCom Merger
Each of WorldCom and MCI has agreed that during the period from the date of
the MCI/WorldCom Merger Agreement and continuing until the MCI/WorldCom
Effective Time, except as expressly contemplated or permitted by the
MCI/WorldCom Merger Agreement or as otherwise indicated on its disclosure
schedule or as required by a Governmental Entity (defined below) of competent
jurisdiction or to the extent that the other party shall otherwise consent in
writing, it and its Subsidiaries (defined below) will conduct their business in
the usual, regular and ordinary course of business in all material respects, in
substantially the same manner as conducted prior to the MCI/WorldCom Merger
Agreement, and will use all reasonable efforts to preserve intact their present
lines of business, maintain their rights and franchises and preserve their
relationships with customers, suppliers and others having business dealings with
them to the end that their ongoing businesses are not impaired in any material
respect at the MCI/WorldCom Effective Time. As used in the MCI/WorldCom Merger
Agreement and this description thereof, "Subsidiary" means any corporation or
other organization, whether incorporated or unincorporated, (i) of which such
party or any other Subsidiary of such party is a general partner (excluding
partnerships, the general partnership interests of which held by such party or
any Subsidiary of such party do not have a majority of the voting interests in
such partnership) or (ii) at least a majority of the securities or other
interests of which have by their terms ordinary voting power to elect a majority
of the Board of Directors or others performing similar functions with respect to
such corporation or other organization is directly or indirectly owned or
controlled by such party or by any one or more of its Subsidiaries, or by such
party and one or more of its Subsidiaries and "Governmental Entity" means any
supranational, national, state, municipal or local government, any
instrumentality, subdivision, court, administrative agency or commission or
other authority thereof, or any quasi-governmental or private body exercising
any regulatory, taxing, importing or other governmental or quasi-governmental
authority, including the European Union.
Each of WorldCom and MCI has further agreed that during the period from the
date of the MCI/ WorldCom Merger Agreement and continuing until the MCI/WorldCom
Effective Time, except as expressly contemplated or permitted by the
MCI/WorldCom Merger Agreement or as otherwise indicated on its disclosure
schedule or as required by a Governmental Entity of competent jurisdiction or to
the extent that the other party otherwise consents in writing, that it will not
and will not permit any of its Subsidiaries to:
(i) enter into any new material line of business or incur or commit to
any capital expenditures other than capital expenditures incurred or
committed in the ordinary course of business consistent with past
84
<PAGE> 99
practice and which, in the case of MCI, together with all such expenditures
incurred or committed to during any fiscal year, are not in excess of
specified amounts;
(ii) (A) declare or pay any dividends on or make other distributions
in respect of any of its capital stock, except (x) in the case of MCI, to
continue the declaration and payment of regular semiannual cash dividends
not in excess of $0.025 per share of MCI Common Stock and MCI Class A
Common Stock, in each case with usual record and payment dates for such
dividends in accordance with MCI's past practice and, in the case of
WorldCom, to continue the declaration and payment of regular quarterly cash
dividends in amounts, including increases, consistent with past practice,
and (y) dividends by its wholly-owned Subsidiaries, (B) split, combine or
reclassify any of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in
substitution for, shares of its capital stock, except for any such
transaction by a wholly-owned Subsidiary which remains a wholly-owned
Subsidiary after consummation of such transaction, or (C) repurchase,
redeem or otherwise acquire any shares of its capital stock or any
securities convertible into or exercisable for any shares of its capital
stock except for the purchase from time to time of capital stock (and in
the case of MCI, the associated preferred stock purchase rights (each, an
"MCI Right" and, collectively, the "MCI Rights") issued pursuant to a
Rights Agreement, dated as of September 30, 1994, between MCI and Morgan
Guaranty Trust Company of New York, as Rights Agent, as amended) in the
ordinary course of business consistent with past practice in connection
with certain of its benefit plans or, in the case of WorldCom, repurchases
of shares of WorldCom Common Stock in open market or privately negotiated
transactions other than during the MCI Measurement Period;
(iii) amend, in the case of Subsidiaries, in any material respect, or
propose to amend their respective certificates of incorporation, by-laws or
other governing documents, except to the extent required to comply with
their respective obligations under the MCI/WorldCom Merger Agreement,
required by law or required by the rules and regulations of the NASD;
(iv) issue, deliver or sell, or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock of any class, any debt
securities having the right to vote on any matters on which stockholders
may vote ("Voting Debt") or any securities convertible into or exercisable
for, or any rights, warrants or options to acquire, any such shares or
Voting Debt or enter into any agreement with respect to any of the
foregoing, other than (A) the issuance of common stock (and in the case of
MCI, the associated MCI Rights) upon the exercise of stock options or in
connection with other stock-based benefits plans outstanding on the date of
the MCI/WorldCom Merger Agreement in accordance with their present terms,
(B) issuances by a wholly-owned Subsidiary of capital stock to such
Subsidiary's parent, (C) issuances in accordance with its rights agreement,
(D) in the case of MCI, issuances of shares, options, rights or other
awards and amendments to equity-related awards pursuant to certain of its
benefit plans, in the ordinary course of business and consistent with past
practice, and (E) in the case of WorldCom, issuances in respect of any
acquisitions by WorldCom or its subsidiaries that are currently pending as
of the date of the MCI/WorldCom Merger Agreement ("WorldCom Pending
Acquisitions");
(v) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial equity interest in or a substantial portion of
the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof
or otherwise acquire or agree to acquire any assets (other than the
acquisition of assets used in the ordinary course) other than (A) in the
case of WorldCom, the WorldCom Pending Acquisitions and (B) acquisitions in
existing or related lines of its business the fair market value of the
total consideration (including the value of indebtedness or other liability
acquired or assumed) for which, in the case of WorldCom, does not exceed
$525 million in the aggregate and for which, in the case of MCI does not
exceed $325 million in the aggregate, provided, however, that the foregoing
does not prohibit (x) internal reorganizations or consolidations involving
existing Subsidiaries or (y) the creation of new Subsidiaries organized to
conduct or continue activities otherwise permitted by the MCI/WorldCom
Merger Agreement;
85
<PAGE> 100
(vi) sell, lease, encumber or otherwise dispose of, any of its assets
(including capital stock of its Subsidiaries) which are material,
individually or in the aggregate, other than (A) internal reorganizations
or consolidations involving existing Subsidiaries, (B) dispositions
referred to in its reports filed with the Commission prior to the date of
the MCI/WorldCom Merger Agreement and (C) as may be required by or in
conformance with law or regulation in order to permit or facilitate the
consummation of the transactions contemplated hereby;
(vii) make any loans, advances or capital contributions to, or
investments in, any other person, other than by MCI or WorldCom, or a
respective Subsidiary of each to or in MCI or WorldCom or any respective
Subsidiary of each or to pay, discharge or satisfy any claims, liabilities
or obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than indebtedness, issuances of debt securities,
guarantees, loans, advances, capital contributions, investments, payments,
discharges or satisfactions incurred or committed to in the ordinary course
of business consistent with past practice;
(viii) take any action that would prevent or impede the MCI/WorldCom
Merger from qualifying as a reorganization under Section 368 of the Code;
(ix) take any action that would, or that could reasonably be expected
to, result in, except, in the case of MCI as otherwise permitted with
respect to MCI/WorldCom Acquisition Proposals (as hereinafter defined), any
of the conditions to the MCI/WorldCom Merger not being satisfied;
(x) except as disclosed in its reports filed with the Commission prior
to the date of the MCI/WorldCom Merger Agreement, or as required by a
Governmental Entity, (A) change its methods of accounting in effect at
December 31, 1996, except as required by changes in United States generally
accepted accounting principles as concurred in by its independent auditors,
(B) change its fiscal year or (C) make any material tax election, other
than in the ordinary course of business consistent with past practice,
without consultation with the other party; or
(xi) amend, modify or waive any provision of its respective rights
agreement, and shall not take any action to redeem the respective rights or
render them inapplicable to any transaction, except, in the case of MCI to
(A) render the rights inapplicable to the MCI/WorldCom Merger and (B) to
permit another transaction that the MCI Board has determined is a Superior
Proposal to be consummated no earlier than December 31, 1998. As used in
the MCI/WorldCom Merger Agreement and this Proxy Statement Prospectus,
"Superior Proposal" means a bona fide written MCI/WorldCom Acquisition
Proposal (as hereinafter defined) which the Board of Directors of MCI
concludes in good faith (after consultation with its financial advisors and
legal counsel), taking into account all legal, financial, regulatory and
other aspects of the proposal and the person making the proposal, (x)
would, if consummated, result in a transaction that is more favorable to
MCI's stockholders (in their capacities as stockholders), from a financial
point of view, than the transactions contemplated by the MCI/WorldCom
Merger Agreement and (y) is reasonably capable of being completed (provided
that for purposes of this definition the term "MCI/WorldCom Acquisition
Proposal" will have the meaning assigned to such term in "-- MCI/ WorldCom
Acquisition Proposals" except that the reference to "10%" in the definition
of "MCI/ WorldCom Acquisition Proposal" will be deemed to be a reference to
"50%" and "MCI/WorldCom Acquisition Proposal" will only be deemed to refer
to a transaction involving MCI, or with respect to assets (including the
shares of any Subsidiary of MCI) of MCI and its Subsidiaries, taken as a
whole, and not any of its Subsidiaries alone).
In addition, WorldCom has agreed that it will not, and that it will not
permit any of its Subsidiaries to, enter into any agreement with respect to or
consummate any transaction contemplated by an MCI/ WorldCom Acquisition
Proposal.
Each of WorldCom and MCI has also further agreed that each party will (a)
confer on a regular and frequent basis with the other, (b) report (to the extent
permitted by law or regulation or any applicable confidentiality agreement) on
operational matters, (c) file all reports required to be filed by each of them
with the Commission (and all other Governmental Entities) between the date of
the MCI/WorldCom Merger Agreement and the MCI/WorldCom Effective Time and will
(to the extent permitted by law or regulation or
86
<PAGE> 101
any applicable confidentiality agreement) deliver to the other party copies of
all such reports, announcements and publications promptly after the same are
filed, (d) have the right (subject to applicable laws relating to the exchange
of information) to review in advance, and will consult with the other with
respect to, all the information relating to the other party and each of their
respective Subsidiaries, which appears in any filings, announcements or
publications made with, or written materials submitted to, any third party or
any Governmental Entity in connection with the transactions contemplated by the
MCI/WorldCom Merger Agreement. In exercising the foregoing right, each of
WorldCom and MCI has agreed to act reasonably and as promptly as practicable,
and to the extent practicable and as timely as practicable, it will consult
with, and provide all appropriate and necessary assistance to, the other party
with respect to the obtaining of all permits, consents, approvals and
authorizations of all third parties and Governmental Entities necessary or
advisable to consummate the transactions contemplated by the MCI/WorldCom Merger
Agreement and each party will keep the other party apprised of the status of
matters relating to completion of the transactions contemplated hereby.
Each of WorldCom and MCI has also further agreed that Bernard J. Ebbers, as
Chief Executive Officer of WorldCom, and Gerald H. Taylor, as Chief Executive
Officer of MCI, or their respective successors, jointly will be responsible for
coordinating all aspects of transition planning and implementation relating to
the MCI/ WorldCom Merger and the other transactions contemplated thereby,
including, during the period between the date of the MCI/WorldCom Merger
Agreement and the MCI/WorldCom Effective Time, (i) examining various
alternatives regarding the manner in which to best organize and manage the
businesses of WorldCom and MCI after the MCI/WorldCom Effective Time and (ii)
coordinating policies and strategies with respect to regulatory authorities and
bodies, in all cases subject to applicable law and regulation; provided however
that nothing contained in the MCI/WorldCom Merger Agreement will give MCI or
WorldCom, directly or indirectly, the right to control or direct the other
party's operations prior to the MCI/WorldCom Effective Time.
Each of WorldCom and MCI has also further agreed that (i) it will, as
promptly as practicable following the date of the MCI/WorldCom Merger Agreement,
in cooperation with the other, prepare and file with the Commission a joint
proxy statement/prospectus and an amendment to WorldCom's existing registration
statement on Form S-4 with respect to the Share Issuance, (ii) use all
reasonable efforts to have the Form S-4 cleared by the Commission as promptly as
practicable after filing with the Commission and to keep the Form S-4 effective
as long as is necessary to consummate the MCI/WorldCom Merger and (iii) as
promptly as practicable following the execution of the MCI/WorldCom Merger
Agreement, duly call, give notice of, convene and hold a meeting of its
stockholders for the purpose of obtaining the required votes with respect to the
transactions contemplated by the MCI/WorldCom Merger Agreement.
WorldCom has further agreed to take all necessary action to, as of the
MCI/WorldCom Effective Time, (i) reconstitute the MCI WorldCom Board to consist
of fifteen members, eight of whom will be designated by WorldCom from among the
directors of WorldCom, five of whom will be designated by MCI from among the
directors of MCI and two of whom shall be directors designated by WorldCom from
among pending acquisitions of WorldCom; provided that the persons designated by
each party are reasonably acceptable to the other party, (ii) cause Bert C.
Roberts, Jr. to be appointed Chairman of the combined company, (iii) cause the
senior management of the combined company to be as previously agreed between the
parties and (iv) amend the WorldCom Articles to change its name to "MCI
WorldCom." Each of WorldCom and MCI has also agreed that the combined company
will be headquartered in Jackson, Mississippi and the MCI/ WorldCom Surviving
Corporation (which will be a subsidiary of MCI WorldCom) will be headquartered
in Washington D.C.
Each of WorldCom and MCI has also further agreed that upon reasonable
notice, during the period prior to the MCI/WorldCom Effective Time, MCI will and
will cause its Subsidiaries to (i) afford to the officers, employees,
accountants, counsel, financial advisors and other representatives of WorldCom
reasonable access during normal business hours to all its properties, books,
contracts, commitments and records and (ii) furnish promptly to WorldCom (a) a
copy of each report, schedule, registration statement and other document filed,
published, announced or received by it during such period pursuant to the
requirements of Federal or state securities laws, as applicable (other than
reports or documents which such party is not permitted to disclose
87
<PAGE> 102
under applicable law), and (b) consistent with its legal obligations, all other
information concerning its business, properties and personnel as such other
party may reasonably request; provided, however, that MCI may restrict the
foregoing access to the extent that (x) a Governmental Entity requires MCI or
any of its Subsidiaries to restrict access to any properties or information
reasonably related to any such contract on the basis of applicable laws and
regulations with respect to national security matters or (y) any law, treaty,
rule or regulation of any Governmental Entity applicable to MCI requires MCI or
its Subsidiaries to restrict access to any properties or information. The
parties have also agreed to hold any such information which is non-public in
confidence to the extent required by, and in accordance with, the provisions of
the letter dated October 16, 1997 between MCI and WorldCom (the "Confidentiality
Agreement").
Each of WorldCom and MCI has also further agreed that, subject to the terms
and conditions of the MCI/WorldCom Merger Agreement, each party will use its
best efforts to take, or cause to be taken, all actions and to do, or cause to
be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate the MCI/WorldCom Merger and the other transactions
contemplated by the MCI/WorldCom Merger Agreement as soon as practicable, and in
furtherance thereof, each party has made filings of a Notification and Report
Form pursuant to the Hart-Scott-Rodino Act with respect to the transactions
contemplated by the MCI/WorldCom Merger Agreement and each has agreed to supply
as promptly as practicable any additional information and documentary material
that may be requested pursuant to the Hart-Scott-Rodino Act and to take all
other actions necessary to cause the expiration or termination of the applicable
waiting periods under the Hart-Scott-Rodino Act as soon as practicable.
Each of WorldCom and MCI has also further agreed that it will, in
connection with the efforts referenced in the previous paragraph, use its best
efforts to (i) cooperate in all respects with the other party in connection with
any filing or submission and in connection with any investigation or other
inquiry, including any proceeding initiated by a private party; (ii) promptly
inform the other party of any communication received by such party from, or
given by such party to, the FCC, PUCs, the DOJ or any other Governmental Entity
and of any material communication received or given in connection with any
proceeding by a private party, in each case regarding any of the transactions
contemplated hereby, and (iii) permit the other party to review any
communication given by it to, and consult with each other in advance of any
meeting or conference with, the FCC, PUCs, the DOJ or any such other
Governmental Entity or, in connection with any proceeding by a private party,
with any other person, and to the extent permitted by the FCC, PUCs, the DOJ or
such other applicable Governmental Entity or other person, give the other party
the opportunity to attend and participate in such meetings and conferences. As
used in the MCI/WorldCom Merger Agreement, "Regulatory Law" means the Sherman
Act, as amended, the Clayton Act, as amended, the Hart-Scott-Rodino Act, the
Federal Trade Commission Act, as amended, the Federal Communications Act, as
amended, and all other federal, state and foreign, if any, statutes, rules,
regulations, orders, decrees, administrative and judicial doctrines and other
laws that are designed or intended to prohibit, restrict or regulate actions
having the purpose or effect of monopolization or restraint of trade or
lessening of competition, whether in the communications industry or otherwise
through merger or acquisition.
Each of WorldCom and MCI has also further agreed that, in furtherance and
not in limitation of the covenants of the parties described in the previous two
paragraphs, if any administrative or judicial action or proceeding, including
any proceeding by a private party, is instituted (or threatened to be
instituted) challenging any transaction contemplated by the MCI/WorldCom Merger
Agreement as violative of any Regulatory Law, it will cooperate in all respects
with the other and use its respective best efforts to contest and resist any
such action or proceeding and to have vacated, lifted, reversed or overturned
any decree, judgment, injunction or other order, whether temporary, preliminary
or permanent, that is in effect and that prohibits, prevents or restricts
consummation of the transactions contemplated by the MCI/WorldCom Merger
Agreement provided that the covenant described above of each party to use its
best efforts to effect the MCI/ WorldCom Merger, does not limit a party's right
to terminate the MCI/WorldCom Merger Agreement so long as such party has up to
then complied in all respects with such covenant.
Each of WorldCom and MCI has further agreed that, if any objections are
asserted with respect to the transactions contemplated by the MCI/WorldCom
Merger Agreement under any Regulatory Law or if any suit is instituted by any
Governmental Entity or any private party challenging any of the transactions
88
<PAGE> 103
contemplated by the MCI/WorldCom Merger Agreement as violative of any Regulatory
Law, it will use its best efforts to resolve any such objections or challenge as
such Governmental Entity or private party may have to such transactions under
such Regulatory Law so as to permit consummation of the transactions
contemplated by the MCI/WorldCom Merger Agreement.
Each of WorldCom, MCI Merger Sub and MCI has further agreed that it will
use its best efforts to cause the MCI/WorldCom Merger to qualify and will not
(both before and after consummation of the MCI/ WorldCom Merger) take any
actions which to its knowledge could reasonably be expected to prevent the
MCI/WorldCom Merger from qualifying as a reorganization under the provisions of
Section 368 of the Code.
MCI/WorldCom Acquisition Proposals
Each of WorldCom and MCI has agreed that neither it nor any of its
Subsidiaries nor any of the officers and directors of it or its Subsidiaries
will, and that it will direct and use its best efforts to cause its and its
Subsidiaries' employees, agents and representatives (including any investment
banker, attorney or accountant retained by it or its Subsidiaries) not to,
directly or indirectly, initiate, solicit, encourage or otherwise facilitate
(including by way of furnishing information) any inquiries or the making of any
proposal or offer with respect to a merger, reorganization, share exchange,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction involving, or any purchase or sale of all or any
significant portion of the assets or 10% or more of the equity securities of, it
or any of its Subsidiaries that, in any such case, could reasonably be expected
to interfere with the completion of the MCI/WorldCom Merger or the other
transactions contemplated by the MCI/WorldCom Merger Agreement (any such
proposal or offer being herein referred to as an "MCI/WorldCom Acquisition
Proposal"). Each of WorldCom and MCI has further agreed not to, directly or
indirectly, have any discussion with or provide any confidential information or
data to any person relating to an MCI/WorldCom Acquisition Proposal, or engage
in any negotiations concerning an MCI/ WorldCom Acquisition Proposal, or
otherwise facilitate any effort or attempt to make or implement an MCI/ WorldCom
Acquisition Proposal or accept an MCI/WorldCom Acquisition Proposal.
Notwithstanding the foregoing, MCI or its Board of Directors may (A) comply
with Rule 14e-2(a) promulgated under the Exchange Act with regard to an
MCI/WorldCom Acquisition Proposal, (B) recommend an unsolicited bona fide
written MCI/WorldCom Acquisition Proposal to the stockholders of MCI, or
withdraw or modify in any adverse manner its approval or recommendation of the
MCI/WorldCom Merger Agreement in response to such an unsolicited bona fide
written MCI/WorldCom Acquisition Proposal or (C) engage in any discussions or
negotiations with, or provide any information to, any person in response to an
unsolicited bona fide written MCI/WorldCom Acquisition Proposal by any such
person, if and only to the extent that, in any such case as is referred to in
clause (B) or (C), (i) the MCI stockholders meeting relating to the MCI/WorldCom
Merger has not occurred, (ii) the Board of Directors of MCI concludes in good
faith that such MCI/WorldCom Acquisition Proposal (x) in the case of clause (B)
above would, if consummated, constitute a Superior Proposal or (y) in the case
of clause (C) above could reasonably be expected to constitute a Superior
Proposal, (iii) prior to providing any information or data to any person in
connection with an MCI/WorldCom Acquisition Proposal by any such person, the MCI
Board of Directors receives from such person an executed confidentiality
agreement on terms substantially similar to those contained in the
Confidentiality Agreement, and (iv) prior to providing any information or data
to any person or entering into discussions or negotiations with any person, the
Board of Directors of MCI notifies WorldCom immediately of such inquiries,
proposals or offers received by, any such information requested from, or any
such discussions or negotiations sought to be initiated or continued with, any
of its representatives indicating, in connection with such notice, the name of
such person and the material terms and conditions of any proposals or offers.
MCI has also agreed that it will keep WorldCom informed, on a current
basis, of the status and terms of any such proposals or offers and the status of
any such discussions or negotiations. Each of WorldCom and MCI has agreed that
it will immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted prior to November 9, 1997
with respect to any MCI/WorldCom Acquisition Proposal. Each of WorldCom and MCI
has also agreed that it will take the necessary steps to
89
<PAGE> 104
promptly inform its and its Subsidiaries' officers and directors, employees and
representatives of these obligations.
Conditions Precedent to the MCI/WorldCom Merger
The respective obligations of MCI, WorldCom and the MCI Merger Sub to
effect the MCI/WorldCom Merger are subject, among other things, to the
satisfaction or waiver on or prior to the MCI/WorldCom Closing Date of the
following conditions: (i) adoption of the MCI/WorldCom Merger Agreement by the
stockholders of MCI; (ii) approval of the Share Issuance by the shareholders of
WorldCom; (iii) no statute, rule, regulation, executive order, decree, ruling or
injunction shall have been adopted or promulgated or be in effect, having the
effect of making the MCI/WorldCom Merger illegal or otherwise prohibiting
consummation of the MCI/WorldCom Merger; provided, however, that this provision
shall not be available to any party whose failure to fulfill its obligations
pursuant to the MCI/WorldCom Merger Agreement shall have been the cause of, or
shall have resulted in, such order or injunction; (iv) approvals for the
MCI/WorldCom Merger from the FCC and from the PUCs, other than those the failure
of which to be obtained would not reasonably be expected to have individually or
in the aggregate a MCI/WorldCom Material Adverse Effect on WorldCom and its
Subsidiaries (including the MCI/WorldCom Surviving Corporation); (v) the
expiration or termination of the waiting period (and any extension thereof)
applicable to the MCI/WorldCom Merger under the Hart-Scott-Rodino Act; (vi) the
confirmation by way of a decision from the European Commission under the Merger
Control Regulation (with or without the initiation of proceedings under Article
6(1)(c) thereof) that the MCI/WorldCom Merger and any matters arising therefrom
are compatible with the common market; (vii) the approval upon official notice
of issuance for quotation on The Nasdaq National Market of the shares of
WorldCom Common Stock to be issued in the MCI/WorldCom Merger; and (viii)
effectiveness of the Form S-4 relating to the MCI/WorldCom Merger by declaration
of the Commission under the Securities Act and the absence of a stop order
suspending its effectiveness. As used in the MCI/WorldCom Merger Agreement and
this description thereof, "MCI/WorldCom Material Adverse Effect" means with
respect to any entity, any adverse change, circumstance or effect that,
individually or in the aggregate with all other adverse changes, circumstances
and effects, is or is reasonably likely to be materially adverse to the
business, financial condition or results of operations of such entity and its
Subsidiaries taken as a whole, other than any change, circumstance or effect
relating to (i) the economy or securities markets in general or (ii) the
industries in which WorldCom or MCI operate and not specifically relating to
WorldCom or MCI.
The obligations of WorldCom and the MCI Merger Sub to effect the
MCI/WorldCom Merger are also subject to the satisfaction of, or waiver by
WorldCom, on or prior to the MCI/WorldCom Closing Date of the following
conditions:
(i) the representations and warranties of MCI set forth in the
MCI/WorldCom Merger Agreement that are qualified as to materiality being
true and correct on the date of the MCI/WorldCom Merger Agreement, and each
of the representations and warranties of MCI that is not so qualified being
true and correct in all material respects on the date of the MCI/WorldCom
Merger Agreement, and WorldCom's receipt of a certificate of the chief
executive officer and the chief financial officer of MCI to such effect;
(ii) MCI having performed or complied with all agreements and
covenants required to be performed by it under the MCI/WorldCom Merger
Agreement at or prior to the MCI/WorldCom Closing Date that are qualified
as to materiality and MCI having performed or complied in all material
respects with all other agreements and covenants required to be performed
by it under the MCI/WorldCom Merger Agreement at or prior to the
MCI/WorldCom Closing Date that are not so qualified as to materiality, and
WorldCom's receipt of a certificate of the chief executive officer and the
chief financial officer of MCI to such effect; and
(iii) WorldCom's receipt from counsel to WorldCom, on the MCI/WorldCom
Closing Date, a written opinion stating, among other things, that the
MCI/WorldCom Merger qualifies as a reorganization under Section 368 of the
Code.
90
<PAGE> 105
The obligations of MCI to effect the MCI/WorldCom Merger are also subject
to the satisfaction of, or waiver by MCI, on or prior to the MCI/WorldCom
Closing Date of the following additional conditions:
(i) the representations and warranties of WorldCom set forth in the
MCI/WorldCom Merger Agreement that are qualified as to materiality being
true and correct on the date of the MCI/WorldCom Merger Agreement, and each
of the representations and warranties of WorldCom that is not so qualified
being true and correct in all material respects on the date of the
MCI/WorldCom Merger Agreement, and MCI's receipt of a certificate of the
chief executive officer and the chief financial officer of WorldCom to such
effect;
(ii) WorldCom having performed or complied with all agreements and
covenants required to be performed by it under the MCI/WorldCom Merger
Agreement at or prior to the MCI/WorldCom Closing Date that are qualified
as to materiality and WorldCom having performed or complied in all material
respects with all other agreements and covenants required to be performed
by it under the MCI/ WorldCom Merger Agreement at or prior to the
MCI/WorldCom Closing Date that are not so qualified as to materiality, and
MCI's receipt of a certificate of the chief executive officer and the chief
financial officer of WorldCom to such effect;
(iii) MCI's receipt from counsel to MCI, on the MCI/WorldCom Closing
Date, a written opinion stating, among other things, that the MCI/WorldCom
Merger qualifies as a reorganization under Section 368 of the Code; and
(iv) since the date of the MCI/WorldCom Merger Agreement, the absence
of WorldCom and its Subsidiaries having incurred any material liability,
except in the ordinary course of business consistent with past practice, or
any adverse change, circumstance or effect that, individually or in the
aggregate with all other adverse changes, circumstances and effects, is or
is reasonably likely to be materially adverse to the business, financial
condition or results of operations of WorldCom and its Subsidiaries taken
as a whole, other than any change, circumstance or effect relating to (i)
the economy or securities markets in general or (ii) the industries in
which WorldCom or MCI operate and not specifically relating to WorldCom or
MCI.
Stock Options and Other Stock Plans; Employee Benefit Matters
Each of MCI and WorldCom have also agreed that, pursuant to the
MCI/WorldCom Merger Agreement, each option to purchase shares of MCI Common
Stock (each, an "MCI Stock Option") that was granted pursuant to the MCI stock
option plans prior to the MCI/WorldCom Effective Time and which remains
outstanding immediately prior to the MCI/WorldCom Effective Time will be
converted, at the MCI/WorldCom Effective Time, into an option to acquire, on the
same terms and conditions as were applicable under the MCI Stock Option, that
number of shares of WorldCom Common Stock determined by multiplying the number
of shares of MCI Common Stock subject to such MCI Stock Option by the MCI
Exchange Ratio, rounded, if necessary, up to the nearest whole share of WorldCom
Common Stock, at a price per share equal to the per-share exercise price
specified in such MCI Stock Option divided by the MCI Exchange Ratio; provided,
however, that in the case of any MCI Stock Option to which Section 421 of the
Code applies by reason of its qualification under Section 422 of the Code, the
option price, the number of shares subject to such option and the terms and
conditions of exercise of such option will be determined in a manner consistent
with the requirements of Section 424(a) of the Code. In addition, all unvested
and unpaid MCI restricted stock and incentive stock units will be converted to
the number of shares of WorldCom Common Stock or incentive stock units
determined by multiplying such shares of restricted stock and incentive stock
units by the MCI Exchange Ratio.
Indemnification; Directors and Officers' Insurance
The MCI/WorldCom Surviving Corporation will maintain in effect in its
certificate of incorporation and bylaws (i) for a period of six years after the
MCI/WorldCom Effective Time, the current provisions regarding elimination of
liability of directors and indemnification of officers, directors and employees
contained in the certificate of incorporation and bylaws of MCI and (ii) for a
period of six years, the current policies of
91
<PAGE> 106
directors' and officers' liability insurance and fiduciary liability insurance
maintained by MCI (provided that the MCI/WorldCom Surviving Corporation may
substitute therefor policies of at least the same coverage and amounts
containing terms and conditions which are, in the aggregate, no less
advantageous to the insured) with respect to claims arising from facts or events
that occurred on or before the MCI/WorldCom Effective Time; provided, however,
that in no event will the MCI/WorldCom Surviving Corporation be required to
expend in any one year an amount in excess of 200% of the annual premiums
currently paid by MCI for such insurance; and, provided, further, that if the
annual premiums of such insurance coverage exceed such amount, the MCI/WorldCom
Surviving Corporation will be obligated to obtain a policy with the greatest
coverage available for a cost not exceeding such amount.
Termination
The MCI/WorldCom Merger Agreement may be terminated at any time prior to
the MCI/WorldCom Effective Time, by action taken or authorized by the Board of
Directors of the terminating party or parties, and except as provided below,
whether before or after approval of the matters presented in connection with the
MCI/WorldCom Merger by the stockholders of MCI or WorldCom:
(i) By mutual written consent of WorldCom and MCI, by action of their
respective Boards of Directors;
(ii) By either MCI or WorldCom if the MCI/WorldCom Effective Time has
not occurred on or before December 31, 1998 (the "MCI/WorldCom Termination
Date"); provided, however, that this right to terminate the MCI/WorldCom
Merger Agreement will not be available to any party whose failure to
fulfill any obligation under the MCI/WorldCom Merger Agreement has to any
extent been the cause of, or resulted in, the failure of the MCI/WorldCom
Effective Time to occur on or before the MCI/WorldCom Termination Date;
(iii) By either MCI or WorldCom if any Governmental Entity (A) has
issued an order, decree or ruling or taken any other action (which the
parties have used their best efforts to resist, resolve or lift, as
applicable, in accordance with the MCI/WorldCom Merger Agreement)
permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by the MCI/WorldCom Merger Agreement, and such
order, decree, ruling or other action has become final and nonappealable or
(B) has failed to issue an order, decree or ruling or to take any other
action (which order, decree, ruling or other action the parties have used
their best efforts to obtain, in accordance with the MCI/WorldCom Merger
Agreement), in each case (A) and (B) which is necessary to fulfill the
conditions set forth in subsections 6.1(c) (FCC and PUC approvals), (d)
(expiration or termination of the waiting period under the
Hart-Scott-Rodino Act) and (e) (receipt of a decision from the European
Commission that the MCI/ WorldCom Merger is compatible with the common
market) of the MCI/WorldCom Merger Agreement, as applicable, and such
denial of a request to issue such order, decree, ruling or take such other
action has become final and nonappealable; provided, however, that this
right to terminate the MCI/WorldCom Merger Agreement will not be available
to any party whose failure to comply with the covenant in the MCI/WorldCom
Merger Agreement requiring such party to use its best efforts to effect the
MCI/ WorldCom Merger has to any extent been the cause of such action or
inaction;
(iv) By either MCI or WorldCom if the approval by the stockholders of
MCI or of WorldCom required for the consummation of the MCI/WorldCom Merger
has not been obtained by reason of the failure to obtain the requisite
votes at a duly held meeting of stockholders of MCI or WorldCom, as the
case may be, or at any adjournment thereof;
(v) By WorldCom if the Board of Directors of MCI, prior to the MCI
stockholders meeting relating to the MCI/WorldCom Merger (A) withdraws or
modifies in any adverse manner its approval or recommendation of the
MCI/WorldCom Merger Agreement, (B) approves or recommends a Superior
Proposal or (C) resolves to take any of the actions specified in clauses
(A) or (B) above; or
(vi) By MCI at any time prior to the MCI stockholders meeting relating
to the MCI/WorldCom Merger, upon two business days' prior notice to
WorldCom, if the Board of Directors of MCI approves a
92
<PAGE> 107
Superior Proposal; provided, however, that (A) MCI has complied with the
provisions described above under "-- MCI/WorldCom Acquisition Proposals,"
(B) the Board of Directors of MCI has concluded in good faith, after giving
effect to all concessions which may be offered by WorldCom pursuant to
clause (C) below, on the basis of the advice of its financial advisors and
outside counsel, that such proposal is a Superior Proposal and (C) prior to
any such termination, MCI has, and has caused its financial and legal
advisors to, negotiate with WorldCom to make such adjustments in the terms
and conditions of the MCI/ WorldCom Merger Agreement as would enable
WorldCom to proceed with the transactions contemplated thereby; provided,
however, that it is a condition to termination by MCI pursuant to this
subsection (vi) that MCI has made the payment of the WorldCom Alternative
Transaction Fee to WorldCom referred to in "-- Termination Fees."
The right to terminate the MCI/WorldCom Merger Agreement pursuant to the
foregoing is not available to any party (i) that is in material breach of its
obligations under the MCI/WorldCom Merger Agreement or (ii) whose failure to
fulfill its obligations or to comply with its covenants under the MCI/WorldCom
Merger Agreement has been the cause of, or resulted in, the failure to satisfy
any condition to the obligations of either party under the MCI/WorldCom Merger
Agreement.
Fees and Expenses
Whether or not the MCI/WorldCom Merger is consummated, all expenses
incurred in connection with the MCI/WorldCom Merger Agreement and the
transactions contemplated thereby shall be paid by the party incurring such
expenses, except (a) if the MCI/WorldCom Merger is consummated, the MCI/WorldCom
Surviving Corporation shall pay any and all property or transfer taxes imposed
on MCI or its Subsidiaries and any real property transfer tax imposed on any
holder of shares of capital stock of MCI resulting from the MCI/WorldCom Merger,
(b) expenses incurred in connection with the filing, printing and mailing of the
joint proxy statement/prospectus, which shall be shared equally by WorldCom and
MCI and (c) the Reimbursement Amount described in "-- Termination Fees".
Termination Fees
WorldCom and MCI agreed that (i) if MCI terminates the MCI/WorldCom Merger
Agreement due to the MCI Board having approved a Superior Proposal or (ii) if
(x) MCI or WorldCom terminate the MCI/WorldCom Merger Agreement pursuant to the
failure of the MCI stockholders to approve and adopt the MCI/WorldCom Merger
Agreement or WorldCom terminates the MCI/WorldCom Merger Agreement due to the
withdrawal or modification of the approval or recommendation in any adverse
manner of the Board of Directors of MCI or its approval or recommendation of a
Superior Proposal, (y) at the time of the event giving rise to such termination
there exists an MCI/WorldCom Acquisition Proposal with respect to MCI and (z)
within 12 months of the termination of the MCI/WorldCom Merger Agreement, MCI
enters into a definitive agreement with any third party with respect to an
MCI/WorldCom Acquisition Proposal or an MCI/WorldCom Acquisition Proposal is
consummated, then MCI will pay to WorldCom an amount equal to $750 million (the
"WorldCom Alternative Transaction Fee") and will reimburse WorldCom for the fee
paid by WorldCom to BT pursuant to the BT Agreement (such amount, the
"Reimbursement Amount").
If (a) the MCI/WorldCom Merger Agreement is terminated (i) because the
MCI/WorldCom Merger has not been consummated by December 31, 1998 and any of the
following conditions to the MCI/WorldCom Merger have not been satisfied: absence
of injunctions prohibiting consummation of the MCI/WorldCom Merger Agreement,
receipt of FCC and PUC approvals, expiration or termination of the waiting
period under the Hart-Scott-Rodino Act, receipt of a decision from the European
Commission that the MCI/WorldCom Merger is compatible with the common market,
accuracy of WorldCom's representations and warranties, performance by WorldCom
of its obligations under the MCI/WorldCom Merger Agreement, or absence of any
material adverse change with respect to WorldCom, (ii) because of the issuance
of an order, decree, ruling or other action prohibiting the transactions
contemplated by the MCI/WorldCom Merger Agreement or the absence of a
governmental action necessary to proceed with the transactions contemplated by
the MCI/WorldCom Merger Agreement, or (iii) because of the failure to obtain the
requisite vote to approve the Share Issuance at a duly called WorldCom
shareholders meeting relating to the MCI/WorldCom Merger or
93
<PAGE> 108
(b) notwithstanding the satisfaction of all the conditions to the obligations of
WorldCom to effect the MCI/WorldCom Merger and the satisfaction or waiver by MCI
of all the conditions to its obligations to effect the MCI/WorldCom Merger,
WorldCom is not willing to consummate the MCI/WorldCom Merger, then, unless (i)
MCI has not used its best efforts to cause, or cause to be taken all things
necessary to consummate the MCI/WorldCom Merger and other transactions
contemplated by the MCI/WorldCom Merger Agreement or (ii) MCI has breached its
representations or warranties or its agreements or covenants under the
MCI/WorldCom Merger Agreement such that either of the conditions to WorldCom's
obligations to effect the MCI/WorldCom Merger has not been satisfied, WorldCom
will pay to MCI an amount in cash equal to $1.635 billion.
Amendment
The MCI/WorldCom Merger Agreement may be amended by WorldCom and MCI at any
time before or after approval of the matters presented in connection with the
MCI/WorldCom Merger by the stockholders of MCI and the shareholders of WorldCom,
but, after any such approval, no amendment may be made that by law or in
accordance with the rules of any relevant stock exchange requires further
approval by such stockholders without such further approval. The MCI/WorldCom
Merger Agreement may not be amended except by an instrument in writing signed on
behalf of each of WorldCom and MCI.
Waiver
The MCI/WorldCom Merger Agreement permits WorldCom and MCI at any time
prior to the MCI/WorldCom Effective Time, to (i) extend the time for the
performance of any of the obligations or other acts of the other parties, (ii)
waive any inaccuracies in the representations and warranties contained therein
or in any document delivered pursuant thereto and (iii) waive compliance with
any of the agreements or conditions contained therein, in each case pursuant to
a written instrument.
The BT Agreement
The description of the BT Agreement contained in this Proxy
Statement/Prospectus describes the material terms of the BT Agreement but does
not purport to be complete and is qualified in its entirety by reference to the
BT Agreement, a copy of which is attached as an exhibit to the Registration
Statement and incorporated herein by reference. Capitalized terms appearing
below that are not otherwise defined herein have the same meanings as are given
such terms in the BT Agreement. Whenever particular sections or defined terms
are referred to, it is intended that such sections or defined terms shall be
incorporated by reference.
Termination of the BT/MCI Merger Agreement; Payment of Fees. Pursuant to
the BT Agreement, the BT/MCI Merger Agreement was terminated and WorldCom agreed
to pay BT a fee of $450 million and expenses of $15 million. These fees were
paid on November 12, 1997. WorldCom also agreed to pay to BT an additional
payment of $250 million in the event that WorldCom is required to make a payment
to MCI in accordance with the provisions of the MCI/WorldCom Merger Agreement
(which requires WorldCom to pay MCI $1.635 billion if (a) the MCI/WorldCom
Merger Agreement is terminated (i) because the MCI/WorldCom Merger has not been
consummated by December 31, 1998 and any of the following conditions to be the
MCI/WorldCom Merger have not been satisfied: absence of injunctions, receipt of
FCC and PUC approvals, expiration or termination of the waiting period under the
Hart-Scott-Rodino Act, receipt of a decision from the European Commission that
the MCI/WorldCom Merger is compatible with the common market, accuracy of
WorldCom's representations and warranties, performance by WorldCom of its
obligations under the MCI/WorldCom Merger Agreement, or absence of any material
adverse change with respect to WorldCom, (ii) because the MCI/WorldCom Merger
has been permanently enjoined or a required governmental action or approval has
not been obtained or (iii) because the WorldCom shareholders fail to approve the
Share Issuance or (b) WorldCom is unwilling to consummate the MCI/WorldCom
Merger (notwithstanding the satisfaction of the conditions precedent to its
obligations under the MCI/WorldCom Merger Agreement).
94
<PAGE> 109
Voting Agreement. Pursuant to the BT Agreement, BT has agreed to vote (or
cause to be voted) its shares of MCI Class A Common Stock in favor of the
MCI/WorldCom Merger, the adoption by MCI of the MCI/WorldCom Merger Agreement
and the approval of the other transactions contemplated by the MCI/ WorldCom
Merger Agreement.
Pursuant to the BT Agreement, BT has also agreed to vote (or cause to be
voted) its shares of MCI Class A Common Stock against (i) any merger agreement
or merger (other than the MCI/WorldCom Merger Agreement and the MCI/WorldCom
Merger), consolidation, combination, sale of substantial assets, reorganization,
recapitalization, dissolution, liquidation or winding up of or by MCI or any
other MCI acquisition or (ii) any amendment of the MCI Restated Certificate of
Incorporation or MCI Bylaws or other proposal or transaction involving MCI, or
any of its subsidiaries, which amendment or other proposal or transactions would
in any manner impede, frustrate, prevent or nullify the MCI/WorldCom Merger, the
MCI/WorldCom Merger Agreement or any of the other transactions contemplated by
the MCI/WorldCom Merger Agreement.
Pursuant to the BT Agreement, BT has agreed not to (i) transfer (which term
includes, without limitation, any sale, gift, pledge or other disposition), or
consent to any transfer of, any or all of its shares of MCI Class A Common Stock
or any interest therein, except pursuant to the MCI/WorldCom Merger, (ii) enter
into any contract, option or other agreement, arrangement or understanding with
respect to any or all of its shares of MCI Class A Common Stock or any interest
therein, (iii) grant any proxy, power-of-attorney or other authorization in or
with respect to its shares of MCI Class A Common Stock, except for the BT
Agreement or (iv) deposit its shares of MCI Class A Common Stock into a voting
trust or enter into a voting agreement or arrangement with respect to its shares
of MCI Class A Common Stock.
Pursuant to the BT Agreement, BT has agreed to use all reasonable efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, and
to assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the MCI/WorldCom Merger and the other transactions
contemplated by the MCI/WorldCom Merger Agreement.
Termination of Concert Joint Venture Agreement. Pursuant to the BT
Agreement, WorldCom, MCI and BT have agreed to appropriately modify the Modified
Joint Venture Agreement among BT, Moorgate (Twelve) Limited ("BTH"), MCI, MCI
Ventures Corporation ("Ventures"; together with BTH, the "JV Shareholders") and
Concert Communications Company ("Concert") (the "BT/MCI Joint Venture
Agreement"), effective as of the consummation of the purchase of the joint
venture interest described below (the "JV Purchase Date") to reflect the
following provisions:
(a) The exclusive distribution rights set forth in the BT/MCI Joint
Venture Agreement and the related distribution agreements will be
terminated.
(b) Concert will continue to provide services to MCI on a nonexclusive
basis to customers based in the United States for a period of five years
from the JV Purchase Date in accordance with the terms of the related MCI
distribution agreement. This is intended to enable MCI to continue to
provide services to existing customers under the terms of its contractual
obligations and to enter into new contractual obligations with new
customers and existing customers provided that the term of such obligations
does not extend beyond the fifth anniversary of the JV Purchase Date.
Pursuant to the BT Agreement, BT has agreed to exercise the call option set
forth in the BT/MCI Joint Venture Agreement immediately following the occurrence
of the MCI/WorldCom Effective Time to purchase MCI's interest in Concert.
Pursuant to the BT Agreement, BT and WorldCom have agreed to undertake in
good faith to negotiate within 180 days a transition agreement:
(i) to provide for a professional exit from the existing Concert
arrangements while satisfying the requirements of BT's and MCI's customers
before and during the exit;
95
<PAGE> 110
(ii) to agree to the requirements (financial, operational, technical)
of making Concert more self-standing and better able to support customer
and distributor requirements; and
(iii) to give BT and customers comfort that during the pendency of the
MCI/WorldCom Merger and the post-merger period underlying components and
services necessary to provide Concert service which are sourced from MCI
are available on commercially reasonable terms despite the change in
circumstances.
Pursuant to the BT Agreement, if the transition agreement is not executed
within 180 days despite BT's and WorldCom's good faith efforts, the nonexclusive
distributorship referred to in (b) above will have a term of two (rather than
five) years.
Litigation. WorldCom agreed to promptly withdraw its complaint in the
matter entitled WorldCom, Inc. and TC Investments Corp. against MCI
Communications Corporation et al., and BT agreed to promptly withdraw the answer
to such complaint filed by it.
MCI/WorldCom Merger Consideration. WorldCom and MCI agreed not to amend the
MCI/WorldCom Merger Agreement to increase the consideration payable to holders
of shares of MCI Common Stock, unless the consideration to be paid in respect of
the shares of MCI Class A Common Stock is increased in such amendment by a like
amount per share.
Amendments to MCI/WorldCom Merger Agreement. WorldCom and MCI agreed not to
amend the MCI/WorldCom Merger Agreement in a manner that adversely affects the
interests of BT.
Certain Litigation
On November 4, 1996, and thereafter, and on August 25, 1997, and
thereafter, MCI, and all of its directors, including the two directors who are
also executive officers of MCI and the three directors elected by BT, were named
as defendants in a total of 15 complaints filed in the Court of Chancery in the
State of Delaware. BT was named as a defendant in thirteen of the complaints. In
addition, amended or revised complaints were filed in four of the cases
commenced in or about November 1996 and in one of the cases filed in or about
August 1997. The complaints were brought by alleged stockholders of MCI,
individually and purportedly as class actions on behalf of all other
stockholders of MCI. Generally these complaints allege breach of fiduciary duty
by the MCI Board of Directors in connection with the BT/MCI Merger Agreement.
Seven of the complaints in which BT was named as a defendant allege that BT
aided and abetted those breaches of fiduciary duty. Five of the complaints in
which BT was named as a defendant allege that BT owes fiduciary duties to other
MCI stockholders and breached those duties in connection with the BT Merger
Agreement. They seek, inter alia, damages and injunctive and other relief.
On or about October 8, 1997, a purported derivative action was filed in
Delaware Chancery Court on behalf of MCI against the MCI Board, including the
two directors who are also executive officers and the three directors elected by
BT. BT and Tadworth Corporation were also named as defendants, and MCI was named
as a nominal defendant. Generally, the complaint alleges that the MCI Board
breached duties owed to stockholders in connection with the BT Merger Agreement
and the MCI Offer. The complaint seeks damages, injunctive relief, and other
relief.
On November 14, 1997, plaintiffs' counsel and defendants' counsel in the
Delaware actions held a conference with the Court of Chancery, at which
plaintiff sought an injunction requiring plaintiffs' representatives to
participate in any further negotiations. Plaintiffs' counsel also sought
expedited treatment and the setting of an early trial date with respect to their
challenge to the inducement fee to be paid to BT under the BT Merger Agreement
and the different form of consideration payable to BT contemplated by the MCI/
WorldCom Merger Agreement. Citing the absence of immediate and irreparable
injury, the Court denied plaintiffs' request for injunctive relief and expedited
treatment, and declined to set an early trial date. Plaintiffs indicated that
they would be amending their complaints and joining additional parties as
defendants.
On or about November 14, 1997, one of the purported stockholder class
actions pending in Delaware Chancery Court was amended. On November 19, 1997,
plaintiffs in four of the purported stockholder class
96
<PAGE> 111
actions moved to amend their complaints. The amended complaint and proposed
amended complaints name as defendants MCI, the MCI Board, WorldCom, BT and TC
Investments Corp. They generally allege that the defendants breached their
fiduciary duty to stockholders in connection with the MCI/WorldCom Merger, the
agreement to pay a termination fee to WorldCom, and alleged discrimination in
favor of BT in connection with the MCI/WorldCom Merger. They seek, inter alia,
damages and injunctive relief prohibiting the consummation of the MCI/WorldCom
Merger and the payment of the inducement fee to BT.
On August 28, 1997, a complaint was filed in the federal district court in
Washington D.C., by an alleged stockholder of MCI, individually and putatively
as a class action on behalf of purchasers of MCI Common Stock during the period
from August 14, 1997 through August 20, 1997. On or about October 27, 1997,
another complaint was filed in the federal district court in Washington D.C. by
two alleged stockholders of MCI, individually and putatively as a class action
on behalf of purchasers of MCI Common Stock during the period from August 14,
1997 through August 22, 1997. On or about October 31, 1997, another complaint
was filed in the federal district court in Washington D.C. by an alleged
stockholder of MCI, individually and putatively as a class action on behalf of
purchasers of MCI Common Stock during the period from July 10, 1997 through
August 22, 1997. The three complaints allege that MCI and certain of its
officers and directors failed to disclose material information about MCI,
including that MCI was negotiating the terms of the BT Merger Agreement dated
November 3, 1996. The complaints seek damages and other relief.
MCI believes that all of these complaints are without merit.
Interests of Certain Persons in the MCI/WorldCom Merger
Ownership of MCI Common Stock; Stock Options. As of November 30, 1997,
directors and executive officers of MCI beneficially owned an aggregate of
2,671,400 shares of MCI Common Stock (or approximately 0.5% of the then
outstanding MCI Common Stock), including restricted shares of MCI Common Stock
("MCI Restricted Shares") and incentive stock units ("ISUs") but excluding
shares of MCI Common Stock that may be acquired upon the exercise of outstanding
MCI Stock Options.
As of November 30, 1997, directors and executive officers of MCI held
options to purchase an aggregate of 4,234,020 shares of MCI Common Stock, of
which options to purchase 2,839,010 shares of MCI Common Stock were exercisable,
and the remainder of which will, pursuant to the MCI/WorldCom Merger Agreement,
become fully vested and exercisable immediately prior to the MCI/WorldCom
Effective Time if not previously vested. Of the options that will become fully
vested as a result of the MCI/WorldCom Merger, Bert C. Roberts, Jr. held options
to purchase 261,600 shares with a weighted average exercise price of $30.00,
Gerald H. Taylor held options to purchase 186,100 shares with a weighted average
exercise price of $30.00, Timothy F. Price held options to purchase 180,450
shares with a weighted average exercise price of $28.00, Judith Areen held
options to purchase 40,000 shares with a weighted average exercise price of
$29.75, Richard M. Jones held options to purchase 10,000 shares with a weighted
average exercise price of $25.375, and John R. Worthington held options to
purchase 30,000 shares with a weighted average exercise price of $29.375. The
MCI/WorldCom Merger Agreement provides that each option to purchase shares of
MCI Common Stock that remains outstanding at the MCI/WorldCom Effective Time is
to be converted into an option to acquire that number of shares of WorldCom
Common Stock determined by multiplying the number of shares of MCI Common Stock
subject to such option by the MCI Exchange Ratio, rounded, if necessary, up to
the nearest whole share of WorldCom Common Stock, at a price per share equal to
the per-share exercise price specified in such MCI Stock Option divided by the
MCI Exchange Ratio. See "The MCI/ WorldCom Merger Agreement -- Stock Options and
Other Stock Plans".
As of November 30, 1997, executive officers of MCI held an aggregate of
1,091,086 MCI Restricted Shares and ISUs, including in the case of Mr. Roberts,
Mr. Taylor and Mr. Price, 300,564, 230,037 and 154,368 shares, respectively.
Pursuant to the MCI/WorldCom Merger Agreement at the MCI/WorldCom Effective
Time, all unvested and unpaid MCI Restricted Shares and ISUs outstanding on the
date of execution of the MCI/WorldCom Merger Agreement will become fully vested
and (unless voluntarily deferred) paid. Any ISUs or MCI Restricted Shares, at
the MCI/WorldCom Effective Time, shall be
97
<PAGE> 112
converted to the number of shares of WorldCom Common Stock or ISUs determined by
multiplying such MCI Restricted Shares and ISUs by the MCI Exchange Ratio.
Employment Agreements. MCI had previously entered into employment
agreements (the "Employment Agreements") with Messrs. Roberts, Taylor, Price,
Douglas L. Maine, Michael J. Rowny, Michael H. Salsbury, Fred M. Briggs and
Scott B. Ross (the "Executives"), effective as of November 2, 1996, and expiring
on December 31, 1999. The Employment Agreements will remain in place whether or
not the MCI/ WorldCom Merger is approved by MCI's stockholders.
Pursuant to the Employment Agreements, each Executive will receive an
annual base salary, subject to increases (but not decreases) at the discretion
of MCI. The current 1997 annual salaries of each of the Executives under the
Employment Agreements are as follows: Bert C. Roberts, Jr., $1,000,000; Gerald
H. Taylor, $700,000; Timothy F. Price, $550,000; Michael J. Rowny, $350,000;
Scott B. Ross, $325,000; Douglas L. Maine, $330,000; Michael H. Salsbury,
$300,000; and Fred M. Briggs, $300,000. In addition, each Executive will receive
an annual bonus for each fiscal year of MCI ending during the term of the
Executive's employment with a minimum bonus amount of no less than the average
annual bonus earned by the Executive in respect of the 1994, 1995 and 1996
fiscal years, which minimum bonus amounts, in the case of Mr. Roberts, Mr.
Taylor and Mr. Price are $1,167,000, $700,000 and $490,000, respectively. The
Executives will also participate in any long-term incentive compensation plan or
program maintained by MCI for senior executives of MCI and all long-term
compensation plans and programs in existence immediately prior to the
MCI/WorldCom Merger are, under the Employment Agreements, required to be
maintained for at least two years following the MCI/WorldCom Effective Time or
replaced by programs that are no less favorable to the Executives. In addition,
the Executives will participate in all MCI pension and welfare benefit plans and
programs which are applicable to senior executives of MCI, and all pension and
welfare benefit plans and programs in existence immediately prior to the
MCI/WorldCom Merger are, under the Employment Agreements, required to be
maintained for at least two years following the MCI/WorldCom Effective Time or
be replaced by programs that are no less favorable to the Executives.
Under the Employment Agreements, in the event an Executive's employment is
terminated by MCI (for this purpose "MCI" shall mean MCI, WorldCom and their
respective affiliates) without "Cause" or by the Executive for "Good Reason" (as
each such term is defined below), the Executive is to receive (a) the
Executive's accrued but unpaid salary and vacation pay, and any unpaid bonus
from the prior fiscal year, (b) a cash payment equal to three times the sum of
(x) the Executive's annual base salary and (y) the greater of (A) the average
annual bonus paid to or accrued for the Executive by MCI in respect of the three
calendar years preceding the termination of employment and (B) the annual bonus
paid to or accrued for the Executive in respect of 1995, (which 1995 bonus, in
the case of Messrs. Roberts, Taylor and Price, was $1.3 million, $800,000 and
$600,000, respectively), (c) continued medical, dental and life insurance
coverage for the Executive and the Executive's eligible dependents on the same
basis as in effect immediately prior to the Executive's termination of
employment until the earlier of (A) 36 months after the Executive's termination
of employment or (B) the commencement of coverage with a subsequent employer,
but only to the extent such coverage duplicates or exceeds the coverage provided
by MCI, (d) unless otherwise expressly elected by the Executive prior to such
termination, payment, in a cash lump sum, of all amounts deferred by the
Executive under any non-qualified plan of deferred compensation maintained by
MCI or MCI WorldCom (notwithstanding the payment provisions of any such plan to
the contrary), (e) full acceleration of vesting and exercisability of any equity
based and cash retention awards (including, but not limited to, MCI Stock
Options, MCI Restricted Shares and ISUs) granted to the Executive prior to the
Executive's termination of employment and (f) 36 months of age and service
credit for all purposes under all defined benefit plans of MCI (or the
equivalent).
For purposes of the Employment Agreements, "Cause" means: (i) a deliberate
and material breach by the Executive of his duties and responsibilities under
the Employment Agreement that results in material harm to MCI, which breach is
(A) either the product of willful malfeasance or gross neglect, (B) committed in
bad faith or without reasonable belief that such breach is in, or not contrary
to, the best interests of MCI and (C) not remedied within 30 days after receipt
of written notice from MCI specifying such breach; (ii) the Executive's willful
and material breach of the restrictive covenants contained in the Employment
Agreements
98
<PAGE> 113
which is not remedied within 30 days after receipt of written notice from MCI
specifying such breach; or (iii) the Executive's plea of guilty or nolo
contendere to, or nonappealable conviction of, a felony, which conviction or
plea causes material harm to the reputation or financial position of MCI. "Good
Reason" means the occurrence of any of the following without the Executive's
express written consent: (i) the assignment to the Executive of any duties
inconsistent with the Executive's current positions, duties, responsibilities
and status with MCI, a change in the Executive's reporting responsibilities,
title or offices or any removal of the Executive from or failure to elect or
re-elect the Executive to any position with MCI (including membership on the MCI
Board) except in connection with the Executive's promotion or a termination of
employment for Cause; (ii) a reduction in the Executive's base salary or target
annual bonus or long-term incentives, as such salary, target bonus and
incentives are increased from time to time; (iii) the failure to continue in
effect any employee benefit plan or compensation plan in which the Executive
participates unless the Executive is provided with participation in other plans
that provide substantially comparable benefits or the taking of any action that
would adversely affect the Executive's benefits under any such plan; (iv) any
relocation of the Executive's principal place of business from the location
described in the Employment Agreement; (v) any reduction in fringe benefits and
perquisites provided to the Executive; (vi) any material breach by MCI of any
provisions of the Employment Agreement; and (vii) a failure by MCI WorldCom to
expressly assume, as of the date of the MCI/WorldCom Merger, all obligations of
MCI under the Employment Agreement.
The Employment Agreements further provide that if the payments described
above constitute "parachute payments" under applicable provisions of the Code,
MCI is to pay the Executive an additional amount sufficient to place the
Executive in the same after-tax financial position the Executive would have been
in if the Executive had not incurred the excise tax imposed under Section 4999
of the Code in respect of such parachute payments.
In the event an Executive's employment is terminated due to the Executive's
death or "Disability" (as defined in the Employment Agreements), the Employment
Agreements provide that MCI is to pay to the Executive (or the Executive's
beneficiaries) a lump sum cash amount equal to (i) the annual rate of the
Executive's annual base salary as in effect on the date of termination and (ii)
the highest bonus paid to the Executive under MCI's annual bonus plan during the
three fiscal years preceding the termination of employment. In addition, the
Executive is to receive (i) the unpaid portion of his annual base salary accrued
to the date of termination and any accrued vacation as of the date of
termination and (ii) the unpaid portion of his bonus accrued with respect to the
last full fiscal year of MCI ended prior to the date of termination, when such
bonus would otherwise be payable.
The Employment Agreements contain confidentiality, non-competition and
non-solicitation clauses which provide, among other things, that the Executive
is not to (i) render services to a competitor of MCI or its affiliates or (ii)
solicit or offer employment to any employee of MCI or its affiliates during the
Executive's employment with MCI or its affiliates and, thereafter, for a period
expiring on the earlier of (x) the first anniversary of the Executive's
termination of employment and (y) the expiration of the term of the Employment
Agreement.
Executive Severance Policy. MCI has adopted an executive severance plan
(the "ESP") effective for the period commencing on November 3, 1996, and
terminating on November 9, 2000 (the "Benefits Termination Date"). The ESP
covers 20 senior executives of MCI (the "Covered Executives") who do not have
employment agreements. The ESP provides that if a Covered Executive's employment
is terminated prior to the Benefits Termination Date for any reason other than
"disability" or for "cause" (as such terms are defined in the ESP), or if the
Covered Executive terminates employment for "good reason" (as such term is
defined in the ESP) prior to the Benefits Termination Date, MCI will pay to the
Covered Executive an amount equal to two times the sum of (x) the Covered
Executive's annual base salary and (y) the greater of (A) the average annual
bonus paid to or accrued by the Covered Executive in respect of the three
calendar years preceding the termination of employment and (B) the Covered
Executive's annual bonus in respect of 1995. Under the ESP, such amount is to be
paid as follows: the amount attributable to base salary will be paid in a lump
sum following the termination of the Covered Executive's employment, except that
if the Covered Executive terminates his employment for good reason such amount
will be payable over a six-month period in equal installments, and the amount
attributable to the annual bonus will be paid in a lump sum following the
99
<PAGE> 114
termination of the Covered Executive's employment. Under the ESP, a Covered
Executive whose employment terminates under the circumstances described above
will also be entitled to: (i) continued medical, dental and life insurance
coverage (or their equivalents) until the earlier of (A) 24 months after the
Covered Executive's termination of employment or (B) the commencement of
coverage with a subsequent employer to the extent such coverage duplicates or
exceeds the coverage provided by MCI, (ii) unless otherwise expressly elected by
the Covered Executive prior to such termination, payment in a cash lump sum of
all amounts deferred by the Covered Executive pursuant to any non-qualified
deferred compensation and cash retention plan of MCI, (iii) full acceleration of
vesting and exercisability of any equity-based compensation awards granted to
the Covered Executive and (iv) 24 months of age and service credit for all
purposes under all defined benefit pension plans of MCI (or their equivalents).
Under the ESP, in the event of the termination of a Covered Executive's
employment prior to the Benefits Termination Date due to a Covered Executive's
death or disability, MCI will pay to the Covered Executive or his beneficiaries,
as applicable, a lump sum cash amount equal to (i) the Covered Executive's
annual base salary and (ii) the highest bonus paid to the Covered Executive by
MCI during the three fiscal years preceding the termination of employment. In
addition, under the ESP, the Covered Executive will be entitled to payment in a
cash lump sum of all amounts deferred by the Covered Executive under any
nonqualified deferred compensation plan maintained by MCI, unless otherwise
expressly elected by the Covered Executive.
The ESP also provides for a gross-up payment to be made to a Covered
Executive for any excise tax imposed under Section 4999 of the Code with respect
to any payments made to the Covered Executive under the ESP or under the terms
of any other MCI plan, program, agreement or arrangement.
The ESP contains confidentiality, non-competition and non-solicitation
clauses which provide, among other things, that a Covered Employee may not, for
a period of six months, in the event a Covered Employee terminates his or her
employment for good reason, (i) render services to a competitor of MCI or its
affiliates or (ii) solicit or offer employment to any employees of MCI or its
affiliates.
Retention Bonuses for Senior Executives. In connection with the
MCI/WorldCom Merger, a cash retention award pool (the "Executive Retention
Program") of up to approximately $170 million will be created to provide
retention incentives for MCI senior executives, including Messrs. Roberts,
Taylor and Price, as determined by the MCI Compensation Committee as soon as
practicable after the date of the MCI/ WorldCom Merger Agreement. These bonuses
generally replace the Senior Retention ISUs granted pursuant to the Original
MCI/BT Merger Agreement, which were discontinued when that agreement was
terminated. The schedule of payment of such incentives will be subject to
approval of WorldCom, which will not be unreasonably withheld; and WorldCom will
be informed as to the other aspects of the incentives.
Retention Bonuses for Employees. As was the case under the Original MCI/BT
Agreement, MCI managers are permitted to make discretionary grants of retention
bonuses (in cash or otherwise) to key individuals (other than those individuals
who have entered into the Employment Agreements, and it being understood that it
is intended that the Covered Executives generally are not to be eligible to
participate) from a separate approximately $100 million pool created for that
purpose. Awards are to be granted from this pool as follows: (i) up to one-half
was awarded not earlier than December 1, 1997, and (ii) one-half is to be
awarded not earlier than December 1, 1998, except that upon the closing date of
any transaction involving the sale or other disposition of a majority of MCI's
capital stock or assets, any such amounts that have not yet been paid will be
accelerated and paid out.
Discretionary Retention Bonus Pool. In addition, a cash retention pool of
up to $150 million has been created for post-MCI/WorldCom Merger retention; such
pool will be allocated in consultation with WorldCom.
Director and Officer Indemnification and Insurance. Pursuant to the
MCI/WorldCom Merger Agreement, from and after the MCI/WorldCom Effective Time,
the Surviving Corporation is to cause to be maintained in effect in its
certificate of incorporation and bylaws (i) for a period of six years after the
MCI/WorldCom Effective Time, the current provisions regarding indemnification of
officers and directors
100
<PAGE> 115
contained in the MCI Restated Certificate of Incorporation (the "MCI Restated
Certificate of Incorporation") and the MCI Bylaws (the "MCI Bylaws") and (ii)
for a period of six years, the current policies of directors' and officers'
liability insurance and fiduciary liability insurance maintained by MCI with
respect to claims arising from facts or events that occurred on or before the
MCI/WorldCom Effective Time, except that in no event is the MCI/WorldCom
Surviving Corporation to be required to expend in any one year an amount in
excess of 200% of the annual premiums currently paid by MCI for such insurance,
and, if the annual premiums of such insurance coverage exceed such amount, the
MCI/WorldCom Surviving Corporation is to obtain a policy with the greatest
coverage available for a cost not exceeding such amount.
Business, Management and Principal Stockholders of MCI
Business. MCI is one of the world's leading providers of communications
services and the second largest carrier of long distance telecommunication
services in the U.S. MCI is the second largest carrier of international long
distance telecommunication services in the world. MCI provides a broad range of
communications services, including long distance, local and wireless
telecommunications services and information technology services. The provision
of long distance telecommunication services is MCI's core business. Long
distance telecommunication services comprise a wide spectrum of domestic and
international voice and data services, including long distance telephone
services, data communication services, teleconferencing services and electronic
messaging services.
Information about Directors and Executive Officers. The directors and
executive officers of MCI are: Clifford L. Alexander, Jr. (Director), Judith
Areen (Director), Michael H. Bader (Director), Sir Peter L. Bonfield (Director),
Richard M. Jones (Director), Gordon S. Macklin (Director), Douglas L. Maine
(Executive Vice President and Chief Financial Officer), Timothy F. Price
(President and Chief Operating Officer), Bert C. Roberts, Jr. (Director,
Chairman), Michael J. Rowny (Executive Vice President), Richard B. Sayford
(Director), Gerald H. Taylor (Director, Chief Executive Officer), Judith
Whittaker (Director), and John R. Worthington (Director).
Security Ownership of Directors, Management and Principal Stockholders. As
of September 30, 1997, the following persons, individually or as a group, were
known to MCI to be deemed to be the beneficial owners of more than five percent
of the issued and outstanding MCI Common Stock or MCI Class A Common Stock.
Other than as set forth in the table below, there are no persons known to MCI to
beneficially own more than 5% of MCI Common Stock or MCI Class A Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND
NAME AND ADDRESS OF NATURE OF EXISTING PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
------------------- -------------------- --------
<S> <C> <C>
British Telecommunications plc............................ 135,998,932(1) 100%
81 Newgate Street
London, U.K.
</TABLE>
- ---------------
(1) BT has sole voting and investment power with respect to all MCI Class A
Common Stock. BT has agreed, pursuant to the BT Agreement, to exchange all
of its MCI Class A Common Stock for $51 in cash from WorldCom.
101
<PAGE> 116
The following table sets forth certain information regarding the beneficial
ownership of MCI Common Stock as of November 30, 1997, assuming the exercise of
all options exercisable on, or within 60 days of, such date, by the directors,
the named executive officers and all executive officers and directors as a
group. Each director or executive officer has sole voting and investment power
over the shares listed opposite his name except as set forth in the footnotes
hereto.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OF CLASS
------------------------ --------------------- --------
<S> <C> <C>
Clifford L. Alexander, Jr.............................. 20,000(2) *
Judith Areen........................................... 22,803 *
Michael H. Bader....................................... 246,074(3) *
Sir Peter L. Bonfield.................................. 350(4) *
Richard M. Jones....................................... 60,000(5) *
Gordon S. Macklin...................................... 64,000(6) *
Douglas L. Maine....................................... 498,711(7) *
Timothy F. Price....................................... 271,494(8) *
Bert C. Roberts, Jr.................................... 1,675,758(9) *
Michael J. Rowny....................................... 284,423(10) *
Richard B. Sayford..................................... 60,990(11) *
Gerald H. Taylor....................................... 977,508(12) *
Judith Whittaker....................................... 61,000(13) *
John R. Worthington.................................... 281,184(14) *
All Directors and Current Officers as a Group(15)...... 6,074,660(16) 1.1%
</TABLE>
- ---------------
* Less than one percent.
(1) Unless otherwise noted, each person has sole voting power and sole
investment power with respect to the securities reported, except with
respect to shares of MCI Common Stock allocated to accounts under MCI's
Employee Stock Ownership and 401(k) Plan ("ESOP"), with respect to which
shares such person has sole voting power only. Where indicated, the data
also include shares which each person had the right to acquire upon
exercise of stock options within sixty days of November 30, 1997, and also
shares issued as awards of MCI Restricted Shares and/or ISUs. As of
November 30, 1997, no individual officer or director beneficially owned
more than 1% of the outstanding shares of any class of MCI's capital stock.
(2) Includes 20,000 shares of MCI Common Stock Mr. Alexander has the right to
acquire pursuant to the exercise of stock options. Mr. Alexander shares
voting and investment power with respect to all shares other than those
which he has the right to acquire pursuant to the exercise of such stock
options.
(3) Includes 20,000 shares of MCI Common Stock Mr. Bader has the right to
acquire pursuant to the exercise of stock options. Mr. Bader shares voting
and investment power with respect to all shares other than those which he
has the right to acquire pursuant to the exercise of such stock option. Mr.
Bader is one of seven trustees for the William G. McGowan Charitable Fund,
Inc.; he does not, however, have voting or investment power over any of the
shares of MCI Common Stock held by such Fund.
(4) Sir Peter Bonfield is an executive officer and director of BT, the holder
of all the outstanding MCI Class A Common Stock and 732,499 shares of MCI
Common Stock.
(5) Includes 40,000 shares of MCI Common Stock Mr. Jones has the right to
acquire pursuant to the exercise of stock options.
(6) Includes 40,000 shares of MCI Common Stock Mr. Macklin has the right to
acquire pursuant to the exercise of stock options. Does not include 3,200
shares of MCI Common Stock owned solely by Mr. Macklin's wife, in which
shares he disclaims beneficial ownership.
(7) Includes 14,133 shares of MCI Common Stock allocated to Mr. Maine's ESOP
account, 410,200 shares of MCI Common Stock he has the right to acquire
pursuant to the exercise of stock options and 58,557 shares of MCI Common
Stock issued as ISUs. Does not include 1,700 shares of MCI Common Stock
102
<PAGE> 117
held by Mr. Maine's wife as custodian for the benefit of a minor child, in which
MCI shares Mr. Maine disclaims beneficial ownership.
(8) Includes 14,887 shares of MCI Common Stock allocated to Mr. Price's ESOP
account, 83,850 shares of MCI Common Stock he has the right to acquire
pursuant to the exercise of stock options and 154,368 shares of MCI Common
Stock issued as ISUs. Does not include 1,000 shares of MCI Common Stock
held by Mr. Price's wife as custodian for the benefit of their minor
children, in which shares Mr. Price disclaims beneficial ownership.
(9) Includes 45,994 shares of MCI Common Stock allocated to Mr. Roberts' ESOP
account, 768,800 shares of MCI Common Stock he has the right to acquire
pursuant to the exercise of stock options, 255,736 shares of MCI Common
Stock issued as restricted stock awards, 44,828 shares of MCI Common Stock
issued as ISUs, 122,400 shares of MCI Common Stock owned by a limited
partnership in which Mr. Roberts is a general partner, and 13,000 shares of
MCI Common Stock owned by the Roberts' Foundation. Does not include 12,000
shares of MCI Common Stock held by Mr. Roberts' wife as custodian for the
benefit of their minor child, in which shares Mr. Roberts disclaims
beneficial ownership.
(10) Includes 1,079 shares of MCI Common Stock allocated to Mr. Rowny's ESOP
account, 202,800 shares of MCI Common Stock he has the right to acquire
pursuant to the exercise of stock options and 77,095 shares of MCI Common
Stock issued as ISUs.
(11) Includes 40,000 shares of MCI Common Stock Mr. Sayford has the right to
acquire pursuant to the exercise of stock options. Does not include 800
shares of MCI Common Stock owned solely by Mr. Sayford's wife, in which
shares he disclaims beneficial ownership.
(12) Includes 36,234 shares of MCI Common Stock allocated to Mr. Taylor's ESOP
account, 639,970 shares of MCI Common Stock he has the right to acquire
pursuant to the exercise of stock options, and 230,037 shares of MCI Common
Stock issued as ISUs.
(13) Includes 40,000 shares of MCI Common Stock Ms. Whittaker has the right to
acquire pursuant to the exercise of stock options.
(14) Includes 10,000 shares of MCI Common Stock Mr. Worthington has the right to
acquire pursuant to the exercise of stock options. Does not include 147,890
shares of MCI Common Stock owned solely by Mr. Worthington's wife, in which
shares he disclaims beneficial ownership.
(15) This group includes MCI executive officers, as such term is defined in Rule
3b-7 of the Exchange Act, and its directors, a total of 19 persons.
(16) Includes 143,996 shares of MCI Common Stock allocated to such officers'
accounts under the ESOP, 3,403,260 shares of MCI Common Stock that officers
and directors have the right to acquire pursuant to the exercise of stock
options and 1,091,086 shares of MCI Common Stock issued to officers
pursuant to restricted stock awards and/or ISUs. Officers and directors
have shared voting and investment power with respect to 266,074 of these
shares of MCI Common Stock.
Information regarding MCI is contained in its filings with the Commission.
See "Additional Information," "Incorporation of Documents by Reference" and "MCI
Information."
The CompuServe Merger
On September 7, 1997, WorldCom entered into the CompuServe Merger Agreement
with H&R Block, Block Group, CompuServe and a wholly-owned acquisition
subsidiary of WorldCom, providing for the CompuServe Merger. In the CompuServe
Merger, each share of CompuServe Common Stock will be converted into a fraction
of a share of WorldCom Common Stock equal to the CompuServe Exchange Ratio,
which will be determined as follows: (i) if the average trading price (generally
based on the average reported closing prices for a specified twenty day period
prior to closing) of a share of WorldCom Common Stock is greater than or equal
to $29.54, the CompuServe Exchange Ratio will be 0.40625; (ii) if such average
trading price is greater than or equal to $24.00 but less than $29.54, the
CompuServe Exchange Ratio will equal a fraction determined by dividing $12.00 by
such average trading price; and (iii) if such average trading price is
103
<PAGE> 118
less than $24.00, the CompuServe Exchange Ratio will be 0.5, provided that
CompuServe has the right to terminate the CompuServe Merger Agreement if such
average trading price is less than $24.00. Based on (i) the number of shares of
CompuServe Common Stock outstanding as of December 15, 1997 (assuming the
conversion of CompuServe Stock Options into WorldCom Common Stock) and (ii)
assumed CompuServe Exchange Ratios of 0.40625 and 0.5, 38,293,901 shares and
47,130,956 shares, respectively, of WorldCom Common Stock will be issued in the
CompuServe Merger. Consummation of the CompuServe Merger is subject to certain
conditions, including the approval of the stockholders of CompuServe. The
applicable waiting period under the Hart-Scott-Rodino Act has expired. The
CompuServe Merger Agreement may be terminated if the effective time has not
occurred on or before March 1, 1998 and under certain other circumstances.
Termination of the CompuServe Merger Agreement by WorldCom or CompuServe under
certain circumstances, including failure to receive the approval of CompuServe's
stockholders, will require one party to make a $15 million payment to the other
party as a termination fee. H&R Block and Block Group have agreed to vote all of
the Block Shares in favor of the CompuServe Merger, which number of shares is
sufficient for such approval. In addition, H&R Block and Block Group have
irrevocably appointed WorldCom or its nominee as proxy to vote the Block Shares
at any stockholder meeting or otherwise as described above, and have granted
WorldCom an option to purchase the Block Shares under certain circumstances. The
closing of the CompuServe Merger, which will be accounted for as a purchase, is
expected to occur on or about January 30, 1998, provided that the conditions to
the CompuServe Merger are then fulfilled or waived. Neither WorldCom nor BFP
assumes any responsibility for the accuracy of any information contained herein
relating to CompuServe.
The CompuServe Merger Agreement includes customary representations and
warranties, and provisions for each of WorldCom, on the one hand, and H&R Block
and CompuServe, on the other hand, to indemnify each other for certain losses
and expenses, subject to specified time limits and minimum amounts.
A copy of the CompuServe Merger Agreement is attached as Exhibit 2.1 to
WorldCom's Form 8-K dated September 7, 1997 (filed September 17, 1997) and
incorporated herein by reference. The foregoing description does not purport to
be complete and is qualified in its entirety by reference to the CompuServe
Merger Agreement.
CompuServe operates primarily through two divisions: Interactive Services
and Network Services. Interactive Services offers worldwide online and Internet
access services for consumers, while Network Services provide worldwide network
access, management and applications, and Internet Services to businesses.
The AOL Transaction
On September 7, 1997, WorldCom entered into the AOL Agreement, under which
WorldCom agreed to (a) transfer to AOL the online services businesses (the
"COLS") of CompuServe and Sprynet, a CompuServe subsidiary, which WorldCom will
acquire as a result of the CompuServe Merger, and (b) acquire all outstanding
shares of ANS, a wholly-owned subsidiary of AOL which provides Internet and
other networking services to AOL and other customers. In addition to the
transfer of the COLS, WorldCom will pay AOL $175 million in cash, subject to
certain adjustments specified in the AOL Agreement. If there should occur a
material adverse change relating to the COLS between the date of the AOL
Agreement and the date of closing thereunder, WorldCom would be required to
compensate AOL in respect thereof, but such event would not affect AOL's
obligation to proceed with the closing. The closing of the AOL Transaction,
which will be accounted for as a purchase, is conditioned on, and is expected to
occur immediately after, the closing of the CompuServe Merger. The closing of
the AOL Transaction is subject to certain other conditions. The applicable
waiting period under the Hart-Scott-Rodino Act with respect to the AOL
Transaction has expired. Neither WorldCom nor BFP assumes any responsibility for
the accuracy of any information contained herein relating to AOL.
Following the closing under the AOL Agreement, AOL will have rights to use
the CompuServe name in the online services business, and WorldCom will have
rights to use the name in the network services business.
Pursuant to the AOL Agreement, WorldCom, AOL and ANS have agreed to enter
into a Master Agreement for Data Communications upon the closing of the AOL
Transaction, which will have an initial
104
<PAGE> 119
term expiring December 31, 2002, subject to extension by AOL in certain
circumstances. The agreement provides that ANS will (i) continue to maintain and
operate portions of AOL's dial-up member access network; (ii) install, activate,
maintain and operate additional modems for AOL's dial-up network in the United
States and Canada; and (iii) provide AOL with Internet access. AOL will commit
to purchase from ANS specified percentages of its incremental modem requirements
each year, subject to ANS fulfilling certain obligations. The fees for the
foregoing services will be based on several factors, including certain fixed
base prices, the prices offered by ANS to its non-affiliated customers, prices
paid by AOL to, or offered to AOL by, other significant suppliers of modems and
modem services, and, if AOL provides such services to itself, AOL's cost. The
fees are subject to adjustment twice per year and include certain agreed-upon
discounts.
The AOL Agreement also provides that AOL, UUNET and the surviving
corporation of the CompuServe Merger will enter into a Network Services
Agreement upon the closing of the AOL Transaction, which will have an initial
term expiring December 31, 2002, subject to extension by AOL in certain
circumstances. Under this agreement, such surviving corporation will provide AOL
with capacity on the CompuServe network, and AOL will commit to use the network
for specified portions of its requirements. The fees to be paid by AOL will be
based on several factors, including certain fixed base prices, the prices
offered to AOL by other significant suppliers of network capacity, and such
surviving corporation's actual cost to provide the network capacity.
The AOL Agreement provides that, if so requested at least five business
days before the closing of the AOL Transaction, WorldCom will cause Stephen M.
Case, Chairman of the Board, Chief Executive Officer and President of AOL, to be
appointed to the Board of Directors of WorldCom. See "-- Management and
Principal Shareholders -- Information Regarding Stephen M. Case."
The AOL Agreement includes customary representations and warranties, and
provisions for each of AOL and WorldCom to indemnify the other for certain
losses and expenses, subject to specified time limits and minimum amounts.
Representations and warranties by WorldCom include certain representations and
warranties relating to the COLS, a number of which are incorporated by reference
from the CompuServe Merger Agreement. WorldCom anticipates that, if AOL were to
successfully assert a claim for indemnification based on any provision
incorporated by reference from the CompuServe Merger Agreement, WorldCom would
be entitled to assert a corresponding claim against H&R Block or Block Group
under the CompuServe Merger Agreement. However, since the AOL Agreement and the
CompuServe Merger Agreement are separate, and since any liability of WorldCom
under the AOL Agreement is not conditioned on its ability to recover in respect
of claims which may be asserted under the CompuServe Merger Agreement, there can
be no assurance that amounts recovered by WorldCom in respect of any claim
related to COLS would equal any amounts which WorldCom might be required to pay
to AOL in respect of the same claim.
At the closing under the AOL Agreement, WorldCom, AOL and ANS will enter
into a Noncompetition and Nonsolicitation Agreement under which (i) AOL will
agree to certain limitations on its business activities in the network services
business, (ii) WorldCom will agree that CompuServe will be subject to certain
limitations in the online services business and (iii) each of the parties will
agree to certain restrictions on its right to solicit or otherwise deal with
customers, suppliers, employees, independent contractors, agents or
representatives of the other.
Under a Stockholders Agreement, by and among H&R Block, Block Group and
WorldCom, WorldCom has been granted an option to acquire the Block Shares under
certain circumstances. The AOL Agreement provides that if WorldCom becomes
entitled to exercise the option, WorldCom and AOL will negotiate with each other
in good faith, for so long as the option remains exercisable and, if the option
is exercised by WorldCom, for 180 days following such exercise, with the goal of
entering into agreements and arrangements and engaging in transactions which
would, as closely as would be commercially reasonable at that time and in
accordance with applicable law (and taking into account the changed facts and
circumstances as they exist at that time), effectuate the intent and purposes of
the AOL Agreement and the transactions contemplated thereby.
105
<PAGE> 120
The AOL Agreement may be terminated by either WorldCom or AOL under certain
circumstances, including certain defaults by the other party. Depending on the
reason for termination, either WorldCom or AOL may be required to pay $15
million to the other as a reimbursement of expenses. In addition, in the event
H&R Block, Block Group or CompuServe pays WorldCom the $15 million termination
fee required under certain circumstances by the CompuServe Merger Agreement,
WorldCom is obligated under the AOL Agreement to pay AOL one-half of such fee.
ANS provides Internet access to AOL and AOL's subscribers in the United
States and Canada and also designs, develops and operates high performance
wide-area networks for business, research, education and governmental
organizations.
A copy of the AOL Agreement is attached as Exhibit 2.4 to WorldCom's Form
8-K dated September 7, 1997 (filed September 17, 1997) and incorporated herein
by reference. The foregoing description does not purport to be complete and is
qualified in its entirety by reference to the AOL Agreement.
MANAGEMENT AND PRINCIPAL SHAREHOLDERS
Information about Directors and Executive Officers
The directors and executive officers of WorldCom are: Carl J. Aycock
(Director), Max E. Bobbitt (Director), Bernard J. Ebbers (Director, Chairman,
President and Chief Executive Officer), Francesco Galesi (Director), Richard R.
Jaros (Director), Stiles A. Kellett, Jr. (Director), David C. McCourt
(Director), John A. Porter (Director), John W. Sidgmore (Director, Vice Chairman
of the Board and Chief Operations Officer), Scott D. Sullivan (Director, Chief
Financial Officer and Secretary) and Lawrence C. Tucker (Director). In September
1997, Mr. McCourt became Chairman and Chief Executive Officer of Cable Michigan,
Inc. a cable television company, Chairman and Chief Executive Officer of RCN
Corporation, a telecommunications company, and Chairman of the Board and Chief
Executive Officer of Commonwealth Telephone Enterprises, Inc. (formerly known as
C-TEC Corporation), a telecommunications company.
The Audit Committee of the WorldCom Board of Directors consists of Max E.
Bobbitt (Chairman), Francesco Galesi, David C. McCourt and Richard R. Jaros. The
Compensation and Stock Option Committee of the WorldCom Board of Directors (the
"Compensation Committee") consists of Stiles A. Kellett, Jr. (Chairman), Max E.
Bobbitt and Lawrence C. Tucker. The Nominating Committee of the WorldCom Board
of Directors consists of John A. Porter (Chairman), Carl J. Aycock and Richard
R. Jaros.
In the fourth quarter of 1997, Mr. Ebbers and Mr. Sullivan received
payments of $13.0 million and $3.5 million, respectively, pursuant to the
WorldCom Performance Bonus Plan approved by WorldCom shareholders on May 22,
1997.
Security Ownership of Management and Principal Shareholders
As of December 12, 1997, the following persons, individually or as a group,
were known to WorldCom to be deemed to be the beneficial owners of more than
five percent of the issued and outstanding WorldCom Common Stock, each of which
persons has sole voting and investment power over such WorldCom Common Stock,
except as set forth in the footnotes hereto:
<TABLE>
<CAPTION>
AMOUNT AND
NAME AND ADDRESS OF NATURE OF EXISTING PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OF CLASS(1)
------------------- ----------------------- -----------
<S> <C> <C>
FMR Corp............................................ 70,566,021(2) 7.7%
82 Devonshire Street
Boston, Massachusetts 02104
</TABLE>
- ---------------
(1) Based upon 909,044,560 shares of WorldCom Common Stock issued and
outstanding plus, as to the holder thereof only, exercise or conversion of
all derivative securities that are exercisable or convertible currently or
within 60 days after December 15, 1997.
106
<PAGE> 121
(2) Based upon shares owned as of March 6, 1997, as provided by FMR Corp.,
including 60,322,566 shares beneficially owned by Fidelity Management &
Research Company ("Fidelity"), as a result of its serving as investment
adviser to various investment companies registered under Section 8 of the
Investment Company Act of 1940 and serving as investment adviser to certain
other funds which are generally offered to limited groups of investors;
9,390,385 shares beneficially owned by Fidelity Management Trust Company, as
a result of its serving as trustee or managing agent for various private
investment accounts, primarily employee benefit plans, and serving as
investment adviser to certain other funds which are generally offered to
limited groups of investors; and 853,070 shares beneficially owned by
Fidelity International Limited, as a result of its serving as investment
adviser to various non-United States investment companies.
The number of shares beneficially owned by Fidelity includes 4,301,357
shares issuable upon conversion of WorldCom Series A Preferred Stock. The
number of shares beneficially owned by Fidelity Management Trust Company
includes 267,839 shares issuable upon conversion of WorldCom Series A
Preferred Stock. FMR Corp. has sole voting power with respect to 5,627,963
shares and sole dispositive power with respect to 69,712,951 shares.
Fidelity International Limited has sole voting and dispositive power with
respect to all the shares it beneficially owns.
The following table sets forth the beneficial ownership of WorldCom Common
Stock and WorldCom Series B Preferred Stock, as of December 15, 1997, by each
director, the named executive officers and by all persons, as a group, who are
currently directors and executive officers of WorldCom. No person listed on the
following table is the beneficial owner of any shares of WorldCom Series A
Preferred Stock. Each director or executive officer has sole voting and
investment power over the shares listed opposite his name except as set forth in
the footnotes hereto.
<TABLE>
<CAPTION>
NAME OF SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) PERCENT OF CLASS(1)
------------------------ --------------------- -------------------
<S> <C> <C>
Carl J. Aycock................................... 709,438(2) *
Max E. Bobbitt................................... 256,292(3) *
Bernard J. Ebbers................................ 16,919,993(4) 1.9%
Francesco Galesi................................. 3,522,108(5) *
Richard R. Jaros................................. 781,536(6) *
Stiles A. Kellett, Jr. .......................... 3,507,176(7) *
David C. McCourt................................. 824,423(8) *
John A. Porter................................... 4,668,053(9) *
John W. Sidgmore................................. 3,470,659(10) *
Scott D. Sullivan................................ 436,904(11) *
Lawrence C. Tucker............................... 3,170,096(12) *
All Directors and Current Executive Officers as a
Group (11 persons)............................. 38,266,678(13) 4.2%
</TABLE>
- ---------------
* Less than one percent.
(1) Based upon 909,044,560 shares of WorldCom Common Stock issued and
outstanding plus, as to the holder thereof only, exercise or conversion of
all derivative securities that are exercisable or convertible currently or
within 60 days after December 15, 1997.
(2) Includes 5,576 shares owned by Mr. Aycock's spouse; 73,048 shares
purchasable upon exercise of options; and 3,312 shares held as custodian
for children.
(3) Includes 38,512 shares purchasable upon exercise of options; and 117,780
shares as to which Mr. Bobbitt shares voting and investment power with his
spouse.
(4) Includes 36,432 shares held as custodian for children; 2,875,696 shares
purchasable upon exercise of options; and 855,448 shares owned by Mr.
Ebbers' spouse, as to which Mr. Ebbers shares voting and investment power.
107
<PAGE> 122
(5) Consists of 3,483,596 shares owned by Rotterdam Ventures, Inc., of which
Mr. Galesi is sole shareholder; and 38,512 shares purchasable upon exercise
of options.
(6) Includes 6,449 shares issuable upon conversion of WorldCom Series B
Preferred Stock; 5,000 shares purchasable upon exercise of options; and
15,930 shares held as custodian for Mr. Jaros' children, as to which Mr.
Jaros disclaims beneficial ownership.
(7) Includes 16,000 shares owned by Mr. Kellett's spouse; 860 shares held as
custodian for minor daughter; 400,000 shares owned by a family partnership;
and 90,316 shares purchasable upon exercise of options.
(8) Includes 95 shares issuable upon conversion of WorldCom Series B Preferred
Stock; and 5,000 shares purchasable upon exercise of options.
(9) Includes 167,578 shares held as custodian or trustee for minor children;
73,048 shares purchasable upon exercise of options; 218,000 shares owned by
Mr. Porter's spouse, as to which beneficial ownership is disclaimed; 85,812
shares held in trust for son of majority age, as to which beneficial
ownership is also disclaimed; 5,700 shares held in a trust of which Mr.
Porter is trustee with sole voting and dispositive power; and 3,250 shares
held in trust for employees of Mr. Porter.
(10) Includes 368,704 shares purchasable upon exercise of options; and 13,193
shares held in a trust of which Mr. Sidgmore is sole trustee with sole
voting and dispositive power.
(11) Includes 433,333 shares purchasable upon exercise of options.
(12) A total of 3,131,828 of these shares are beneficially owned by The 1818
Fund, L.P., and The 1818 Fund II, L.P. (collectively, "The 1818 Funds").
Mr. Tucker is the general and managing partner of The 1818 Funds and Mr.
Tucker, as a general partner of Brown Brothers Harriman & Co., shares
voting and investment power with respect to such securities. Also includes
38,268 shares purchasable upon exercise of options.
(13) Includes 4,045,981 shares purchasable upon exercise of options or
conversion of WorldCom Series B Preferred Stock.
Information Regarding Stephen M. Case
The AOL Agreement provides that, if so requested at least five business
days before the closing of the AOL Transaction, WorldCom will cause Stephen M.
Case, Chairman of the Board, Chief Executive Officer and President of AOL, to be
appointed to the Board of Directors of WorldCom. Mr. Case, a co-founder of AOL,
has been Chairman of the Board of Directors of AOL since October 1995, Chief
Executive Officer of AOL since April 1993 and a director of AOL since September
1992. Mr. Case has served as President of AOL since July 1996 and served
previously as President from January 1991 to February 1996. Previously, he
served as Executive Vice President of AOL from September 1987 to January 1991
and Vice President, Marketing, from 1985 to September 1987.
AOL and WorldCom and/or certain of its subsidiaries are currently parties
to certain agreements regarding the provision of dial-up and leased line access
to AOL. In addition, as described under "-- Recent Developments -- AOL
Transaction," AOL and WorldCom and/or certain of its subsidiaries will enter
into a Master Agreement for Data Communications and a Network Services Agreement
upon the closing of the AOL Transaction. Expenditures by AOL under all of such
agreements during the twelve month period commencing as of the closing of the
AOL Transaction, is anticipated to exceed $400 million. Actual results may vary
materially from such expectation. See "Cautionary Statement Regarding
Forward-Looking Statements" and "Risk Factors." To the best of WorldCom's
knowledge, neither Mr. Case nor AOL has since January 1, 1994 had any
transaction with WorldCom or any of its subsidiaries that would require
disclosure under the rules and regulations of the Commission applicable to the
BFP Merger, except as described herein. See "-- Recent Developments -- The AOL
Transaction" and "-- Management of WorldCom After the MCI/WorldCom Merger."
108
<PAGE> 123
Information Regarding James C. Allen
In connection with the negotiation and approval of the BFP Merger
Agreement, Mr. Ebbers indicated his expectation that the WorldCom Board of
Directors would consider the nomination of an individual designated by the BFP
Board of Directors (who is expected to be Mr. Allen) for election as a director
of WorldCom following the Effective Time. Mr. Allen has been Vice Chairman and
Chief Executive Officer and a director of BFP since its inception in November
1993. Mr. Allen served as President and Chief Operating Officer of Brooks
Telecommunications Corporation, a founder of BFP, from April 1993 until it was
merged with BFP in January 1996; prior thereto, he was Chief Operating Officer
and Chief Financial Officer of David Lipscomb University. Since January 1, 1994,
Mr. Allen has not had any transactions with WorldCom or any of its subsidiaries
that would require disclosure under the rules and regulations of the Commission
applicable to the BFP Merger, except as described herein. See "Plan of
Merger -- Interests of Certain Persons in the BFP Merger," "Information
Regarding BFP -- Security Ownership of BFP Management and Principal
Stockholders" and the BFP 1996 Form 10-K and "-- Management of WorldCom
Following the MCI/WorldCom Merger."
MANAGEMENT OF WORLDCOM FOLLOWING THE MCI/WORLDCOM MERGER
General
Pursuant to the terms of the MCI/WorldCom Merger Agreement, WorldCom has
agreed to cause the WorldCom Board of Directors as of the MCI/WorldCom Effective
Time to consist of fifteen members, which shall consist of eight members
designated by WorldCom from among directors of WorldCom, five members designated
by MCI from among directors of MCI, and two additional members designated by
WorldCom from among pending acquisitions of WorldCom; provided that the persons
designated by each party are required to be reasonably acceptable to the other
party. As of the date hereof, neither WorldCom nor MCI had designated the
persons to serve as directors after the MCI/WorldCom Effective Time.
Additionally, the AOL Agreement provides that, if so requested at least five
business days before the closing of the AOL Transaction, WorldCom will cause
Stephen M. Case, Chairman of the Board, Chief Executive Officer and President of
AOL, to be appointed to the Board of Directors of WorldCom. See "-- Management
and Principal Shareholders -- Information Regarding Stephen M. Case." Further,
in connection with the negotiation and approval of the BFP Merger Agreement, Mr.
Ebbers indicated his expectation that the WorldCom Board of Directors would
consider the nomination of an individual designated by the BFP Board of
Directors (who is expected to be Mr. James C. Allen, Vice Chairman and Chief
Executive Officer of BFP) for election as a director of WorldCom following the
Effective Time of the BFP Merger. See "-- Management and Principal
Shareholders -- Information Regarding James C. Allen." If, prior to the
MCI/WorldCom Effective Time, any of the persons named by either WorldCom or MCI
to serve on the MCI WorldCom Board of Directors as of the MCI/WorldCom Effective
Time declines or is unable to serve as a director, the party that designated
such individual may name a replacement to become a director. The directors of
MCI WorldCom will be elected annually. See "Information Regarding
WorldCom -- Management and Principal Shareholders" for certain information
regarding the current management of WorldCom.
As of November 30, 1997, neither Mr. Allen nor Mr. Case beneficially owned
any shares of WorldCom Common Stock. As of such date, Mr. Allen beneficially
owned 319,885 shares of BFP Common Stock (see "Information Regarding
BFP -- Security Ownership of BFP Management and Principal Stockholders") which,
based on assumed BFP Exchange Ratios of 1.65 and 1.85 (the minimum and maximum
BFP Exchange Ratios, respectively), would be converted into the right to receive
527,810 shares and 591,787 shares, respectively, of WorldCom Common Stock as a
result of the BFP Merger. Additional information about such potential director
designees is contained under the captions "Information Regarding WorldCom" and
"Information Regarding BFP" as well as in the WorldCom 1996 Form 10-K, the BFP
1996 Form 10-K and the MCI 1996 Form 10-K. See "Incorporation of Documents by
Reference," "Available Information" and "MCI Information."
109
<PAGE> 124
Compensation of Directors
WorldCom's directors are currently paid fees of $22,500 per year and $1,000
per meeting of the Board plus certain expenses. Committee members are currently
paid a fee of $750 for any committee meeting on the same day as a Board meeting
and $1,000 for any other committee meeting, plus certain expenses. The chairman
of each committee receives an additional $3,000 per year.
Pursuant to WorldCom's Third Amended and Restated 1990 Stock Option Plan,
each non-employee director receives annually a non-discretionary grant of
options to purchase 5,000 shares of WorldCom Common Stock at the fair market
value of such stock on the date of grant. Such options are immediately
exercisable and expire on the earliest to occur of (a) ten years following the
date of grant, (b) three months following retirement, (c) 12 months following
termination of service due to disability or death, (d) upon cessation of service
for reasons other than retirement, death or disability, or (e) the date of
consummation of a specified change in control transaction, defined generally to
include the dissolution or liquidation of WorldCom, a reorganization, merger or
consolidation of WorldCom in which WorldCom is not the surviving corporation, or
a sale of substantially all of the assets or 80% or more of the outstanding
stock of WorldCom to another entity. The exercise price may be paid in cash or,
in the discretion of the committee which administers the plan, WorldCom Common
Stock. In the discretion of such committee, shares receivable on exercise may be
withheld to pay applicable taxes on the exercise.
Executive Officers
WorldCom has agreed to cause Bert C. Roberts, Jr. to be appointed Chairman
of MCI WorldCom, and to cause the senior management of MCI WorldCom to be as
previously agreed between the parties. Pursuant to the MCI/WorldCom Merger
Agreement, Bernard J. Ebbers will be the President and Chief Executive Officer
of MCI WorldCom. In addition, Gerald H. Taylor, currently Chief Executive
Officer of MCI, will become Vice Chairman of MCI WorldCom and will be
responsible for international operations and ventures; Timothy F. Price,
currently President and Chief Operating Officer of MCI, will become President
and Chief Executive Officer of MCI WorldCom's U.S. telecommunications operating
subsidiary; John W. Sidgmore will continue to serve as Vice Chairman and Chief
Operating Officer of MCI WorldCom and will continue his current responsibilities
including European operations; and Scott D. Sullivan will continue to serve as
Chief Financial Officer of MCI WorldCom.
Additional information about such persons who are currently executive
officers of MCI follows:
Bert C. Roberts, Jr., age 55, has been Chairman of the Board of MCI since
June 1992. He was Chief Executive Officer of MCI from December 1991 to November
1996. He was President and Chief Operating Officer of MCI from October 1985 to
June 1992 and President of MCI Telecommunications Corporation ("MCIT") from May
1983 to June 1992. Mr. Roberts has been a director of MCI since 1985; a
non-executive director of British Telecommunications plc, a global
telecommunications provider which has an approximate 20% equity interest in MCI,
since October 1994; and a non-executive director of The News Corporation
Limited, a global multi-media company located in Australia, since 1995.
Gerald H. Taylor, age 56, has been Chief Executive Officer of MCI since
November 1996. He has been Vice Chairman of MCIT since July 1995. He was
President and Chief Operating Officer of MCI from July 1994 to November 1996 and
President and Chief Operating Officer of MCIT from April 1994 to July 1995. He
was an Executive Vice President and Group Executive of MCIT from September 1993
to April 1994. He was an Executive Vice President of MCIT, serving as President,
Consumer Markets, from November 1990 to September 1993. Mr. Taylor has been a
director of MCI since September 1994 and was a non-executive director of BT from
November 1996 to November 1997.
Timothy F. Price, age 44, has been President and Chief Operating Officer of
MCI since November 1996. He has been President and Chief Operating Officer of
MCIT since July 1995. He was an Executive Vice President and Group President of
MCIT, serving as Group President, Communication Services, from December 1994 to
July 1995. He was an Executive Vice President of MCIT, serving as President,
Business Markets, from June 1993 to December 1994. He was a Senior Vice
President of MCIT from November 1990
110
<PAGE> 125
to June 1993, serving as President, Business Services, from July 1992 to June
1993 and as Senior Vice President, Consumer Markets, from November 1990 to July
1992.
See "Information Regarding WorldCom -- Recent Developments -- The
MCI/WorldCom Merger -- Business, Management and Principal Stockholders of MCI"
for information regarding the ownership of MCI Common Stock by such persons. See
"Information Regarding WorldCom -- Recent Developments -- the MCI/WorldCom
Merger -- Interests of Certain Persons in the MCI/WorldCom Merger" for a
description of certain interests of MCI executive officers in the MCI/WorldCom
Merger. For additional information regarding the executive officers of MCI, see
the MCI 1996 Form 10-K. For additional information regarding the executive
officers of WorldCom, see the WorldCom 1996 Form 10-K.
Compensation of Executive Officers
WorldCom relies on the Compensation Committee to recommend the form and
amount of compensation of its executive officers. It is anticipated that, when
the Compensation Committee meets to determine such compensation after the
MCI/WorldCom Closing Date, the Compensation Committee will evaluate its policies
designed to attract, motivate, reward and retain executives with the skills,
experience and talents required to promote the short- and long-term performance
and growth of WorldCom. Historically, WorldCom's executive compensation has had
three elements: base salary, annual incentive compensation and long-term
incentive compensation.
For information concerning the compensation paid to the chief executive
officer and certain other executive officers of each or WorldCom and MCI for the
1996 fiscal year, see the WorldCom 1996 Form 10-K and the MCI 1996 Form 10-K.
111
<PAGE> 126
DESCRIPTION OF WORLDCOM CAPITAL STOCK
The following summary is a description of the material terms of WorldCom
capital stock, does not purport to be complete and is subject in all respects to
the applicable provisions of the Georgia Business Corporation Code (the "GBCC"),
the WorldCom Articles, the WorldCom Bylaws, the Deposit Agreement (referred to
below), and the WorldCom Rights Agreement. The WorldCom Articles, the WorldCom
Bylaws, the Deposit Agreement and the WorldCom Rights Agreement are included in
or incorporated by reference as exhibits to the Registration Statement of which
this Proxy Statement/Prospectus is a part.
The authorized capital stock of WorldCom consists of 2,500,000,000 shares
of common stock, par value $.01 per share, and 50,000,000 shares of preferred
stock, par value $.01 per share. As of September 30, 1997, there were
907,159,586 shares of WorldCom Common Stock, 94,992 shares of WorldCom Series A
Preferred Stock and 12,445,113 shares of WorldCom Series B Preferred Stock
issued and outstanding. All the shares of WorldCom Series A Preferred Stock are
held by The Bank of New York as Depositary for the holders of WorldCom
Depositary Shares.
COMMON STOCK
All of the outstanding shares of WorldCom Common Stock are fully paid and
nonassessable. Subject to the prior rights of the holders of preferred stock
which may be issued and outstanding, the holders of WorldCom Common Stock are
entitled to receive dividends as and when declared by the Board of Directors out
of funds legally available therefor, and, in the event of the dissolution of
WorldCom, to share ratably in all assets remaining after payment of liabilities
and satisfaction of the liquidation preferences of the holders of WorldCom
preferred stock as provided in the WorldCom Articles. Each holder of WorldCom
Common Stock is entitled to one vote for each share held of record on all
matters presented to a vote at a shareholders' meeting, including the election
of directors. Holders of WorldCom Common Stock have no cumulative voting rights
or preemptive rights to purchase or subscribe for any stock or other securities
and there are no conversion rights or redemption or sinking fund provisions with
respect to such stock. Additional shares of authorized WorldCom Common Stock may
be issued without shareholder approval.
The transfer agent and registrar for the WorldCom Common Stock is The Bank
of New York, 101 Barclay Street -- 12W, New York, NY 10286.
PREFERRED STOCK
The authorized but unissued preferred stock of WorldCom is available for
issuance from time to time at the discretion of the WorldCom Board of Directors
without shareholder approval. The WorldCom Board of Directors has the authority
to prescribe for each series of preferred stock it establishes the number,
designation, preferences, limitations and relative rights of the shares of such
series, subject to applicable law and the provisions of any outstanding series
of preferred stock. The terms of any series of preferred stock including, but
not limited to, dividend rate, redemption price, liquidation rights, sinking
fund provisions, conversion rights and voting rights, and any corresponding
effect on other shareholders, will be dependent largely on factors existing at
the time of issuance. Such terms and effects could include restrictions on
dividends on the WorldCom Common Stock if dividends on the preferred stock are
in arrears, dilution of the voting power of other shareholders to the extent a
series of the preferred stock has voting rights, and reduction of amounts
available on liquidation as a result of any liquidation preference granted to
any series of preferred stock.
SERIES A PREFERRED STOCK
The following description of WorldCom Series A Preferred Stock and the
rights represented by the WorldCom Depositary Shares does not purport to be
complete and is subject to, and qualified in its entirety by, the provisions of
the WorldCom Articles. Each of the WorldCom Depositary Shares represents a one
one-hundredth interest in a share of WorldCom Series A Preferred Stock and
entitles the owner to such proportion of all the rights, preferences and
privileges of the shares of WorldCom Series A Preferred Stock represented
thereby. See "-- Depositary Shares" below.
112
<PAGE> 127
Dividends
The holders of shares of WorldCom Series A Preferred Stock are entitled to
receive when, as and if declared by the Board of Directors out of funds legally
available therefor, cumulative preferential dividends from the issue date of the
WorldCom Series A Preferred Stock, accruing at the rate per share of $268.00 per
annum or $67.00 per quarter (equivalent to $2.68 per annum or $.67 per quarter
for each WorldCom Depositary Share), payable quarterly in arrears. Dividends are
payable in cash or in shares of WorldCom Common Stock, at the election of the
WorldCom Board of Directors. WorldCom intends to pay dividends in shares of
WorldCom Common Stock on each dividend payment date to the extent that it is
unable to pay dividends in cash. If the dividends are paid in shares of WorldCom
Common Stock, the number of shares of WorldCom Common Stock to be issued on each
dividend payment date will be determined by dividing the total dividend to be
paid on each WorldCom Depositary Share by 90% of the average of the high and low
sales prices of the WorldCom Common Stock as reported by The Nasdaq National
Market or any national securities exchange upon which the WorldCom Common Stock
is then listed or included, for each of the ten consecutive trading days
immediately preceding the fifth business day preceding the record date for such
dividend.
Unless all accumulated dividends on the Series A Preferred Stock have been
paid, (i) no dividend (other than a dividend payable solely in shares of junior
stock (as defined in the WorldCom Articles)) may be paid on the WorldCom Common
Stock, (ii) no other distribution shall be made upon any shares of junior stock,
(iii) no shares of junior stock or any series of WorldCom preferred stock shall
be purchased, redeemed, or otherwise acquired for cash or other property
(excluding junior stock or the WorldCom Series B Preferred Stock) by WorldCom or
any of its subsidiaries, and (iv) no monies shall be paid into or set apart or
made available for a sinking or other like fund for the purchase, redemption or
other acquisition for value of any shares of junior stock by WorldCom or any of
its subsidiaries.
Mandatory Conversion of WorldCom Series A Preferred Stock
On May 31, 1999 (the "Mandatory Conversion Date"), subject to the optional
conversion rights referred to below, each outstanding share of WorldCom Series A
Preferred Stock (and the related WorldCom Depositary Shares) will convert
automatically into shares of WorldCom Common Stock at the Common Equivalent Rate
(as defined below) in effect on such date and the holder will also be entitled
to receive accrued and unpaid dividends thereon. The "Common Equivalent Rate" is
initially four hundred twenty shares (420) of WorldCom Common Stock for each
share of WorldCom Series A Preferred Stock (equivalent to 4.2 shares of WorldCom
Common Stock for each WorldCom Depositary Share), subject to adjustment for
certain capital events.
Right to Redeem WorldCom Series A Preferred Stock
The WorldCom Series A Preferred Stock (and the related WorldCom Depositary
Shares) are not redeemable by WorldCom prior to May 31, 1998 (the "Initial
Redemption Date"). On or after the Initial Redemption Date and prior to the
Mandatory Conversion Date, WorldCom may redeem the WorldCom Series A Preferred
Stock (and thereby the WorldCom Depositary Shares), in whole or in part. Upon
any such redemption, the holder of record of shares of WorldCom Series A
Preferred Stock will receive shares of WorldCom Common Stock equal to the call
price of the WorldCom Series A Preferred Stock in effect on the date of
redemption (the "Call Price") divided by the Current Market Price (as defined in
the WorldCom Articles) of the WorldCom Common Stock. The Call Price of each
WorldCom Series A Preferred Stock is (i) $3,417.00 ($34.170 per WorldCom
Depositary Share) on and after the Initial Redemption Date through August 30,
1998, $3,400.25 ($34.003 per WorldCom Depositary Share) on and after August 31,
1998 through November 29, 1998, $3,383.50 ($33.835 per WorldCom Depositary
Share) on and after November 30, 1998 through February 27, 1999, $3,366.75
($33.668 per WorldCom Depositary Share) on and after February 28, 1999 through
April 29, 1999, and $3,350.00 ($33.500 per WorldCom Depositary Share) on and
after April 30, 1999 until the Mandatory Conversion Date, plus (ii) all accrued
and unpaid dividends thereon to the date fixed for redemption.
113
<PAGE> 128
Conversion at Option of Holder
The WorldCom Series A Preferred Stock (and thereby the WorldCom Depositary
Shares) are convertible, in whole or in part, at the option of the holder
thereof, at any time prior to the Mandatory Conversion Date, into shares of
WorldCom Common Stock at a rate of 344.274 shares of WorldCom Common Stock for
each WorldCom Series A Preferred Stock (equivalent to 3.443 shares of WorldCom
Common Stock for each WorldCom Depositary Share and equivalent to a conversion
price of $9.73 per share of WorldCom Common Stock), subject to adjustment for
certain capital events (the "Optional Conversion Rate"). The right to convert
WorldCom Series A Preferred Stock called for redemption will terminate at the
close of business on the redemption date.
Adjustment for Consolidation or Merger
In the case of certain mergers, consolidations or other capital
transactions, certain customary provisions are required to be made relating to
the terms of conversion and redemption applicable to the WorldCom Series A
Preferred Stock in order to protect the interests of the holders thereof.
Liquidation Rights
In the event of the liquidation, dissolution or winding up of the business
of WorldCom, the holders of WorldCom Series A Preferred Stock are entitled to
receive a liquidation preference for each share of WorldCom Series A Preferred
Stock in an amount equal to the greater of (i) the sum of (a) $3,350 and (b) all
accrued and unpaid dividends thereon to the date of liquidation, dissolution or
winding up and (ii) the value of the shares of WorldCom Common Stock into which
such shares of WorldCom Series A Preferred Stock are convertible on the date of
such liquidation, dissolution or winding up.
Voting Rights
Each share of WorldCom Series A Preferred Stock is entitled to ten votes
per share (equivalent to 0.1 of a vote for each WorldCom Depositary Share) with
respect to all matters voted on at a shareholders' meeting, including the
election of directors. The holders of the WorldCom Series A Preferred Stock and
the holders of WorldCom Common Stock will vote together as a single class,
unless otherwise provided by law or the WorldCom Articles. The approval of more
than two-thirds of the votes entitled to be cast by the holders of issued and
outstanding shares of WorldCom Series A Preferred Stock is required for any
amendment to the WorldCom Articles that materially adversely changes the rights,
preferences or privileges of the WorldCom Series A Preferred Stock. The holders
of the outstanding shares of WorldCom Series A Preferred Stock shall also have
the right, voting together with the holders of any other outstanding shares of
Voting Preferred Stock (as hereinafter defined) as a separate voting group, to
elect two members of the WorldCom Board of Directors at any time six or more
quarterly dividends on any shares of Voting Preferred Stock shall be in arrears
and unpaid, in whole or in part, whether or not declared and whether or not any
funds shall be or have been legally available for payment thereof. For this
purpose, "Voting Preferred Stock" shall mean the shares of WorldCom Series A
Preferred Stock and each other series of WorldCom Preferred Stock which shall
have substantially similar voting rights (including voting as one voting group
with other shares of Voting Preferred Stock) with respect to the election of
directors upon substantially similar arrearages of dividends.
SERIES B PREFERRED STOCK
The following description of WorldCom Series B Convertible Preferred Stock
does not purport to be complete and is subject to, and qualified in its entirety
by, the provisions of the WorldCom Articles.
Dividends
The holders of WorldCom Series B Preferred Stock are entitled to receive
when, as and if declared by the Board of Directors out of funds legally
available therefor, cumulative dividends from the issue date of the WorldCom
Series B Preferred Stock, accruing at the rate per share of $.0775 per annum,
payable when and as the WorldCom Board of Directors may determine, in cash,
before any dividends shall be set apart for or paid
114
<PAGE> 129
upon the WorldCom Common Stock or any other stock ranking as to dividends junior
to the WorldCom Series B Preferred Stock in any year. Notwithstanding the
foregoing, WorldCom may declare, set apart and pay dividends on shares of the
WorldCom Series A Preferred Stock whether or not dividends have been declared,
set apart or paid on the shares of WorldCom Series B Preferred Stock. Dividends
are only payable in cash, except for payment of accrued but unpaid dividends
upon conversion, redemption or liquidation of the WorldCom Series B Preferred
Stock, as the case may be, as described below.
WorldCom is not permitted to set apart for or pay upon the WorldCom Common
Stock any Extraordinary Cash Dividend (as defined below) unless, at the same
time, WorldCom shall have set apart for or paid upon all shares of WorldCom
Series B Preferred Stock an amount of cash per share of WorldCom Series B
Preferred Stock equal to the Extraordinary Cash Dividend that would have been
paid in respect of such share if the holder of such share of WorldCom Series B
Preferred Stock had converted such share into shares of WorldCom Common Stock
immediately prior to the record date for such Extraordinary Cash Dividend. The
term "Extraordinary Cash Dividend" means, with respect to any cash dividend or
distribution paid on any date, the amount, if any, by which all cash dividends
and cash distributions on the WorldCom Common Stock paid during the consecutive
12-month period ending on and including such date exceeds, on a per share of
WorldCom Common Stock basis, 10% of the average daily closing price of the
WorldCom Common Stock over such 12-month period.
Conversion at Option of Holder
The shares of WorldCom Series B Preferred Stock are convertible, in whole
or in part, at the option of the holder thereof, at any time, unless previously
redeemed, into shares of WorldCom Common Stock at a rate of 0.0973912 shares of
WorldCom Common Stock for each share of WorldCom Series B Preferred Stock
(equivalent to an initial conversion price of $10.268 per share of WorldCom
Common Stock), subject to adjustment for certain capital events (the "Series B
Conversion Rate"), and the holder will also be entitled to receive accrued and
unpaid dividends payable in cash or, at the option of WorldCom, in shares of
WorldCom Common Stock, based on the Fair Market Value thereof (as defined in the
WorldCom Articles).
Adjustment for Consolidation or Merger
In the case of certain mergers, consolidations or other capital
transactions, certain customary provisions are required to be made relating to
the terms of conversion and redemption applicable to the WorldCom Series B
Preferred Stock in order to protect the interests of the holders thereof.
Right to Redeem WorldCom Series B Preferred Stock
The WorldCom Series B Preferred Stock is not redeemable by WorldCom prior
to September 30, 2001. Thereafter, WorldCom has the right to redeem the shares
of WorldCom Series B Preferred Stock, in whole or in part, at a redemption price
of $1.00 per share plus an amount equal to all accrued and unpaid dividends
thereon (the "Redemption Price"); provided, that all or any portion of the
Redemption Price may be paid in shares of WorldCom Common Stock as determined by
the WorldCom Board of Directors based on the Fair Market Value thereof (as
defined in the WorldCom Articles).
Liquidation Rights
In the event of the liquidation, dissolution or winding up of the business
of WorldCom, the holders of WorldCom Series B Preferred Stock are entitled to
receive a liquidation preference for each share of WorldCom Series B Preferred
Stock in an amount equal to the sum of $1.00 plus all accrued and unpaid
dividends thereon to the date of liquidation, dissolution or winding up.
Voting Rights
Each share of WorldCom Series B Preferred Stock is entitled to one vote per
share with respect to all matters voted on at a shareholders' meeting, including
the election of directors. The holders of the WorldCom Series B Preferred Stock
and the holders of WorldCom Common Stock (and WorldCom Series A Preferred
115
<PAGE> 130
Stock) will vote together as a single class, unless otherwise provided by law or
the WorldCom Articles. The approval of at least a majority of the votes entitled
to be cast by the holders of issued and outstanding shares of WorldCom Series B
Preferred Stock is required to adversely change the rights, preferences or
privileges of the WorldCom Series B Preferred Stock. For this purpose, the
authorization or issuance of any series of preferred stock with preference or
priority over, or being on a parity with the WorldCom Series B Preferred Stock
as to the right to receive either dividends or amounts distributable upon
liquidation, dissolution or winding up of WorldCom shall not be deemed to affect
adversely the WorldCom Series B Preferred Stock. In case WorldCom shall at any
time prior to March 23, 1999 subdivide (whether by stock dividend, stock split
or otherwise) its outstanding shares of WorldCom Common Stock into a greater
number of shares (each a "Subdivision"), the voting rights of each share of
WorldCom Series B Preferred Stock will be adjusted to provide that the
percentage of the aggregate voting power of the WorldCom Common Stock
represented by the WorldCom Series B Preferred Stock shall be the same as such
percentage immediately prior to such Subdivision, with the holder of each share
of WorldCom Series B Preferred Stock being entitled to the number of votes
proportionate to such adjustment. Such adjustments made pursuant to a
Subdivision will become effective immediately after the effective date of the
Subdivision.
DEPOSITARY SHARES
Each WorldCom Depositary Share represents a one-hundredth interest in a
share of WorldCom Series A Preferred Stock deposited under the Deposit Agreement
(the "Deposit Agreement"), by and among WorldCom, The Bank of New York, as
Depositary (the "Depositary"), and the holders from time to time of Depositary
Receipts issued thereunder. Subject to the terms of the Deposit Agreement, each
owner of a WorldCom Depositary Share is entitled proportionately to all of the
rights and preferences of the shares of WorldCom Series A Preferred Stock
represented thereby (including dividend, voting, redemption and liquidation
rights) contained in the WorldCom Articles and summarized above under
"Description of WorldCom Capital Stock -- Preferred Stock" and "-- Series A
Preferred Stock."
The WorldCom Depositary Shares are evidenced by depositary receipts issued
pursuant to the Deposit Agreement ("Depositary Receipts"). The following
description of the WorldCom Depositary Shares does not purport to be complete
and is subject to, and qualified in its entirety by, the provisions of the
Deposit Agreement.
Mandatory Conversion, or Call. As described under "-- Preferred
Stock -- Series A Preferred Stock," the WorldCom Series A Preferred Stock is
subject to mandatory conversion into shares of WorldCom Common Stock on the
Mandatory Conversion Date, and to the right of WorldCom to call the WorldCom
Series A Preferred Stock, at WorldCom's option, for redemption on or after the
Initial Redemption Date and before the Mandatory Conversion Date. The WorldCom
Depositary Shares are subject to mandatory conversion or call upon substantially
the same terms and conditions as the WorldCom Series A Preferred Stock, except
that the number of shares of WorldCom Common Stock received upon mandatory
conversion or redemption of each WorldCom Depositary Share will be equal to the
number of shares of WorldCom Common Stock received upon mandatory conversion or
redemption of each share of WorldCom Series A Preferred Stock divided by one
hundred.
Conversion at the Option of Holder. As described under "-- Preferred
Stock -- Series A Preferred Stock," the WorldCom Series A Preferred Stock may be
converted, in whole or in part, into shares of WorldCom Common Stock at the
option of the holders of WorldCom Series A Preferred Stock at any time before
the Mandatory Conversion Date, unless previously redeemed. The WorldCom
Depositary Shares may, at the option of holders thereof, be converted into
shares of WorldCom Common Stock upon the same terms and conditions as the
WorldCom Series A Preferred Stock, except that the number of shares of WorldCom
Common Stock received upon conversion of each WorldCom Depositary Share will be
equal to the number of shares of WorldCom Common Stock received upon conversion
of each share of WorldCom Series A Preferred Stock divided by one hundred.
Voting of WorldCom Series A Preferred Stock. Each record holder of
Depositary Receipts on the record date (which will be the same date as the
record date for the WorldCom Series A Preferred Stock) will be
116
<PAGE> 131
entitled to instruct the Depositary as to the exercise of the voting rights
pertaining to the number of WorldCom Series A Preferred Stock represented by
such holder's WorldCom Depositary Shares. The Depositary will abstain from
voting WorldCom Series A Preferred Stock to the extent it does not receive
specific written voting instructions from the holders of Depositary Receipts
representing such WorldCom Series A Preferred Stock.
Termination of Deposit Agreement. The Deposit Agreement is subject to
termination by WorldCom, or, if the Depositary resigns and no successor
depositary is properly appointed and accepted, by the Depositary. If any
Depositary Receipts remain outstanding after the date of termination, the
Depositary thereafter will discontinue the transfer of Depositary Receipts, will
suspend the distribution of dividends to the holders thereof, and will not give
any further notices (other than notice of such termination) or perform any
further acts under the Deposit Agreement except as provided below and except
that the Depositary will continue (i) to collect dividends on the WorldCom
Series A Preferred Stock and any other distributions with respect thereto and
(ii) to deliver the WorldCom Series A Preferred Stock and any money and other
property represented by Depositary Shares upon surrender thereof by the holders
thereof. WorldCom does not intend to terminate the Deposit Agreement or to
permit the resignation of the Depositary without appointing a successor
depositary. In the event the Deposit Agreement is terminated, WorldCom has
agreed to use its best efforts to list the WorldCom Series A Preferred Stock on
The Nasdaq National Market.
WORLDCOM SERIES 3 PREFERRED STOCK
In connection with the issuance of the WorldCom Rights (as hereinafter
defined), the WorldCom Board of Directors has authorized 2,500,000 shares of
preferred stock to be issued as Series 3 Junior Participating Preferred Stock
(the "WorldCom Series 3 Preferred Stock"), a description of the terms of which
is set forth below under "-- Preferred Stock Purchase Rights."
PREFERRED STOCK PURCHASE RIGHTS
On August 25, 1996, WorldCom entered into the WorldCom Rights Agreement,
and the WorldCom Board of Directors authorized the issuance of one preferred
share purchase right (a "WorldCom Right") for each outstanding share of WorldCom
Common Stock outstanding as of September 6, 1996 and issued thereafter until the
Distribution Date, as defined in the WorldCom Rights Agreement (the "WorldCom
Distribution Date"). Each WorldCom Right entitles the registered holder to
purchase from WorldCom one one-thousandth of a share of Series 3 Preferred Stock
at an initial price of $160.00 per one one-thousandth of such share, subject to
adjustment as described in the WorldCom Rights Agreement.
The WorldCom Rights will be evidenced by the WorldCom Common Stock, and a
WorldCom Distribution Date will occur upon the earlier of ten business days
following public disclosure or the date on which WorldCom first determines that
certain persons or groups (a "WorldCom Acquiring Person") have become the
beneficial owner of 15% or more of the outstanding shares of voting stock of
WorldCom (the "Stock Acquisition Date") or ten business days (or such later date
as may be determined by action of the WorldCom Board of Directors but not later
than the Stock Acquisition Date) following the commencement of a tender offer or
exchange offer that would result in certain persons or groups becoming a
WorldCom Acquiring Person. Pursuant to the WorldCom Rights Agreement, as
amended, the WorldCom Rights are not exercisable until the WorldCom Distribution
Date and will expire, if not previously exercised, on September 6, 2001, unless
such final expiration date is extended (subject to shareholder approval) or
unless the WorldCom Rights are earlier redeemed or exchanged by WorldCom.
Upon the occurrence of a WorldCom Distribution Date, each holder of a
WorldCom Right, except for a WorldCom Acquiring Person, has the right to
acquire, upon exercise of the WorldCom Right, WorldCom Common Stock having a
value equal to two times the exercise price of the WorldCom Right. If a person
becomes a WorldCom Acquiring Person and (i) WorldCom is acquired in a merger or
other business combination transaction in which either WorldCom is not the
surviving corporation or WorldCom Common Stock is exchanged or changed, or (ii)
50% or more of WorldCom's assets or earnings power is sold in one or several
transactions, each holder of a WorldCom Right, except for a WorldCom Acquiring
Person, would
117
<PAGE> 132
acquire, upon exercise of the WorldCom Right, such number of shares of the
acquiring company's common stock as shall be equal to the result obtained by
multiplying the then current exercise price for a WorldCom Right by the number
one one-thousandths of a share of WorldCom Series 3 Preferred Stock for which a
WorldCom Right is then exercisable and dividing that product by 50% of the then
current market price per share of the common stock of the acquiring company on
the date of such merger or other business combination transaction.
If a certain person or group acquires more than 15% but less than 50% of
the outstanding WorldCom Common Stock, WorldCom can exchange each WorldCom
Right, except those held by such persons, for one share of WorldCom Common
Stock.
The WorldCom Series 3 Preferred Stock will be nonredeemable and junior to
any other series of WorldCom preferred stock (unless otherwise provided in the
terms of such WorldCom preferred stock). Each share of WorldCom Series 3
Preferred Stock will have a preferential dividend in an amount equal to 1,000
times any dividend declared on each share of WorldCom Common Stock. In the event
of liquidation, the holders of the WorldCom Series 3 Preferred Stock will
receive a preferred liquidation payment equal to the greater of $1,000 or 1,000
times the payment made per share of WorldCom Common Stock. Each share of
WorldCom Series 3 Preferred Stock will have 1,000 votes, voting together with
the WorldCom Common Stock. In the event of any merger, consolidation or other
transaction in which shares of WorldCom Common Stock are converted or exchanged,
each share of WorldCom Series 3 Preferred Stock will be entitled to receive
1,000 times the amount and type of consideration received per share of WorldCom
Common Stock. The rights of the WorldCom Series 3 Preferred Stock as to
dividends, liquidation and voting, and in the event of mergers and
consolidations, are protected by customary antidilution provisions.
At any time prior to the time a WorldCom Acquiring Person becomes such,
WorldCom may redeem the WorldCom Rights in whole, but not in part, at a price of
$.01 per WorldCom Right. The redemption of the WorldCom Rights may be made
effective at such time, on such basis and with such conditions as the WorldCom
Board of Directors, in its sole discretion, may establish. Immediately upon any
redemption of the WorldCom Rights, the right to exercise the WorldCom Rights
will terminate, and the only right of the holders of the WorldCom Rights will be
to receive the redemption price.
The terms of the WorldCom Rights may be amended by the WorldCom Board of
Directors without the consent of the holders of the WorldCom Rights, including
an amendment to lower certain thresholds described above to not less than the
greater of (i) any percentage greater than the largest percentage of the voting
power of all securities of WorldCom then known to WorldCom to be beneficially
owned by certain persons or groups and (ii) 10%, except that from and after such
time as any person or group of affiliated or associated persons becomes a
WorldCom Acquiring Person no such amendment may adversely affect the interests
of the holders of the WorldCom Rights.
The WorldCom Rights have certain anti-takeover effects. The WorldCom Rights
will cause substantial dilution to a person or group that attempts to acquire or
merge with WorldCom in certain circumstances. Accordingly, the existence of the
WorldCom Rights may deter certain potential acquirors from making certain
takeover proposals or tender offers. The WorldCom Rights should not interfere
with any merger or other business combination approved by the WorldCom Board of
Directors since WorldCom may redeem the WorldCom Rights as described above.
118
<PAGE> 133
CERTAIN CHARTER AND BYLAW PROVISIONS
In addition to the WorldCom Rights Agreement described above, the WorldCom
Articles and the WorldCom Bylaws contain certain provisions, which are referred
to below and which may have the effect of discouraging certain types of
transactions that involve an actual or threatened change of control of WorldCom.
Reference is made to the full text of the WorldCom Articles and the WorldCom
Bylaws, which are incorporated by reference as exhibits to the Registration
Statement of which this Proxy Statement/Prospectus is a part. See "Comparative
Rights of Shareholders -- Election of Directors," "-- Special Meetings of
Shareholders," "-- Special Redemption Provisions" and "-- Business Combination
Restrictions." In addition, one of the effects of the existence of unissued and
unreserved WorldCom Common Stock and preferred stock may be to enable the
WorldCom Board of Directors to issue shares to persons friendly to current
management, which could render more difficult or discourage an attempt to obtain
control of WorldCom by means of a merger, tender offer, proxy contest or
otherwise, and thereby protect the continuity of WorldCom's management and
possibly deprive the shareholders of opportunities to sell their shares of
WorldCom Common Stock at prices higher than the prevailing market prices. Such
additional shares also could be used to dilute the stock ownership of persons
seeking to obtain control of WorldCom.
119
<PAGE> 134
COMPARATIVE RIGHTS OF SHAREHOLDERS
As a result of the BFP Merger, the stockholders of BFP, whose rights are
currently governed by Delaware law, the BFP Certificate and the BFP By-laws,
will become shareholders of WorldCom, whose rights will be governed by Georgia
law, the WorldCom Articles and the WorldCom Bylaws. The following discussion is
intended only to highlight certain material differences between the rights of
corporate shareholders under Georgia law and Delaware law generally and
specifically with respect to stockholders of BFP and shareholders of WorldCom
pursuant to their respective charters and bylaws. The discussion does not
constitute a complete comparison of the differences between the rights of such
holders or the provisions of the GBCC, the DGCL, the BFP Certificate and the BFP
By-laws and the WorldCom Articles and the WorldCom Bylaws, and BFP stockholders
are referred to the DGCL, the BFP Certificate and the BFP By-laws and the GBCC,
the WorldCom Articles and the WorldCom Bylaws for more complete information
regarding such differences.
ELECTION OF DIRECTORS
Under Delaware law, directors, unless their terms are staggered, are
elected at each annual stockholder meeting. Vacancies on the board of directors
may be filled by the stockholders or directors, unless the certificate of
incorporation or a bylaw provides otherwise. The certificate of incorporation
may authorize the election of certain directors by one or more classes or series
of shares, and the certificate of incorporation, an initial bylaw or a bylaw
adopted by a vote of the stockholders may provide for staggered terms for the
directors. The certificate of incorporation or the bylaws also may allow the
stockholders or the board of directors to fix or change the number of directors,
but a corporation must have at least one director. Under Delaware law,
stockholders do not have cumulative voting rights unless the certificate of
incorporation so provides.
The BFP Board of Directors, which presently consists of eleven (11)
members, has been established with staggered terms for directors. Presently, the
BFP Certificate divides the directors into three classes. Each class of
directors must consist, as nearly as possible, of one-third of the total number
of directors, with each director serving for a term of three years. The BFP
By-laws provide that, subject to certain restrictions, nominations to the BFP
Board of Directors may be made by either the Board (or a committee thereof) or
the stockholders. A stockholder's notice in connection with the nomination of
directors is timely received by BFP if such notice is delivered to or mailed and
received at the principal executive offices of BFP not less than 50 days prior
to the meeting at which directors are to be elected; provided, however, than in
the event that less than 60 days' notice or prior public disclosure of the date
of the meeting is given or made to stockholders, notice by the stockholder to be
timely must be so received not later than the close of business on the tenth day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made. Each share of BFP Common Stock is entitled to
one vote per share with respect to the election of directors of BFP (and each
other matter coming before any meeting of BFP stockholders). The BFP Certificate
does not provide for cumulative voting so that a plurality of the votes present
in person or by proxy at any stockholder meeting is sufficient to elect all
members of the BFP Board of Directors nominated at that meeting.
Upon consummation of the BFP Merger, the former stockholders of BFP will
have rights under Georgia law in the election of directors similar to those
provided by Delaware law. Directors, unless their terms are staggered pursuant
to the corporation's articles of incorporation or a bylaw adopted by the
shareholders, are elected at each annual shareholder meeting under Georgia law,
and vacancies on the board of directors may be filled by the shareholders or
directors, unless the articles of incorporation or a bylaw approved by the
shareholders provides otherwise. The articles of incorporation may authorize the
election of certain directors by one or more classes or series of shares. The
articles of incorporation or the bylaws also may allow the shareholders or the
board of directors to fix or change the number of directors. Currently, the
WorldCom Bylaws provide that the number of members of the WorldCom Board of
Directors shall be fixed by the WorldCom Board of Directors but shall not be
less than three. Neither the WorldCom Articles nor the WorldCom Bylaws provide
for a staggered board of directors. Subject to certain restrictions, nominations
to the WorldCom Board of Directors may be made by either the Board or
shareholders, if delivered to WorldCom not later than 90 days prior to the
anniversary date of the immediately preceding annual meeting of WorldCom
shareholders. Under Georgia law, shareholders do not have cumulative voting
rights for the
120
<PAGE> 135
election of directors unless the articles of incorporation so provide. The
WorldCom Articles do not provide for cumulative voting.
REMOVAL OF DIRECTORS
Under Delaware law, classified directors of a corporation may only be
removed for cause, by the holders of a majority of the shares entitled to vote
at an election, unless the certificate of incorporation of the corporation
specifically provides that such directors can be removed without cause. The BFP
Certificate does not provide that directors may be removed without cause.
Georgia law provides that, unless director terms are staggered, directors
may be removed with or without cause by a majority of the votes entitled to be
cast, unless the articles of incorporation or a bylaw adopted by the
shareholders provides that directors may be removed only for cause, provided,
however, that if a director is elected by a particular voting group of
shareholders, that director may only be removed by the requisite vote of that
voting group. The WorldCom Articles and the WorldCom Bylaws contain no
provisions that a director may be removed only for cause and, because director
terms are not staggered, directors of WorldCom may be removed with or without
cause.
VACANCIES ON THE BOARD OF DIRECTORS
Under Delaware law and the BFP Certificate, any vacancy on the BFP Board of
Directors, whether arising through death, resignation or removal, or an increase
in the number of directors, may be filled by the affirmative vote of a majority
of the remaining directors then in office, even if less than a quorum. Any
director so elected to fill a vacancy may hold office only until the next
election of directors by the stockholders.
Under Georgia law, the articles of incorporation or a bylaw approved by the
shareholders may make specific provision for filling vacancies on the board of
directors. Under the WorldCom Bylaws, any vacancy occurring on the WorldCom
Board created by an increase in the number of directors by action of the
shareholders must be filled by the shareholders in the same manner as at an
annual election of directors. The WorldCom Bylaws provide that the WorldCom
Board shall fill any vacancy occurring on the board created by an increase in
the number of directors by action of the board or the removal or resignation of
a director, as provided in the WorldCom Bylaws, except such vacancy shall be
filled pursuant to the WorldCom Articles to the extent such Articles provide
that a class of shareholders may fill a vacancy created by the removal or
resignation of a director elected by that class. A director elected to fill a
vacancy created by the removal or resignation of a director shall hold office
for the unexpired term of his or her predecessor.
ACTION BY WRITTEN CONSENT
Delaware law provides that, unless limited by a corporation's certificate
of incorporation, any action that could be taken by stockholders at a meeting
may be taken without a meeting if a consent (or consents) in writing, setting
forth the action so taken, is signed by the holders of record of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. The BFP Certificate does not limit the
taking of action by stockholders by written consent.
Subject to compliance with certain requirements, Georgia law provides that
any action required or permitted to be taken by the shareholders at a meeting
may be taken by the shareholders without a meeting if evidenced by one or more
written consents describing the action taken, signed and dated by all
shareholders entitled to vote on such action, or, if the articles of
incorporation provide for less than all shareholders, by persons who would be
entitled to vote shares at a meeting having the requisite voting power to take
action at a meeting at which all shareholders entitled to vote were present and
voted. The WorldCom Articles do not provide for the consent of a lesser number
of shares with respect to an action by written consent, thus the written consent
of all shareholders of WorldCom entitled to vote on such action would be
required in order to take such an action without a meeting of shareholders.
121
<PAGE> 136
AMENDMENTS TO CHARTER
Under Delaware law, unless a higher vote is required in a corporation's
certificate of incorporation, an amendment to the certificate of incorporation
may be approved by a majority of the outstanding shares entitled to vote upon
the proposed amendment. The BFP Certificate requires the affirmative vote of the
holders of record of outstanding shares representing at least 66 2/3% of all the
outstanding capital stock of BFP entitled to vote generally in the election of
directors to amend, alter, change or repeal, or adopt any provision or
provisions inconsistent with, Article Fourth of the BFP Certificate, which sets
forth the authorized capital stock of BFP and the terms thereof.
Georgia law provides that directors may only make certain relatively
technical amendments to a corporation's articles of incorporation without
shareholder action. Otherwise, unless Georgia law, the articles of incorporation
or the corporation's board of directors require a greater vote or a vote by
voting groups, the affirmative vote of a majority of the votes entitled to be
cast on the amendment by each voting group entitled to vote on the amendment is
required to amend a Georgia corporation's articles of incorporation.
AMENDMENTS TO BYLAWS
The DGCL provides that a corporation's bylaws may be amended by that
corporation's stockholders, or, if so provided in the corporation's certificate
of incorporation, the power to amend the corporation's bylaws may also be
conferred on the corporation's directors. The BFP Certificate authorizes the BFP
Board of Directors to adopt, amend or repeal the BFP By-laws, subject to the
right of stockholders to amend or repeal such By-laws.
Georgia law provides that, unless a corporation's articles of
incorporation, applicable law or a particular bylaw approved by the
corporation's shareholders provides otherwise, either the corporation's
directors or its shareholders may amend that corporation's bylaws. The WorldCom
Bylaws allow the directors or shareholders to amend or repeal the WorldCom
Bylaws unless the WorldCom Articles or applicable law reserves the power to
amend or repeal a particular bylaw exclusively to the shareholders or unless the
shareholders, in amending or repealing a particular bylaw, provide expressly
that the directors may not amend or repeal that bylaw.
SPECIAL MEETINGS OF SHAREHOLDERS
Delaware law provides that special meetings of the stockholders of a
corporation may be called by the corporation's board of directors or by such
other persons as may be authorized in the corporation's certificate of
incorporation or bylaws. The BFP By-laws provide that special meetings of BFP's
stockholders may be called by any two members of the BFP Board of Directors or
by the Chairman of the BFP Board of Directors.
Georgia law permits the board of directors or any person authorized in the
corporation's articles of incorporation or bylaws to call special meetings of
shareholders. Except in the case of a corporation having 100 or fewer
shareholders of record, a special meeting may also be called by at least 25% or
such greater or lesser percentage of all the votes entitled to be cast on any
issue proposed to be considered at the special meeting as may be provided in the
corporation's articles of incorporation or bylaws. The WorldCom Bylaws provide
that a special meeting may be called by the WorldCom Board of Directors, the
President of WorldCom or the holders of not less than 40% of all the votes
entitled to be cast on the issue proposed to be considered at the proposed
special meeting.
VOTE ON EXTRAORDINARY CORPORATE TRANSACTIONS
Delaware law provides that, unless otherwise specified in a corporation's
certificate of incorporation or unless the provisions of the DGCL discussed
below under "-- Business Combination Restrictions" are applicable, a sale or
other disposition of all or substantially all of the corporation's assets, a
merger or consolidation of the corporation with another corporation or a
dissolution of the corporation requires the affirmative vote of the Board of
Directors (except in certain limited circumstances) plus, with certain
exceptions, the affirmative vote of a majority of the outstanding stock entitled
to vote thereon. The foregoing provisions apply to BFP and its stockholders.
122
<PAGE> 137
Georgia law is similar to Delaware law in that, except as described below
under "-- Business Combination Restrictions," a sale or other disposition of all
or substantially all of the corporation's assets, a merger of the corporation
with and into another corporation, a share exchange involving one or more
classes or series of the corporation's shares or a dissolution of the
corporation must be adopted by the Board of Directors plus, with certain
exceptions, the affirmative vote of a majority of all shares of stock entitled
to vote thereon.
RIGHTS OF INSPECTION
The DGCL allows any stockholder of a Delaware corporation, upon written
demand under oath stating the purpose thereof, to have the right during the
usual hours for business to inspect for any proper purpose the corporation's
stock ledger, a list of its stockholders, and its other books and records, and
to make copies or extracts therefrom. A proper purpose means a purpose
reasonably related to such person's interest as a stockholder.
Georgia law permits any shareholder who gives at least five business days'
written notice to the corporation to have the right to inspect and copy, during
normal business hours, at the principal office of the corporation, certain of
the corporation's books and records, including: (i) the articles of
incorporation and the bylaws currently in effect; (ii) all resolutions adopted
by shareholders or the board of directors increasing or decreasing the number of
directors, the classification of directors, if any, and the names and residence
addresses of all members of the board of directors; (iii) resolutions adopted by
the board of directors creating one or more classes or series of shares, and
fixing their relative rights, if any, if shares issued under the resolutions are
outstanding; (iv) resolutions adopted by the board of directors that affect the
size of the board of directors; (v) the minutes of all shareholders' meetings
and executed written consents evidencing all action taken by shareholders
without a meeting for the past three years; (vi) all written communications to
shareholders generally within the past three years, including the annual
financial statements furnished as provided in GBCC Section 14-2-1620; (vii) the
names and business addresses of the corporation's current directors and
officers; and (vii) the most recent annual registration of the corporation filed
with the Georgia Secretary of State. A shareholder is also entitled to receive,
upon written request, a copy of the corporation's most recent balance sheet and
profit and loss statement.
A shareholder has only a qualified right to inspect certain other specified
records of the corporation, including (i) excerpts from minutes of any meeting
of the board, records of action of a committee of the board of directors while
acting for the board, minutes of meetings of shareholders, and records of action
taken by shareholders or the board of directors without a meeting, to the extent
not subject to inspection under the mandatory inspection and copying provision;
(ii) accounting records of the corporation; and (iii) the record of
shareholders.
DIVIDENDS
Subject to any restrictions contained in a corporation's certificate of
incorporation, Delaware law generally provides that a corporation may declare
and pay dividends out of "surplus" (defined as the excess, if any, of net assets
(total assets less total liabilities) over capital) or, when no surplus exists,
out of net profits for the fiscal year in which the dividend is declared and/or
the preceding fiscal year, except that dividends may not be paid out of net
profits if the capital of the corporation is less than the amount of capital
represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets. In accordance with the DGCL,
"capital" is determined by the board of directors and shall not be less than the
aggregate par value of the outstanding capital stock of the corporation having
par value. The BFP Certificate contains no additional restrictions on the
declaration or payment of dividends.
Georgia law provides that, subject to any restrictions contained in a
corporation's articles of incorporation, the directors of a corporation may
authorize the payment of dividends to that corporation's shareholders, provided
that no such dividend may be paid if, after giving effect to such payment, (a)
the corporation would be unable to pay its debts as they come due in the usual
course of business or (b) the corporation's total assets would be less than the
sum of its total liabilities plus (unless the corporation's articles of
incorporation permit otherwise) any preferential liquidation amounts payable to
shareholders whose preferential rights on
123
<PAGE> 138
dissolution are superior to those of the shareholders receiving the dividend.
Other than the preferential rights of the holders of WorldCom preferred stock
with respect to dividends and liquidation (see "Description of WorldCom Capital
Stock -- Preferred Stock"), the WorldCom Articles contain no additional
restrictions on the declaration or payment of dividends.
APPRAISAL RIGHTS OF DISSENTING SHAREHOLDERS
Under Delaware law, in certain circumstances a stockholder of a Delaware
corporation is generally entitled to demand appraisal and obtain payment of the
judicially determined fair value of his or her shares in the event of any plan
of merger or consolidation to which the corporation, the shares of which he or
she holds, is a party, provided such stockholder continuously holds such shares
through the effective date of the merger, otherwise complies with the
requirement of Delaware law for the perfection of appraisal rights and does not
vote in favor of the merger. However, this right to demand appraisal does not
apply to stockholders if: (1) they are stockholders of a surviving corporation
and if a vote of the stockholders of such corporation is not necessary to
authorize the merger or consolidation; and (2) the shares held by the
stockholders are of a class or series registered on the New York Stock Exchange
or the American Stock Exchange, designated as a national market system security
on an interdealer quotation system by the NASD or are held of record by more
than 2,000 stockholders on the date set to determine the stockholders entitled
to vote on the merger or consolidation. Notwithstanding the above, appraisal
rights are available for the shares of any class or series of stock of a
Delaware corporation if the holders thereof are required by the terms of an
agreement of merger or consolidation to accept for their stock anything except:
(i) shares of stock of the corporation surviving or resulting from the merger or
consolidation; (ii) shares of stock of any other corporation which at the
effective date of the merger or consolidation will be listed on the New York
Stock Exchange or the American Stock Exchange, designated as a national market
system security on an interdealer quotation system by the NASD or held of record
by more than 2,000 stockholders; (iii) cash in lieu of fractional shares of the
corporations described in (i) and (ii); or (iv) any combination of the shares of
stock and cash in lieu of fractional shares described in (i), (ii) and (iii).
Holders of BFP Common Stock are not entitled to appraisal rights in
connection with the BFP Merger, because: (i) shares of BFP Common Stock were, at
the Record Date, designated as Nasdaq National Market securities; (ii) BFP
stockholders will not be required to accept anything in exchange for their
shares of BFP Common Stock other than shares of WorldCom Common Stock, which
will be designated as Nasdaq National Market securities as of the Effective
Time, and cash in lieu of fractional shares of such stock; and (iii) the BFP
Certificate does not otherwise provide BFP stockholders with dissenters' or
appraisal rights applicable to the BFP Merger. See "The Special
Meeting -- Absence of Appraisal Rights."
Georgia law provides that shareholders are entitled to dissent from and
obtain payment of the fair value of their shares in the event of mergers, share
exchanges, sales or exchanges of all or substantially all of the corporation's
assets, amendments to the articles of incorporation that materially and
adversely affect certain rights in respect of a dissenter's shares and certain
other actions taken pursuant to a shareholder vote to the extent provided for
under Article 9 of the GBCC, the articles of incorporation, bylaws or resolution
of board of directors; provided, however, unless the corporation's articles of
incorporation otherwise provide, appraisal rights are not available: (i) to
holders of shares of any class of shares not entitled to vote on the merger,
share exchange or sale or exchange of all or substantially all of a
corporation's assets; (ii) in a sale of all or substantially all of the property
of the corporation pursuant to court order; (iii) in a sale of all or
substantially all of the corporation's assets for cash, where all or
substantially all of the net proceeds of such sale will be distributed to the
shareholders within one year; or (iv) to holders of shares which at the record
date were either listed on a national securities exchange or held of record by
more than 2,000 shareholders, unless: (a) in the case of a plan of merger or
share exchange, the holders of shares of the class or series are required under
the plan of merger or share exchange to accept for their shares anything except
shares of the surviving corporation or a publicly held corporation which at the
effective date of the merger or share exchange are either listed on a national
securities exchange or held of record by more than 2,000 shareholders, except
for scrip or cash payments in lieu of fractional shares; or (b) the articles of
incorporation or a resolution of the board of directors approving the
transaction provides otherwise. Appraisal rights under Georgia law differ from
124
<PAGE> 139
appraisal rights under Delaware law in that, under Georgia law, shareholders
have appraisal rights for more types of transactions than under Delaware law,
and unlike the appraisal rights provisions under Delaware law, under Georgia
law, the board of directors may voluntarily extend appraisal rights to
shareholders.
INDEMNIFICATION AND LIMITATION OF LIABILITY OF DIRECTORS AND OFFICERS
Delaware law permits a corporation to adopt a provision in its certificate
of incorporation eliminating or limiting the personal liability of a director to
the corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except that such provision may not limit the liability of a
director for: (i) any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
liability under Section 174 of the DGCL for unlawful payment of dividends or
stock purchases or redemptions, or (iv) any transaction from which the director
derived an improper personal benefit. The BFP Certificate contains such a
provision.
Under Delaware law, a corporation may indemnify any person made a party or
threatened to be made a party to any type of proceeding (other than an action by
or in the right of the corporation) because he or she is or was an officer,
director, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation or entity, against expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred in connection with such proceeding:
(1) if he or she acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the corporation; or
(2) in the case of a criminal proceeding, he or she had no reasonable cause to
believe that his or her conduct was unlawful. A corporation may indemnify any
person made a party or threatened to be made a party to any threatened, pending
or completed action or suit brought by or in the right of the corporation
because he or she was an officer, director, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or other entity,
against expenses actually and reasonably incurred in connection with such action
or suit if he or she acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the corporation,
except that there may be no such indemnification if the person is found liable
to the corporation unless, in such a case, the court determines the person is
entitled thereto. A corporation must indemnify a director, officer, employee or
agent against expenses actually and reasonably incurred by him or her who
successfully defends himself or herself in a proceeding to which he or she was a
party because he or she was a director, officer, employee or agent of the
corporation. Expenses incurred by an officer or director (or other employees or
agents as deemed appropriate by the Board of Directors) in defending a civil or
criminal proceeding may be paid by the corporation in advance of the final
disposition of such proceeding upon receipt of an undertaking by or on behalf of
the recipient to repay such amount if it shall ultimately be determined that he
or she is not entitled to be indemnified by the corporation. The Delaware law
indemnification and expense advancement provisions are not exclusive of any
other rights which may be granted by the bylaws, a vote of stockholders or
disinterested directors, agreement or otherwise.
The BFP Certificate and the BFP By-laws provide for the indemnification to
the fullest extent permitted by Delaware law of any person who was or is a party
or is threatened to be made a party to or is involved in any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that such person or a person of whom
such person is a legal representative is or was a director or officer of BFP, or
is or was serving at the request of BFP or for its benefit as a director,
officer, employee or agent of any other corporation, or as the representative of
BFP in a partnership, joint venture, trust or other entity against all expenses,
liabilities and losses (including attorneys' fees, judgments, fines and amounts
paid or to be paid in settlement) reasonably paid or incurred by such person in
connection therewith. BFP will pay all expenses incurred by any such person in
defending such a proceeding in advance of its final disposition at the written
request of such person if the person furnishes BFP a written undertaking to
repay such advance if it is ultimately determined that such person is not
entitled to be indemnified.
The BFP Merger Agreement provides that, from and after the Effective Time,
WorldCom and the Surviving Corporation will, jointly and severally, indemnify,
defend and hold harmless the directors and officers of BFP as and to the extent
provided in the BFP Certificate or the BFP By-laws as in effect as of the
125
<PAGE> 140
date of the BFP Merger Agreement, with respect to matters occurring through the
Effective Time. To the extent reasonably available, WorldCom has agreed to cause
the Surviving Corporation to maintain in effect for a period of three years
after the Closing Date policies of directors' and officers' liability insurance
comparable to those maintained by BFP with carriers comparable to BFP's existing
carriers; provided, however, that the Surviving Corporation shall not be
required to pay an annual premium for such insurance in excess of 200% of the
last annual premium paid prior to the date of the BFP Merger Agreement, but in
such case shall purchase as much coverage as possible for such amount. See "Plan
of Merger -- Terms and Conditions of the Proposed BFP
Merger -- Indemnification."
Georgia law permits corporations to adopt a provision in their articles of
incorporation eliminating or limiting the personal liability of a director to
the corporation or its shareholders for monetary damages for any action taken,
or any failure to take action as a director, except that Georgia law does not
permit the elimination or limitation of monetary liability for a director in the
event of (i) misappropriation of corporate business opportunities; (ii)
intentional misconduct or knowing violation of the law; (iii) unlawful
distributions; or (iv) any transaction in which such director receives an
improper personal benefit. The WorldCom Articles limit the personal liability of
directors for monetary damages to the fullest extent permissible under the GBCC.
Section 14-2-851 of the GBCC provides that a Georgia corporation may
indemnify an individual who is a party to a proceeding because he or she is or
was a director, against liability incurred in such proceeding, provided that
such individual acted in good faith and reasonably believed (a) in the case of
conduct in his or her official capacity, that such conduct was in the best
interests of the corporation, (b) in all other cases other than a criminal
proceeding, that such conduct was at least not opposed to the best interests of
the corporation, and (c) in the case of a criminal proceeding, that such
individual had no reasonable cause to believe that such conduct was unlawful. A
Georgia corporation may not indemnify a director under Section 14-2-851 (i) in
connection with a proceeding by or in the right of the corporation, except for
reasonable expenses incurred by such director in connection with the proceeding,
provided it is determined that such director met the relevant standard of
conduct set forth above, or (ii) in connection with any proceeding with respect
to conduct for which such director was adjudged liable on the basis that he or
she received an improper personal benefit.
Prior to indemnifying a director under Section 14-2-851 of the GBCC, a
determination must be made that the director has met the relevant standard of
conduct. Such determination must be made by: (i) a majority vote of a quorum
consisting of directors not at that time parties to the suit; (ii) a duly
designated committee of directors; (iii) duly selected special legal counsel; or
(iv) a vote of the shareholders, excluding shares owned by or voted under the
control of directors who are at the time parties to the suit.
A Georgia corporation may, before final disposition of a proceeding,
advance funds to pay for or reimburse the reasonable expenses incurred by a
director who is a party to a proceeding because he or she is a director,
provided that such director delivers to the corporation a written affirmation of
his or her good faith belief that he or she met the relevant standard of conduct
described in Section 14-2-851 of the GBCC, or that the proceeding involves
conduct for which such director's liability has been properly eliminated by
action of the corporation, and a written undertaking by the director to repay
any funds advanced if it is ultimately determined that such director was not
entitled to such indemnification.
The GBCC also allows a Georgia corporation to indemnify directors made a
party to a proceeding without regard to the above-referenced limitations, if
authorized by the articles of incorporation or a bylaw, contract, or resolution
duly adopted by a vote of the shareholders of the corporation by a majority of
votes entitled to be cast, excluding shares owned or voted under the control of
the director or directors who are not disinterested, and to advance funds to pay
for or reimburse reasonable expenses incurred in the defense thereof, subject to
restrictions similar to the restrictions described in the preceding paragraph;
provided, however, that the corporation may not indemnify a director adjudged
liable: (1) for any appropriation, in violation of his or her duties, of any
business opportunity of the corporation; (2) for acts or omissions which involve
intentional misconduct or a knowing violation of law; (3) for unlawful
distributions; or (4) for any transaction from which he or she received an
improper personal benefit.
126
<PAGE> 141
Under Georgia law, a corporation's authority to indemnify officers, unlike
directors, is restricted only by public policy. A person who is both an officer
and a director is treated, for indemnification purposes, as a director. The
WorldCom Articles and the WorldCom Bylaws authorize indemnification of its
officers and directors to the fullest extent permitted by Georgia law.
PREEMPTIVE RIGHTS
Neither Delaware nor Georgia law provides (except in limited instances) for
preemptive rights to acquire a corporation's unissued stock. However, such right
may be expressly granted to the shareholders in a corporation's certificate or
articles of incorporation. Neither the BFP Certificate nor the WorldCom Articles
provide for preemptive rights.
SPECIAL REDEMPTION PROVISIONS
Under the DGCL, a corporation may purchase or redeem shares of any class of
its capital stock, but subject generally to the availability of sufficient
lawful funds therefor and provided that at all times, at the time of any such
redemption, the corporation shall have outstanding shares of one or more classes
or series of capital stock which have full voting rights that are not subject to
redemption. The BFP Certificate contains no provision which either restricts or
requires redemptions of shares of its capital stock; however, certain credit
agreements of BFP do contain provisions which may restrict BFP's ability to
purchase or redeem shares of its capital stock.
Under the GBCC, a corporation may acquire its own shares of capital stock,
subject to the requirement that at all times the corporation must have
authorized: (i) at least one or more classes of shares that together have
unlimited voting rights; and (ii) at least one or more classes of shares (which
may be the same class or classes as those with unlimited voting rights) that
together are entitled to receive the net assets of the corporation upon
dissolution. In addition, a corporation's acquisition of its own shares of
capital stock is deemed a "distribution" under Georgia law and, accordingly, is
subject to the restrictions on distributions set forth in the corporation's
articles of incorporation and Section 14-2-640 of the GBCC.
The WorldCom Articles contain provisions permitting WorldCom to redeem
shares of its capital stock from certain foreign shareholders in order to enable
it to continue to hold certain common carrier radio licenses. These provisions
are intended to cause WorldCom to remain in compliance with the Communications
Act and the regulations of the FCC promulgated thereunder. Under these
provisions, at such time as the percentage of capital stock owned by foreign
shareholders or certain affiliates thereof exceeds 20%, WorldCom has the right
to redeem the excess shares held by such persons at the fair market value
thereof. Following any determination that such excess shares exist, such excess
shares shall not be deemed outstanding for purposes of determining the vote
required on any matter brought to the attention of the shareholders of WorldCom
and such excess shares shall have no right to receive any dividends or other
distributions, including distributions in liquidation. If such shares are traded
on a national securities exchange or in the over-the-counter market, such fair
market value is the average closing price for the 45 trading days immediately
preceding the date of redemption. If such shares are not so traded, such fair
market value shall be established by the WorldCom Board of Directors. In the
event there is a foreign shareholder who acquired the shares to be redeemed
within 120 days of the date of redemption, however, the redemption price shall
not exceed the price per share paid by such shareholder. At least 30 days'
notice of redemption must be given, and the redemption price may be paid in
cash, securities or any combination thereof. WorldCom may require confirmation
of citizenship from any record or beneficial owner of shares of its capital
stock, and from any transferee thereof, as a condition to the registration or
transfer of those shares.
PREFERRED STOCK PURCHASE RIGHTS
Under BFP's Shareholders Protection Rights Plan (the "BFP Rights Plan"),
the Board of Directors of BFP has declared and paid a dividend of one Preferred
Stock Purchase Right (a "BFP Right") for each outstanding share of BFP Common
Stock. Except as set forth below, each BFP Right, when exercisable, entitles the
registered holder to purchase from BFP one one-thousandth of a share of Series A
Junior
127
<PAGE> 142
Participating Preferred Stock, $.01 par value (the "BFP Series A Preferred
Stock") of BFP, at a price of $100.00 per one one-thousandth of a share (the
"BFP Purchase Price"), subject to adjustment. The terms of the BFP Rights are
set forth in the Rights Agreement dated as of February 29, 1996 between BFP and
The Boatmen's Trust Company, as Rights Agent (the "BFP Rights Agreement"), and
the summary of the terms of the BFP Rights set forth herein is qualified in its
entirety by reference to the BFP Rights Agreement incorporated herein by
reference (see "Incorporation of Documents by Reference").
Currently, no separate right certificates represent the BFP Rights. Until
the earlier of (i) 10 business days following the first to occur of (a) a public
announcement by BFP or a BFP Acquiring Person (defined below) that, without the
prior written consent of BFP, a person or group of affiliated or associated
persons, other than BFP or subsidiaries or employee benefit or compensation
plans of BFP (a "BFP Acquiring Person"), has acquired, or obtained the right to
acquire, 20% or more of the voting power of all securities of BFP then
outstanding and generally entitled to vote for the election of directors of BFP
("BFP Voting Power"), or (b) the date on which BFP first has notice or otherwise
determines that a person has become a BFP Acquiring Person (the "BFP Stock
Acquisition Date"), or (ii) 10 business days (or such later date as may be
determined by the Board of Directors prior to the time that any person becomes a
BFP Acquiring Person) after the date that a tender offer or exchange offer is
first published or sent, without the prior written consent of a majority of the
Board of Directors, that will result in any person owning 20% or more of the BFP
Voting Power (the earlier of the dates in clause (i) or (ii) above being called
the "BFP Distribution Date"), the BFP Rights will be evidenced by outstanding
BFP Common Stock certificates.
Pursuant to the BFP Rights Agreement, the BFP Rights are not exercisable
until the BFP Distribution Date. The BFP Rights will expire on February 28,
2006, unless such date is extended or unless earlier redeemed or exchanged by
BFP, as described below.
In the event that, following the BFP Distribution Date, (i) BFP
consolidates with or merges with or into any person, (ii) any person
consolidates with or merges with or into BFP, and BFP continues or survives such
merger and, in connection with such merger, all or part of the BFP Common Stock
is changed into or exchanged for stock or securities of another person or cash
or any other property or (iii) BFP (or one or more of its subsidiaries) sells or
transfers 50% or more of BFP's assets or earning power (in one transaction or a
series of transactions), proper provision shall be made so that each holder of a
BFP Right shall thereafter have the right to receive, upon the exercise of such
BFP Right and payment of the BFP Purchase Price, that number of shares of common
stock of the surviving or purchasing company (or, in certain cases, one of its
affiliates) which at the time of such transaction would have a market value of
two times the BFP Purchase Price (such right being called the "BFP Merger
Right").
In the event that any person shall become a BFP Acquiring Person ("BFP
Flip-In Event"), proper provision shall be made so that each holder of a BFP
Right will thereafter have the right to receive upon exercise that number of
shares (or fractional shares) of BFP Common Stock (or, in certain cases,
equivalent securities) having a market value of two times the BFP Purchase Price
(such right being called the "BFP Subscription Right"). However, the BFP Rights
will not become exercisable following a BFP Flip-In Event as described above
until such time as the BFP Rights are no longer redeemable by BFP as described
below.
Any BFP Rights that are beneficially owned by a BFP Acquiring Person or an
affiliate or an associate of a BFP Acquiring Person will become null and void
upon the occurrence of any of the events giving rise to the exercisability or
the BFP Subscription Right or the BFP Merger Right, and any holder of such BFP
Rights will have no right to exercise such BFP Rights from and after the
occurrence of such an event insofar as they relate to the BFP Subscription Right
or the BFP Merger Right.
At any time after the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 20% or more of the BFP Voting
Power and prior to the acquisition by such person or group of 50% or more of the
BFP Voting Power, the Board of Directors of BFP may exchange the BFP Rights
(other than BFP Rights owned by such person or group which have become void), in
whole or in part, at an exchange ratio of one share of BFP Common Stock, or one
one-thousandth of a share of BFP Series A Preferred Stock (or of a share of
BFP's Preferred Stock having equivalent rights, preferences and privileges), per
Right (subject to adjustment).
128
<PAGE> 143
At any time prior to the BFP Distribution Date, BFP may elect to redeem the
BFP Rights in whole, but not in part, at a price of $0.001 per Right as adjusted
to reflect any stock split, stock dividend or similar transaction. Upon the
effective date of the redemption, the right to exercise the BFP Rights will
terminate and the only right thereafter of the holders of BFP Rights will be the
right to receive the redemption price. BFP shall promptly and publicly disclose
any such redemption and provide notice of such redemption to holders of BFP
Rights within 10 days after the Board action. However, any failure to give, or
defect in, such disclosure will not affect the validity of such redemption.
The BFP Series A Preferred Stock purchasable upon exercise of the BFP
Rights will not be redeemable and will be junior to any other series of
Preferred Stock BFP may issue (unless otherwise provided in the terms of such
stock). Each share of BFP Series A Preferred Stock will have a preferential
dividend in an amount equal to the greater of $10.00 per share or 1,000 times
any dividend declared on each share of Common Stock. In the event of
liquidation, the holders of BFP Series A Preferred Stock will be entitled to a
minimum preferential liquidation payment of $1,000 per share (plus any accrued
but unpaid dividends) and, after payment of an equivalent amount to holders of
the Common Stock, to share ratably and proportionately with the Common Stock in
the distribution of any remaining assets. Each share of BFP Series A Preferred
Stock will have 1,000 votes, voting together with the shares of BFP Common
Stock. In the event of any merger, consolidation or other transaction in which
shares of BFP Common Stock are exchanged, each share of BFP Series A Preferred
Stock will be entitled to receive 1,000 times the amount and type of
consideration received per share of BFP Common Stock. The rights of the BFP
Series A Preferred Stock as to dividends, liquidation and voting, and in the
event of mergers and consolidations, are protected by customary anti-dilution
provisions.
The Board of Directors of BFP retains a broad ability to amend or
supplement the BFP Rights Agreement without the consent of the holders of the
BFP Rights, including amendments to extend the expiration date of the rights and
lower the threshold for exercisability of the BFP Rights from 20% to certain
levels. In connection with the execution of the BFP Merger Agreement, the BFP
Board of Directors adopted a resolution to render the BFP Rights Agreement
inapplicable to the BFP Merger Agreement and WorldCom.
The BFP Rights have certain anti-takeover effects. The BFP Rights may cause
substantial dilution to a person or group that attempts to acquire BFP without a
condition to such an offer that a substantial number of the BFP Rights be
acquired or the BFP Rights be redeemed or otherwise not apply.
For a description of the WorldCom Preferred Stock Purchase Rights, see
"Description of WorldCom Capital Stock -- Preferred Stock Purchase Rights."
STOCKHOLDER SUITS
Under Delaware law, a stockholder may institute a lawsuit against one or
more directors, either on his own behalf, or derivatively on behalf of the
corporation. An individual stockholder may also commence a lawsuit on behalf of
himself and other similarly situated stockholders when the requirements for
maintaining a class action under Delaware law have been met. As noted
previously, Section 102(b)(7) of the DGCL enables a corporation in its
certificate of incorporation to eliminate or limit, and the BFP Certificate
limits, the personal liability of a director for monetary damages for violations
of the director's fiduciary duty, except (i) for any breach of a director's duty
of loyalty to the corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) for liability pursuant to Section 174 of the DGCL (providing for
liability of directors for unlawful payment of dividends or unlawful stock
purchases or redemptions) or (iv) for any transaction from which a director
derived an improper personal benefit.
Under Georgia law, a shareholder may institute a lawsuit against one or
more directors, either on his or her own behalf, or derivatively on behalf of
the corporation. As noted previously, Georgia law contains a provision allowing
a corporation, through a provision in its articles of incorporation, to limit or
eliminate the personal liability of a director to the corporation or its
shareholders for monetary damages for any action taken, or any failure to take
any action as a director, except in certain enumerated circumstances. The
WorldCom Articles contain such a provision. No director of WorldCom shall be
liable to the corporation or to its
129
<PAGE> 144
shareholders for monetary damages for any action taken, or any failure to take
any action, as a director, except for liability (i) for any appropriation, in
violation of his or her duties, of any business opportunity of the corporation;
(ii) for acts or omissions which involve intentional misconduct or a knowing
violation of law; (iii) for unlawful distributions; or (iv) for any transaction
from which a director received an improper personal benefit.
BUSINESS COMBINATION RESTRICTIONS
In general, Section 203 of the DGCL prevents an "Interested Stockholder"
(defined generally as a person with 15% or more of a corporation's outstanding
voting stock, with the exception of any person who owned and has continued to
own shares in excess of the 15% limitation since December 23, 1987) from
engaging in a Business Combination with a Delaware corporation for three years
following the date such person became an Interested Stockholder. The term
"Business Combination" includes mergers or consolidations with an Interested
Stockholder and certain other transactions with an Interested Stockholder,
including, without limitation: (i) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (except proportionately as a stockholder of such
corporation) to or with the Interested Stockholder of assets (except
proportionately as a stockholder of the corporation) having an aggregate market
value equal to 10% or more of the aggregate market value of all assets of the
corporation or of certain subsidiaries thereof determined on a consolidated
basis or the aggregate market value of all the outstanding stock of the
corporation; (ii) any transaction which results in the issuance or transfer by
the corporation or by certain subsidiaries thereof of stock of the corporation
or such subsidiary to the Interested Stockholder, except pursuant to certain
transfers in a conversion or exchange or a pro rata distribution to all
stockholders of the corporation or certain other transactions, none of which
increase the Interested Stockholder's proportionate ownership of any class or
series of the corporation's or such subsidiary's stock; (iii) any transaction
involving the corporation or certain subsidiaries thereof which has the effect,
directly or indirectly, of increasing the proportionate share of the stock of
any class or series, or securities convertible into stock of the corporation or
any subsidiary which is owned by the Interested Stockholder (except as a result
of immaterial changes due to fractional share adjustments or as a result of any
purchase or redemption of any shares of stock not caused directly or indirectly
by the Interested Stockholder); or (iv) any receipt by the Interested
Stockholder of the benefit (except proportionately as a stockholder of such
corporation) of any loans, advances, guarantees, pledges, or other financial
benefits provided by or through the corporation or certain subsidiaries.
The three-year moratorium may be avoided if: (i) before such person became
an Interested Stockholder, the Board of Directors of the corporation approved
either the Business Combination or the transaction in which the Interested
Stockholder became an Interested Stockholder; or (ii) upon consummation of the
transaction which resulted in the stockholder becoming an Interested
Stockholder, the stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced (excluding shares
held by directors who are also officers of the corporation and by employee stock
ownership plans that do not provide employees with the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer); or (iii) on or following the date on which such
person became an Interested Stockholder, the Business Combination is approved by
the Board of Directors of the corporation and authorized at an annual or special
meeting of stockholders (not by written consent) by the affirmative vote of the
stockholders of at least 66 2/3% of the outstanding voting stock of the
corporation not owned by the Interested Stockholder.
The Business Combination restrictions described above do not apply if,
among other things: (i) the corporation's original certificate of incorporation
contains a provision expressly electing not to be governed by the statute; (ii)
the corporation by action by the holders of a majority of the voting stock of
the corporation approves an amendment to its certificate of incorporation or
bylaws expressly electing not to be governed by the statute (effective twelve
(12) months after the amendment's adoption), which amendment shall not be
applicable to any business combination with a person who was an Interested
Stockholder at or prior to the time of the amendment; or (iii) the corporation
does not have a class of voting stock that is (a) listed on a national
securities exchange, (b) authorized for quotation on The Nasdaq National Market
or a similar quotation system; or (c) held of record by more than 2,000
stockholders. The statute also does not apply to certain Business Combinations
with an Interested Stockholder when such combination is proposed after the
130
<PAGE> 145
public announcement of, and before the consummation or abandonment of, a merger
or consolidation, a sale of 50% or more of the aggregate market value of the
assets of the corporation on a consolidated basis or the aggregate market value
of all outstanding shares of the corporation, or a tender offer for 50% or more
of the outstanding voting shares of the corporation, if the triggering
transaction is with or by a person who either was not an Interested Stockholder
during the previous three years or who became an Interested Stockholder with
Board of Director approval, and if the transaction is approved or not opposed by
a majority of the current directors who were also directors prior to any person
becoming an Interested Stockholder during the previous three years. BFP is
subject to the Business Combination restrictions defined above. In connection
with the execution of the BFP Merger Agreement, the BFP Board of Directors
adopted a resolution to render the statute inapplicable to the BFP Merger
Agreement and WorldCom.
Under Georgia law, Georgia corporations may adopt a provision in their
bylaws requiring that Business Combinations be approved by a special vote of the
board of directors and/or the shareholders unless certain fair pricing criteria
are met. Georgia corporations may also adopt a provision in their articles of
incorporation or bylaws which requires that Business Combinations with
Interested Shareholders be approved by a super-majority vote. These provisions,
neither of which has been adopted by WorldCom, are described below. Also
described below is the business combination restriction contained in the
WorldCom Articles.
Georgia's fair price statute authorizes a corporation to adopt a bylaw
provision which requires special approval by the board of directors and/or
shareholders for Business Combinations unless certain fair price criteria are
met. Generally, for purposes of this statute, "Business Combinations" are
defined to include mergers, sales of 10% or more of the corporation's assets out
of the ordinary course of business, liquidations, and certain issuances of
securities, involving the corporation and any Interested Shareholder. For
purposes of this statute, an "Interested Shareholder" is defined as a person or
entity that is the beneficial owner of 10% or more of the voting power of the
corporation's voting stock, or a person or entity that is an affiliate of the
corporation and, at any time within the two-year period immediately prior to the
date in question, was the beneficial owner of 10% or more of the then
outstanding voting power of the corporation's voting stock. To satisfy Georgia's
fair price statute, a Business Combination with an Interested Shareholder must
meet one of three criteria: (i) the transaction must be approved unanimously by
the "Continuing Directors" (directors who served as directors immediately prior
to the date the Interested Shareholder first became an Interested Shareholder
and who are not affiliates or associates of the Interested Shareholder or his
affiliates), provided that the Continuing Directors constitute at least three
members of the board of directors at the time of such approval; (ii) the
transaction must be recommended by at least two-thirds of the Continuing
Directors and approved by a majority of the votes entitled to be cast by holders
of voting shares, excluding shares beneficially owned by the Interested
Shareholder or his affiliates who is, or whose affiliate is, a party to the
Business Combination; or (iii) the terms of the transaction must meet statutory
fair pricing criteria and certain other tests intended to assure that all
shareholders receive a fair price and equivalent consideration for their shares
regardless of when they sell to the acquiring party.
Georgia's business combination statute authorizes a "resident domestic
corporation" to adopt a bylaw provision which prohibits Business Combinations
with Interested Shareholders occurring within five years of the date a person
first becomes an Interested Shareholder, unless special approval of the
transaction is obtained. For purposes of this statute, Business Combination is
defined to include mergers, sales of 10% or more of the corporation's net
assets, and certain issuances of securities, all involving the corporation and
any Interested Shareholder. Interested Shareholder has the same definition as
under the Georgia fair price statute. With limited exceptions, any Business
Combination with an Interested Shareholder within five years of the date such
person first became an Interested Shareholder requires approval in one of three
ways: (i) prior to becoming an Interested Shareholder, the corporation's board
of directors must have approved the Business Combination or the transaction
which resulted in the shareholder becoming an Interested Shareholder; (ii) the
Interested Shareholder must acquire at least 90% of the outstanding voting stock
of the corporation (other than shares owned by officers, directors and their
affiliates and associates) in the same transaction in which such person becomes
an Interested Shareholder; or (iii) subsequent to becoming an Interested
Shareholder, such person acquires additional shares resulting in ownership of at
least 90% of the outstanding shares (other than shares owned by officers,
directors and their affiliates and associates), and obtains the
131
<PAGE> 146
approval of the Business Combination by the holders of a majority of the shares
entitled to vote thereon, exclusive of shares held beneficially by the
Interested Shareholder, its affiliates (and shares owned by officers, directors
and their affiliates and associates).
The WorldCom Articles contain a provision that requires the approval by the
holders of at least 70% of the voting power of the outstanding shares of any
class of stock of WorldCom entitled to vote generally in the election of
directors as a condition for Business Transactions (defined below) involving
WorldCom and a Related Person (defined below) or in which a Related Person has
an interest, unless (a) the Business Transaction is approved by at least a
majority of WorldCom's Continuing Directors (defined below) then serving on the
Board of Directors, but if the votes of such Continuing Directors would have
been insufficient to constitute an act of the Board of Directors, then such
transaction must have been approved by the unanimous vote of such Continuing
Directors so long as there were at least three such Continuing Directors serving
on the Board of Directors at the time of such unanimous vote, provided that no
such Continuing Director is a Related Person who has an interest in the Business
Transaction (other than a proportionate interest as a shareholder of WorldCom),
or (b) certain minimum price and procedural requirements are met. A "Business
Transaction" is defined to mean: (i) any merger, share exchange or consolidation
involving WorldCom or any of its subsidiaries; (ii) any sale, lease, exchange,
transfer or other disposition by WorldCom or any of its subsidiaries of more
than 20% of its assets; (iii) any sale, lease, exchange, transfer or disposition
of more than 20% of the assets of an entity to WorldCom or a subsidiary of
WorldCom; (iv) the issuance, sale, exchange, transfer or other disposition by
WorldCom or a subsidiary of WorldCom of any securities of WorldCom or any
subsidiary in exchange for cash, securities or other properties having an
aggregate fair market value of $15.0 million or more; (v) any merger, share
exchange or consolidation between WorldCom and any subsidiary of WorldCom in
which WorldCom is not the survivor and the charter of the surviving corporation
does not contain provisions similar to this provision; (vi) any recapitalization
or reorganization of WorldCom or reclassification of its securities which would
have the effect of increasing the voting power of a Related Person; (vii) any
liquidation, spin off, split off, split up or dissolution of WorldCom; and
(viii) any agreement, contract or other arrangement providing for any of the
Business Transactions defined or having a similar purpose or effect. A "Related
Person" is defined to mean a beneficial owner which, together with its
Affiliates and Associates (defined below), beneficially own 10% or more of
WorldCom's outstanding voting stock or who had such level of beneficial
ownership: (a) at the time of entering into the definitive agreement providing
for the Business Transaction; (b) at the time of adoption by the Board of
Directors of a resolution approving such transaction; or (c) as of the record
date for the determination of shareholders entitled to vote on or consent to the
Business Transaction. A "Continuing Director" is a director of WorldCom who
either was a member of the Board of Directors on September 15, 1993, or who
became a director of WorldCom subsequent to such date and whose election, or
nomination for election by the shareholders, was approved by at least a majority
of the Continuing Directors then on the Board of Directors. If the votes of such
Continuing Directors would have been insufficient to constitute an act of the
Board of Directors, then such election or nomination must have been approved by
the unanimous vote of the Continuing Directors so long as there were at least
three such Continuing Directors on the Board of Directors at the time of such
unanimous vote. An "Affiliate" is defined to mean a person that directly, or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control with, such specified person. An "Associate" is defined
to mean: (a) any corporation, partnership or other organization of which such
specified person is an officer or partner; (b) any trust or other estate in
which such specified person has a substantial beneficial interest or as to which
such specified person serves as trustee or in a similar fiduciary capacity; (c)
any relative or spouse of such specified person, or any relative of such spouse,
who has the same home as such specified person or who is a director or officer
of WorldCom or any of its subsidiaries; and (d) any person who is a director,
officer or partner of such specified person or of any corporation (other than
WorldCom or any wholly owned subsidiary of WorldCom), partnership or other
entity which is an Affiliate of such specified person.
DISCLOSURE OF INTERESTS
Acquirors of shares of BFP Common Stock are subject to disclosure
requirements under Section 13(d)(1) of the Exchange Act and Rule 13d-1
thereunder, which provide that any person who becomes the beneficial owner of
more than 5% of the issued and outstanding shares of BFP Common Stock shall,
132
<PAGE> 147
within 10 days after such acquisition, file a Schedule 13D with the Commission
disclosing certain specified information, and send a copy of the Schedule 13D to
BFP and to the NASD.
After the BFP Merger, acquirors of WorldCom Common Stock will be required
to comply with, among other things, the provisions of Section 13(d) of the
Exchange Act and Rule 13d-1 thereunder.
LEGAL MATTERS
Certain legal and tax matters with respect to the BFP Merger will be passed
upon for BFP by Bryan Cave LLP, St. Louis, Missouri. Bryan Cave LLP from time to
time has served and is serving as legal counsel to WorldCom and certain of its
affiliates in conjunction with various matters. John P. Denneen, Esq., a member
of Bryan Cave LLP is Secretary of BFP and its subsidiaries. Mr. Denneen and two
other members of Bryan Cave LLP own an aggregate of 63,426 shares of BFP Common
Stock, and one of such members owns an option to purchase 8,220 shares of BFP
Common Stock at $11.35 per share.
EXPERTS
The consolidated financial statements and schedule of WorldCom 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 WorldCom's Annual Report on Form 10-K for the 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, 1996 and
for the period then ended (See Note 1 to the MFS Consolidated Financial
Statements), and for the year ended December 31, 1996, included in WorldCom's
Current Report on Form 8-K/A dated August 25, 1996 (filed December 19, 1997) and
incorporated by reference into this registration statement, have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are incorporated herein by reference, in
reliance upon the authority of such firm as experts in accounting and auditing
in giving said reports.
The consolidated financial statements of MFS as of December 31, 1995 and
1994 and for each of the three and two 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 December 19, 1997) and incorporated by reference
into this registration statement, have been incorporated in reliance on the
reports 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.
The consolidated financial statements of BFP as of December 31, 1996 and
1995, and for each of the years in the three year period ended December 31, 1996
have been incorporated by reference herein and in the Registration Statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
The consolidated financial statements and financial statement schedule of
MCI for the year ended December 31, 1996 incorporated in this Proxy
Statement/Prospectus by reference to MCI's Annual Report on Form 10-K for the
year ended December 31, 1996, have been so incorporated in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
133
<PAGE> 148
APPENDIX I
================================================================================
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
BY AND AMONG
WORLDCOM, INC.,
BV ACQUISITION, INC.
AND
BROOKS FIBER PROPERTIES, INC.,
DATED AS OF
OCTOBER 1, 1997
================================================================================
<PAGE> 149
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I. TERMS OF THE MERGER....................................... I-1
1.1. The Merger.................................................. I-1
1.2. Effective Time.............................................. I-1
1.3. Merger Consideration........................................ I-1
1.4. Stockholders' Rights upon Merger............................ I-2
1.5. Surrender and Exchange of Shares............................ I-2
1.6. Options and Warrants........................................ I-3
1.7. Employee Stock Purchase Plan................................ I-3
1.8. Certificate of Incorporation................................ I-3
1.9. Bylaws...................................................... I-3
1.10. Other Effects of Merger..................................... I-3
1.11. Registration Statement; Prospectus/Proxy Statement.......... I-3
1.12. Tax-Free Reorganization..................................... I-4
1.13. Additional Actions.......................................... I-5
ARTICLE II. REPRESENTATIONS, WARRANTIES AND CERTAIN COVENANTS OF
BFP...................................................... I-5
2.1. Organization and Good Standing.............................. I-5
2.2. Capitalization.............................................. I-5
2.3. Subsidiaries................................................ I-6
2.4. Authorization; Binding Agreement............................ I-6
2.5. Governmental Approvals...................................... I-6
2.6. No Violations............................................... I-6
2.7. Securities Filings and Litigation........................... I-7
2.8. BFP Financial Statements.................................... I-8
2.9. Absence of Certain Changes or Events........................ I-8
2.10. Compliance with Laws........................................ I-8
2.11. Permits..................................................... I-8
2.12. Finders and Investment Bankers.............................. I-8
2.13. Contracts................................................... I-9
2.14. Employee Benefit Plans...................................... I-9
2.15. Taxes and Returns........................................... I-10
2.16. No Undisclosed Liabilities.................................. I-12
2.17. Environmental Matters....................................... I-12
2.18. Intellectual Property....................................... I-12
2.19. Real Estate................................................. I-12
2.20. Corporate Records........................................... I-13
2.21. Title to and Condition of Personal Property................. I-13
2.22. No Adverse Actions.......................................... I-13
2.23. Labor Matters............................................... I-13
2.24. Insurance................................................... I-14
2.25. Fairness Opinion............................................ I-14
2.26. Takeover Statutes........................................... I-14
2.27. BFP Rights Plan............................................. I-14
2.28. Disclosure.................................................. I-14
ARTICLE III. REPRESENTATIONS, WARRANTIES AND CERTAIN COVENANTS OF
WORLDCOM................................................ I-14
3.1. Organization and Good Standing.............................. I-14
3.2. Capitalization.............................................. I-15
3.3. Subsidiaries................................................ I-15
</TABLE>
I-i
<PAGE> 150
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
3.4. Authorization; Binding Agreement............................ I-16
3.5. Governmental Approvals...................................... I-16
3.6. No Violations............................................... I-16
3.7. Securities Filings and Litigation........................... I-16
3.8. WorldCom Financial Statements............................... I-17
3.9. Absence of Certain Changes or Events........................ I-17
3.10. No Undisclosed Liabilities.................................. I-17
3.11. Compliance with Laws........................................ I-17
3.12. Permits..................................................... I-18
3.13. Finders and Investment Bankers.............................. I-18
3.14. Contracts................................................... I-18
3.15. Corporate Records........................................... I-18
3.16. Disclosure.................................................. I-18
ARTICLE IV. ADDITIONAL COVENANTS OF BFP.............................. I-18
4.1. Conduct of Business of BFP and the BFP Subsidiaries......... I-18
4.2. Notification of Certain Matters............................. I-21
4.3. Access and Information...................................... I-21
4.4. Stockholder Approval........................................ I-21
4.5. Reasonable Business Efforts................................. I-22
4.6. Public Announcements........................................ I-22
4.7. Compliance.................................................. I-22
4.8. BFP Benefit Plans........................................... I-22
4.9. No Solicitation of Acquisition Proposal..................... I-22
4.10. Securities and Stockholder Materials........................ I-24
4.11. Tax Opinion Certification................................... I-24
4.12. Resignations................................................ I-24
4.13. Comfort Letters............................................. I-24
4.14. Affiliate Agreements........................................ I-24
4.15. Takeover Statutes........................................... I-24
4.16. Pooling of Interests........................................ I-24
ARTICLE V. ADDITIONAL COVENANTS OF WORLDCOM.......................... I-24
5.1. Conduct of Business of WorldCom and the WorldCom
Subsidiaries................................................ I-24
5.2. Notification of Certain Matters............................. I-24
5.3. Access and Information...................................... I-25
5.4. Public Announcements........................................ I-25
5.5. Compliance.................................................. I-25
5.6. SEC and Shareholder Filings................................. I-25
5.7. Tax Treatment............................................... I-25
5.8. Comfort Letters............................................. I-26
5.9. Indemnification and Insurance............................... I-26
5.10. Employee Benefit Plans...................................... I-26
5.11. Reasonable Business Efforts................................. I-27
ARTICLE VI. CONDITIONS............................................... I-27
6.1. Conditions to Each Party's Obligations...................... I-27
6.1.1. Stockholder Approval................................. I-27
6.1.2. No Injunction or Action.............................. I-27
6.1.3. Governmental Approvals............................... I-27
6.1.4. Required Consents.................................... I-27
6.1.5. HSR Act.............................................. I-28
6.1.6. Registration Statement............................... I-28
6.1.7. Blue Sky............................................. I-28
</TABLE>
I-ii
<PAGE> 151
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
6.1.8. Fairness Opinion..................................... I-28
6.1.9. Tax Opinion.......................................... I-28
6.1.10. Quotation of WorldCom Common Stock.................. I-28
6.2. Conditions to Obligations of BFP............................ I-28
6.2.1. WorldCom Representations and Warranties.............. I-28
6.2.2. Performance by WorldCom.............................. I-28
6.2.3. No Material Adverse Change........................... I-28
6.2.4. Certificates and Other Deliveries.................... I-28
6.2.5. Opinion of WorldCom Counsel.......................... I-29
6.3. Conditions to Obligations of WorldCom and Acquisition
Subsidiary.................................................. I-29
6.3.1. BFP Representations and Warranties................... I-29
6.3.2. Performance by BFP................................... I-29
6.3.3. No Material Adverse Change........................... I-29
6.3.4. Certificates and Other Deliveries.................... I-29
6.3.5. Opinion of BFP Counsel............................... I-29
6.3.6. WorldCom Credit Agreements........................... I-29
6.3.7. Affiliate Agreements................................. I-29
6.3.8. Pooling Treatment.................................... I-29
ARTICLE VII. TERMINATION AND ABANDONMENT............................. I-30
7.1. Termination................................................. I-30
7.2. Termination Fees and Rights................................. I-31
7.3. Procedure Upon Termination.................................. I-32
ARTICLE VIII. MISCELLANEOUS.......................................... I-32
8.1. Confidentiality............................................. I-32
8.2. Amendment and Modification.................................. I-33
8.3. Waiver of Compliance; Consents.............................. I-33
8.4. Survival of Representations and Warranties.................. I-33
8.5. Notices..................................................... I-33
8.6. Binding Effect; Assignment.................................. I-34
8.7. Expenses.................................................... I-34
8.8. Governing Law............................................... I-34
8.9. Counterparts................................................ I-34
8.10. Interpretation.............................................. I-34
8.11. Entire Agreement............................................ I-34
8.12. Severability................................................ I-34
8.13. Specific Performance........................................ I-34
8.14. Third Parties............................................... I-35
8.15. Schedules................................................... I-35
</TABLE>
I-iii
<PAGE> 152
LIST OF SCHEDULES
<TABLE>
<CAPTION>
SCHEDULE DESCRIPTION
-------- -----------
<C> <S>
1.1 Form of Certificate of Merger
1.5 Letter of Transmittal
2.2 Rights and Restrictions with Respect to BFP Stock
2.3 BFP Subsidiaries
2.5 Governmental Authority Consents
2.6 BFP Required Consents
2.7 BFP Litigation
2.9 BFP Subsequent Events
2.13 BFP Material Contracts
2.14 BFP Employee Benefit Plans
2.15 BFP Tax Matters
2.17 BFP Environmental Matters
2.18 BFP Intellectual Property
2.19(a) BFP Owned Real Property
2.19(b) BFP Leased Real Property
2.20 BFP Records Off Premises
2.22 BFP Adverse Actions
2.23 BFP Labor Matters
2.24 BFP Insurance
3.2 Rights to Purchase WorldCom Common Stock
3.9 WorldCom Subsequent Events
4.14 Form of BFP Affiliate Agreement
5.10(b) BFP Change in Control Plans and Agreements
6.2.5 Opinion of Counsel to WorldCom
6.3.5 Opinion of Counsel to BFP
</TABLE>
I-iv
<PAGE> 153
GLOSSARY OF DEFINED TERMS
<TABLE>
<CAPTION>
SECTION WHERE
TERM DEFINED
---- -------------
<S> <C>
Acquisition Proposal........................................ 4.9(a)
Acquisition Subsidiary...................................... Recitals
Active WorldCom Subsidiaries................................ 3.1
Affiliate................................................... 8.10
Affiliate Agreements........................................ 4.14
Agreement................................................... Recitals
Average Trading Price....................................... 1.3
Benefit Plan................................................ 2.14
BFP......................................................... Recitals
BFP Acquisition Agreement................................... 4.9(b)
BFP Common Stock............................................ 1.3
BFP Financial Statements.................................... 2.8
BFP Material Adverse Effect................................. 2.1
BFP Material Contract....................................... 2.13
BFP Minority Entity......................................... 2.3
BFP Options................................................. 1.6
BFP Permits................................................. 2.11
BFP Real Property Leases.................................... 2.19(b)
BFP Securities Filings...................................... 2.7(a)
BFP Shares.................................................. 1.3
BFP Subsidiaries............................................ 1.11(b)
BFP Superior Proposal....................................... 4.9(b)
Business Plan............................................... 4.1
Certificate of Merger....................................... 1.1
Certificates................................................ 1.4
Change in Control Plans and Agreements...................... 5.10(b)
Claim Notice................................................ 2.18
Closing..................................................... 1.2
Closing Date................................................ 1.2
Code........................................................ 1.12
Consent..................................................... 2.5
Delaware Code............................................... 1.1
Effective Time.............................................. 1.2
Enforceability Exceptions................................... 2.4
Environmental Laws.......................................... 2.17
ERISA....................................................... 2.14
ESPP........................................................ 1.7
Event....................................................... 2.9
Final Order................................................. 6.1.3
Governmental Authority...................................... 2.5
HSR Act..................................................... 2.5
Intellectual Property....................................... 2.18
IRS......................................................... 2.14
Law......................................................... 2.6
Letter of Transmittal....................................... 1.5
Litigation.................................................. 2.7(b)
Merger...................................................... Recitals
Merger Consideration........................................ 1.3
Multi-employer Plan......................................... 2.14
</TABLE>
I-v
<PAGE> 154
<TABLE>
<CAPTION>
SECTION WHERE
TERM DEFINED
---- -------------
<S> <C>
NASD........................................................ 2.5
Person...................................................... 8.10
Prospectus/Proxy Statement.................................. 1.11(a)
Registration Statement...................................... 1.11(a)
Resignations................................................ 4.12
Rights...................................................... 2.2
Rights Plan................................................. 2.2
SEC......................................................... 1.11(a)
Securities Act.............................................. 1.11(a)
Securities Exchange Act..................................... 1.6
Subsidiary.................................................. 8.10
Surviving Corporation....................................... 1.1
Surviving Corporation Common Stock.......................... 1.3
Surviving Corporation Material Adverse Effect............... 6.1.3
Takeover Statute............................................ 2.26
Tax......................................................... 2.15(a)
Tax Return.................................................. 2.15(a)
Triggering Events........................................... 7.2(d)
WorldCom.................................................... Recitals
WorldCom Common Stock....................................... 1.3
WorldCom Credit Agreements.................................. 3.6
WorldCom Financial Statements............................... 3.8
WorldCom Material Adverse Effect............................ 3.1
WorldCom Material Contract.................................. 3.14
WorldCom Permits............................................ 3.12
WorldCom Preferred Stock.................................... 3.2
WorldCom Securities Filings................................. 3.7
WorldCom Series 3 Preferred................................. 3.2
WorldCom Series A Preferred................................. 3.2
WorldCom Series B Preferred................................. 3.2
WorldCom Subsidiaries....................................... 1.11(c)
</TABLE>
I-vi
<PAGE> 155
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
This Amended and Restated Agreement and Plan of Merger (the "Agreement") is
made and entered into as of October 1, 1997, by and among WorldCom, Inc., a
Georgia corporation ("WorldCom"), BV Acquisition, Inc., a Delaware corporation
and wholly owned subsidiary of WorldCom ("Acquisition Subsidiary"), and Brooks
Fiber Properties, Inc., a Delaware corporation ("BFP").
Recitals
A. The respective Boards of Directors of BFP, Acquisition Subsidiary and
WorldCom have approved the merger (the "Merger") of Acquisition Subsidiary with
and into BFP in accordance with the laws of the State of Delaware and the
provisions of this Agreement.
B. BFP, Acquisition Subsidiary and WorldCom desire to make certain
representations, warranties and agreements in connection with, and establish
various conditions precedent to, the Merger.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements hereinafter set forth, the parties hereto
agree as follows:
ARTICLE I
TERMS OF THE MERGER
1.1. The Merger. Upon the terms and subject to the conditions of this
Agreement, the Merger shall be consummated in accordance with the General
Corporation Law of the State of Delaware (the "Delaware Code"). At the Effective
Time (as defined in Section 1.2, below), upon the terms and subject to the
conditions of this Agreement, Acquisition Subsidiary shall be merged with and
into BFP in accordance with the Delaware Code, and the separate existence of
Acquisition Subsidiary shall thereupon cease, and BFP, as the surviving
corporation in the Merger (the "Surviving Corporation"), shall continue its
corporate existence under the laws of the State of Delaware as a subsidiary of
WorldCom. The parties shall prepare and execute a certificate of merger in
substantially the form attached hereto as Schedule 1.1 (the "Certificate of
Merger") in order to comply in all respects with the requirements of the
Delaware Code and with the provisions of this Agreement.
1.2. Effective Time. The Merger shall become effective at the time of the
filing of the Certificate of Merger with the Secretary of State of Delaware in
accordance with the applicable provisions of the Delaware Code or at such later
time as may be specified in the Certificate of Merger. The Certificate of Merger
shall be filed as soon as practicable after all of the conditions set forth in
this Agreement have been satisfied or waived by the party or parties entitled to
the benefit of the same, but not before January 2, 1998. WorldCom, after
consultation with BFP, shall determine the time and place for the closing of the
Merger (the "Closing"). The time when the Merger shall become effective is
herein referred to as the "Effective Time", and the date on which the Closing
occurs is herein referred to as the "Closing Date."
1.3. Merger Consideration. Subject to the provisions of this Agreement and
any applicable backup or other withholding requirements, each of the issued and
outstanding shares ("BFP Shares") of common stock, par value $.01 per share, of
BFP ("BFP Common Stock") as of the Effective Time shall be converted into the
right to receive, and there shall be paid and issued as hereinafter provided, in
exchange for the BFP Shares, that number of shares of the common stock of
WorldCom, par value $.01 per share ("WorldCom Common Stock"), equal to the
Exchange Ratio (as defined below), plus cash in lieu of any fractional share as
hereinafter provided (the "Merger Consideration"). The "Exchange Ratio" shall be
determined as follows: (i) if the Average Trading Price (as hereinafter defined)
of a share of WorldCom Common Stock is greater than or equal to $35.15, the
Exchange Ratio shall equal 1.65; (ii) if the Average Trading Price of a share of
WorldCom Common Stock is greater than or equal to $31.35 but less than $35.15,
the Exchange Ratio shall equal a fraction (rounded to the nearest
hundred-thousandth) determined by dividing $58.00 by the Average Trading Price
of a share of WorldCom Common Stock; and (iii) if the Average Trading Price of a
share of
I-1
<PAGE> 156
WorldCom Common Stock is less than $31.35, the Exchange Ratio shall equal 1.85.
The Exchange Ratio shall be subject to appropriate adjustment in the event of a
stock split, stock dividend or recapitalization after the date of this Agreement
applicable to shares of the WorldCom Common Stock or the BFP Common Stock.
"Average Trading Price" for purposes hereof means the average of the daily
closing prices per share of WorldCom Common Stock on the NASDAQ National Market
as reported in The Wall Street Journal, Midwestern Edition, or if not reported
thereby, The New York Times, Chicago Edition, for the twenty (20) consecutive
full trading days ending on the date immediately prior to the third full trading
day immediately preceding the Closing Date.
No fractional shares of WorldCom Common Stock shall be issued pursuant to
the Merger nor will any fractional share interest involved entitle the holder
thereof to vote, to receive dividends or to exercise any other rights of a
shareholder of WorldCom. In lieu thereof, any person who would otherwise be
entitled to a fractional share of WorldCom Common Stock pursuant to the
provisions hereof shall receive an amount in cash equal to the value of such
fractional share. The value of such fractional share for purposes hereof shall
be the product of such fraction multiplied by the Average Trading Price.
Each share of BFP Common Stock held in the treasury of BFP or by a wholly
owned subsidiary of BFP shall be canceled as of the Effective Time, and no
Merger Consideration shall be payable with respect thereto. From and after the
Effective Time, there shall be no further transfers on the stock transfer books
of BFP of any of the BFP Shares outstanding prior to the Effective Time.
Subject to the provisions of this Agreement, at the Effective Time, the
shares of Acquisition Subsidiary common stock outstanding immediately prior to
the Merger shall be converted, by virtue of the Merger and without any action on
the part of the holder thereof, into one share of the common stock of the
Surviving Corporation (the "Surviving Corporation Common Stock"), which one
share of the Surviving Corporation Common Stock shall constitute all of the
issued and outstanding capital stock of the Surviving Corporation.
1.4. Stockholders' Rights upon Merger. Upon consummation of the Merger, the
certificates which theretofore represented BFP Shares (the "Certificates") shall
cease to represent any rights with respect thereto, and, subject to applicable
Law (as hereinafter defined) and this Agreement, the Certificates shall only
represent the right to receive the Merger Consideration including the amount of
cash, if any, payable in lieu of fractional shares of WorldCom Common Stock into
which the BFP Shares have been converted pursuant to this Agreement. As provided
in Section 262(b)(1) and (2) of the Delaware Code, the holders of the BFP Shares
are not entitled to appraisal rights as a result of the Merger on the terms
contemplated by this Agreement.
1.5. Surrender and Exchange of Shares. After the Effective Time, each
holder of a BFP Share shall surrender and deliver the Certificates to The Bank
of New York or such other bank or trust company as may be designated by WorldCom
together with a duly completed and executed transmittal letter in substantially
the form attached hereto as Schedule 1.5 (the "Letter of Transmittal"). Upon
such surrender and delivery, the holder shall receive a certificate representing
the number of whole shares of WorldCom Common Stock into which such holder's BFP
Shares have been converted pursuant to this Agreement plus the amount of cash
payable in lieu of any fractional share. Until so surrendered and exchanged,
each outstanding Certificate after the Effective Time shall be deemed for all
purposes to evidence the right to receive that number of whole shares of
WorldCom Common Stock into which the BFP Shares have been converted pursuant to
this Agreement plus the amount of cash payable in lieu of any fractional share;
provided, however, that no dividends or other distributions, if any, in respect
of the shares of WorldCom Common Stock, declared after the Effective Time and
payable to holders of record after the Effective Time, shall be paid to the
holders of any unsurrendered Certificates until such Certificates and Letters of
Transmittal are surrendered and delivered as provided herein. Subject to
applicable Law, after the surrender and exchange of Certificates, the record
holders thereof will be entitled to receive any such dividends or other
distributions without interest thereon, which theretofore have become payable
with respect to the number of shares of WorldCom Common Stock for which such
Certificates were exchangeable. Holders of any unsurrendered Certificates shall
not be entitled to vote WorldCom Common Stock until such Certificates are
exchanged pursuant to this Agreement.
I-2
<PAGE> 157
1.6. Options and Warrants. At the Effective Time, WorldCom shall cause each
holder of a then-outstanding and unexercised warrant or option exercisable for
shares of BFP Common Stock ("BFP Options") to receive, by virtue of the Merger
and without any action on the part of the holder thereof, warrants or options,
respectively, exercisable for shares of WorldCom Common Stock having the same
terms and conditions as the BFP Options (including such terms and conditions as
may be incorporated by reference into the agreements evidencing BFP Options
pursuant to the plans under which such BFP Options were granted and taking into
account the provisions of Section 5.10(b) hereof) except that the exercise price
and the number of shares issuable upon exercise shall be divided and multiplied,
respectively, by the Exchange Ratio, with the resulting number of shares and
exercise price being rounded down to the nearest whole share and up to the
nearest cent. BFP confirms that the foregoing options exercisable for shares of
WorldCom Common Stock in accordance with the terms and conditions set forth in
the preceding sentence constitute substitute or adjusted options for the BFP
Options on appropriate terms, and the respective Boards of Directors of BFP and
WorldCom shall take all steps necessary to implement the foregoing. WorldCom
shall take all corporate action necessary to reserve for issuance a sufficient
number of shares of WorldCom Common Stock for delivery upon the exercise of BFP
Options after the Effective Time. WorldCom shall file or cause to be filed all
registration statements on Form S-8 or other appropriate form and all other
registrations and qualifications as may be necessary in connection with the sale
of WorldCom Common Stock contemplated by such BFP Options promptly after the
Effective Time, and WorldCom shall cause such registration statements to remain
effective (and maintain the current status of the prospectus or prospectuses
contained therein) for so long as such BFP Options remain exercisable. As soon
as practicable after the Effective Time, WorldCom shall qualify under applicable
state securities laws the issuance of such shares of WorldCom Common Stock
issuable upon exercise of the BFP Options. WorldCom shall use reasonable
business efforts to cause to be taken any actions necessary on the part of
WorldCom to enable subsequent transactions in WorldCom Common Stock after the
Effective Time pursuant to BFP Options held by persons subject to the reporting
requirements of Section 16(a) of the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder (the "Securities Exchange
Act"), to be exempt from the application of Section 16(b) of the Securities
Exchange Act, to the extent permitted thereunder.
1.7. Employee Stock Purchase Plan. In accordance with the provisions of
paragraph 8 of BFP's Employee Stock Purchase Plan (the "ESPP"), immediately
prior to the Effective Time, BFP shall issue to each participant in the Offering
Period (as defined in the ESPP) for which, in accordance with the provisions of
paragraph 15 of the ESPP, the termination date shall be the Closing Date, the
number of newly issued full shares of BFP Common Stock which may be purchased
with the aggregate payroll deductions held by BFP on such participant's behalf
on the Closing Date at the purchase price determined pursuant to the provisions
of paragraph 7 of the ESPP. The Board of Directors of BFP shall terminate the
ESPP as of the Effective Time pursuant to the provisions of paragraph 17
thereof. No Offering Period shall be commenced after the date of this Agreement.
1.8. Certificate of Incorporation. At and after the Effective Time, the
Certificate of Incorporation of the Surviving Corporation shall be amended and
restated in its entirety to read as the Certificate of Incorporation of the
Acquisition Subsidiary in effect at the Effective Time except that Article First
shall be amended to read as follows: "The name of the Corporation is Brooks
Fiber Properties, Inc." (subject to any subsequent amendment).
1.9. Bylaws. At and after the Effective Time, the Bylaws of Acquisition
Subsidiary in effect at the Effective Time shall be the Bylaws of the Surviving
Corporation (subject to any subsequent amendment).
1.10. Other Effects of Merger. The Merger shall have all further effects as
specified in the applicable provisions of the Delaware Code.
1.11. Registration Statement; Prospectus/Proxy Statement.
(a) For the purposes of (i) registering the issuance of WorldCom Common
Stock to holders of the BFP Shares in connection with the Merger with the
Securities and Exchange Commission ("SEC") under the Securities Act of 1933, as
amended, and the rules and regulations thereunder (the "Securities Act"), and
complying with applicable state securities Laws, and (ii) holding the meeting of
BFP stockholders to vote
I-3
<PAGE> 158
upon the adoption of this Agreement, WorldCom and BFP will cooperate in the
preparation of a registration statement on Form S-4 (such registration
statement, together with any and all amendments and supplements thereto, being
herein referred to as the "Registration Statement"), including a
prospectus/proxy statement satisfying all requirements of applicable state
securities Laws, the Securities Act and the Securities Exchange Act. Such
prospectus/proxy statement in the form mailed to BFP's stockholders, together
with any and all amendments or supplements thereto, is herein referred to as the
"Prospectus/Proxy Statement."
(b) BFP will furnish WorldCom with such information concerning BFP and its
subsidiaries (the "BFP Subsidiaries") as is necessary in order to cause the
Prospectus/Proxy Statement, insofar as it relates to BFP and the BFP
Subsidiaries, to comply with the applicable provisions of the Securities Act and
the Securities Exchange Act. None of the information relating to BFP and the BFP
Subsidiaries supplied by BFP for inclusion in the Prospectus/Proxy Statement
will be false or misleading with respect to any material fact or will omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading. BFP agrees promptly to advise WorldCom if, at any time
prior to the meeting of the stockholders of BFP referenced herein, any
information provided by it in the Prospectus/Proxy Statement is or becomes
incorrect or incomplete in any material respect and to provide WorldCom with the
information needed to correct such inaccuracy or omission. BFP will furnish
WorldCom with such supplemental information as may be necessary in order to
cause the Prospectus/Proxy Statement, insofar as it relates to BFP and the BFP
Subsidiaries, to continue to comply with the applicable provisions of the
Securities Act and the Securities Exchange Act after the mailing thereof to the
stockholders of BFP.
(c) WorldCom will furnish BFP with such information concerning WorldCom and
its subsidiaries (the "WorldCom Subsidiaries") as is necessary in order to cause
the Prospectus/Proxy Statement, insofar as it relates to WorldCom and the
WorldCom Subsidiaries, to comply with the applicable provisions of the
Securities Act and the Securities Exchange Act. None of the information relating
to WorldCom and the WorldCom Subsidiaries supplied by WorldCom for inclusion in
the Prospectus/Proxy Statement will be false or misleading with respect to any
material fact or will omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. WorldCom agrees
promptly to advise BFP if, at any time prior to the meeting of stockholders of
BFP referenced herein, any information provided by it in the Prospectus/Proxy
Statement is or becomes incorrect or incomplete in any material respect and to
provide BFP with the information needed to correct such inaccuracy or omission.
WorldCom will furnish BFP with such supplemental information as may be necessary
in order to cause the Prospectus/Proxy Statement, insofar as it relates to
WorldCom and the WorldCom Subsidiaries, to continue to comply with the
applicable provisions of the Securities Act and the Securities Exchange Act
after the mailing thereof to the stockholders of BFP.
(d) BFP and WorldCom agree to cooperate in making any preliminary filings
of the Prospectus/Proxy Statement with the SEC, as promptly as practicable, on a
confidential basis pursuant to Rule 14a-6(e)(2) under the Securities Exchange
Act.
(e) WorldCom will file the Registration Statement with the SEC and
appropriate materials with applicable state securities agencies and will use all
reasonable efforts to cause the Registration Statement to become effective under
the Securities Act and all such state filed materials to comply with applicable
state securities Laws. BFP authorizes WorldCom to utilize in the Registration
Statement and in all such state filed materials, the information concerning BFP
and the BFP Subsidiaries provided to WorldCom in connection with, or contained
in, the Prospectus/Proxy Statement. WorldCom promptly will advise BFP when the
Registration Statement has become effective and of any supplements or amendments
thereto, and WorldCom will furnish BFP with copies of all such documents. BFP
shall not distribute any written material that might constitute a "prospectus"
relating to the Merger or WorldCom Common Stock within the meaning of the
Securities Act or any applicable state securities Law without the prior written
consent of WorldCom.
1.12. Tax-Free Reorganization. The parties intend that the Merger qualify
as a tax-free reorganization pursuant to Section 368 of the Internal Revenue
Code of 1986, as amended, and the Treasury regulations thereunder (the "Code").
The parties hereto hereby adopt this Agreement as a "plan of reorganization"
I-4
<PAGE> 159
within the meaning of Sections 1.368-2(g) and 1.368(a) of the Treasury
regulations. None of the parties will knowingly take any action that would cause
the Merger to fail to qualify as a reorganization within the meaning of Section
368 of the Code.
1.13. Additional Actions. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of Acquisition Subsidiary or BFP or otherwise to carry out
this Agreement, the officers and directors of the Surviving Corporation shall be
authorized to execute and deliver, in the name and on behalf of Acquisition
Subsidiary or BFP, as the case may be, all such deeds, bills of sale,
assignments and assurances and to take and do, in the name and on behalf of
Acquisition Subsidiary or BFP, as the case may be, all such other actions and
things as may be necessary or desirable to vest, perfect or confirm any and all
right, title and interest in, to and under such rights, properties or assets in
the Surviving Corporation or otherwise to carry out this Agreement.
ARTICLE II
REPRESENTATIONS, WARRANTIES AND CERTAIN COVENANTS OF BFP
BFP represents, warrants and/or covenants to and with WorldCom as follows:
2.1. Organization and Good Standing. BFP and each of the BFP Subsidiaries
is a corporation or limited liability company duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation or
organization and has all requisite corporate or limited liability company power
and authority to own, lease and operate its properties and to carry on its
business as now being conducted. BFP and each of the BFP Subsidiaries is duly
qualified or licensed and in good standing to do business in each jurisdiction
in which the character of the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification or licensing
necessary, except where the failure to be so duly qualified or licensed and in
good standing would not have a BFP Material Adverse Effect (as defined below).
For purposes of this Agreement, "BFP Material Adverse Effect" shall mean a
material adverse effect on (i) the business, assets, condition (financial or
otherwise), properties, liabilities or the results of operations of BFP and the
BFP Subsidiaries taken as a whole, (ii) the ability of BFP to perform its
obligations set forth in this Agreement, or (iii) the ability of BFP to timely
consummate the transactions contemplated by this Agreement. BFP has delivered to
WorldCom a complete and accurate list of the jurisdictions of incorporation or
organization and qualification or license of BFP and the BFP Subsidiaries. BFP
has heretofore delivered or made available to WorldCom accurate and complete
copies of the Certificates or Articles of Incorporation and By-laws, or
equivalent governing instruments, as currently in effect, of BFP and each of the
BFP Subsidiaries.
2.2. Capitalization. As of the date hereof, the authorized capital stock of
BFP consists of 150,000,000 shares of BFP Common Stock and 1,040,012 shares of
preferred stock, par value $.01 per share, of which 50,000 shares are designated
as Series A Junior Participating Stock reserved for issuance pursuant to the
Rights Agreement dated as of February 29, 1996 between BFP and Boatmen's Trust
Company, as Rights Agent (the "Rights Plan"), pursuant to which BFP has issued
preferred stock purchase rights (the "Rights") to holders of BFP Common Stock.
As of the close of business on September 30, 1997, (a) 38,509,508 shares of BFP
Common Stock were issued and outstanding, and (b) no shares of BFP Common Stock
were issued and held in the treasury of BFP. No other capital stock of BFP is
issued or outstanding. All issued and outstanding shares of the BFP Common Stock
are duly authorized, validly issued, fully paid and nonassessable and were
issued free of preemptive rights and in compliance with applicable corporate and
securities Laws. Except as set forth on Schedule 2.2 attached hereto, as of the
date of this Agreement there are no outstanding rights, reservations of shares,
subscriptions, warrants, puts, calls, unsatisfied preemptive rights, options or
other agreements of any kind relating to any of the capital stock or any other
security of BFP, and there is no authorized or outstanding security of any kind
convertible into or exchangeable for any such capital stock or other security.
There are no restrictions upon the transfer of or otherwise pertaining to the
securities (including, but not limited to, the ability to pay dividends thereon)
or retained earnings of BFP and the BFP
I-5
<PAGE> 160
Subsidiaries or the ownership thereof other than those, if any, described on
Schedule 2.2 attached hereto or those imposed generally by the Securities Act,
the Securities Exchange Act, applicable state or foreign securities Laws or
applicable corporate Law.
2.3. Subsidiaries. Schedule 2.3(a) attached hereto sets forth the name and
percentages of outstanding capital stock or other interest held, directly or
indirectly, by BFP and other persons, with respect to each BFP Subsidiary or
other person in which BFP or a BFP Subsidiary holds, directly or indirectly, any
capital stock or other interest (a "BFP Minority Entity"). Except as set forth
on Schedule 2.3(b) attached hereto, all of the capital stock and other interests
so held by BFP are owned by it or a BFP Subsidiary as indicated on said Schedule
2.3(a), free and clear of any claim, lien, encumbrance, security interest or
agreement with respect thereto. All of the outstanding shares of capital stock
in each of the BFP Subsidiaries are duly authorized, validly issued, fully paid
and non-assessable and were issued free of preemptive rights and in compliance
with applicable corporate and securities Laws. Except as set forth on Schedule
2.3(c) attached hereto, there are no irrevocable proxies, voting agreements or
similar obligations with respect to such capital stock of the BFP Subsidiaries
or a BFP Minority Entity, and no equity securities or other interests of any of
the BFP Subsidiaries are or may become required to be issued or purchased by
reason of any options, warrants, rights to subscribe to, puts, calls,
reservation of shares or commitments of any character whatsoever relating to, or
securities or rights convertible into or exchangeable for, shares of any capital
stock of any BFP Subsidiary, and there are no contracts, commitments,
understandings or arrangements by which any BFP Subsidiary is bound to issue
additional shares of its capital stock, or options, warrants or rights to
purchase or acquire any additional shares of its capital stock or securities
convertible into or exchangeable for such shares.
2.4. Authorization; Binding Agreement. BFP has all requisite corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby, including, but not
limited to, the Merger have been duly and validly authorized by BFP's Board of
Directors, and no other corporate proceedings on the part of BFP are necessary
to authorize the execution and delivery of this Agreement or to consummate the
transactions contemplated hereby (other than the adoption of this Agreement by
the stockholders of BFP in accordance with the Delaware Code and the Certificate
of Incorporation and By-laws of BFP). This Agreement has been duly and validly
executed and delivered by BFP and constitutes the legal, valid and binding
agreement of BFP, enforceable against BFP in accordance with its terms, except
to the extent that enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and by principles of equity regarding
the availability of remedies ("Enforceability Exceptions").
2.5. Governmental Approvals. No consent, approval, waiver or authorization
of, notice to or declaration or filing with ("Consent") any nation or
government, any state or other political subdivision thereof, any person,
authority or body exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government including, without
limitation, any governmental or regulatory authority, agency, department, board,
commission or instrumentality, any court, tribunal or arbitrator and any
self-regulatory organization ("Governmental Authority") on the part of BFP or
any of the BFP Subsidiaries is required in connection with the execution or
delivery by BFP of this Agreement or the consummation by BFP of the transactions
contemplated hereby other than (i) the filing of the Certificate of Merger with
the Secretary of the State of Delaware in accordance with the Delaware Code,
(ii) filings with the SEC, state securities Laws administrators and the National
Association of Securities Dealers, Inc. (the "NASD"), (iii) Consents from or
with Governmental Authorities set forth on Schedule 2.5 attached hereto, (iv)
filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations promulgated thereunder (the "HSR Act"),
(v) such filings as may be required in any jurisdictions where BFP is qualified
or authorized to do business as a foreign corporation in order for the Surviving
Corporation to maintain such qualification or authorization, and (vi) those
Consents that, if they were not obtained or made, do not or would not reasonably
be expected to have a BFP Material Adverse Effect.
2.6. No Violations. The execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby and compliance by BFP with
any of the provisions hereof will not (i) conflict with or result in any breach
of any provision of the Certificate and/or Articles of Incorporation or By-laws
or other
I-6
<PAGE> 161
governing instruments of BFP or any of the BFP Subsidiaries, (ii) except as set
forth on Schedule 2.6 attached hereto, require any Consent under or result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, cancellation
or acceleration or augment the performance required) under any of the terms,
conditions or provisions of any BFP Material Contract (as hereinafter defined)
or other obligation to which BFP or any BFP Subsidiary is a party or by which
any of them or any of their properties or assets may be bound, (iii) result in
the creation or imposition of any lien or encumbrance of any kind upon any of
the assets of BFP or any BFP Subsidiary, or (iv) subject to obtaining the
Consents from Governmental Authorities referred to in Section 2.5, above,
contravene any applicable provision of any constitution, treaty, statute, law,
code, rule, regulation, ordinance, policy or order of any Governmental Authority
or other matters having the force of law including, but not limited to, any
orders, decisions, injunctions, judgments, awards and decrees of or agreements
with any court or other Governmental Authority ("Law") currently in effect to
which BFP or any BFP Subsidiary or its or any of their respective assets or
properties are subject, except in the case of clauses (ii), (iii) and (iv)
above, for any deviations from the foregoing which do not or would not
reasonably be expected to have a BFP Material Adverse Effect.
2.7. Securities Filings and Litigation.
(a) BFP has made available to WorldCom true and complete copies of (i) its
Annual Report on Form 10-K, as amended, for the year ended December 31, 1996, as
filed with the SEC, (ii) its proxy statements relating to all of the meetings of
stockholders (whether annual or special) of BFP since January 1, 1994, whether
or not filed with the SEC, and (iii) all other reports, statements and
registration statements and amendments thereto (including, without limitation,
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as amended)
filed by BFP with the SEC since January 1, 1994. The reports and statements set
forth in clauses (i) through (iii), above, and those subsequently provided or
required to be provided pursuant to this Section 2.7, are referred to
collectively herein as the "BFP Securities Filings." As of their respective
dates, or as of the date of the last amendment thereof, if amended after filing,
none of the BFP Securities Filings (including all schedules thereto and
disclosure documents incorporated by reference therein), contained or, as to BFP
Securities Filings subsequent to the date hereof, will contain any untrue
statement of a material fact or omitted or, as to BFP Securities Filings
subsequent to the date hereof, will omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Each of the BFP
Securities Filings at the time of filing or as of the date of the last amendment
thereof, if amended after filing, complied or, as to BFP Securities Filings
subsequent to the date hereof, will comply in all material respects with the
Securities Exchange Act or the Securities Act, as applicable. Neither BFP nor
any BFP Subsidiary is a party or is subject to any note, bond, mortgage,
indenture, contract, lease, license, agreement, understanding, instrument, bid
or proposal that is required to be described in or filed as an exhibit to any
BFP Securities Filing that is not described in or filed as an exhibit to such
BFP Securities Filing as required by the Securities Act or the Securities
Exchange Act, as the case may be. No event has occurred prior to the date hereof
as a consequence of which BFP would be required to file a Current Report on Form
8-K pursuant to the requirements of the Securities Exchange Act as to which such
a report has not been timely filed with the SEC. Any reports, statements and
registration statements and amendments thereto (including, without limitation,
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports
on Form 8-K, as amended) filed by BFP with the SEC after the date hereof shall
be provided to WorldCom no later than the date of such filing.
(b) Except as set forth in Schedule 2.7 attached hereto or in a BFP
Securities Filing, there is no action, cause of action, claim, demand, suit,
proceeding, citation, summons, subpoena, inquiry or investigation of any nature,
civil, criminal, regulatory or otherwise, in law or in equity, by or before any
court, tribunal, arbitrator, mediator or other Governmental Authority
("Litigation") pending or, to the knowledge of BFP, threatened against BFP or
any BFP Subsidiary, or any officer, director, employee or agent thereof, in his
or her capacity as such, or as a fiduciary with respect to any Benefit Plan (as
hereinafter defined) of BFP, or otherwise relating, in a manner that would
reasonably be expected to have a BFP Material Adverse Effect to BFP, any BFP
Subsidiary, or the securities of any of them, or any properties or rights of BFP
or any of the BFP Subsidiaries.
I-7
<PAGE> 162
2.8. BFP Financial Statements. The audited consolidated and unaudited
consolidated interim financial statements of BFP and the BFP Subsidiaries
included in the BFP Securities Filings and as of and for the month ended July
31, 1997 (the "BFP Financial Statements") have been provided or made available
to WorldCom. Except as noted thereon, the BFP Financial Statements were, or as
to those BFP Financial Statements provided or required to be provided subsequent
to the date hereof pursuant to this Section 2.8 will be, prepared in accordance
with generally accepted accounting principles applicable to the businesses of
BFP and the BFP Subsidiaries consistently applied in accordance with past
accounting practices and fairly present (including, but not limited to, the
inclusion of all adjustments with respect to interim periods which are necessary
to present fairly the financial condition and assets and liabilities or the
results of operations of BFP and the BFP Subsidiaries except as may be indicated
therein or in the notes thereto, subject to normal year-end adjustments in the
ordinary course with respect to certain items immaterial in amount or effect,
and the exclusion of footnote disclosure in interim BFP Financial Statements)
the consolidated financial condition and assets and liabilities and the results
of operations of BFP and the BFP Subsidiaries as of the dates and for the
periods indicated. Except as reflected in the BFP Financial Statements, as of
their respective dates, neither BFP nor any BFP Subsidiary had any debts,
obligations, guaranties of obligations of others or liabilities (contingent or
otherwise) that would be required in accordance with generally accepted
accounting principles to be disclosed in the BFP Financial Statements. Any
financial statements prepared with respect to BFP or a BFP Subsidiary subsequent
to the date hereof promptly shall be provided to WorldCom and shall constitute
BFP Financial Statements for purposes hereof.
2.9. Absence of Certain Changes or Events. Except as set forth in the BFP
Securities Filings made available by BFP to WorldCom prior to the date of this
Agreement or in Schedule 2.9 attached hereto, since July 31, 1997, through the
date of this Agreement, there has not been: (i) any event, occurrence, fact,
condition, change, development or effect ("Event") that would reasonably be
expected to have a BFP Material Adverse Effect; (ii) any declaration, payment or
setting aside for payment of any dividend (except to BFP or a BFP Subsidiary
wholly owned by BFP) or other distribution or any redemption, purchase or other
acquisition of any shares of capital stock or securities of BFP or any BFP
Subsidiary (except in connection with cashless exercises of BFP Options); (iii)
any return of any capital or other distribution of assets to stockholders of BFP
or any BFP Subsidiary (except to BFP or a BFP Subsidiary wholly owned by BFP);
(iv) any acquisition (by merger, consolidation, acquisition of stock or assets
or otherwise) of any person or business; or (v) any other action or agreement or
undertaking by BFP or any BFP Subsidiary that, if taken or done on or after the
date hereof without WorldCom's consent, would result in a breach of Section 4.1,
below, and that would reasonably be expected to have a BFP Material Adverse
Effect.
2.10. Compliance with Laws. The business of BFP and each BFP Subsidiary has
been operated in compliance with all Laws applicable thereto, except for any
instances of non-compliance which do not and would not reasonably be expected to
have a BFP Material Adverse Effect. Without limiting the generality of the
foregoing, neither BFP nor any BFP Subsidiary has engaged in carrying transit or
indirect traffic in violation of applicable Laws, tariffs, rules and regulations
in any jurisdiction, foreign or domestic, which violation would reasonably be
expected to have a BFP Material Adverse Effect.
2.11. Permits.
(i) BFP and the BFP Subsidiaries have all permits, certificates, licenses,
approvals, tariffs and other authorizations required in connection with the
operation of their respective businesses (collectively, "BFP Permits"), (ii)
neither BFP nor any BFP Subsidiary is in violation of any BFP Permit, and (iii)
no proceedings are pending or, to the knowledge of BFP, threatened, to revoke or
limit any material BFP Permit, except, in the case of clause (i) or (ii) above,
those the absence or violation of which do not and would not reasonably be
expected to have a BFP Material Adverse Effect.
2.12. Finders and Investment Bankers. Neither BFP nor any of its officers
or directors has employed any broker or finder or incurred any liability for any
brokerage fees, commissions or finders' fees in connection with the transactions
contemplated hereby other than pursuant to the agreement with Salomon Brothers
Inc, an accurate and complete copy of which has been provided to WorldCom, and
other than pursuant to the agreement relative to the fairness opinion referenced
in Section 6.1.8 below.
I-8
<PAGE> 163
2.13. Contracts. Except as set forth in Schedule 2.13 attached hereto,
neither BFP nor any BFP Subsidiary is a party or is subject to any of the
following ("BFP Material Contract"):
(a) any agreement or understanding with an affiliate of BFP or of a
BFP Subsidiary;
(b) any interconnection agreement with an incumbent local exchange
company;
(c) any single note, bond, mortgage, indenture, contract, lease,
license, agreement, understanding, instrument, bid or proposal pursuant to
which the financial obligation of BFP or a BFP Subsidiary thereunder or
applicable to the assets or properties of BFP or a BFP Subsidiary subject
thereto could exceed $10,000,000 after the Effective Time;
(d) any single contract, bid or offer to which BFP or a BFP Subsidiary
is a party or by which BFP or a BFP Subsidiary is bound to provide services
to third parties which provides for recurring monthly revenues to BFP or a
BFP Subsidiary in excess of $250,000; or
(e) any contract which includes any exclusivity or non-competition
restrictions applicable to BFP or a BFP Subsidiary.
BFP has made available to WorldCom true and accurate copies of the BFP
Material Contracts. All such BFP Material Contracts are valid and binding and
are in full force and effect and enforceable in accordance with their respective
terms, subject to the Enforceability Exceptions. Except as set forth in Schedule
2.6 attached hereto, (i) no Consent of any person is needed in order that each
such BFP Material Contract shall continue in full force and effect in accordance
with its terms without penalty, acceleration or rights of early termination by
reason of the consummation of the transactions contemplated by this Agreement,
except for Consents the absence of which would not reasonably be expected to
have a BFP Material Adverse Effect, and (ii) neither BFP nor any BFP Subsidiary
is in violation or breach of or default under any such BFP Material Contract,
nor to BFP's knowledge is any other party to any such BFP Material Contract in
violation or breach of or default under any such BFP Material Contract, in each
case where such violation or breach would give rise to a right of termination.
2.14. Employee Benefit Plans. Except as set forth in Schedule 2.14 attached
hereto, there are no material Benefit Plans (as defined below) maintained or
contributed to by BFP or a BFP Subsidiary under which BFP, a BFP Subsidiary or
the Surviving Corporation could incur any liability. A "Benefit Plan" shall
include (i) an employee benefit plan as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended, together with all
regulations thereunder ("ERISA"), even if, because of some other provision of
ERISA, such plan is not subject to any or all of ERISA's provisions, and (ii)
whether or not described in the preceding clause, (a) any pension, profit
sharing, stock bonus, deferred or supplemental compensation, retirement, thrift,
stock purchase, stock appreciation or stock option plan, or any other
compensation, welfare, fringe benefit or retirement plan, program, policy,
course of conduct, understanding or arrangement of any kind whatsoever, whether
formal or informal, oral or written, providing for benefits for or the welfare
of any or all of the current or former employees or agents of BFP or a BFP
Subsidiary or their beneficiaries or dependents, (b) a multi-employer plan as
defined in Section 3(37) of ERISA (a "Multi-Employer Plan"), or (c) a multiple
employer plan as defined in Section 413 of the Code.
With respect to each Benefit Plan (where applicable): BFP has made
available to WorldCom complete and accurate copies of (i) all plan and trust
texts and agreements, insurance contracts and other funding arrangements; (ii)
annual reports on the Form 5500 series for the last three (3) years; (iii)
financial statements and/or annual and periodic accountings of plan assets for
the last three (3) years; (iv) the most recent determination letter received
from the Internal Revenue Service ("IRS"); and (v) the most recent summary plan
description as defined in ERISA.
With respect to each Benefit Plan while maintained or contributed to by BFP
or a BFP Subsidiary: (i) if intended to qualify under Code Sections 401(a) or
403(a), such Benefit Plan has received a favorable determination letter from the
IRS that it so qualifies, and its trust is exempt from taxation under Code
Section 501(a) and, to the knowledge of BFP, nothing has since occurred to cause
the loss of the Benefit Plan's qualification; (ii) such Benefit Plan has been
administered in accordance with its terms and applicable
I-9
<PAGE> 164
Laws; (iii) except for payment of benefits made in the ordinary course of the
plan administration, no event has occurred and, to the knowledge of BFP, there
exists no circumstance under which BFP, a BFP Subsidiary or the Surviving
Corporation could incur liability under ERISA, the Code or otherwise; (iv) no
accumulated funding deficiency as defined in Code Section 412 has occurred or
exists; (v) no non-exempt prohibited transaction as defined under ERISA and the
Code has occurred; (vi) no reportable event as defined in Section 4043 of ERISA
has occurred (other than events as to which the 30-day notice period is waived
pursuant to Section 4043 of ERISA); (vii) all contributions and premiums due
have fully been made and paid on a timely basis; and (viii) all contributions
made or required to be made under any Benefit Plan meet the requirements for
deductibility under the Code, and all contributions accrued prior to the
Effective Time which have not been made have been properly recorded on the BFP
Financial Statements except, in each case, for any deviations from the foregoing
which do not and would not reasonably be expected to have a BFP Material Adverse
Effect or a Surviving Corporation Material Adverse Effect (as hereinafter
defined).
No Benefit Plan is a defined benefit pension plan subject to Title IV of
ERISA or Section 412 of the Code. Each of the Benefit Plans has been maintained
in compliance with its terms and all applicable Law, except where the failure to
do so would not reasonably be expected to have a BFP Material Adverse Effect or
a Surviving Corporation Material Adverse Effect. Neither BFP nor any of the BFP
Subsidiaries contributes to, or has any outstanding liability with respect to,
any Multi-employer Plan.
With respect to each Benefit Plan which is a welfare plan (as defined in
ERISA Section 3(1)): (i) any liability for medical or death benefits with
respect to current or former employees beyond their termination of employment
(except as may be required by applicable Law) is provided for in the BFP
Financial Statements to the extent required by applicable accounting principles;
(ii) there are no reserves, assets, surplus or prepaid premiums under any such
plan; (iii) except as set forth in Schedule 2.14 attached hereto, no term or
provision of any such plan prohibits the amendment or termination thereof; and
(iv) BFP and the BFP Subsidiaries have complied with Code Section 4980B, except,
in each case, for any deviations from the foregoing which do not and would not
reasonably be expected to have a BFP Material Adverse Effect or a Surviving
Corporation Material Adverse Effect.
Except as set forth in Schedule 2.14 attached hereto and except as provided
in Section 5.10(b) below, the consummation of the Merger will not, either alone
or in conjunction with another Event under the terms of any Benefit Plan: (i)
entitle any individual to severance pay, or (ii) accelerate the time of payment
or vesting of benefits or increase the amount of compensation due to any
individual.
2.15. Taxes and Returns.
(a) Except as disclosed in Schedule 2.15 attached hereto, BFP and each of
the BFP Subsidiaries has timely filed, or caused to be timely filed, all
material federal, state, local and foreign income, gross receipts, sales, use,
property, production, payroll, franchise, withholding, employment, social
security, license, excise, transfer, gains, and other tax returns or reports
required to be filed by it (any of the foregoing being referred to herein as a
"Tax Return"), and has paid, collected or withheld, or caused to be paid,
collected or withheld, all material amounts of taxes and governmental charges,
assessments and contributions of any nature whatsoever including, but not
limited to, any related penalties, interest and liabilities (any of the
foregoing being referred to herein as a "Tax"), required to be paid, collected
or withheld, other than such Taxes for which adequate reserves in the BFP
Financial Statements have been established or which are being contested in good
faith as reflected in records made available to WorldCom prior to the date of
this Agreement. Except as set forth in Schedule 2.15 attached hereto, there are
no claims or assessments pending against BFP or any BFP Subsidiary for any
alleged deficiency in any Tax, and BFP has not been notified in writing of any
proposed Tax claims or assessments against BFP or any BFP Subsidiary (other
than, in each case, those for which adequate reserves in the BFP Financial
Statements have been established or which are being contested in good faith as
reflected in records made available to WorldCom prior to the date of this
Agreement or are immaterial in amount). Except as set forth in Schedule 2.15
attached hereto, neither BFP nor any BFP Subsidiary has made an election under
Section 338 of the Code or has taken any action that would result in any Tax
liability of BFP or any BFP Subsidiary as a result of a deemed election within
the meaning of Section 338 of the Code. Except as set forth in Schedule 2.15
attached hereto, neither BFP nor any BFP Subsidiary has any waivers or
extensions
I-10
<PAGE> 165
of any applicable statute of limitations to assess any material amount of Taxes.
Except as set forth in Schedule 2.15 attached hereto, there are no outstanding
requests by BFP or a BFP Subsidiary for any extension of time within which to
file any material Tax Return or within which to pay any material amount of Taxes
shown to be due on any Tax Return. Except as set forth on Schedule 2.15 attached
hereto, no taxing authority is conducting or has notified or, to the knowledge
of BFP, has threatened BFP or any BFP Subsidiary that it intends to conduct, an
audit of any prior Tax period of BFP or any of its past or present subsidiaries.
Except as disclosed in Schedule 2.15 attached hereto, neither BFP nor any BFP
Subsidiary has ever been an "S" corporation under the Code.
(b) A listing of all Tax sharing agreements or similar arrangements with
respect to or involving BFP or a BFP Subsidiary is set forth in Schedule 2.15
attached hereto.
(c) Except as set forth in Schedule 2.15 attached hereto, neither BFP nor
any BFP Subsidiary has made or become obligated to make, or will, as a result of
the transactions contemplated by this Agreement, make or become obligated to
make, any "excess parachute payment" as defined in Section 280G of the Code
(without regard to Subsection (b)(4) thereof).
(d) Except as set forth in Schedule 2.15 attached hereto, neither BFP nor
any BFP Subsidiary is or has been a United States real property holding company
(as defined in Section 897(c)(2) of the Code) during the applicable period
specified in Section 897(c)(1)(A)(ii) of the Code.
(e) Except as provided in Schedule 2.15 attached hereto, neither BFP nor
any BFP Subsidiary is a person other than a United States person within the
meaning of the Code.
(f) None of the assets of BFP or of any BFP Subsidiary is property which
BFP or any BFP Subsidiary is required to treat as being owned by any other
person pursuant to the so-called "safe harbor lease" provisions of former
Section 168(f)(8) of the Code.
(g) BFP and each BFP Subsidiary have disclosed on their federal income Tax
Returns all positions taken therein that could give rise to a substantial
understatement of federal income tax liability within the meaning of Section
6662(d) of the Code.
(h) There are no liens for Taxes in excess of $50,000 individually or
$500,000 in the aggregate on the assets of BFP or any BFP Subsidiary except for
statutory liens for current Taxes not yet due and payable.
(i) All material elections with respect to any material amount of Taxes
affecting BFP and the BFP Subsidiaries are described in Schedule 2.15 attached
hereto or, with respect to elections made on or before December 31, 1996, are
reflected in the Tax Returns of BFP filed and provided or made available to
WorldCom prior to the date of this Agreement. Neither BFP nor any BFP
Subsidiary: (i) has made or will make a deemed dividend election under Treas.
Reg. sec. 1.1502-32(f)(2) or a consent dividend election under Section 565 of
the Code; (ii) has consented at any time under Section 341(f)(l) of the Code to
have the provisions of Section 341(f)(2) of the Code apply to any disposition of
the assets of BFP or any BFP Subsidiary; (iii) has agreed, or is required, to
make any adjustment under Section 481(a) of the Code by reason of a change in
accounting method or otherwise; (iv) has made an express election, or is
required, to treat any asset of BFP or any BFP Subsidiary as owned by another
person for federal income tax purposes or as tax-exempt bond financed property
or tax-exempt use property within the meaning of Section 168 of the Code; or (v)
has made any of the foregoing elections or is required to apply any of the
foregoing rules under any comparable state, foreign or local income Tax
provision.
(j) Except as set forth in Schedule 2.15 attached hereto, BFP and the BFP
Subsidiaries are not and have never been includable corporations in an
affiliated group of corporations, within the meaning of Section 1504 of the
Code, other than in the affiliated group of which BFP is the common parent
corporation.
(k) Except as set forth in Schedule 2.15 attached hereto or as a result of
the Merger, the consolidated net operating losses, net capital losses, foreign
tax credits, investment and other tax credits set forth in the BFP Financial
Statements are not subject to any limitations under Section 382, Section 383 or
the Treasury regulations (whether temporary, proposed or final) under Section
1502 of the Code.
I-11
<PAGE> 166
(l) Except as set forth in Schedule 2.15 attached hereto, neither BFP nor
any BFP Subsidiary is a partner or member in or subject to any joint venture,
partnership, limited liability company or other arrangement or contract that is
or should be treated as a partnership for federal income tax purposes.
2.16. No Undisclosed Liabilities. BFP and the BFP Subsidiaries do not have
any liabilities or obligations whatsoever, whether accrued, contingent or
otherwise, and BFP knows of no basis for any claim against BFP or any BFP
Subsidiary for any liability or obligation, except (i) to the extent set forth
or reflected in the BFP Securities Filings or the BFP Financial Statements
provided or made available to WorldCom prior to the date of this Agreement, (ii)
to the extent expressly set forth on any Schedule attached hereto or otherwise
as described in this Article II, or (iii) liabilities or obligations incurred in
the normal and ordinary course of business since July 31, 1997, and except, in
each case, for any deviations from the foregoing which individually or in the
aggregate do not and would not reasonably be expected to have a BFP Material
Adverse Effect.
2.17. Environmental Matters. As of the date of this Agreement, (i) BFP and
the BFP Subsidiaries are in compliance with all applicable Environmental Laws
(as hereinafter defined), (ii) there is no civil, criminal or administrative
judgment, action, suit, demand, claim, hearing, notice of violation,
investigation, proceeding, notice or demand letter pending or, to the knowledge
of BFP, threatened against BFP, a BFP Subsidiary or any of their respective
properties pursuant to Environmental Laws, and (iii) except as set forth on
Schedule 2.17 attached hereto, there are no past or present Events which
reasonably may be expected to prevent compliance with, or which have given rise
to or will give rise to liability on the part of BFP or a BFP Subsidiary under,
Environmental Laws, except, in each case, for any deviations from the foregoing
which do not and would not reasonably be expected to have a BFP Material Adverse
Effect. BFP has provided or made available to WorldCom prior to the date of this
Agreement true, accurate and complete copies of all environmental reports in the
possession of BFP or a BFP Subsidiary relating to any of their respective past
or present properties. As used herein, the term "Environmental Laws" shall mean
Laws relating to pollution, waste control, the generation, presence or disposal
of asbestos, hazardous or toxic wastes or substances, the protection of the
environment, environmental activity or public health and safety.
2.18. Intellectual Property. For purposes of this Agreement, "Intellectual
Property" shall mean all patents, trademarks, service marks, trade names,
copyrights, franchises and similar rights of or used by BFP or a BFP Subsidiary,
all applications for any of the foregoing and all permits, grants and licenses
or other rights running to or from BFP or any of the BFP Subsidiaries relating
to any of the foregoing. Except as set forth on Schedule 2.18 attached hereto,
(i) BFP or one of the BFP Subsidiaries own, or are licensed to or otherwise have
the right to use all material Intellectual Property currently used in its or
their respective businesses, (ii) the rights of BFP and the BFP Subsidiaries in
such Intellectual Property are, subject to the rights of any licensor thereof,
free and clear of any liens or other encumbrances and restrictions and BFP and
the BFP Subsidiaries have not received, as of the date of this Agreement, notice
of any adversely-held Intellectual Property of any other person, or notice of
any charge or claim of infringement or breach from any person relating to such
Intellectual Property or any material process or confidential information of BFP
or any BFP Subsidiary ("Claim Notice") and do not know of any basis for any such
charge or claim, and (iii) BFP, the BFP Subsidiaries and their respective
predecessors, if any, have not conducted business at any time during the period
beginning five (5) years prior to the date hereof under any corporate, trade or
fictitious names other than their current corporate names. BFP shall promptly
notify, and shall cause the BFP Subsidiaries to promptly notify, WorldCom of any
Claim Notice received by BFP or a BFP Subsidiary after the date of this
Agreement.
2.19. Real Estate.
(a) Schedule 2.19(a) attached hereto sets forth a true, correct and
complete schedule as of the date of this Agreement of all real property owned by
BFP or any of the BFP Subsidiaries. BFP or one of the BFP Subsidiaries, as
indicated thereon, is the owner of fee title to the real property described on
said Schedule 2.19(a) and to all of the buildings, structures and other
improvements located thereon free and clear of any material mortgage, deed of
trust, lien, pledge, security interest, claim, lease, charge, option, right of
first refusal, easement, restrictive covenant, encroachment or other survey
defect, encumbrance or other restriction or limitation except for the matters
listed on said Schedule 2.19(a) and, except for any exceptions, easements,
I-12
<PAGE> 167
restrictive covenants, encroachments or other survey defects, encumbrances,
restrictions or limitations which, individually or in the aggregate, do not and
would not reasonably be expected to have a BFP Material Adverse Effect or to
interfere in any material respect with the present use and enjoyment of such
real property.
(b) Schedule 2.19(b) attached hereto sets forth a true, correct and
complete schedule as of the date of this Agreement of all material leases,
subleases, easements, rights-of-way, licenses or other agreements under which
BFP or any of the BFP Subsidiaries uses or occupies, or has the right to use or
occupy any material real property or improvements thereon (the "BFP Real
Property Leases"). Except for the matters listed on said Schedule 2.19(b), BFP
or a BFP Subsidiary, as indicated thereon, holds the leasehold estate under or
other interest in each BFP Real Property Lease free and clear of all liens,
encumbrances and other rights of occupancy other than statutory landlords' or
mechanics' liens which have not been executed upon, and except for liens,
encumbrances and rights that do not and would not reasonably be expected to have
a BFP Material Adverse Effect or to interfere in any material respect with the
present use and enjoyment of such leasehold estate or interest.
2.20. Corporate Records. The respective corporate record books of or
relating to BFP and each of the BFP Subsidiaries made available to WorldCom by
BFP contain accurate and complete records of (i) all corporate actions of the
respective stockholders and directors (and committees thereof) of BFP and the
BFP Subsidiaries, (ii) the Certificate and/or Articles of Incorporation, By-laws
and/or other governing instruments, as amended, of BFP and the BFP Subsidiaries,
and (iii) the issuance and transfer of stock of BFP and the BFP Subsidiaries.
Except as set forth on Schedule 2.20 attached hereto, neither BFP nor any BFP
Subsidiary has any of its material records or information recorded, stored,
maintained or held off the premises of BFP and the BFP Subsidiaries.
2.21. Title to and Condition of Personal Property. BFP and each of the BFP
Subsidiaries have good and marketable title to, or a valid leasehold interest
in, all material items of any personal property currently used in the operation
of their respective businesses, and such property or leasehold interests are
free and clear of all liens, claims, charges, security interests, options, or
other title defects or encumbrances that have had or would reasonably be
expected to have a BFP Material Adverse Effect or to interfere in any material
respect with the present use and enjoyment of such property or interests. As of
the date of this Agreement, all such personal property is in reasonably good
operating condition and repair as required for use in the businesses of BFP and
the BFP Subsidiaries (ordinary wear and tear excepted), is reasonably suitable
for the use to which the same is customarily put by BFP or any BFP Subsidiary
and is free from material defects.
2.22. No Adverse Actions. Except as set forth on Schedule 2.22 attached
hereto, there is no existing, pending or, to the knowledge of BFP, overtly
threatened termination, cancellation, limitation, modification or change in the
business relationship of BFP or any of the BFP Subsidiaries, with any supplier,
customer or other person except such as would not reasonably be expected to have
a BFP Material Adverse Effect. None of BFP, any BFP Subsidiary or, to the
knowledge of BFP, any director, officer, agent, employee or other person acting
on behalf of any of the foregoing has used any corporate funds for unlawful
contributions, payments, gifts or entertainment or for the payment of other
unlawful expenses relating to political activity, or made any direct or indirect
unlawful payments to governmental or regulatory officials or others, which would
reasonably be expected to have a BFP Material Adverse Effect.
2.23. Labor Matters. Except as set forth on Schedule 2.13, 2.14 or 2.23
attached hereto, neither BFP nor any of the BFP Subsidiaries has any material
obligations, contingent or otherwise, under any employment, severance or
consulting agreement, any collective bargaining agreement or any other contract
with a labor union or other labor or employee group. To the knowledge of BFP, as
of the date of this Agreement, there are no negotiations, demands or proposals
which are presently pending or overtly threatened by or on behalf of any labor
union with respect to the unionizing of employees of BFP or any BFP Subsidiary.
As of the date of this Agreement, there is no unfair labor practice complaint
against BFP or any BFP Subsidiary pending or, to the knowledge of BFP,
threatened before the National Labor Relations Board or comparable agency, no
unresolved grievance against BFP or any BFP Subsidiary, no collective bargaining
agreement which is currently being negotiated by BFP or any BFP Subsidiary, and
neither BFP nor any BFP Subsidiary is experiencing any work stoppage, strike,
slowdown or other labor difficulty which, in each case, would
I-13
<PAGE> 168
reasonably be expected to have a BFP Material Adverse Effect. As of the date of
this Agreement, no employee has informed BFP or any BFP Subsidiary of his or her
intention to terminate his or her employment with BFP or any BFP Subsidiary as a
result of any announcement or consummation of the transactions contemplated by
this Agreement. BFP shall promptly notify, and shall cause the BFP Subsidiaries
to promptly notify, WorldCom upon knowledge by BFP or a BFP Subsidiary of the
occurrence after the date hereof of any matter referenced in this Section 2.23.
2.24. Insurance. Schedule 2.24 attached hereto lists each policy of
insurance which BFP and each of the BFP Subsidiaries has obtained and maintains.
As of the date of this Agreement, neither BFP nor any of the BFP Subsidiaries
has received notice of default under, or intended cancellation or nonrenewal of,
any of such policies of insurance. Neither BFP nor any BFP Subsidiary has been
refused any insurance for any material coverage by an insurance carrier to which
it has applied for such insurance coverage in the last three (3) years.
2.25. Fairness Opinion. BFP's Board of Directors has received from its
financial advisors, Salomon Brothers Inc, a written opinion addressed to it for
inclusion in the Prospectus/Proxy Statement to the effect that the Merger
Consideration is fair to the holders of the BFP Shares from a financial point of
view. An accurate and complete copy of such opinion has been provided to
WorldCom.
2.26. Takeover Statutes. BFP is not subject to any "business combination,"
"fair price," "moratorium," "control share acquisition" or other similar
anti-takeover statute or regulation enacted under state or federal laws in the
United States (each a "Takeover Statute") applicable to WorldCom other than
Section 203 of the Delaware Code. Assuming WorldCom and its "associates" and
"affiliates" (as defined in Section 203 of the Delaware Code), without giving
effect to this Agreement, collectively beneficially own and have beneficially
owned at all times during the three-year period prior to the date hereof less
than fifteen percent (15%) of the BFP Shares outstanding, BFP's Board of
Directors has irrevocably taken all necessary action so that the provisions of
Section 203 of the Delaware Code shall be inapplicable to the Merger, this
Agreement and the transactions contemplated hereby.
2.27. BFP Rights Plan. As of the date hereof and after giving effect to the
execution and delivery of this Agreement, each Right is represented by the
associated share of BFP Common Stock and is not exercisable or transferable
apart from the associated share of BFP Common Stock. Assuming WorldCom and its
"Affiliates and Associates" have not become an "Acquiring Person" prior to the
date hereof (as such terms are defined in the Rights Plan), BFP's Board of
Directors has irrevocably taken all necessary action so that (i) neither
WorldCom nor Acquisition Subsidiary will be deemed such an "Acquiring Person,"
(ii) no "Stock Acquisition Date" or "Distribution Date" (as such terms are
defined in the Rights Plan) will occur, and (iii) the Rights will not become
exercisable or transferable apart from the associated shares of BFP Common
Stock, in each case, as a result of the approval, execution or delivery of this
Agreement or the consummation of the Merger.
2.28. Disclosure. No representation or warranty of BFP herein and no
information contained or referenced in a Schedule delivered by BFP to WorldCom
and Acquisition Subsidiary pursuant hereto or in any other document subsequently
delivered by BFP to WorldCom and Acquisition Subsidiary pursuant hereto contains
or will contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary in order to make the statements contained herein
or therein not misleading.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND
CERTAIN COVENANTS OF WORLDCOM
WorldCom represents, warrants and/or covenants to and with BFP as follows:
3.1. Organization and Good Standing. WorldCom is a corporation duly
organized and validly existing under the laws of the State of Georgia and has
all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. Acquisition
Subsidiary and each of the WorldCom Subsidiaries that is active and operating
(the "Active WorldCom Subsidiaries") is a
I-14
<PAGE> 169
corporation, limited liability company or partnership duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization and has all requisite corporate, limited liability
company or partnership power and authority to own, lease and operate its
properties and to carry on its business as now being conducted, except where the
failure to be validly existing and in good standing would not have a WorldCom
Material Adverse Effect (as hereinafter defined). WorldCom, Acquisition
Subsidiary and each of the Active WorldCom Subsidiaries is duly qualified or
licensed and in good standing to do business in each jurisdiction in which the
character of the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification or licensing necessary, except
where the failure to be so duly qualified or licensed and in good standing would
not have a WorldCom Material Adverse Effect. For purposes of this Agreement,
"WorldCom Material Adverse Effect" shall mean (i) a material adverse effect on
(A) the business, assets, condition (financial or otherwise), properties,
liabilities or the results of operations of WorldCom and the WorldCom
Subsidiaries taken as a whole, (B) the ability of WorldCom to perform its
obligations set forth in this Agreement, or (C) the ability of WorldCom to
timely consummate the transactions contemplated by this Agreement, or (ii) the
entering by WorldCom or any WorldCom Subsidiary into any industry segment for
which separate financial information would be required by Item 101(b) of
Regulation S-K under the Securities Act and the Securities Exchange Act or the
production of any class of similar products or the rendering of any class of
similar services which would reasonably be expected to account for twenty
percent (20%) or more of WorldCom's consolidated revenues during the year ending
December 31, 1998, in each case which is not related to telecommunications
services or any products or services ancillary thereto. WorldCom has heretofore
delivered or made available to BFP accurate and complete copies of the
Certificates or Articles of Incorporation and Bylaws, or equivalent governing
instruments, as currently in effect, of WorldCom, Acquisition Subsidiary and
each of the Active WorldCom Subsidiaries.
3.2. Capitalization. As of the date hereof, the authorized capital stock of
WorldCom consists of 2,500,000,000 shares of WorldCom Common Stock, and
50,000,000 shares of preferred stock, par value $.01 per share, as to which
94,992 shares have been designated as Series A 8% Cumulative Convertible
Preferred Stock, 15,000,000 shares have been designated as Series B Convertible
Preferred Stock and 2,500,000 shares have been designated as Series 3 Junior
Participating Preferred Stock (collectively, the "WorldCom Preferred Stock" and,
separately, the "WorldCom Series A Preferred," "WorldCom Series B Preferred" and
"WorldCom Series 3 Preferred," respectively). As of the close of business on
September 30, 1997, (a) 907,159,586 shares of WorldCom Common Stock were issued
and outstanding, and (b) 94,992 shares of the WorldCom Series A Preferred,
12,445,113 shares of WorldCom Series B Preferred and no shares of WorldCom
Series 3 Preferred were issued and outstanding. No other capital stock of
WorldCom is issued or outstanding. All issued and outstanding shares of the
WorldCom Common Stock and WorldCom Preferred Stock are duly authorized, validly
issued, fully paid and non-assessable and were issued free of preemptive rights
and in compliance with applicable corporate and securities Laws. Except as set
forth in the WorldCom Securities Filings (as hereinafter defined) or on Schedule
3.2 attached hereto, as of the date of this Agreement there are no outstanding
rights, reservations of shares, subscriptions, warrants, puts, calls,
unsatisfied preemptive rights, options or other agreements of any kind relating
to any of the capital stock or any other security of WorldCom, and there is no
authorized or outstanding security of any kind convertible into or exchangeable
for any such capital stock or other security. There are no restrictions upon the
transfer of or otherwise pertaining to the securities (including, but not
limited to, the ability to pay dividends thereon) or retained earnings of
WorldCom, Acquisition Subsidiary and the Active WorldCom Subsidiaries or the
ownership thereof other than those pursuant to the WorldCom Credit Agreements
(as hereinafter defined) or those imposed generally by the Securities Act, the
Securities Exchange Act, applicable state or foreign securities Laws or
applicable corporate Law.
3.3. Subsidiaries. All of the capital stock and other interests of the
Active WorldCom Subsidiaries held by WorldCom are owned by it or a WorldCom
Subsidiary, free and clear of any claim, lien, encumbrance, security interest or
agreement with respect thereto. All of the outstanding shares of capital stock
in each of the Active WorldCom Subsidiaries held by WorldCom are duly
authorized, validly issued, fully paid and non-assessable and were issued free
of preemptive rights and in compliance with applicable corporate and securities
Laws.
I-15
<PAGE> 170
3.4. Authorization; Binding Agreement. WorldCom and Acquisition Subsidiary
have all requisite corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby including, but not limited to, the Merger have been duly and
validly authorized by the respective Boards of Directors of WorldCom and
Acquisition Subsidiary, as appropriate, and no other corporate proceedings on
the part of WorldCom or Acquisition Subsidiary are necessary to authorize the
execution and delivery of this Agreement or to consummate the transactions
contemplated hereby (other than the adoption of this Agreement by WorldCom as
the sole stockholder of Acquisition Subsidiary in accordance with the Delaware
Code and the Certificate of Incorporation and Bylaws of Acquisition Subsidiary).
This Agreement has been duly and validly executed and delivered by each of
WorldCom and Acquisition Subsidiary and constitutes the legal, valid and binding
agreements of WorldCom and Acquisition Subsidiary, enforceable against each of
WorldCom and Acquisition Subsidiary in accordance with its terms, subject to the
Enforceability Exceptions.
3.5. Governmental Approvals. No Consent from or with any Governmental
Authority on the part of WorldCom or any of the WorldCom Subsidiaries is
required in connection with the execution or delivery by WorldCom and
Acquisition Subsidiary of this Agreement or the consummation by WorldCom and
Acquisition Subsidiary of the transactions contemplated hereby other than (i)
filings with the SEC, state securities laws administrators and the NASD, (ii)
Consents from or with Governmental Authorities, (iii) filings under the HSR Act,
and (iv) those Consents that, if they were not obtained or made, do not or would
not reasonably be expected to have a WorldCom Material Adverse Effect.
3.6. No Violations. The execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby and compliance by WorldCom
and Acquisition Subsidiary with any of the provisions hereof will not (i)
conflict with or result in any breach of any provision of the Certificate and/or
Articles of Incorporation or Bylaws or other governing instruments of WorldCom
or any of the WorldCom Subsidiaries, (ii) except for compliance with the
requirements under WorldCom's Facility A Revolving Credit Agreement and Facility
B Revolving Credit and Term Loan Agreement, each dated as of July 3, 1997 (the
"WorldCom Credit Agreements"), require any Consent under or result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, cancellation
or acceleration or augment the performance required) under any of the terms,
conditions or provisions of any WorldCom Material Contract (as hereinafter
defined) or other obligation to which WorldCom or any WorldCom Subsidiary is a
party or by which any of them or any of their properties or assets may be bound,
(iii) result in the creation or imposition of any lien or encumbrance of any
kind upon any of the assets of WorldCom or any WorldCom Subsidiary, or (iv)
subject to obtaining the Consents from Governmental Authorities referred to in
Section 3.5, above, contravene any Law currently in effect to which WorldCom or
any WorldCom Subsidiary or its or any of their respective assets or properties
are subject, except in the case of clauses (ii), (iii) and (iv), above, for any
deviations from the foregoing which do not or would not have a WorldCom Material
Adverse Effect.
3.7. Securities Filings and Litigation. WorldCom has made available to BFP
true and complete copies of (i) its Annual Reports on Form 10-K, as amended, for
the years ended December 31, 1994, 1995 and 1996, as filed with the SEC, (ii)
its proxy statements relating to all of the meetings of shareholders (whether
annual or special) of WorldCom since January 1, 1994, as filed with the SEC, and
(iii) all other reports, statements and registration statements and amendments
thereto (including, without limitation, Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K, as amended) filed by WorldCom with the SEC since
January 1, 1994. The reports and statements set forth in clauses (i) through
(iii), above, and those subsequently provided or required to be provided
pursuant to this Section 3.7, are referred to collectively as the "WorldCom
Securities Filings." As of their respective dates, or as of the date of the last
amendment thereof, if amended after filing, none of the WorldCom Securities
Filings (including all schedules thereto and disclosure documents incorporated
by reference therein), contained or, as to WorldCom Securities Filings
subsequent to the date hereof, will contain any untrue statement of a material
fact or omitted or, as to WorldCom Securities Filings subsequent to the date
hereof, will omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they
I-16
<PAGE> 171
were made, not misleading. Each of the WorldCom Securities Filings at the time
of filing or as of the date of the last amendment thereof, if amended after
filing, complied or, as to WorldCom Securities Filings subsequent to the date
hereof, will comply in all material respects with the Securities Exchange Act or
the Securities Act, as applicable. There is no Litigation pending or, to the
knowledge of WorldCom, threatened against WorldCom or any WorldCom Subsidiary,
any officer, director, employee or agent thereof, in his or her capacity as
such, or as a fiduciary with respect to any Benefit Plan of WorldCom, or
otherwise relating, in a manner that could have a WorldCom Material Adverse
Effect, to WorldCom, any WorldCom Subsidiary or the securities of any of them,
or any properties or rights of WorldCom or any of the WorldCom Subsidiaries,
which is required to be described in any WorldCom Securities Filing that is not
so described. No event has occurred as a consequence of which WorldCom would be
required to file a Current Report on Form 8-K pursuant to the requirements of
the Securities Exchange Act as to which such a report has not been timely filed
with the SEC. Any reports, statements and registration statements and amendments
thereof (including, without limitation, Reports on Form 10-K, Quarterly Reports
on Form 10-Q and Current Reports on Form 8-K, as amended) filed by WorldCom with
the SEC after the date hereof shall be provided to BFP upon such filing.
3.8. WorldCom Financial Statements. The audited consolidated and unaudited
consolidated interim financial statements of WorldCom and the WorldCom
Subsidiaries included in the WorldCom Securities Filings (the "WorldCom
Financial Statements") have been made available to BFP. Except as noted thereon,
the WorldCom Financial Statements were, or as to those WorldCom Financial
Statements provided or required to be provided subsequent to the date hereof
pursuant to this Section 3.8 will be, prepared in accordance with generally
accepted accounting principles applicable to the businesses of WorldCom and the
WorldCom Subsidiaries consistently applied in accordance with past accounting
practices and fairly present (including, but not limited to, the inclusion of
all adjustments with respect to interim periods which are necessary to present
fairly the financial condition and assets and liabilities or the results of
operations of WorldCom and the WorldCom Subsidiaries, subject to normal year-end
adjustments in the ordinary course with respect to certain items immaterial in
amount or effect and the exclusion of footnote disclosure in interim WorldCom
Financial Statements) the financial condition and assets and liabilities and the
results of operations of WorldCom and the WorldCom Subsidiaries as of the dates
and for the periods indicated. Except as reflected in the WorldCom Financial
Statements, as of their respective dates, neither WorldCom nor any WorldCom
Subsidiary had any debts, obligations, guaranties of obligations of others or
liabilities (contingent or otherwise) that would be required in accordance with
generally accepted accounting principles to be disclosed in the WorldCom
Financial Statements. Any consolidated financial statements included in the
WorldCom Securities Filings subsequent to the date hereof shall constitute
WorldCom Financial Statements for purposes hereof.
3.9. Absence of Certain Changes or Events. Except as set forth in the
WorldCom Securities Filings made available by WorldCom to BFP prior to the date
of this Agreement or in Schedule 3.9 attached hereto, since December 31, 1996,
through the date of this Agreement, there has not been any Event that would
reasonably be expected to have a WorldCom Material Adverse Effect.
3.10. No Undisclosed Liabilities. WorldCom and the WorldCom Subsidiaries do
not have any liabilities or obligations whatsoever, whether accrued, contingent
or otherwise, and WorldCom knows of no basis for any claim against WorldCom or
any WorldCom Subsidiary for any liability or obligation, except (i) to the
extent set forth or reflected in the WorldCom Securities Filings or the WorldCom
Financial Statements provided or made available to BFP prior to the date of this
Agreement, (ii) to the extent expressly set forth on any Schedule attached
hereto or otherwise as described in this Article III, (iii) liabilities or
obligations incurred in the normal and ordinary course of business since June
30, 1997 or (iv) those incident to transactions previously disclosed to BFP, and
except, in each case, for any deviations from the foregoing which individually
or in the aggregate do not and would not reasonably be expected to have a
WorldCom Material Adverse Effect.
3.11. Compliance with Laws. The businesses of WorldCom and the WorldCom
Subsidiaries have been operated in compliance with all Laws applicable thereto,
except for any instances of non-compliance which do not and would not reasonably
be expected to have a WorldCom Material Adverse Effect. Without limiting the
I-17
<PAGE> 172
generality of the foregoing, neither WorldCom nor any of the WorldCom
Subsidiaries has engaged in carrying transit or indirect traffic in violation of
applicable Laws, tariffs, rules and regulations in any jurisdiction, foreign or
domestic, which violation would reasonably be expected to have a WorldCom
Material Adverse Effect.
3.12. Permits. (i) WorldCom, Acquisition Subsidiary and the Active WorldCom
Subsidiaries have all permits, certificates, licenses, approvals, tariffs and
other authorizations required in connection with the operation of their
respective businesses (collectively, "WorldCom Permits"), (ii) neither WorldCom,
Acquisition Subsidiary nor any Active WorldCom Subsidiary is in violation of any
WorldCom Permit, and (iii) no proceedings are pending or, to the knowledge of
WorldCom, threatened, to revoke or limit any material WorldCom Permit, except,
in the case of clause (i) or (ii) above, those the absence or violation of which
do not and would not have a WorldCom Material Adverse Effect.
3.13. Finders and Investment Bankers. Neither WorldCom nor any of its
officers or directors has employed any broker or finder or otherwise incurred
any liability for any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated hereby.
3.14. Contracts. Neither WorldCom nor any Active WorldCom Subsidiary is a
party to any material note, bond, mortgage, indenture, contract, lease, license,
agreement, understanding, instrument, bid or proposal ("WorldCom Material
Contract") required to be described in or filed as an exhibit to any WorldCom
Securities Filing that is not described in or filed as required by the
Securities Act or the Securities Exchange Act, as the case may be. WorldCom has
made available to BFP true and accurate copies of the WorldCom Material
Contracts. All such WorldCom Material Contracts are valid and binding and are in
full force and effect and enforceable in accordance with their respective terms,
subject to the Enforceability Exceptions. Except as referenced in Section 3.6
above, no Consent of any person is needed in order that each such WorldCom
Material Contract shall continue in full force and effect in accordance with its
terms without penalty, acceleration or rights of early termination by reason of
the consummation of the transactions contemplated by this Agreement, except for
Consents the absence of which would not reasonably be expected to have a
WorldCom Material Adverse Effect.
3.15. Corporate Records. The respective corporate record books of or
relating to WorldCom, Acquisition Subsidiary and each of the Active WorldCom
Subsidiaries made available to BFP by WorldCom contain accurate and complete
records of (i) all corporate actions of the respective shareholders and
directors (and committees thereof) of WorldCom, Acquisition Subsidiary and the
Active WorldCom Subsidiaries, (ii) the Certificate and/or Articles of
Incorporation, Bylaws and/or other governing instruments, as amended, of
WorldCom, Acquisition Subsidiary and the Active WorldCom Subsidiaries, and (iii)
the issuance and transfer of stock of WorldCom, Acquisition Subsidiary and the
Active WorldCom Subsidiaries.
3.16. Disclosure. No representation or warranty of WorldCom herein and no
information contained or referenced in a Schedule delivered by WorldCom to BFP
pursuant hereto or in any other document subsequently delivered by WorldCom to
BFP pursuant hereto contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact necessary in order to make
the statements contained herein and therein not misleading.
ARTICLE IV
ADDITIONAL COVENANTS OF BFP
BFP represents, covenants and agrees as follows:
4.1. Conduct of Business of BFP and the BFP Subsidiaries. Except as
expressly contemplated by this Agreement, during the period from the date of
this Agreement to the Effective Time, BFP shall conduct, and it shall cause the
BFP Subsidiaries to conduct, its or their respective businesses in the ordinary
course and consistent with past practice, subject to the limitations contained
in this Agreement, and BFP shall, and it shall cause the BFP Subsidiaries to,
use its or their respective reasonable business efforts to preserve intact its
or their respective business organizations, to keep available the services of
its or their respective officers, agents
I-18
<PAGE> 173
and employees and to maintain satisfactory relationships with all persons with
whom any of them does business. Without limiting the generality of the
foregoing, and except as otherwise expressly provided in this Agreement, after
the date of this Agreement and prior to the Effective Time, neither BFP nor any
BFP Subsidiary will, without the prior written consent of WorldCom:
(i) amend or propose to amend its Certificate or Articles of
Incorporation or By-laws (or comparable governing instruments) in any
material respect;
(ii) authorize for issuance, issue, grant, sell, pledge, dispose of or
propose to issue, grant, sell, pledge or dispose of any shares of, or any
options, warrants, commitments, subscriptions or rights of any kind to
acquire or sell any shares of, the capital stock or other securities of BFP
or any BFP Subsidiary including, but not limited to, any securities
convertible into or exchangeable for shares of stock of any class of BFP or
any BFP Subsidiary, except for the issuance of shares of BFP Common Stock
pursuant to the exercise of BFP Options outstanding on the date of this
Agreement in accordance with their present terms and except for the grant
of employee stock options as permitted by Section 4.8, below, and issuance
of BFP Common Stock pursuant to the exercise thereof, except for the
issuance of shares of BFP Common Stock in accordance with the terms of any
acquisition approved in writing by WorldCom and except for the issuance of
debt securities as permitted by clause (iv) of this Section 4.1;
(iii) split, combine or reclassify any shares of its capital stock or
declare, pay or set aside any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its
capital stock, other than dividends or distributions to BFP or a BFP
Subsidiary wholly owned by BFP, or redeem, purchase or otherwise acquire or
offer to acquire any shares of its capital stock or other securities;
(iv) (a) except for debt (including, but not limited to, obligations
in respect of capital leases) not in excess of $5,000,000 in the aggregate
for all persons combined, or as provided in the budget and business plan of
BFP, a copy of which has been delivered to the WorldCom (the "Business
Plan"), create, incur or assume any short-term debt, long-term debt or
obligations in respect of capital leases; (b) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, indirectly,
contingently or otherwise) for any material obligation of any person, other
than BFP or any wholly-owned BFP Subsidiary; (c) make any capital
expenditures or make any loans, advances or capital contributions to, or
investments in, any other person (other than to a wholly-owned BFP
Subsidiary or pursuant to the terms of agreements as in effect on the date
hereof and/or customary advances to employees made in the ordinary course
of business consistent with past practice), provided BFP will continue to
make capital expenditures, maintain, upgrade and expand its facilities and
those of the BFP Subsidiaries and otherwise operate in accordance with the
Business Plan; (d) acquire the stock or assets of, or merge or consolidate
with, any other person or business; or (e) other than as provided in the
Business Plan, voluntarily incur any material liability or obligation
(absolute, accrued, contingent or otherwise);
(v) sell, transfer, mortgage, pledge or otherwise dispose of, or
encumber, or agree to sell, transfer, mortgage, pledge or otherwise dispose
of or encumber, any assets or properties, real, personal or mixed, other
than in the ordinary course of business consistent with past practice or
having a net book value in excess of $500,000 individually or $2,000,000 in
the aggregate, and other than to secure indebtedness permitted by the
preceding clause (iv) of this Section 4.1;
(vi) increase in any manner the compensation of any of its officers,
agents or employees other than any increases required pursuant to the BFP
Material Contracts in accordance with their terms in effect on the date of
this Agreement and increases in the ordinary course of business consistent
with past practice not in excess on an individual basis of the lesser of
10% of the current compensation of such individual or $20,000 per annum;
(vii) enter into, establish, amend, make material interpretations or
determinations with respect to, or terminate any employment, retention,
change in control, collective bargaining, bonus or other incentive
compensation, profit sharing, health or other welfare, stock option, stock
purchase, restricted stock, or other equity, pension, retirement, vacation,
severance, deferred compensation or other compensation or
I-19
<PAGE> 174
benefit plan, policy, agreement, trust, fund or arrangement with, for or in
respect of, any officer, director, other employee, agent, consultant or
affiliate, other than as required pursuant to the terms of agreements as in
effect on the date hereof and the actions with respect to the ESPP as
contemplated by Section 1.7, above;
(viii) make any material elections with respect to Taxes that are
inconsistent with the prior elections reflected in the BFP Financial
Statements as of and for the period ended December 31, 1996;
(ix) compromise, settle, forgive, cancel, grant any waiver or release
relating to or otherwise adjust any debts, claims, rights or Litigation,
except routine debts, claims, rights or Litigation in the ordinary course
of business consistent with past practice, involving only a payment not in
excess of $100,000 individually or $500,000 when aggregated with all such
payments by BFP and the BFP Subsidiaries combined;
(x) take any action or omit to take any action, which action or
omission, if taken prior to, on or after the date hereof, would result in a
material breach of any of the covenants, representations or warranties of
BFP set forth in this Agreement or would have a BFP Material Adverse
Effect;
(xi) enter into any lease or other agreement, or amend in any respect
materially adverse to BFP or a BFP Subsidiary any lease or other agreement,
with respect to real property, not contemplated by the Business Plan, or
which obligates BFP or any BFP Subsidiary to pay total rent in excess of
$2,000,000;
(xii) enter into, or amend in any respect materially adverse to BFP or
a BFP Subsidiary, any agreement or transaction (a) pursuant to which the
aggregate financial obligation of BFP or a BFP Subsidiary or the value of
the services to be provided could exceed $20,000,000 individually or
$50,000,000 in the aggregate for all such agreements or transactions, (b)
having a term of more than 12 months and pursuant to which the aggregate
financial obligation of BFP or a BFP Subsidiary or the value of the
services to be provided could exceed $10,000,000 per year individually or
$25,000,000 per year in the aggregate for all such agreements or
transactions, or (c) which is not terminable upon no more than 90 days'
notice by BFP or the BFP Subsidiary involved without penalty in excess of
$1,000,000 individually or $3,000,000 when aggregated with the penalties
under all such agreements or transactions, except, in each case, as
required pursuant to the terms of agreements as in effect on the date
hereof and as required by Law (in which case BFP shall promptly notify
WorldCom);
(xiii) take any action with respect to the indemnification of any
current or former director, officer employee or agent;
(xiv) change any accounting practices or policies or depreciation or
amortization rates, except as required by generally accepted accounting
principles or Laws or as agreed to or requested by BFP's auditors after
consultation with WorldCom's auditors;
(xv) enter into, amend, modify, terminate or waive any material rights
under any BFP Material Contract or any material agreement or other material
obligation that restricts, in any material respect, the activities of BFP
or a BFP Subsidiary or amend, modify, terminate or waive any such right,
agreement or obligation that restricts in any material respect any other
person;
(xvi) adopt a plan of liquidation, dissolution, merger, consolidation,
share exchange, restructuring, recapitalization, or other reorganization,
except for the reorganization contemplated as part of the pending bank
revolving credit agreement referenced on Schedule 2.6 attached hereto; or
(xvii) resolve, agree, commit or arrange to do any of the foregoing.
Furthermore, BFP covenants, represents and warrants that from and after the
date hereof, unless WorldCom shall otherwise expressly consent in writing, BFP
shall, and BFP shall cause each BFP Subsidiary to, use its or their respective
reasonable business efforts to:
(i) keep in full force and effect insurance comparable in amount and
scope of coverage to insurance now carried by it or them;
I-20
<PAGE> 175
(ii) pay all accounts payable and other obligations in the ordinary
course of business consistent with past practice, except if the same are
contested in good faith, and, in the case of the failure to pay any
material accounts payable or other material obligations which are contested
in good faith, only after consultation with WorldCom; and
(iii) comply in all material respects with all Laws applicable to any
of them or their respective properties, assets or businesses and maintain
in full force and effect all BFP Permits necessary for, or otherwise
material to, such businesses.
4.2. Notification of Certain Matters. BFP shall give prompt notice to
WorldCom if any of the following occurs after the date of this Agreement: (i)
any notice of, or other communication relating to, a default or Event which,
with notice or lapse of time or both, would become a default under any BFP
Material Contract giving rise to a right of termination; (ii) receipt of any
notice or other communication from any third party alleging that the Consent of
such third party is or may be required in connection with the transactions
contemplated by this Agreement, other than a Consent disclosed pursuant to
Section 2.5 or 2.6 above; (iii) receipt of any material notice or other
communication from any Governmental Authority (including, but not limited to,
the NASD) in connection with the transactions contemplated by this Agreement;
(iv) the occurrence of an Event which would reasonably be expected to have a BFP
Material Adverse Effect; (v) the commencement or threat of any Litigation
involving or affecting BFP or any BFP Subsidiary, or any of their respective
properties or assets, or, to its knowledge, any employee, agent, director or
officer of BFP or any BFP Subsidiary, in his or her capacity as such or as a
fiduciary under a Benefit Plan of BFP, which, if pending on the date hereof,
would have been required to have been disclosed in or pursuant to this Agreement
or which relates to the consummation of the Merger, or any material development
in connection with any Litigation disclosed by BFP in or pursuant to this
Agreement or the BFP Securities Filings; and (vi) the occurrence of any Event
that would reasonably be expected to cause a breach by BFP of any provision of
this Agreement, including such a breach that would occur if such Event had taken
place on or prior to the date of this Agreement.
4.3. Access and Information. Between the date of this Agreement and the
Effective Time, BFP will give, and will cause each of the BFP Subsidiaries to
give, and shall direct its accountants and legal counsel to give, upon
reasonable notice, WorldCom, its lenders and their respective authorized
representatives (including, without limitation, financial advisors, accountants
and legal counsel) at all reasonable times access to all offices and other
facilities and to all contracts, agreements, commitments, books and records
(including, but not limited to, Tax Returns) of or pertaining to BFP and the BFP
Subsidiaries, will permit the foregoing to make such reasonable inspections as
they may require and will cause its officers promptly to furnish WorldCom with
(a) such financial and operating data and other information with respect to the
business and properties of BFP and the BFP Subsidiaries as WorldCom may from
time to time reasonably request including, but not limited to, data and
information required for inclusion in WorldCom's pending registration statements
and/or other WorldCom Securities Filings, and (b) a copy of each material
report, schedule and other document filed or, if related to BFP or a BFP
Subsidiary, received by BFP or any BFP Subsidiary pursuant to the requirements
of applicable securities Laws, the NASD or other securities exchange. The
foregoing access will be subject to government security restrictions and
restrictions contained in confidentiality agreements to which BFP is subject and
of which WorldCom has been advised prior to the date of this Agreement (if
requested, prior to the date hereof); provided that BFP shall use its reasonable
best efforts to obtain waivers of such restrictions.
4.4. Stockholder Approval. As soon as practicable, BFP will, subject to
obtaining WorldCom's written consent pursuant to Section 1.11(e) of this
Agreement, take all steps necessary to duly call, give notice of, convene and
hold a meeting of its stockholders for the purpose of adopting this Agreement
and for such other purposes as may be necessary or desirable in connection with
effectuating the transactions contemplated hereby. The Board of Directors of
BFP, subject to the provisions of Section 4.9(b) below, (i) will recommend to
the stockholders of BFP that they adopt this Agreement and approve the
transactions contemplated hereby and (ii) will use its reasonable best efforts
to obtain any necessary adoption and approval by BFP's
I-21
<PAGE> 176
stockholders of this Agreement and the transactions contemplated hereby. Each of
BFP's directors has agreed to vote his or her beneficially owned BFP Shares for
such adoption and approval.
4.5. Reasonable Business Efforts. Subject to the terms and conditions
herein provided, BFP agrees to use its reasonable best efforts to take, or cause
to be taken, all actions, and to do, or cause to be done, all things necessary,
proper or advisable to consummate and make effective as promptly as practicable
the Merger and the other transactions contemplated by this Agreement including,
but not limited to (i) obtaining any third party Consent required in connection
with the execution and delivery by BFP of this Agreement or the consummation by
BFP of the transactions contemplated hereby, (ii) the defending of any
Litigation against BFP or any BFP Subsidiary challenging this Agreement or the
consummation of the transactions contemplated hereby, (iii) obtaining all
Consents from Governmental Authorities required for the consummation of the
Merger and the transactions contemplated hereby, and (iv) timely making all
necessary filings under the HSR Act. Upon the terms and subject to the
conditions hereof, BFP agrees to use its reasonable best efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary to satisfy the other conditions of the Closing set forth herein. BFP
will consult with counsel for WorldCom as to, and will permit such counsel to
participate in, at WorldCom's expense, any Litigation referred to in clause (ii)
above brought against or involving BFP or any BFP Subsidiary.
4.6. Public Announcements. So long as this Agreement is in effect, BFP
shall not, and shall cause its affiliates not to, issue or cause the publication
of any press release or any other announcement with respect to the Merger or the
transactions contemplated by this Agreement without the consent of WorldCom,
except when such release or announcement is required by applicable Law or
pursuant to any applicable listing agreement with, or rules or regulations of,
the NASD, in which case BFP, prior to making such announcement, shall consult
with WorldCom regarding the same.
4.7. Compliance. In consummating the Merger and the transactions
contemplated hereby, BFP shall comply in all material respects with the
provisions of the Securities Exchange Act and the Securities Act and shall
comply, and/or cause the BFP Subsidiaries to comply or to be in compliance, in
all material respects, with all other applicable Laws.
4.8. BFP Benefit Plans. Between the date of this Agreement and through the
Effective Time, no discretionary award or grant under any Benefit Plan of BFP or
a BFP Subsidiary shall be made without the consent of WorldCom, except options
for shares of BFP Common Stock (with exercise prices at or about the fair market
value of the underlying shares of BFP Common Stock on the date of grant) granted
to employees of BFP hired on or after the date of this Agreement in the ordinary
course of business consistent with past practice as heretofore disclosed to
WorldCom; nor shall BFP or a BFP Subsidiary take any action or permit any action
to be taken to accelerate the vesting of any warrants or options previously
granted pursuant to any such Benefit Plan except as specifically required
pursuant to the terms thereof as in effect on the date of this Agreement.
Neither BFP nor any BFP Subsidiary shall make any amendment to any Benefit Plan
or any awards thereunder without the consent of WorldCom.
4.9. No Solicitation of Acquisition Proposal.
(a) BFP shall, and shall direct and use reasonable efforts to cause its
officers, directors, employees, representatives and agents to, immediately cease
any discussions or negotiations with any parties that may be ongoing with
respect to an Acquisition Proposal (as hereinafter defined). BFP shall not, nor
shall it permit any of the BFP Subsidiaries to, nor shall it authorize or permit
any of its officers, directors or employees or any investment banker, financial
advisor, attorney, accountant or other representative retained by it or any BFP
Subsidiary to, directly or indirectly, (i) solicit, initiate or encourage
(including by way of furnishing information), or take any other action designed
or reasonably likely to facilitate, any inquiries or the making of any proposal
which constitutes, or may reasonably be expected to lead to, any Acquisition
Proposal or (ii) participate in any discussions or negotiations regarding any
Acquisition Proposal; provided, however, that if, at any time prior to the
Effective Time, the Board of Directors of BFP determines in good faith, after
consultation with outside counsel, that it is necessary to do so in order to
comply with its fiduciary duties to BFP's stockholders under applicable Law, BFP
may, in response to an Acquisition Proposal which was not solicited subsequent
to the date hereof, and subject to compliance with Section 4.9(c), (x) furnish
I-22
<PAGE> 177
information with respect to BFP and the BFP Subsidiaries to any person pursuant
to a customary confidentiality agreement (as determined by BFP after
consultation with its outside counsel) and (y) participate in negotiations
regarding such Acquisition Proposal. "Acquisition Proposal" means any inquiry,
proposal or offer from any person relating to any direct or indirect acquisition
or purchase of 15% or more of the assets of BFP and the BFP Subsidiaries, taken
as a whole, or 15% or more of any class of equity securities of BFP or any of
the BFP Subsidiaries, any tender offer or exchange offer that if consummated
would result in any person beneficially owning 15% or more of any class of
equity securities of BFP or any of the BFP Subsidiaries, any merger,
consolidation, share exchange, business combination, recapitalization,
liquidation, dissolution or similar transaction involving BFP or any of the BFP
Subsidiaries, other than the transactions contemplated by this Agreement, or any
other transaction the consummation of which would reasonably be expected to
impede, interfere with, prevent or materially delay the Merger or which would
reasonably be expected to dilute materially the benefits to WorldCom of the
transactions contemplated by this Agreement.
(b) Except as set forth in this Section 4.9, neither the Board of Directors
of BFP nor any committee thereof shall (i) withdraw or modify, or propose
publicly to withdraw or modify, in a manner adverse to WorldCom, the approval or
recommendation by such Board of Directors of this Agreement, (ii) approve or
recommend, or propose publicly to approve or recommend, any Acquisition Proposal
or (iii) cause BFP to enter into any letter of intent, agreement in principle,
acquisition agreement or other similar agreement (each, a "BFP Acquisition
Agreement") related to any Acquisition Proposal. Notwithstanding the foregoing,
in the event that prior to the Effective Time the Board of Directors of BFP
determines in good faith, after consultation with outside counsel, that it is
necessary to do so in order to comply with its fiduciary duties to BFP's
stockholders under applicable Law, the Board of Directors of BFP may (subject to
this and the following sentences) (x) withdraw or modify its approval or
recommendation of the Merger or (y) approve or recommend a BFP Superior Proposal
(as defined below) or terminate this Agreement (and concurrently with or after
such termination, if it so chooses, cause BFP to enter into any BFP Acquisition
Agreement with respect to any BFP Superior Proposal), but in each of the cases
set forth in this clause (y), only at a time that is after the tenth business
day following WorldCom's receipt of written notice advising WorldCom that the
Board of Directors of BFP has received a BFP Superior Proposal, specifying the
material terms and conditions of such BFP Superior Proposal and identifying the
person making such BFP Superior Proposal. Any such withdrawal or modification of
the recommendation of the Merger shall not change the approval of the Board of
Directors of BFP for purposes of causing Section 203 of the Delaware Code to be
inapplicable to the Merger or the status of WorldCom as other than an "Acquiring
Person" under the Rights Plan and shall not directly or indirectly cause a
"Stock Acquisition Date" or a "Distribution Date" (as such terms are defined in
the Rights Plan) to occur. For purposes of this Agreement, a "BFP Superior
Proposal" means any bona fide proposal made by a third party to acquire,
directly or indirectly, for consideration consisting of cash and/or securities,
more than 15% of the combined voting power of the shares of BFP Common Stock
then outstanding or all or substantially all the assets of BFP and otherwise on
terms which the Board of Directors of BFP determines in its good faith judgment
(based on the advice of a financial advisor of nationally recognized reputation)
to be materially more favorable to BFP's stockholders than the Merger and for
which financing, to the extent required, is then committed or which, in the good
faith judgment of the Board of Directors of BFP, is reasonably capable of being
financed by such third party.
(c) In addition to the obligations of BFP set forth in paragraphs (a) and
(b) of this Section 4.9, BFP shall immediately advise WorldCom orally and in
writing of any request for information or of any Acquisition Proposal, the
material terms and conditions of such request or Acquisition Proposal and the
identity of the person making such request or Acquisition Proposal. BFP will
keep WorldCom fully informed of the status and details (including amendments or
proposed amendments) of any such request or Acquisition Proposal.
(d) Nothing contained in this Section 4.9 shall prohibit BFP from taking
and disclosing to its stockholders a position contemplated by Rule 14e-2(a)
promulgated under the Securities Exchange Act or from making any disclosure to
BFP's stockholders if, in the good faith judgment of the Board of Directors of
BFP, after consultation with Bryan Cave LLP, failure so to disclose would be
inconsistent with its fiduciary duties to BFP's stockholders under applicable
Law; provided, however, neither BFP nor its Board of Directors (or any committee
thereof) shall, except as permitted by Section 4.9(b), withdraw or modify, or
propose
I-23
<PAGE> 178
publicly to withdraw or modify, its position with respect to this Agreement or
approve or recommend, or propose publicly to approve or recommend, an
Acquisition Proposal.
4.10. Securities and Stockholder Materials. BFP shall send to WorldCom a
copy of all material public reports and materials as and when it sends the same
to its stockholders, the SEC, the NASD or any other securities commission.
4.11. Tax Opinion Certification. BFP shall use its best efforts to cause
the Merger to qualify, and will not take any action which to its knowledge could
reasonably be expected to prevent the Merger from qualifying, as a
reorganization under Section 368 of the Code. Prior to the Effective Time, BFP
shall provide tax counsel rendering an opinion under Subsection 6.1.9 below with
a certificate concerning such factual matters as such counsel identifies are
relevant to its opinion and will use its best efforts to obtain such a
certificate from any stockholder of BFP identified by such counsel.
4.12. Resignations. BFP shall use its reasonable business efforts to cause
such of the officers and/or directors of BFP and the BFP Subsidiaries as
WorldCom may request to voluntarily resign their positions as such as of the
Effective Time. The instruments effecting such resignations are herein referred
to as the "Resignations."
4.13. Comfort Letters. Upon the request of WorldCom, BFP shall use
reasonable business efforts to provide to WorldCom on or prior to the Closing
Date "comfort letters" from the independent certified public accountants for BFP
dated the date on which the Registration Statement, or last amendment thereto,
shall become effective, and dated the Closing Date, addressed to the Board of
Directors of each of BFP and WorldCom, covering such matters as WorldCom shall
reasonably request with respect to facts concerning the financial condition of
BFP and the BFP Subsidiaries as are customary for certified public accountants
to deliver in connection with a transaction similar to the Merger.
4.14. Affiliate Agreements. BFP shall use reasonable business efforts to
ensure that each person who is or may be an "affiliate" of BFP within the
meaning of Rule 145 promulgated under the Securities Act shall enter into an
agreement in the form attached hereto as Schedule 4.14 (the "Affiliate
Agreements").
4.15. Takeover Statutes. If any Takeover Statute, other than Section 203 of
the Delaware Code, is or may become applicable to the Merger or the transactions
contemplated hereby, BFP and the members of its Board of Directors will grant
such approvals and will take such other actions as are necessary so that the
Merger and the other transactions contemplated by this Agreement may be
consummated as promptly as practicable on the terms contemplated hereby and will
otherwise act to eliminate or minimize the effects of any Takeover Statute on
the Merger and any of the transactions contemplated hereby.
4.16. Pooling of Interests. BFP shall not take, and shall use reasonable
business efforts to ensure that none of the BFP Subsidiaries and its and their
respective stockholders, directors, officers, agents or employees takes, any
action that would result in the Merger not qualifying for pooling-of-interests
accounting treatment in accordance with Accounting Principles Board Opinion No.
16.
ARTICLE V
ADDITIONAL COVENANTS OF WORLDCOM
WorldCom covenants and agrees as follows:
5.1. Conduct of Business of WorldCom and the WorldCom
Subsidiaries. WorldCom covenants, represents and warrants that from and after
the date of this Agreement, unless BFP shall otherwise expressly consent in
writing, WorldCom shall, and WorldCom shall cause each WorldCom Subsidiary to,
use its or their respective reasonable business efforts to comply in all
material respects with all Laws applicable to any of them or their respective
properties, assets or businesses and maintain in full force and effect all the
WorldCom Permits necessary for, or otherwise material to, such businesses.
5.2. Notification of Certain Matters. WorldCom shall give prompt notice to
BFP if any of the following occurs after the date of this Agreement: (i) any
notice of, or other communication relating to, a default or
I-24
<PAGE> 179
Event which, with notice or lapse of time or both, would become a default under
any WorldCom Material Contract which could have a WorldCom Material Adverse
Effect; (ii) receipt of any notice or other communication from any third party
alleging that the Consent of such third party is or may be required in
connection with the transactions contemplated by this Agreement, other than a
Consent disclosed pursuant to Section 3.5 or 3.6 above; (iii) receipt of any
material notice or other communication from any Governmental Authority
(including, but not limited to, the NASD) in connection with the transactions
contemplated by this Agreement; (iv) the occurrence of an Event which would
reasonably be expected to have a WorldCom Material Adverse Effect; (v) the
commencement or threat of any Litigation involving or affecting WorldCom or any
WorldCom Subsidiary or any of their respective properties or assets, or, to its
knowledge, any employee, agent, director or officer, in his or her capacity as
such, of WorldCom or any WorldCom Subsidiary which, if pending on the date
hereof, would have been required to have been disclosed in or pursuant to this
Agreement or which relates to the consummation of the Merger, or any material
development in connection with any Litigation disclosed by WorldCom in or
pursuant to this Agreement or the WorldCom Securities Filings; and (vi) the
occurrence of any Event that would reasonably be expected to cause a breach by
WorldCom of any provision of this Agreement, including such a breach that could
occur if such Event had taken place on or prior to the date of this Agreement.
5.3. Access and Information. Between the date of this Agreement and the
Effective Time, WorldCom will give, and will cause each of the WorldCom
Subsidiaries to give, and shall direct its accountants and legal counsel for the
transactions contemplated by this Agreement to give, upon reasonable notice, BFP
and its authorized representatives (including, without limitation, its financial
advisors, accountants and legal counsel) at all reasonable times access as
reasonably requested to all offices and other facilities and to all contracts,
agreements, commitments, books and records (including, but not limited to, Tax
Returns) of or pertaining to WorldCom and the WorldCom Subsidiaries, will permit
BFP to make such reasonable inspections as it may require and will cause its
officers promptly to furnish BFP with (a) such financial and operating data and
other information with respect to the business and properties of WorldCom and
the WorldCom Subsidiaries as BFP may from time to time reasonably request, and
(b) a copy of each material report, schedule and other document filed or, if
related to WorldCom or a WorldCom Subsidiary, received by WorldCom or any
WorldCom Subsidiary pursuant to the requirements of applicable securities Laws
or the NASD, in each case as necessary in connection with the transactions
contemplated hereby. The foregoing access will be subject to government security
restrictions and restrictions contained in confidentiality agreements to which
WorldCom is subject and of which BFP is advised; provided that WorldCom shall
use its reasonable best efforts to obtain waivers of such restrictions.
5.4. Public Announcements. So long as this Agreement is in effect, WorldCom
shall not, and shall cause its affiliates not to, issue or cause the publication
of any press release or any other announcement with respect to the Merger or the
transactions contemplated by this Agreement without the consent of BFP, except
when such release or announcement is required by applicable Law or pursuant to
any applicable listing agreement with, or rules or regulations of, the NASD, in
which case WorldCom, prior to making such announcement, will consult with BFP
regarding the same.
5.5. Compliance. In consummating the Merger and the transactions
contemplated hereby, WorldCom shall comply in all material respects with the
provisions of the Securities Exchange Act and the Securities Act and shall
comply, and/or cause the WorldCom Subsidiaries to comply or to be in compliance,
in all material respects, with all other applicable Laws.
5.6. SEC and Shareholder Filings. WorldCom shall send to BFP a copy of all
material public reports and materials as and when it sends the same to its
shareholders, the SEC, the NASD or any other securities commission.
5.7. Tax Treatment. WorldCom and Acquisition Subsidiary shall use their
best efforts to cause the Merger to qualify, and will not take any action which
to their knowledge could reasonably be expected to prevent the Merger from
qualifying, as a reorganization under Section 368 of the Code. Prior to the
Effective Time, WorldCom and Acquisition Subsidiary shall provide tax counsel
rendering an opinion under Subsection
I-25
<PAGE> 180
6.1.9, below, with a certificate concerning such factual matters as such counsel
identifies are relevant to its opinion.
5.8. Comfort Letters. Upon the request of BFP, WorldCom shall use
reasonable business efforts to provide to BFP on or prior to the Closing Date
"comfort letters" from the independent certified public accountants for WorldCom
and the WorldCom Subsidiaries, dated the date on which the Registration
Statement, or last amendment thereto, shall become effective, and dated the
Closing Date, addressed to the Board of Directors of each of BFP and WorldCom,
covering such matters as BFP shall reasonably request with respect to facts
concerning the financial condition of WorldCom and the WorldCom Subsidiaries as
are customary for certified public accountants to deliver in connection with a
transaction similar to the Merger.
5.9. Indemnification and Insurance.
(a) From and after the Effective Time, WorldCom and the Surviving
Corporation shall jointly and severally indemnify, defend and hold harmless the
directors, officers, employees and agents of BFP as, and to the extent, provided
in BFP's Certificate of Incorporation or Bylaws, as in effect as of the date of
this Agreement and provided or made available to WorldCom prior to the date of
this Agreement, with respect to matters occurring through the Effective Time.
(b) For a period of three (3) years after the Effective Time and to the
extent available, WorldCom shall cause the Surviving Corporation to maintain in
effect policies of directors' and officers' liability insurance comparable to
those maintained by BFP with carriers comparable to BFP's existing carriers and
containing terms and conditions which are no less advantageous in any material
respect to the officers, directors, employees and agents of BFP covering those
persons who are currently covered by BFP's directors' and officers' liability
insurance policy, provided that the Surviving Corporation shall not be required
to pay an annual premium for such insurance in excess of two (2) times the last
annual premium paid prior to the date hereof, but in such case shall purchase as
much coverage as possible for such amount.
5.10. Employee Benefit Plans.
(a) After the Effective Time, WorldCom shall arrange for each employee
participating in any of the Benefit Plans of BFP as are in effect at the
Effective Time to participate in any counterpart Benefit Plans of WorldCom in
accordance with the eligibility criteria thereof, provided that (i) such
participants shall receive full credit for years of service with BFP or any of
the BFP Subsidiaries prior to the Merger for all purposes for which such service
was recognized under the Benefit Plans of BFP including, but not limited to,
recognition of service for eligibility, vesting, and, to the extent not
duplicative of benefits received under such Benefit Plan of BFP or such BFP
Subsidiary, the amount of benefits, (ii) such participants shall participate in
the Benefit Plans of WorldCom on terms no less favorable than those offered by
WorldCom to similarly situated employees of WorldCom, and (iii) WorldCom shall
cause any and all preexisting condition limitations (to the extent such
limitations did not apply to a pre-existing condition under the Benefit Plans of
BFP) and eligibility waiting periods under any group health plans to be waived
with respect to such participants and their eligible dependents. Notwithstanding
the foregoing, WorldCom may continue (or cause the Surviving Corporation to
continue) one or more of the Benefit Plans of BFP, in which case WorldCom shall
have satisfied its obligations hereunder with respect to the benefits so
provided.
(b) WorldCom and BFP hereby acknowledge that the Merger and the
consummation of the other transactions contemplated under this Agreement will be
treated as a "Change in Control" for purposes of each of the applicable Benefit
Plans of BFP and each applicable employment, severance or similar agreement
listed on Schedule 5.10(b) attached hereto applicable to any employee of BFP or
any of the BFP Subsidiaries (collectively, "Change in Control Plans and
Agreements") and agree to abide by the provisions of any Change in Control Plans
and Agreements in effect on the date of this Agreement which relate to such a
Change in Control, including, but not limited to, the accelerated vesting and/or
payment of equity-based awards and gross-up payments on account of Sections 280G
or 4999 of the Code. WorldCom and BFP hereby acknowledge that a Resignation
pursuant to Section 4.12 above shall not be treated as a voluntary termination
of employment of such officer or director for purposes of any Change in Control
Plans and Agreements and
I-26
<PAGE> 181
will not otherwise adversely affect the material rights of such officers or
directors under any Change in Control Plans and Agreements.
5.11. Reasonable Business Efforts. Subject to the terms and conditions
herein provided, WorldCom agrees to use its reasonable business efforts to take,
or cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective as promptly as
practicable the Merger and the transactions contemplated by this Agreement
including, but not limited to (i) obtaining any third party Consent required in
connection with the execution and delivery by WorldCom and Acquisition
Subsidiary of this Agreement or the consummation by WorldCom and Acquisition
Subsidiary of the transactions contemplated hereby, (ii) the defending of any
Litigation against WorldCom or any WorldCom Subsidiary challenging this
Agreement or the consummation of the transactions contemplated hereby, (iii)
obtaining all Consents from Governmental Authorities required for the
consummation of the Merger and the transactions contemplated hereby, and (iv)
timely making all necessary filings under the HSR Act. Upon the terms and
subject to the conditions hereof, WorldCom agrees to use reasonable business
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary to satisfy the other conditions of the Closing set
forth herein.
ARTICLE VI
CONDITIONS
6.1. Conditions to Each Party's Obligations. The respective obligations of
each party to effect the Merger shall be subject to the fulfillment or waiver on
or prior to the Closing Date of the following conditions:
6.1.1. Stockholder Approval. This Agreement shall have been adopted by
the requisite vote of the stockholders of BFP in accordance with the
Delaware Code.
6.1.2. No Injunction or Action. No order, statute, rule, regulation,
executive order, stay, decree, judgment or injunction shall have been
enacted, entered, promulgated or enforced by any court or other
Governmental Authority, which prohibits or prevents the consummation of the
Merger and which has not been vacated, dismissed or withdrawn by the
Closing Date. BFP and WorldCom shall use their reasonable best efforts to
have any of the foregoing vacated, dismissed or withdrawn on or prior to
the Closing Date.
6.1.3. Governmental Approvals. All Consents, other than Consents the
failure of which to be obtained, in the reasonable judgment of WorldCom,
would not reasonably be expected to have a material adverse effect on the
business, assets, condition (financial or otherwise), properties,
liabilities or the result of operations of the Surviving Corporation and
its subsidiaries taken as a whole ("Surviving Corporation Material Adverse
Effect"), of any Governmental Authority required for the consummation of
the Merger and the transactions contemplated by this Agreement shall have
been obtained by Final Order (as hereafter defined). The term "Final Order"
with respect to any Consent of a Governmental Authority shall mean an
action by the appropriate Governmental Authority as to which: (i) no
request for stay by such Governmental Authority of the action is pending,
no such stay is in effect, and, if any deadline for filing any such request
is designated by statute or regulation, it has passed; (ii) no petition for
rehearing or reconsideration of the action is pending before such
Governmental Authority, and no appeal or comparable administrative remedy
is pending before such Governmental Authority, and the time for filing any
such petition, appeal or administrative remedy has passed; (iii) such
Governmental Authority does not have the action under reconsideration on
its own motion and the time for such reconsideration has passed; and (iv)
no appeal to a court, or request for stay by a court, of the Governmental
Authority action is pending or in effect, and if any deadline for filing
any such appeal or request is designated by statute or rule, it has passed.
6.1.4. Required Consents. All required Consents of any person (other
than a Governmental Authority) to the Merger or the transactions
contemplated hereby shall have been obtained on terms and conditions
reasonably acceptable to WorldCom (provided, however, that notwithstanding
anything to the contrary in Section 7.2, below, no termination fee will be
payable as a result of the non-receipt of any
I-27
<PAGE> 182
such Consent solely as a result of WorldCom's failure to find the terms and
conditions thereof reasonably acceptable), and be in full force and effect,
except for those the failure of which to obtain, in the reasonable judgment
of WorldCom would not reasonably be expected to have a Surviving
Corporation Material Adverse Effect.
6.1.5. HSR Act. Any waiting period applicable to the Merger under the
HSR Act shall have expired or earlier termination thereof shall have been
granted, and no action shall have been instituted by either the United
States Department of Justice or the Federal Trade Commission to prevent the
consummation of the transactions contemplated by this Agreement or to
modify or amend such transactions in any material manner, or if any such
action shall have been instituted, it shall have been withdrawn or a final
judgment having the effect of permitting the consummation of the
transactions contemplated by this Agreement shall have been entered against
such Department or Commission, as the case may be.
6.1.6. Registration Statement. The Registration Statement shall have
been declared effective and no stop order suspending the effectiveness of
the Registration Statement shall have been issued and no proceeding for
that purpose shall have been initiated or threatened by the SEC.
6.1.7. Blue Sky. WorldCom shall have received all state securities Law
authorizations necessary to consummate the transactions contemplated
hereby.
6.1.8. Fairness Opinion. At the time of the mailing of the
Prospectus/Proxy Statement to BFP's stockholders, BFP's Board of Directors
shall have received from a nationally recognized investment banking firm a
written opinion addressed to it for inclusion in the Prospectus/Proxy
Statement to the effect that the Merger Consideration is fair to the
holders of the BFP Shares from a financial point of view. The fairness
opinions referenced in Section 2.25 above and in this Section 6.1.8 shall
not have been withdrawn at or prior to the Effective Time.
6.1.9. Tax Opinion. WorldCom and BFP shall have received an opinion
from Bryan Cave LLP based on customary representations contained in
certificates of WorldCom, Acquisition Subsidiary and BFP, to the effect
that, if the Merger is consummated in accordance with the provisions of
this Agreement, under current Law, for federal income tax purposes, the
Merger will qualify as a reorganization within the meaning of Section 368
of the Code.
6.1.10. Quotation of WorldCom Common Stock. The shares of WorldCom
Common Stock comprising the Merger Consideration shall have been approved
for quotation on the National Market System of The Nasdaq Stock Market or
other national securities exchange, subject to official notice of issuance.
6.2. Conditions to Obligations of BFP. The obligation of BFP to effect the
Merger shall be subject to the fulfillment on or prior to the Closing Date of
the following additional conditions, any one or more of which may be waived by
BFP:
6.2.1. WorldCom Representations and Warranties. None of the
representations or warranties of WorldCom contained in this Agreement,
disregarding any qualifications herein regarding materiality or WorldCom
Material Adverse Effect, shall be untrue or incorrect to the extent that
such untrue or incorrect representations or warranties, when taken together
as a whole, have had or would reasonably be expected to have a WorldCom
Material Adverse Effect.
6.2.2. Performance by WorldCom. WorldCom shall have performed and
complied with all of the covenants and agreements in all material respects
and satisfied in all material respects all of the conditions required by
this Agreement to be performed or complied with or satisfied by WorldCom on
or prior to the Closing Date.
6.2.3. No Material Adverse Change. There shall not have occurred after
the date hereof any Event that has or reasonably would be expected to have
a WorldCom Material Adverse Effect.
6.2.4. Certificates and Other Deliveries. WorldCom shall have
delivered to BFP (i) a certificate executed on its behalf by its President
or another authorized officer to the effect that the conditions set
I-28
<PAGE> 183
forth in Subsections 6.2.1, 6.2.2 and 6.2.3, above, have been satisfied;
(ii) a certificate of existence from the Secretary of State of the State of
Georgia stating that WorldCom is a validly existing corporation; (iii) duly
adopted resolutions of the Board of Directors of WorldCom and the Board of
Directors and stockholder of Acquisition Subsidiary approving the
execution, delivery and performance of this Agreement and the instruments
contemplated hereby, each certified by its Secretary or an Assistant
Secretary; and (iv) such other documents and instruments as BFP reasonably
may request.
6.2.5. Opinion of WorldCom Counsel. BFP shall have received an opinion
of the General Counsel, Corporate Development of WorldCom, in form and
substance reasonably satisfactory to BFP, covering the matters set forth in
Schedule 6.2.5 attached hereto.
6.3. Conditions to Obligations of WorldCom and Acquisition Subsidiary. The
obligations of WorldCom and Acquisition Subsidiary to effect the Merger shall be
subject to the fulfillment on or prior to the Closing Date of the following
additional conditions, any one or more of which may be waived by WorldCom:
6.3.1. BFP Representations and Warranties. None of the representations
or warranties of BFP contained in this Agreement, disregarding any
qualifications herein regarding materiality, BFP Material Adverse Effect or
Surviving Corporation Material Adverse Effect, shall be untrue or incorrect
to the extent that such untrue or incorrect representations or warranties,
when taken together as a whole, have had or would reasonably be expected to
have a BFP Material Adverse Effect or a Surviving Corporation Material
Adverse Effect.
6.3.2. Performance by BFP. BFP shall have performed and complied with
all the covenants and agreements in all material respects and satisfied in
all material respects all the conditions required by this Agreement to be
performed or complied with or satisfied by BFP on or prior to the Closing
Date.
6.3.3. No Material Adverse Change. There shall have not occurred after
the date hereof any Event that has or reasonably would be expected to have
a BFP Material Adverse Effect or a Surviving Corporation Material Adverse
Effect.
6.3.4. Certificates and Other Deliveries. BFP shall have delivered, or
caused to be delivered, to WorldCom (i) a certificate executed on its
behalf by its Chief Executive Officer or another duly authorized officer to
the effect that the conditions set forth in Subsections 6.3.1, 6.3.2 and
6.3.3, above, have been satisfied; (ii) a certificate of good standing from
the Secretary of State of the State of Delaware stating that BFP is a
validly existing corporation in good standing; (iii) duly adopted
resolutions of the Board of Directors and stockholders of BFP approving the
execution, delivery and performance of this Agreement and the instruments
contemplated hereby, certified by the Secretary or an Assistant Secretary
of BFP; (iv) a true and complete copy of the Certificate of Incorporation
of BFP certified by the Secretary of State of the State of Delaware, and a
true and complete copy of the By-laws of BFP certified by the Secretary or
an Assistant Secretary of BFP; (v) a list of the stockholders of BFP
entitled to vote on the adoption of this Agreement and an undertaking from
BFP's transfer agent to deliver a list of the stockholders of BFP as of the
Effective Time as soon thereafter as it is available, each such list to be
certified by the transfer agent of BFP; and (vi) such other documents and
instruments as WorldCom reasonably may request.
6.3.5. Opinion of BFP Counsel. WorldCom shall have received the
opinion of Bryan Cave LLP, in form and substance reasonably satisfactory to
WorldCom, covering the matters set forth in Schedule 6.3.5 attached hereto.
6.3.6. WorldCom Credit Agreements. WorldCom shall have received the
requisite approval of the lenders under the WorldCom Credit Agreements for
any amendments to the schedules to the WorldCom Credit Agreements required
as a result of the transactions contemplated by this Agreement.
6.3.7. Affiliate Agreements. At least thirty (30) days prior to the
Closing Date, WorldCom shall have received the duly executed Affiliate
Agreements.
6.3.8. Pooling Treatment. WorldCom shall have received the written
opinion of the respective independent certified public accountants of
WorldCom and BFP that the Merger qualifies for pooling-of-
I-29
<PAGE> 184
interests accounting treatment in accordance with Accounting Principles
Board Opinion No. 16, and the accounting staff of the SEC shall not have
asserted or threatened to assert a determination to the contrary which has
not been rescinded.
ARTICLE VII
TERMINATION AND ABANDONMENT
7.1. Termination. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time prior to the Effective Time
only as follows, whether before or after approval by the stockholders of BFP
referenced herein:
(a) by mutual written consent of BFP and WorldCom, duly authorized by
the Board of Directors of each;
(b) by BFP or WorldCom if the Merger shall not have been consummated
on or before March 31, 1998 (or such other date as may be agreed to by BFP
and WorldCom); provided, that, no party may terminate this Agreement under
this Section 7.1(b) if such party's breach of this Agreement has caused or
resulted in the failure of the Merger to occur on or before such date;
(c) by BFP if (i) the condition specified in Section 6.2.1 has not
been satisfied or waived, or (ii) WorldCom has breached or failed to
perform, in any material respect, notwithstanding satisfaction or due
waiver of all conditions thereto, any of its material covenants or
agreements contained herein as to which notice specifying such breach or
failure has been given to WorldCom promptly after the discovery thereof and
WorldCom has failed to cure or otherwise resolve the same to the reasonable
satisfaction of BFP within thirty (30) days after receipt of such notice;
(d) by WorldCom if (i) the condition specified in Section 6.3.1 has
not been satisfied or waived, or (ii) BFP has breached or failed to
perform, in any material respect, notwithstanding satisfaction or due
waiver of all conditions thereto, any of its material covenants or
agreements contained herein as to which notice specifying such breach or
failure has been given to BFP promptly after the discovery thereof and BFP
has failed to cure or otherwise resolve the same to the reasonable
satisfaction of WorldCom within thirty (30) days after receipt of such
notice;
(e) by either BFP or WorldCom if a court of competent jurisdiction or
other Governmental Authority shall have issued an order, decree or ruling
or taken any other action permanently restraining, enjoining or otherwise
prohibiting the Merger and such order, decree, ruling or other action shall
have become final and nonappealable;
(f) by either WorldCom or BFP, if the stockholders of BFP fail to
approve and adopt this Agreement, the Merger and other transactions
contemplated hereby, as applicable, at the meeting duly convened and held
therefor or at any adjournment or postponement thereof;
(g) by WorldCom, if BFP or its Board of Directors breaches in any
material respect any provision of Section 4.4 or 4.9 above, if BFP shall
have received any Acquisition Proposal as to which the Board of Directors
of BFP has taken a position other than to reject the same or stockholders
holding at least 50% of the BFP Shares have tendered such shares in
connection with such Acquisition Proposal (which tenders have been
accepted), if BFP or its stockholders have agreed to or consummated any BFP
Acquisition Agreement or if BFP's Board of Directors or any committee
thereof has otherwise declined to make, withdrawn or modified, or proposed
publicly to withdraw or modify, its recommendation for BFP's stockholders
to adopt this Agreement;
(h) by BFP in accordance with Section 4.9(b), provided that it has
complied with all of the provisions thereof, including the notice
provisions therein, and that it complies with the requirements of Section
7.2 below; or
(i) by BFP, if the condition specified in Subsection 6.3.6, above,
shall not have been satisfied or waived on or prior to March 31, 1998 and
all other conditions have been satisfied or waived.
I-30
<PAGE> 185
The party desiring to terminate this Agreement pursuant to the preceding
clauses (b), (c), (d), (e), (f), (g), (h) or (i) shall give written notice of
such termination to the other party in accordance with Section 8.5, below.
7.2. Termination Fees and Rights. In recognition of the considerable time
and expense that the parties have expended and will expend in entering into this
Agreement, and pursuing the Merger and the other transactions contemplated
hereby, the following fees shall be payable and shall accrue in the event of
termination of this Agreement:
(a) To the extent that this Agreement is terminated solely pursuant to
Section 7.1(a), (b), (e), or (f) and provided a Triggering Event (as
hereinafter defined) has not occurred, no termination fees shall be payable
to any party, and this Agreement shall become void and of no effect with no
liability on the part of any party hereto (or any of its directors,
officers, employees, agents, or representatives); provided, that no such
termination shall relieve any party hereto from any liability under Section
8.1 or 8.7 or for any breach of this Agreement.
(b) In the event that this Agreement is terminated by BFP pursuant to
Section 7.1(c) or (i), WorldCom shall promptly pay to BFP a termination fee
equal to $40,000,000 by wire transfer of immediately available funds.
(c) In the event that this Agreement is terminated by WorldCom
pursuant to Section 7.1(d) or (g) or by BFP pursuant to Section 7.1(h), BFP
shall promptly pay to WorldCom a termination fee in an amount equal to
$40,000,000 by wire transfer of immediately available funds.
(d) In the event of the occurrence of any of the following events
("Triggering Events"):
(i) any other person shall have made a bona fide Acquisition
Proposal (whether to management, the directors or the stockholders of
BFP or otherwise), whether or not conditional, and BFP terminates this
Agreement pursuant to Section 7.1(b), notwithstanding satisfaction or
due waiver of all conditions to the Closing set forth in Sections 6.1,
6.2 and 6.3.6 (provided satisfaction or due waiver of the conditions
specified in Section 6.1.1 shall not be required if the failure thereof
is due to any breach of this Agreement by BFP or breach by a director of
BFP of his or her agreement referenced in Section 4.4 hereof), and a
transaction pursuant to or constituting a BFP Acquisition Agreement
shall be consummated by BFP with that person at any time before January
1, 1999;
(ii) BFP enters into a BFP Acquisition Agreement or the directors
or stockholders of BFP shall have authorized or approved the entering
into any such BFP Acquisition Agreement;
(iii) a transaction pursuant to or constituting a BFP Acquisition
Agreement shall be consummated by BFP at any time before January 1,
1999, except if this Agreement is terminated pursuant to (A) Section
7.1(a), (c), (e), (f) or (i) or (B) Section 7.1(b), notwithstanding
satisfaction or due waiver of all the conditions specified in Sections
6.3.1, 6.3.2, 6.3.3, 6.3.4, 6.3.5, 6.3.7 and 6.3.8 (provided
satisfaction or due waiver of the conditions specified in Section 6.3.8
shall not be required if the failure thereof is due to an act or
omission of WorldCom); or
(iv) the Board of Directors of BFP or any committee thereof
publicly proposes to decline to make, withdraw or amend or declines to
make, withdraws or amends its recommendation to BFP's stockholders to
adopt this Agreement;
WorldCom shall have the right, at its option to:
(A) terminate this Agreement if not previously terminated, and in the event
of such termination or a previous termination requiring payment of a termination
fee (including a termination pursuant to Section 7.1(b) described in Section
7.2(d)(i) or (iii), above), BFP shall promptly pay to WorldCom a termination fee
in the amount of $40,000,000 by wire transfer of immediately available funds
(but not in duplication of any termination fee previously paid by BFP pursuant
to Section 7.2(c)); and
I-31
<PAGE> 186
(B) in addition, have the right whether or not this Agreement is terminated,
exercisable by notice to BFP at any time not more than 180 days after WorldCom
is advised of the occurrence of a Triggering Event, to:
(i) extend the term of any or all outstanding contracts, leases,
tariffed services, or other commercial arrangements between BFP or any BFP
Subsidiary and WorldCom or any affiliate of WorldCom, for a period of not
more than five (5) years from the current termination dates; or
(ii) terminate, with 60 days' advance notice to BFP, any or all such
contracts, leases, tariffed services, or other commercial arrangements,
without early termination or other charges or penalties.
7.3. Procedure Upon Termination. In the event of termination pursuant to
this Article VII, the Merger shall be abandoned without further action by BFP or
WorldCom, provided that the agreements contained in Sections 7.2, 7.3, 8.1 and
8.7 hereof shall remain in full force and effect. If this Agreement is
terminated as provided herein, each party shall use its reasonable best efforts
to redeliver all documents, work papers and other material (including any copies
thereof) of any other party relating to the transactions contemplated hereby,
whether obtained before or after the execution hereof, to the party furnishing
the same. Nothing contained in this Agreement shall relieve any party from any
liability for any inaccuracy, misrepresentation or breach of this Agreement
prior to termination.
ARTICLE VIII
MISCELLANEOUS
8.1. Confidentiality. Unless (i) otherwise expressly provided in this
Agreement, (ii) required by applicable Law or any listing agreement with, or the
rules and regulations of, the NASD, (iii) necessary to secure any required
Consents as to which the other party has been advised, or (iv) consented to in
writing by WorldCom and BFP, this Agreement and any information or documents
furnished in connection herewith shall be kept strictly confidential by BFP and
the BFP Subsidiaries, WorldCom and the WorldCom Subsidiaries, and their
respective officers, directors, employees and agents. Prior to any disclosure
pursuant to the preceding sentence, the party intending to make such disclosure
shall consult with the other party regarding the nature and extent of the
disclosure. Subject to the preceding sentence, nothing contained herein shall
preclude disclosures to the extent necessary to comply with accounting, SEC and
other disclosure obligations imposed by applicable Law. To the extent required
by such disclosure obligations, WorldCom or BFP, after consultation with the
other party, may file with the SEC a Report on Form 8-K pursuant to the
Securities Exchange Act with respect to the Merger, which report may include,
among other things, financial statements and pro forma financial information
with respect to the other party. In connection with any filing with the SEC of a
registration statement or amendment thereto under the Securities Act, BFP or
WorldCom, after consultation with the other party, may include a prospectus
containing any information required to be included therein with respect to the
Merger, including, but not limited to, financial statements and pro forma
financial information with respect to the other party, and thereafter distribute
said prospectus. WorldCom and BFP shall cooperate with the other and provide
such information and documents as may be required in connection with any such
filings. In the event the Merger is not consummated, WorldCom and BFP shall
return to the other all documents furnished by the other and all copies thereof
made by such party and will hold in absolute confidence all information obtained
from the other party except to the extent (i) such party is required to disclose
such information by Law or such disclosure is necessary in connection with the
pursuit or defense of a claim, (ii) such information was known by such party
prior to such disclosure or was thereafter developed or obtained by such party
independent of such disclosure, (iii) such party received such information on a
non-confidential basis from a source, other than the other party, which is not
known by such party to be bound by a confidentiality obligation with respect
thereto or (iv) such information becomes generally available to the public or is
otherwise no longer confidential. Prior to any disclosure of information
pursuant to the exception in clause (i) of the preceding sentence, the party
intending to disclose the same shall so notify the party which provided the same
in order that such party may seek a protective order or other appropriate remedy
should it choose to do so.
I-32
<PAGE> 187
8.2. Amendment and Modification. This Agreement may be amended, modified or
supplemented only by a written agreement among BFP, WorldCom and Acquisition
Subsidiary.
8.3. Waiver of Compliance; Consents. Any failure of BFP on the one hand, or
WorldCom and Acquisition Subsidiary on the other hand, to comply with any
obligation, covenant, agreement or condition herein may be waived by WorldCom on
the one hand, or BFP on the other hand, only by a written instrument signed by
the party granting such waiver, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure. Whenever this Agreement requires or permits consent by or on behalf of
any party hereto, such consent shall be given in writing in a manner consistent
with the requirements for a waiver of compliance as set forth in this Section
8.3.
8.4. Survival of Representations and Warranties. The respective
representations and warranties of BFP and WorldCom contained herein or in any
certificates or other documents delivered prior to or at the Closing shall
survive the execution and delivery of this Agreement, notwithstanding any
investigation made or information obtained by the other party, but shall
terminate at the Effective Time.
8.5. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given when delivered in person, by
facsimile, receipt confirmed, or on the next business day when sent by overnight
courier or on the second succeeding business day when sent by registered or
certified mail (postage prepaid, return receipt requested) to the respective
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(i) if to BFP, to:
Brooks Fiber Properties, Inc.
425 Woods Mill Road South, Suite 300
Town & Country, Missouri 63017
Attention: James C. Allen
Vice Chairman and Chief Executive Officer
Telecopy: (314) 579-4654
with a copy to:
Bryan Cave LLP
211 North Broadway, Suite 3600
St. Louis, Missouri 63102-2750
Attention: John P. Denneen, Esq.
Telecopy: (314) 259-2020
and
(ii) if to WorldCom or Acquisition Subsidiary, to:
WorldCom, Inc.
515 East Amite Street
Jackson, Mississippi 39201-2702
Attention: Charles T. Cannada
Senior Vice President-Corporate Development
Telecopy: (601) 360-8615
with a copy to:
WorldCom, Inc.
10777 Sunset Office Drive, Suite 330
St. Louis, Missouri 63127
Attention: P. Bruce Borghardt, Esq.
General Counsel, Corporate Development
Telecopy: (314) 909-4101
I-33
<PAGE> 188
8.6. Binding Effect; Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns. Neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by any
of the parties hereto prior to the Effective Time without the prior written
consent of the other party hereto, except that Acquisition Subsidiary may assign
to WorldCom or any other WorldCom Subsidiary any and all rights, interests and
obligations of Acquisition Subsidiary under this Agreement; provided that any
assignment by Acquisition Subsidiary of all of its rights, interests and
obligations under this Agreement to WorldCom shall require that the Merger
contemplated by this Agreement shall then be structured as a direct merger of
BFP with and into WorldCom or any other structure approved by BFP.
8.7. Expenses. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such costs or expenses, subject to the rights of such party
contemplated under Section 7.2, above.
8.8. Governing Law. This Agreement shall be deemed to be made in, and in
all respects shall be interpreted, construed and governed by and in accordance
with the internal laws of, the State of Delaware, and the parties hereto consent
to the jurisdiction of the courts of or in the State of Delaware in connection
with any dispute or controversy relating to or arising out of this Agreement and
the transactions contemplated hereby.
8.9. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.10. Interpretation. The article and section headings contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not in any way affect the meaning or interpretation of
this Agreement. No rule of construction shall apply to this Agreement which
construes ambiguous language in favor of or against any party by reason of that
party's role in drafting this Agreement. As used in this Agreement, (i) the term
"person" shall mean and include an individual, a partnership, a joint venture, a
corporation, a limited liability company, a trust, an association, an
unincorporated organization, a Governmental Authority and any other entity; (ii)
the term "affiliate," with respect to any person, shall mean and include any
person controlling, controlled by or under common control with such person; and
(iii) the term "subsidiary" of any specified person shall mean any corporation
50 percent or more of the outstanding voting power of which, or any partnership,
joint venture, limited liability company or other entity 50 percent or more of
the total equity interest of which, is directly or indirectly owned by such
specified person.
8.11. Entire Agreement. This Agreement and the other agreements, documents
or instruments referred to herein or executed in connection herewith including,
but not limited to, the Schedules attached hereto, which Schedules are
incorporated herein by reference, embody the entire agreement and understanding
of the parties hereto in respect of the subject matter contained herein. There
are no restrictions, promises, representations, warranties, covenants, or
undertakings, other than those expressly set forth or referred to herein. This
Agreement supersedes all prior agreements and the understandings between the
parties with respect to such subject matter.
8.12. Severability. In case any provision in this Agreement or in any of
the other agreements, documents or instruments referred to herein shall be held
invalid, illegal or unenforceable in any jurisdiction, such provision shall be
modified or deleted, as to the jurisdiction involved, only to the extent
necessary to render the same valid, legal and enforceable, and the validity,
legality and enforceability of the remaining provisions hereof or thereof shall
not in any way be affected or impaired thereby nor shall the validity, legality
or enforceability of such provision be affected thereby in any other
jurisdiction.
8.13. Specific Performance. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions in this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. Accordingly, the parties further agree that each party shall be
entitled to an injunction or restraining order to prevent breaches hereof or
thereof and to enforce specifically the terms and provisions hereof or thereof
in any court of the United States or any state having jurisdiction, this being
in addition to any other right or remedy to which such party may be entitled
under this Agreement, at law or in equity.
I-34
<PAGE> 189
8.14. Third Parties. Nothing contained in this Agreement or in any
instrument or document executed by any party in connection with the transactions
contemplated hereby shall create any rights in, or be deemed to have been
executed for the benefit of, any person that is not a party hereto or thereto,
or, a successor or permitted assign of such a party; provided however, that the
parties hereto specifically acknowledge that the provisions of Sections 5.9 and
5.10, above, are intended to be for the benefit of, and shall be enforceable by,
the employees, officers and directors of BFP and/or the BFP Subsidiaries
affected thereby and their heirs and representatives.
8.15. Schedules. The Schedules in this Agreement shall be arranged in
separate parts corresponding to the numbered and lettered sections, and the
disclosure in any numbered or lettered part shall be deemed to relate to and to
qualify only the particular representation or warranty set forth in the
corresponding numbered or lettered section, and not any other representation or
warranty (unless an express and specific reference to any other Schedule which
clearly identifies the particular item being referred is set forth therein).
[Remainder of Page Intentionally Left Blank]
I-35
<PAGE> 190
IN WITNESS WHEREOF, WorldCom, Acquisition Subsidiary and BFP have caused
this Agreement to be signed and delivered by their respective duly authorized
officers as of the date first above written.
WORLDCOM, INC.
By /s/ BERNARD J. EBBERS
------------------------------------
Name: Bernard J. Ebbers
Title: President and Chief Executive
Officer
BV ACQUISITION, INC.
By /s/ BERNARD J. EBBERS
------------------------------------
Name: Bernard J. Ebbers
Title: President
BROOKS FIBER PROPERTIES, INC.
By /s/ JAMES C. ALLEN
------------------------------------
Name: James C. Allen
Title: Vice Chairman and Chief
Executive Officer
I-36
<PAGE> 191
APPENDIX II
SALOMON BROTHERS INC
Seven World Trade Center
New York, New York 10048
212-783-7000
------------------------
SALOMON BROTHERS
------------------------
September 30, 1997
Board of Directors
Brooks Fiber Properties, Inc.
425 Woods Mill Road South, Suite 300
Town & Country, MO 63017
Members of the Board
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of common stock, par value $0.01 per share ("Company
Common Stock"), of Brooks Fiber Properties, Inc. (the "Company"), of the
consideration to be received by such holders in connection with the proposed
merger (the "Merger") of the Company with BV Acquisition, Inc. ("Sub"), a wholly
owned subsidiary of WorldCom, Inc. ("Parent"), pursuant to an Agreement and Plan
of Merger, dated as of September 30, 1997 (the "Merger Agreement"), among the
Company, Parent and Sub. Upon the effectiveness of the Merger, each issued and
outstanding share of Company Common Stock (other than shares owned by the
Company or any wholly owned subsidiary of the Company) will be converted into
and represent the right to receive: (i) 1.65 shares of the common stock, par
value $0.01 per share ("Parent Common Stock"), of Parent, if the Average Trading
Price (as defined in the Merger agreement) of Parent Common Stock is greater
than or equal to $35.15 per share; (ii) a number of shares of Parent Common
Stock equal to the fraction determined by dividing $58.00 by the Average Trading
Price of Parent Common Stock, if the Average Trading Price of Parent Common
Stock is greater than or equal to $31.35 but less than $35.15 per share; or
(iii) 1.85 shares of Parent Common Stock, if the Average Trading Price of Parent
Common Stock is less than $31.35 per share (as adjusted pursuant to the Merger
Agreement, the "Exchange Ratio"). We understand that the Merger will be
accounted for as a pooling-of-interests in accordance with generally accepted
accounting principles as described in Accounting Principles Board Opinion Number
16.
In connection with rendering our opinion, we have reviewed certain publicly
available information concerning the Company and Parent and certain other
financial information concerning the Company and Parent, including financial
forecasts, that were provided to us by the Company and Parent, respectively. We
have discussed the past and current business operations, financial condition and
prospects of the Company and Parent with certain officers and employees of the
Company and Parent, respectively. In addition, we have reviewed information
provided to us by Parent regarding certain companies that Parent is currently
contemplating acquiring and the expected effects on Parent of such acquisitions,
if consummated. We have also considered such other information, financial
studies, analyses, investigations and financial, economic and market criteria
that we deemed relevant.
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of the information reviewed by us
for the purpose of this opinion and we have not assumed any responsibility for
independent verification of such information. With respect to the financial
forecasts of the Company and Parent, we have assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgements of the respective managements of the Company or Parent, and we
express no opinion with respect to such forecasts or the assumptions on which
they are based. We have
II-1
<PAGE> 192
SALOMON BROTHERS INC
September 30, 1997
Page 2
also assumed that the announced transaction among Parent, CompuServe Corporation
and America Online, Inc. will be consummated on substantially the same terms as
announced. We have not assumed any responsibility for any independent evaluation
or appraisal of any of the assets (including properties and facilities) or
liabilities of the Company or Parent. We were not asked to, and did not, solicit
other proposals to acquire the Company.
Our opinion is necessarily based upon conditions as they exist and can be
evaluated on the date hereof. Our opinion as expressed below does not imply any
conclusion as to the likely trading range for Parent Common Stock following the
consummation of the Merger, which may vary depending upon, among other factors,
tactics chosen by Parent in connection with proposed acquisitions, changes in
interest rates, dividend rates, market conditions, general economic conditions
and other factors that generally influence the price of securities. Our opinion
does not address the Company's underlying business decision to effect the
Merger, and we express no view on the effect on the Company of the Merger and
related transactions. Our opinion is directed only to the fairness, from a
financial point of view, of the Exchange Ratio to holders of Company Common
Stock and does not constitute a recommendation concerning how holders of Company
Common Stock should vote with respect to the Merger Agreement or the Merger.
We have acted as financial advisor to the Board of Directors of the Company
in connection with the Merger and will receive a fee for our services, a portion
of which was paid upon execution of our engagement letter with the Company, an
additional portion of which is payable upon execution of the definitive Merger
Agreement and the remainder of which is contingent upon consummation of the
Merger. In the ordinary course of business, we may actively trade the securities
of the Company and Parent for our own account and for the accounts of customers
and, accordingly, may at any time hold a long or short position in such
securities. We have previously rendered certain investment banking and financial
advisory services to the Company for which we have received customary
compensation. In addition, we currently are representing Parent in connection
with Parent's proposed acquisition of MCI Communications Corporation and have
previously rendered other investment banking and financial advisory services to
Parent, for which we will receive and have received customary compensation.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Exchange Ratio is fair to the holders of Company Common Stock
from a financial point of view.
Very truly yours,
/s/ SALOMON BROTHERS INC
------------------------------------
Salomon Brothers Inc
II-2
<PAGE> 193
APPENDIX III
<TABLE>
<S> <C>
[MERRILL LYNCH LOGO] Corporate and Institutional
Client Group
World Financial Center
North Tower
New York, New York 10281-1324
212 449 5025
FAX 212 449 9120
</TABLE>
December 22, 1997
Board of Directors
Brooks Fiber Properties, Inc.
425 Woods Mill Road South, Suite 300
Town & Country, MO 63017
Members of the Board of Directors:
Brooks Fiber Properties, Inc. (the "Company"), WorldCom, Inc. (the
"Acquiror") and BV Acquisition, Inc., a wholly-owned subsidiary of the Acquiror
(the "Acquisition Sub"), have entered into an Amended and Restated Agreement and
Plan of Merger dated as of October 1, 1997 (the "Agreement") pursuant to which
the Company will be merged with the Acquisition Sub in a transaction (the
"Merger") in which each outstanding share of Company common stock, par value
$0.01 per share (the "Company Shares"), will be converted into and represent the
right to receive 1.65 shares of common stock of the Acquiror (the "Acquiror
Shares"), subject to adjustment as described in the Agreement (the "Exchange
Ratio"). On November 9, 1997, the Acquiror entered into an Agreement and Plan of
Merger with MCI Communications Corporation ("MCI") (the "MCI/WorldCom Merger
Agreement"), providing for the merger (the "MCI/WorldCom Merger") of MCI with
and into a subsidiary of the Acquiror (the "MCI Merger Sub"), with MCI Merger
Sub surviving as a wholly-owned subsidiary of the Acquiror.
You have asked us, in our opinion, whether the Exchange Ratio is fair to
the holders of the Company Shares from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
1. Reviewed certain publicly available business and financial information
relating to the Company, the Acquiror and MCI as well as the
MCI/WorldCom Merger that we deemed to be relevant;
2. Reviewed certain information, including financial forecasts, relating to
the businesses, earnings, cash flow, assets, liabilities and prospects
of the Company furnished to us by the Company as well as the amount and
timing of cost savings and related expenses and synergies expected to
result from the Merger (the "Expected Synergies") furnished to us by
WorldCom;
3. Conducted discussions with members of senior management of the Company
and the Acquiror concerning the matters described in clauses 1 and 2
above, as well as the Company's businesses and prospects before and
after giving effect to the Merger and the Expected Synergies;
4. Reviewed the market prices and valuation multiples for the Company
Shares and the Acquiror Shares and compared them with those of certain
publicly traded companies that we deemed to be relevant;
5. Reviewed the results of operations of the Company and the Acquiror and
compared them with those of certain publicly traded companies that we
deemed to be relevant;
6. Compared the proposed financial terms of the Merger with the financial
terms of certain other transactions that we deemed to be relevant;
7. Reviewed the potential pro forma impact of the Merger and the
MCI/WorldCom Merger; and
8. Reviewed the Agreement.
III-1
<PAGE> 194
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of the Company, the Acquiror or MCI. In addition, we have not
assumed any obligation to conduct, nor have we conducted, any physical
inspection of the properties or facilities of the Company, the Acquiror or MCI.
We have also assumed, with your permission, that the Acquiror does not own any
Company Shares. With respect to the financial forecast information furnished to
or discussed with us by the Company, we have assumed that it has been reasonably
prepared and reflects the best currently available estimates and judgement of
the Company's management as to the expected future financial performance of the
Company. We have further assumed that the Merger will be accounted for as a
pooling of interests under generally accepted accounting principles and that it
will qualify as a tax-free reorganization for U.S. federal income tax purposes.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available to
us as of, the date hereof. We have assumed that in the course of obtaining the
necessary regulatory or other consents or approvals (contractual or otherwise)
for the Merger, no restriction, including any divestiture requirements or
amendments or modifications, will be imposed that will have an adverse effect on
the contemplated benefits of the Merger.
In connection with the preparation of this opinion, we have not been
authorized by the Company or the Board of Directors to solicit, nor have we
solicited, third-party indications of interest for the acquisition of all or any
part of the Company.
We will receive a fee from the Company upon delivery of the Opinion. In
addition, the Company has agreed to indemnify us for certain liabilities arising
out of our engagement. We have, in the past, provided financing services to the
Company and/or its affiliates and may continue to do so and have received, and
may receive, fees for rendering such services. We have also, in the past,
provided financial advisory and financial services to MCI and/or its affiliates
and may continue to do so and have received, and may receive, fees for rendering
such services. In addition, in the ordinary course of business, we may actively
trade the Company Shares and other securities of the Company, as well as the
Acquiror Shares and other securities of the Acquiror or shares and other
securities of MCI, for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company. Our opinion does not address the merits of the underlying decision by
the Company to engage in the Merger and does not constitute a recommendation to
any shareholder as to how such shareholder should vote on the proposed Merger.
We are not expressing any opinion herein as to the prices at which the
Acquiror Shares will trade following the consummation of the Merger or the
MCI/WorldCom Merger.
On the basis of and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Exchange Ratio is fair to the holders of the Company
Shares from a financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By /s/ MERRILL LYNCH, PIERCE
FENNER & SMITH INCORPORATED
-----------------------------------
III-2
<PAGE> 195
PART II
INFORMATION NOT REQUIRED IN PROXY STATEMENT/PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 14-2-202(b)(4) of the Georgia Business Corporation Code (the
"Georgia Code") provides that a corporation's articles of incorporation may
include a provision that eliminates or limits the personal liability of
directors for monetary damages to the corporation or its shareholders for any
action taken, or any failure to take any action, as a director; provided,
however, that the Section does not permit a corporation to eliminate or limit
the liability of a director for appropriating, in violation of his duties, any
business opportunity of the corporation, for acts or omissions including
intentional misconduct or a knowing violation of law, obtaining an improper
personal benefit, or voting for or assenting to an unlawful distribution
(whether as a dividend, stock repurchase or redemption, or otherwise) as
provided in Section 14-2-832 of the Georgia Code. Section 14-2-202(b)(4) also
does not eliminate or limit the rights of WorldCom or any shareholder to seek an
injunction or other nonmonetary relief in the event of a breach of a director's
duty to the corporation and its shareholders. Additionally, Section
14-2-202(b)(4) applies only to claims against a director arising out of his role
as a director, and does not relieve a director from liability arising from his
role as an officer or in any other capacity.
The provisions of Article Ten of WorldCom's Second Amended and Restated
Articles of Incorporation are similar in all substantive respects to those
contained in Section 14-2-202(b)(4) of the Georgia Code as outlined above.
Article Ten further provides that the liability of directors of WorldCom shall
be limited to the fullest extent permitted by amendments to Georgia law.
Sections 14-2-850 to 14-2-859, inclusive, of the Georgia Code govern the
indemnification of directors, officers, employees, and agents. Section 14-2-851
of the Georgia Code permits indemnification of a director of WorldCom for
liability incurred by him in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (including, subject to certain limitations, civil actions brought
as derivative actions by or in the right of WorldCom) in which he is made a
party by reason of being a director of WorldCom and for directors who, at the
request of WorldCom, act as directors, officers, partners, trustees, employees
or agents of another foreign or domestic corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise. The Section permits
indemnification if the director acted in good faith and reasonably believed (a)
in the case of conduct in his or her official capacity, that such conduct was in
the best interests of the corporation, (b) in all other cases other than a
criminal proceeding, such conduct was at least not opposed to the best interests
of the corporation, and (c) in the case of a criminal proceeding, if he had no
reasonable cause to believe his conduct was unlawful. If the required standard
of conduct is met, indemnification may include judgments, settlements,
penalties, fines or reasonable expenses (including attorneys' fees) incurred
with respect to a proceeding.
A Georgia corporation may not indemnify a director under Section 14-2-851
(1) in connection with a proceeding by or in the right of the corporation,
except for reasonable expenses incurred by such director in connection with the
proceeding if it is determined that such director met the relevant standard of
conduct set forth above, or (ii) in connection with any proceeding with respect
to conduct for which such director was adjudged liable on the basis that he or
she received an improper benefit.
Prior to indemnifying a director under Section 14-2-851 of the Georgia
Code, a determination must be made that the director has met the relevant
standard of conduct. Such determination must be made by: (i) a majority vote of
a quorum consisting of directors not at that time parties to the suit; (ii) a
duly designated committee of directors; (iii) duly selected special legal
counsel; or (iv) a vote of the shareholders, excluding shares owned by or voted
under the control of directors who are at the time parties to the suit.
A Georgia corporation may, before final disposition of a proceeding,
advance funds to pay for or reimburse the reasonable expenses incurred by a
director who is a party to a proceeding because he or she is a director,
provided that such director delivers to the corporation a written affirmation of
his or her good faith belief that he or she met the relevant standard of conduct
described in Section 14-2-851 of the Georgia Code, or that the proceeding
involves conduct for which such director's liability has been properly
eliminated by
II-1
<PAGE> 196
action of the corporation, and a written undertaking by the director to repay
any funds advanced if it is ultimately determined that such director was not
entitled to such indemnification. Section 14-2-852 of the Georgia Code provides
that directors who are successful with respect to any claim brought against
them, which claim is brought because they are or were directors of WorldCom, are
entitled to mandatory indemnification against reasonable expenses incurred in
connection therewith.
The Georgia Code also allows a Georgia corporation to indemnify directors
made a party to a proceeding without regard to the above-referenced limitations,
if authorized by the articles of incorporation or a bylaw, contract, or
resolution duly adopted by a vote of the shareholders of the corporation by a
majority of votes entitled to be cast, excluding shares owned or voted under the
control of the director or directors who are not disinterested, and to advance
funds to pay for or reimburse reasonable expenses incurred in the defense
thereof, subject to restrictions similar to the restrictions described in the
preceding paragraph; provided, however, that the corporation may not indemnify a
director adjudged liable (1) for any appropriation, in violation of his duties,
of any business opportunity of WorldCom, (2) for acts or omissions intentional
misconduct or a knowing violation of law, (3) for unlawful distributions under
Section 14-2-832 of the Georgia Code, or (4) for any transaction in which the
director obtained an improper personal benefit.
Section 14-2-857 of the Georgia Code provides that an officer of WorldCom
(but not an employee or agent generally) who is not a director has the mandatory
right of indemnification granted to directors under Section 14-2-852, as
described above. In addition, WorldCom may, as provided by WorldCom's Second
Amended and Restated Articles of Incorporation, Bylaws, general or specific
actions by its board of directors, or by contract, indemnify and advance
expenses to an officer, employee or agent who is not a director to the extent
that such indemnification is consistent with public policy.
The indemnification provisions of Article X of WorldCom's Bylaws and
Article Eleven of WorldCom's Second Amended and Restated Articles of
Incorporation are consistent with the foregoing provisions of the Georgia Code.
However, WorldCom's Second Amended and Restated Articles of Incorporation
prohibit indemnification of a director who did not believe in good faith that
his actions were in, or not contrary to, WorldCom's best interests. WorldCom's
Bylaws extend the indemnification available to officers under the Georgia Code
to employees and agents.
ITEM 21(A). EXHIBITS.
See Exhibit Index.
ITEM 21(B). FINANCIAL STATEMENT SCHEDULES.
All financial statement schedules of WorldCom and BFP which are required to
be included herein are included in the Annual Report of WorldCom on Form 10-K
for the fiscal year ended December 31, 1996 and the Annual Report of BFP on Form
10-K for the fiscal year ended December 31, 1996, respectively, which are
incorporated herein by reference.
ITEM 22. UNDERTAKINGS.
(1) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-2
<PAGE> 197
(2) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act") (and, where applicable, each filing of
an employee benefit plan's annual report pursuant to Section 15(d) of the
Exchange Act) that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(4) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(5) The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers and sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum
aggregate offering price set forth in "Calculation of
Registration Fee" table in the effective registration
statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
provided, however, that paragraphs 5(a)(i) and 5(a)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or 15(d) of the
Exchange Act that are incorporated by reference in the registration
statement.
(b) That, for the purposes of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(6) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer
II-3
<PAGE> 198
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(7) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (6) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415 under the
Securities Act, will be filed as a part of an amendment to the registration
statement and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offering therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 199
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Jackson, State of
Mississippi, on December 23, 1997.
WORLDCOM, INC.
By: /s/ SCOTT D. SULLIVAN
----------------------------------
Scott D. Sullivan
Chief Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Bernard J. Ebbers, John W. Sidgmore, Scott D. Sullivan and Charles T. Cannada
and each of them (with full power to each of them to act alone), his or her true
and lawful attorneys in fact and agents for him or her and on his or her behalf
and in his or her name, place and stead, in any and all capacities to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with exhibits and any and all other documents
filed with respect thereto, with the Securities and Exchange Commission (or any
other governmental or regulatory authority), granting unto said attorneys, and
each of them, full power and authority to do and to perform each and every act
and thing requisite and necessary to be done in and about the premises in order
to effectuate the same as fully to all intents and purposes as he or she might
or could do if personally present, hereby ratifying and confirming all that said
attorneys in fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ CARL J. AYCOCK Director December 23, 1997
- -----------------------------------------------------
Carl J. Aycock
/s/ MAX E. BOBBITT Director December 23, 1997
- -----------------------------------------------------
Max E. Bobbitt
/s/ BERNARD J. EBBERS Chairman, President and December 23, 1997
- ----------------------------------------------------- Chief Executive
Bernard J. Ebbers Officer and Director
(Principal Executive
Officer)
/s/ FRANCESCO GALESI Director December 23, 1997
- -----------------------------------------------------
Francesco Galesi
/s/ RICHARD R. JAROS Director December 23, 1997
- -----------------------------------------------------
Richard R. Jaros
/s/ STILES A. KELLETT, JR. Director December 23, 1997
- -----------------------------------------------------
Stiles A. Kellett, Jr.
</TABLE>
II-5
<PAGE> 200
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DAVID C. MCCOURT Director December 23, 1997
- -----------------------------------------------------
David C. McCourt
/s/ JOHN A. PORTER Director December 23, 1997
- -----------------------------------------------------
John A. Porter
/s/ JOHN W. SIDGMORE Vice Chairman of the December 23, 1997
- ----------------------------------------------------- Board, Chief
John W. Sidgmore Operations Officer and
Director
/s/ SCOTT D. SULLIVAN Chief Financial Officer December 23, 1997
- ----------------------------------------------------- and Director
Scott D. Sullivan (Principal Financial
Officer and Principal
Accounting Officer)
/s/ LAWRENCE C. TUCKER Director December 23, 1997
- -----------------------------------------------------
Lawrence C. Tucker
</TABLE>
II-6
<PAGE> 201
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 Amended and Restated Agreement and Plan of Merger by and
among WorldCom, Inc. ("WorldCom"), BV Acquisition, Inc.
and Brooks Fiber Properties, Inc. ("BFP"), dated as of
October 1, 1997 (included as Appendix I to the Proxy
Statement/Prospectus that is a part of this Registration
Statement)*
2.2 Purchase and Sale Agreement by and among America Online,
Inc., ANS Communications, Inc. and WorldCom dated as of
September 7, 1997 (incorporated herein by reference to
Exhibit 2.4 to WorldCom's Current Report on Form 8-K
dated September 7, 1997 (filed September 17, 1997) (File
0-11258))*
2.3 Agreement and Plan of Merger by and among WorldCom, TC
Investments Corp. and MCI Communications Corporation
dated as of November 9, 1997 (incorporated herein by
reference to Exhibit 2.1 to WorldCom's Current Report on
Form 8-K dated November 9, 1997 (filed November 12, 1997)
(File 0-11258))*
2.4 Agreement by and among British Telecommunications plc, MCI
Communications Corporation and WorldCom dated as of
November 9, 1997 (incorporated herein by reference to
Exhibit 99.1 to WorldCom's Current Report on Form 8-K
dated November 9, 1997 (filed November 12, 1997) (File
0-11258))*
2.5 Agreement and Plan of Merger by and among WorldCom, H&R
Block, Inc., H&R Block Group, Inc., CompuServe
Corporation and Walnut Acquisition Company L.L.C., dated
as of September 7, 1997 (incorporated herein by reference
to Exhibit 2.1 to WorldCom's Current Report on Form 8-K
dated September 7, 1997 (filed September 17, 1997) (File
0-11258))*
2.6 Stockholders Agreement by and among H&R Block, Inc., H&R
Block Group, Inc., and WorldCom dated as of September 7,
1997 (incorporated herein by reference to Exhibit 2.2 to
WorldCom's Current Report on Form 8-K dated September 7,
1997 (filed September 17, 1997) (File 0-11258))*
2.7 Standstill Agreement by and among H&R Block, Inc., H&R Block
Group, Inc. and WorldCom, dated as of September 7, 1997
(incorporated herein by reference to Exhibit 2.3 to
WorldCom's Current Report on Form 8-K dated September 7,
1997 (filed September 17, 1997) (File 0-11258))*
4.1 Second Amended and Restated Articles of Incorporation of
WorldCom (including preferred stock designations) as of
December 31, 1996 (incorporated herein by reference to
Exhibit 3.1 to WorldCom's Current Report on Form 8-K,
dated December 31, 1996 (File No. 0-11258))
4.2 Restated Bylaws of WorldCom (incorporated herein by
reference to Exhibit 4.2 to WorldCom's Annual Report on
Form 10-K filed by WorldCom (File No. 0-11258) for the
year ended December 31, 1996)
4.3 Deposit Agreement between WorldCom, The Bank of New York and
the holders from to time of the Depositary Shares
representing 1/100 of a share of WorldCom Series A
Preferred Stock (the "WorldCom Depositary Shares")
(incorporated herein by reference to Exhibit 4.5 to
WorldCom's Registration Statement on Form S-4 (File No.
333-16015))
4.4 Form of certificate representing WorldCom Depositary Shares
(attached as Exhibit A to the Deposit Agreement filed as
Exhibit 4.3 hereto)
</TABLE>
II-7
<PAGE> 202
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.5 Rights Agreement dated as of August 25, 1996 between
WorldCom and The Bank of New York, which includes the
form of Certificate of Designations, setting forth the
terms of the Series 3 Junior Participating Preferred
Stock, par value $.01 per share, as Exhibit A, the form
of Rights Certificate as Exhibit B and the Summary of
Preferred Stock Purchase Rights as Exhibit C
(incorporated herein by reference to Exhibit 4 to the
Current Report on Form 8-K dated August 26, 1996 (as
amended) filed by WorldCom with the Securities and
Exchange Commission on August 26, 1996 (File No. 0-11258)
4.6 Amendment No. 1 To Rights Agreement dated as of May 22, 1997
by and between WorldCom. and The Bank of New York, as
Rights Agent (incorporated herein by reference to Exhibit
4.2 to WorldCom's Current Report on Form 8-K dated May
22, 1997 (filed June 6, 1997) (File No. 0-11258))
4.7 Form of 7.55% Senior Note due 2004 (incorporated herein by
reference to Exhibit 4.1 to WorldCom's Current Report on
Form 8-K dated March 26, 1997 (File No. 0-11258))
4.8 Form of 7.75% Senior Note due 2007 (incorporated herein by
reference to Exhibit 4.2 to WorldCom's Current Report on
Form 8-K dated March 26, 1997 (File No. 0-11258))
4.9 Form of 7.75% Senior Note due 2027 (incorporated herein by
reference to Exhibit 4.3 to WorldCom's Current Report on
Form 8-K dated March 26, 1997 (File No. 0-11258))
4.10 Senior Indenture dated March 1, 1997 by and between
WorldCom, Inc. and Mellon Bank, N.A., as trustee
(incorporated herein by reference to Exhibit 4.6 to
WorldCom's Form 10-Q for the period ended March 31, 1997
(File No. 0-11258))
4.11 Form of First Supplemental Indenture of WorldCom to Mellon
Bank, N.A. relating to 9 3/8% Notes Due 2004 and 8 7/8%
Senior Notes Due 2006 (including form of 9 3/8% Senior
Note Due 2004 attached as Exhibit A thereto and form of
8 7/8% Senior Note Due 2006 attached as Exhibit B
thereto) (incorporated herein by reference to Exhibit 4.9
to WorldCom's Registration Statement on Form S-4
(Registration No. 333-27345))
4.12 Facility A Revolving Credit Agreement among WorldCom, Inc.,
NationsBank of Texas, N.A. (Managing Agent and
Administrative Agent), Bank of America NT & SA, Bank of
Montreal, The Bank of New York, The Bank of Nova Scotia,
Bank of Tokyo-Mitsubishi Trust Company, Barclays Bank
PLC, Canadian Imperial Bank of Commerce, The Chase
Manhattan Bank, Citibank, N.A., Credit Lyonnais New York
Branch, First Union National Bank, Fleet National Bank,
The Industrial Bank of Japan, Limited, Atlanta Agency,
Morgan Guaranty Trust Company of New York, Royal Bank of
Canada, and Toronto Dominion (Texas), Inc. (Agents) and
the Lenders named therein (Facility A Lenders), dated as
of July 3, 1997 (incorporated herein by reference to
Exhibit 10.1 to WorldCom's Current Report on Form 8-K
dated June 30, 1997 (File No. 0-11258))
</TABLE>
II-8
<PAGE> 203
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.13 Facility B Revolving Credit and Term Loan Agreement among
WorldCom, Inc., NationsBank of Texas, N.A. (Managing
Agent and Administrative Agent), Bank of America NT & SA,
Bank of Montreal, The Bank of New York, The Bank of Nova
Scotia, Bank of Tokyo-Mitsubishi Trust Company, Barclays
Bank PLC, Canadian Imperial Bank of Commerce, The Chase
Manhattan Bank, Citibank, N.A., Credit Lyonnais New York
Branch, First Union National Bank, Fleet National Bank,
The Industrial Bank of Japan, Limited, Atlanta Agency,
Morgan Guaranty Trust Company of New York, Royal Bank of
Canada, and Toronto Dominion (Texas), Inc. (Agents) and
the Lenders named therein (Facility B Lenders), dated as
of July 3, 1997 (incorporated herein by reference to
Exhibit 10.2 to WorldCom's Current Report on Form 8-K
dated June 30, 1997 (File No. 0-11258))
5.1 Validity Opinion of WorldCom Counsel
8.1 Tax Opinion of Bryan Cave LLP
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Arthur Anderson LLP
23.3 Consent of Coopers & Lybrand LLP
23.4 Consent of Arthur Andersen LLP
23.5 Consent of KPMG Peat Marwick LLP
23.6 Consent of Price Waterhouse LLP
23.7 Consent of Bryan Cave LLP (included in Exhibit 8.1)
23.8 Consent of WorldCom Counsel (included in Exhibit 5.1)
23.9 Consent of Salomon Brothers Inc
23.10 Consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated
24.1 Power of Attorney (included in Signature Page)
99.1 Form of Proxy Card for BFP Special Meeting
</TABLE>
- ---------------
* The Registrant hereby agrees to furnish supplementally a copy of any omitted
schedules to this Agreement to the Securities and Exchange Commission upon its
request.
II-9
<PAGE> 1
EXHIBIT 5.1
December 22, 1997
Board of Directors of
WorldCom, Inc.
515 East Amite Street
Jackson, Mississippi 39201
Ladies and Gentlemen:
I am General Counsel -- Corporate Development of WorldCom, Inc., a Georgia
corporation (the "Company"), and have acted as counsel in connection with a
Registration Statement on Form S-4 (the "Registration Statement"; capitalized
terms used herein and not otherwise defined herein are used as therein defined)
to be filed with the Securities and Exchange Commission under the Securities Act
of 1933, as amended (the "Securities Act"), relating to the merger (the
"Merger") of a wholly-owned subsidiary of the Company with and into Brooks Fiber
Properties, Inc., a Delaware corporation ("BFP"), and to the registration under
the Securities Act of a maximum of 77,771,823 shares of the common stock, par
value $.01 per share, of the Company (the "Company Common Stock"), and
associated preferred stock purchase rights, to be issued pursuant to the Merger
to the holders of the common stock, $.01 par value, of BFP.
In connection herewith, I have examined and relied without investigation as
to matters of fact upon the Registration Statement, including the Proxy
Statement/Prospectus contained therein, the Second Amended and Restated Articles
of Incorporation, as amended, and Bylaws of the Company, certificates of public
officials, certificates and statements of the officers of the Company, and such
other documents, corporate records, opinions and instruments as I have deemed
necessary or appropriate to enable me to render the opinions expressed below. I
have assumed the genuineness of all signatures appearing on documents examined
by me, the authenticity of documents submitted to me as originals and the
conformity to authentic original documents of all documents submitted to me as
certified or photostatic copies. I have also assumed the due authorization,
execution and delivery of all documents.
Based upon the foregoing, and in reliance thereon and subject to the
qualifications and limitations stated herein, I am of the following opinions:
1. The Company is a corporation validly existing under the laws of the
State of Georgia; and
2. When the conditions to consummation of transactions contemplated by the
BFP Merger Agreement shall have been satisfied or waived, including, without
limitation:
a) the shareholders of BFP shall have approved and adopted the BFP
Merger Agreement at the Special Meeting;
(b) Articles of Merger shall have been filed with the Secretary of
State of the State of Delaware to consummate the Merger; and
(c) the shares of Company Common Stock to be issued in connection with
the Merger shall have been issued in accordance with the terms of the BFP
Merger Agreement, then the Company Common Stock will be validly issued,
fully paid and non-assessable.
This opinion is not rendered with respect to any laws other than the latest
codification of the Georgia Business Corporation Code (the "GBCC") available to
me. I note that the BFP Merger Agreement provides that it shall be deemed to be
made in, and in all respects shall be interpreted, construed and governed by and
in accordance with, the internal laws of the State of Delaware. In rendering the
opinions expressed herein I have assumed that such matters are governed
exclusively by the GBCC and I express no opinion as to which law any court
construing the BFP Merger Agreement would apply. This opinion has not been
prepared by an attorney admitted to practice in Delaware or Georgia.
<PAGE> 2
I hereby consent to the filing of this opinion as Exhibit 5.1 to the
aforesaid Registration Statement on Form S-4. I also consent to your filing
copies of this opinion as an exhibit to the Registration Statement with agencies
of such states as you deem necessary in the course of complying with the laws of
such states regarding the offering and sale of the Company Common Stock. In
giving this consent, I do not admit that I am in the category of persons whose
consent is required under Section 7 of the Securities Act or the rules and
regulations of the Commission.
Very truly yours,
/s/ P. BRUCE BORGHARDT
------------------------------------
P. Bruce Borghardt
General Counsel -- Corporate
Development
<PAGE> 1
EXHIBIT 8.1
[BRYAN CAVE LLP LETTERHEAD]
December 23, 1997
Brooks Fiber Properties, Inc.
425 Woods Mill Road South, Suite 300
Town & Country, MO 63017
Ladies and Gentlemen:
We have acted as special counsel for Brooks Fiber Properties, Inc., a
Delaware corporation ("BFP"), in connection with the Amended and Restated
Agreement and Plan of Merger dated as of October 1, 1997 (the "Merger
Agreement") by and among WorldCom, Inc., a Georgia corporation ("WorldCom"), BV
Acquisition, Inc., a Delaware corporation and a wholly owned subsidiary of
WorldCom ("Acquisition Subsidiary"), and BFP. Capitalized terms which are not
defined herein are used herein as defined in the Merger Agreement.
Upon consummation of the Merger of Acquisition Subsidiary with and into BFP
as provided in the Merger Agreement, Acquisition Subsidiary's separate existence
will terminate and BFP will continue as the Surviving Corporation and as a
wholly-owned subsidiary of WorldCom. As a result of the Merger, (i) each issued
and outstanding share of BFP Common Stock will be converted into the right to
receive the Merger Consideration, (ii) each share of BFP Common Stock that is
held as a treasury share by BFP or any wholly owned subsidiary of BFP, if any,
will be cancelled and retired and shall cease to exist and no Merger
Consideration shall be delivered will respect thereto, and (iii) each share of
common stock of Acquisition Subsidiary issued and outstanding immediately prior
to the Merger shall be converted into and become one fully paid and
nonassessable share of common stock of the Surviving Corporation.
In connection with this opinion, we have examined and are familiar with
originals and copies, certified or otherwise identified to our satisfaction, of
(i) the Merger Agreement, (ii) the Registration Statement on Form S-4 under the
Securities Act which WorldCom proposes to file with the SEC and the
Prospectus/Proxy Statement included therein, and (iii) such other documents as
we have deemed necessary or appropriate in order to enable us to render this
opinion. In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals and the conformity to original documents of all
documents submitted to us as copies or drafts.
Subject to (i) the Merger being consummated in the manner described in the
Merger Agreement, (ii) the accuracy of the facts concerning the Merger that have
come to our attention during our engagement, and (iii) certain representations
to be made by WorldCom and BFP in connection with the issuance of our opinion,
including the representations contained in the Merger Agreement and in their
respective letters to us dated as of the date hereof, we are of the opinion that
(i) the discussion in the Prospectus/Proxy Statement under the heading "PLAN OF
MERGER -- Certain Federal Income Tax Consequences" is a fair and accurate
summary of the material U.S. Federal income tax consequences of the Merger and
(ii) the Merger will be treated for U.S. Federal income tax purposes as a
reorganization within the meaning of Sec-
<PAGE> 2
tion 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). We
express no opinion as to whether such discussion addresses all of the U.S.
federal income tax consequences of the Merger. In addition, we express no
opinion as to other U.S. federal, state, local, or foreign tax consequences of
the Merger. Further, there can be no assurances that any of the opinions
expressed herein will be accepted by the IRS, or if challenged, by a court.
In rendering our opinion, we have considered the applicable provisions of
the Code, Treasury Department regulations promulgated thereunder, pertinent
judicial authorities, interpretative rulings of the IRS and such other
authorities as we have considered relevant. It should be noted that statutes,
regulations, judicial decisions and administrative interpretations are subject
to change at any time (possibly with retroactive effect). A change in the
authorities or the facts, information, covenants, statements, representations,
or assumptions upon which our opinion is based could affect our conclusions.
This opinion is expressed as of the date hereof, and we are under no obligation
to supplement or revise our opinion to reflect any changes (including any
changes that have retroactive effect) (i) in applicable statutes, regulations,
judicial decisions or administrative interpretations, or (ii) that would cause
any statement, representation or assumption herein to no longer be true or
correct.
This letter is furnished to you solely for use in connection with the
Merger and is not to be used, circulated, quoted, or otherwise referred to for
any other purpose (except as provided in the next sentence) without our express
written permission. We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement and the reference to our firm under the
caption "LEGAL MATTERS" in the Prospectus/Proxy Statement. In giving such
consent, we do not thereby admit that we are in the category of persons whose
consent is required under Section 7 of the Securities Act or the rules and
regulations of the SEC thereunder.
Sincerely,
/s/ BRYAN CAVE LLP
------------------------------------
Bryan Cave LLP
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement on Form S-4, of our report dated
February 26, 1997, included in WorldCom, Inc.'s Form 10-K for the year ended
December 31, 1996 and to all references to our Firm included in this
registration statement.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Jackson, Mississippi
December 18, 1997.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement on Form S-4, of our reports dated
February 20, 1997, on the Consolidated Financial Statements of MFS
Communications Company, Inc. included in WorldCom, Inc.'s Current Report on Form
8-K dated August 25, 1996, as amended by Form 8-K/A filed on December 19, 1997,
and to all references to our Firm included in this registration statement.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Omaha, Nebraska,
December 18, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement
on Form S-4 (File No. ) of WorldCom, Inc. of our reports dated
February 14, 1996, on our audits of the consolidated financial statements of MFS
Communications Company, Inc. as of December 31, 1995 and for each of the three
and two years in the period ended December 31, 1995 which reports are included
in WorldCom Inc.'s Current Report on Form 8-K/A dated August 25, 1996 (as
amended on November 4, 1996 and December 19, 1997). We also consent to the
reference to our Firm under the caption "Experts."
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Omaha, Nebraska
December 19, 1997
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement on Form S-4, of our report dated
January 31, 1996, on the Consolidated Financial Statements of UUNET
Technologies, Inc. included in WorldCom, Inc.'s Current Report on Form 8-K dated
August 25, 1996, as amended by Form 8-K/A filed on November 4, 1996, and to all
references to our Firm included in this registration statement.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Washington, D.C.,
December 18, 1997.
<PAGE> 1
EXHIBIT 23.5
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Brooks Fiber Properties, Inc.:
We consent to the use of our reports incorporated herein by reference and
to the reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
St. Louis, Missouri
December 22, 1997
<PAGE> 1
EXHIBIT 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of WorldCom, Inc.
of our report dated January 27, 1997, which appears on page 30 of MCI
Communications Corporation's ("MCI") 1996 Annual Report to Stockholders, on
MCI's financial statements for the year ended December 31, 1996, which are
included in Exhibit 13 to MCI's Current Report on Form 8-K dated February 10,
1997 ("Current Report"). We also consent to the incorporation by reference of
our report on the Financial Statement Schedule, which is included as Exhibit
99(c) to the Current Report. We also consent to the reference to us the heading
"Experts" in such Prospectus.
PRICE WATERHOUSE LLP
December 22, 1997
Washington, D.C.
<PAGE> 1
EXHIBIT 23.9
CONSENT OF SALOMON BROTHERS INC
We hereby consent to the use of our name in, to the description of our
opinion letter under the caption "PLAN OF MERGER -- Opinions of BFP's Financial
Advisors -- Salomon Brothers" in, and to the inclusion of our opinion letter as
Appendix II to, the Proxy Statement/Prospectus of Brooks Fibers Properties, Inc.
and WorldCom, Inc. which Proxy Statement/Prospectus is part of the Registration
Statement on Form S-4 of WorldCom, Inc. By giving such consent, we do not
thereby admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "expert" as used in, or that we come
within the category of persons whose consent is required under, the Securities
Act of 1933 or the rules and regulations of the Securities and Exchange
Commission promulgated thereunder.
SALOMON BROTHERS INC
By: /s/ TERENCE KAWAJA
----------------------------------
Name: Terence G. Kawaja
Title: Managing Director
New York, New York
December 22, 1997
<PAGE> 1
EXHIBIT 23.10
[MERRILL LYNCH LOGO]
We hereby consent to the use of our opinion letter dated December 22, 1997
to the Board of Directors of Brooks Fiber Properties, Inc. included as Appendix
III to the Proxy Statement/Prospectus which forms a part of the Registration
Statement on Form S-4 relating to the proposed merger of a wholly-owned
subsidiary of WorldCom, Inc., with and into Brooks Fiber Properties, Inc., and
to the references to such opinion in such Proxy Statement/Prospectus in the
Chairman's Letter to Stockholder, and under the captions "Summary -- Opinions of
BFP's Financial Advisors", and "Plan of Merger -- Opinions of BFP's Financial
Advisors". In giving such consent, we do not admit that we come within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended, or the rules and regulations of the Securities and
Exchange Commission thereunder, nor do we thereby admit that we are experts with
respect to any part of such Registration Statement within the meaning of the
term "experts" as used in the Securities Act of 1933, as amended, or the rules
and regulations of the Securities and Exchange Commission thereunder.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/ MICHAEL E. PURVES
-------------------------------------
Vice President
Investment Banking
December 22, 1997
<PAGE> 1
EXHIBIT 99.1
- --------------------------------------------------------------------------------
BROOKS FIBER PROPERTIES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert A. Brooks, James C. Allen and David
L. Solomon, or any one of them, the true and lawful attorneys in fact, agents
and proxies of the undersigned to represent the undersigned at the Special
Meeting of the Stockholders of BROOKS FIBER PROPERTIES, INC. ("BFP") to be held
on Thursday, January 29, 1998, commencing at 10:00 a.m., St. Louis time, in the
Main Dining Room on the 16th Floor of the St. Louis Club, 7701 Forsyth, St.
Louis, Missouri 63105, and at any postponement or adjournment of said meeting,
and to vote all the shares of Common Stock of BFP standing on the books of BFP
in the name of the undersigned as specified below and in the discretion of any
such person on such other business as may properly come before the meeting and
any postponement or adjournment thereof.
Approval and Adoption of the Amended and Restated Agreement and Plan of
Merger dated as of October 1, 1997 (the "BFP Merger Agreement") by and among
WorldCom, Inc., BV Acquisition, Inc. and BFP.
<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
THE BOARD OF DIRECTORS OF BFP RECOMMENDS A VOTE FOR THE
APPROVAL AND ADOPTION OF THE BFP MERGER AGREEMENT.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SAID SPECIAL
MEETING AND ACCOMPANYING PROXY STATEMENT.
THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THIS
PROXY WILL BE VOTED FOR APPROVAL AND ADOPTION OF THE BFP MERGER AGREEMENT.
Dated this __ day of January, 1998
-----------------------------------
-----------------------------------
(If Stock is owned in joint names,
both owners must sign, or if owned
by a corporation, partnership or
trust, this Proxy must be signed by
an authorized officer, partner or
trustee.) If the address at left is
incorrect, please write in the
correct information.
PLEASE SIGN AS REGISTERED AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE TO:
CHASEMELLON SHAREHOLDER SERVICES, P.O. BOX 3316,
SOUTH HACKENSACK, N.J. 07606-1016
- --------------------------------------------------------------------------------
