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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1996
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to _________________
Commission File Number 0-11258
WORLDCOM, INC.
(Exact name of registrant as specified in its charter)
Georgia 58-1521612
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
515 East Amite Street, Jackson, Mississippi 39201-2702
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (601) 360-8600
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
SERIES A 8% CUMULATIVE CONVERTIBLE PREFERRED STOCK, $.01 PAR VALUE
SERIES B CONVERTIBLE PREFERRED STOCK, $.01 PAR VALUE
DEPOSITARY SHARES (EACH REPRESENTING 1/100TH INTEREST IN A SHARE OF
SERIES A 8% CUMULATIVE CONVERTIBLE PREFERRED STOCK)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 3, 1997 was:
Common Stock, $.01 par value: $21,804,886,376
Series A 8% Cumulative Convertible Preferred Stock (represented by Depositary
Shares): $863,239,800
Series B Convertible Preferred Stock: $27,192,508
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
--- ---
There were 891,860,640 shares of the registrant's common stock outstanding as
of March 3, 1997.
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GLOSSARY
AT&T -- AT&T CORP. -- An IXC which provides interexchange services and
facilities on a nationwide and international basis.
AT&T DIVESTITURE DECREE -- Entered on August 24, 1982, by the United States
District Court for the District of Columbia. The AT&T Divestiture Decree,
among other things, ordered AT&T to divest its wholly owned BOCs from its Long
Lines Division and manufacturing operations and generally prohibited BOCs from
providing long distance telephone service between LATAs.
ATM -- ASYNCHRONOUS TRANSFER MODE -- An information transfer standard that is
one of a general class of packet technologies that relay traffic by way of an
address contained within the first five bytes of a standard 53-byte long packet
or cell. The ATM format can be used by many different information systems,
including LANs, to deliver traffic at varying rates, permitting a mix of data,
voice and video.
ACCESS CHARGES -- Expenses incurred by an IXC and paid to LECs for accessing
the local networks of the LECs in order to originate and terminate long
distance calls and provide the customer connection for private line services.
BOC -- BELL SYSTEM OPERATING COMPANY -- A local exchange carrier owned by any
of the seven Regional Bell Operating Companies, which are holding companies
established following the AT&T Divestiture Decree to serve as parent companies
for the BOCs.
BACKBONE -- A centralized high-speed network that interconnects smaller,
independent networks.
BANDWIDTH -- The number of bits of information which can move through a
communications medium in a given amount of time.
CAP -- COMPETITIVE ACCESS PROVIDER -- A company that provides its customers
with an alternative to the LEC for local transport of private line and special
access telecommunications services.
CENTRAL OFFICES -- The switching centers or central switching facilities of the
LECs.
CO-CARRIER STATUS -- A regulatory scheme under which the incumbent LEC is
required to integrate new, competing providers of local exchange service, into
the systems of traffic exchange, inter-carrier compensation, and other
inter-carrier relationships that already exist among LECs in most
jurisdictions.
COLLOCATION -- The ability of a CAP to connect its network to the LEC's central
offices. Physical collocation occurs when a CAP places its network connection
equipment inside the LEC's central offices. Virtual collocation is an
alternative to physical collocation pursuant to which the LEC permits a CAP to
connect its network to the LEC's central offices on comparable terms, even
though the CAP's network connection equipment is not physically located inside
the central offices.
DS-3 -- A data communications circuit capable of transmitting data at 45
megabits per second (sometimes called a T-3).
DEDICATED -- Telecommunications lines dedicated or reserved for use by
particular customers.
DIGITAL -- A method of storing, processing and transmitting information through
the use of distinct electronic or optical pulses that represent the binary
digits 0 and 1. Digital transmission and switching technologies employ a
sequence of these pulses to represent information as opposed to the
continuously variable analog signal. The precise digital numbers minimize
distortion (such as graininess or snow in the case of video transmission, or
static or other background distortion in the case of audio transmission).
EQUAL ACCESS -- Connection provided by a LEC permitting a customer to be
automatically connected to the IXC of the customer's choice when the customer
dials "1".
ETHERNET -- A local area network technology used for connecting computers,
printers, workstations, terminals, etc., within the same building. Ethernet
typically operates over twisted wire or coaxial cable at speeds up to 10
megabits per second. Ethernet is the most popular LAN technology.
FCC -- Federal Communications Commission.
FDDI -- FIBER DISTRIBUTED DATA INTERFACE -- Based on fiber optics, FDDI is a
100 megabit per second Local Area Network technology used to connect computers,
printers, and workstations at very high speeds. FDDI is also used as backbone
technology to interconnect other LANs.
IXC -- INTEREXCHANGE CARRIER -- A long distance carrier providing services
between local exchanges.
INBOUND "800" SERVICE -- A service that assesses long distance telephone
charges to the called party.
INTERCONNECTION DECISIONS -- Rulings by the FCC announced in September 1992
and August 1993, which require the BOCs and most other large LECs to provide
interconnection in LEC central offices to any CAP, long distance carrier or end
user seeking such interconnection for the provision of interstate special
access and switched access transport services.
INTERNET --A global collection of interconnected computer networks which use
TCP/IP, a common communications protocol.
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LANS -- LOCAL AREA NETWORKS -- The interconnection of computers for the
purpose of sharing files, programs and various devices such as printers and
high-speed modems. LANs may include dedicated computers or file servers that
provide a centralized source of shared files and programs.
LATAS -- LOCAL ACCESS AND TRANSPORT AREAS -- The approximately 200 geographic
areas defined pursuant to the AT&T Divestiture Decree. The BOCs are generally
prohibited from providing long distance service between the LATA in which they
provide local exchange services, and any other LATA.
LEC -- LOCAL EXCHANGE CARRIER -- A company providing local telephone services.
Each BOC is a LEC.
LINE COSTS -- Primarily includes the sum of access charges and transport
charges.
LOCAL EXCHANGE -- A geographic area generally determined by a PUC, in which
calls generally are transmitted without toll charges to the calling or called
party.
LOCAL NUMBER PORTABILITY -- The ability of an end user to change Local
Exchange Carriers while retaining the same telephone number.
MCI -- MCI COMMUNICATIONS CORPORATION -- An IXC which provides interexchange
services and facilities on a nationwide and international basis.
NETWORK SWITCHING CENTER -- A location where installed switching equipment
routes long distance calls and records information with respect to calls such
as the length of the call and the telephone numbers of the calling and called
parties.
NETWORK SYSTEMS INTEGRATION -- Involves the creation of turnkey
telecommunications networks and systems including: (i) route and site
selection; (ii) rights of way and legal authorizations and/or acquisition;
(iii) design and engineering of the system, including technology and vendor
assessment and selection, determining fiber optic circuit capacity, and
establishing reliability/flexibility standards; and (iv) project and
construction management, including contract negotiations, purchasing and
logistics, installation as well as testing.
PUC -- PUBLIC UTILITY COMMISSION -- A state regulatory body empowered to
establish and enforce rules and regulations governing public utility companies
and others, such as the Company, within the state (sometimes referred to as
Public Service Commissions, or PSCs).
PUBLIC SWITCHED NETWORK -- That portion of a LEC's network available to all
users generally on a shared basis (i.e., not dedicated to a particular user).
Traffic along the public switched network is generally switched at the LEC's
central offices.
RBOC -- REGIONAL BELL OPERATING COMPANY -- Any of seven regional Bell holding
companies which the AT&T Divestiture Decree established to serve as parent
companies for the BOCs.
RECIPROCAL COMPENSATION -- The same compensation of a new competitive local
exchange carrier for termination of a local call by the BOC on its network, as
the new competitor pays the BOC for termination of local calls on the BOC
network.
SETTLEMENT RATES -- The rates paid to foreign carriers by United States
international carriers to terminate outbound (from the United States) switched
traffic and by foreign carriers to United States international carriers to
terminate inbound (to the United States) switched traffic.
SPRINT -- SPRINT CORPORATION -- An IXC which provides interexchange services
and facilities on a nationwide and international basis.
TCP/IP -- TRANSMISSION CONTROL PROTOCOL/INTERNET PROTOCOL -- A suite of network
protocols that allows computers with different architectures and operating
system software to communicate with other computers on the Internet.
T-1 -- A data communications circuit capable of transmitting data at 1.5
megabits per second.
TARIFF -- The schedule of rates and regulations set by communications common
carriers and filed with the appropriate federal and state regulatory agencies;
the published official list of charges, terms and conditions governing
provision of a specific communications service or facility, which functions in
lieu of a contract between the Subscriber or user and the supplier or carrier.
TOKEN RING -- A local area network technology used to interconnect personal
computers, file servers, printers, and other devices. Token Ring LANs
typically operate at either 4 megabits per second or 16 megabits per second.
TRANSPORT CHARGES -- Expenses paid to facilities-based carriers for
transmission between or within LATAs.
WORLD WIDE WEB OR WEB -- A collection of computer systems supporting a
communications protocol that permits multi-media presentation of information
over the Internet.
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TABLE OF CONTENTS
PART I
<TABLE>
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Page
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<S> <C>
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . 17
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters . . . . . . . . . 17
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . 27
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . 27
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . 32
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . 34
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K . . . . . . . . . . . . . 34
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Index to Financial Statements and Financial Statement Schedule . . . . . . . . . . . . . . . . . . . . F-1
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-1
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL
WorldCom, Inc., a Georgia corporation ("WorldCom" or the "Company"), is one of
the four largest long distance telecommunications companies in the United
States based on 1995 revenues. The Company provides telecommunications
services to business, government, telecommunications companies and consumer
customers, through its network of fiber optic cables, digital microwave, and
fixed and transportable satellite earth stations, with service to points
throughout the nation and the world.
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 ("NAPs") to Internet service
providers.
WorldCom was organized in 1983. On September 15, 1993, a three-way merger
occurred whereby (i) Metromedia Communications Corporation, a Delaware
corporation ("MCC"), merged with and into Resurgens Communications Group, Inc.,
a Georgia corporation ("Resurgens"), and (ii) LDDS Communications, Inc., a
Tennessee corporation ("LDDS-TN"), merged with and into Resurgens (the "Prior
Mergers").
At the time of the Prior Mergers, the name of Resurgens, the legal survivor,
was changed to LDDS Communications, Inc. and the separate corporate existences
of LDDS-TN and MCC terminated. For accounting purposes, however, LDDS-TN was
the survivor because the former shareholders of LDDS-TN acquired majority
ownership of the Company. Accordingly, unless otherwise indicated, all
historical information presented herein reflects the operations of LDDS-TN. At
the annual meeting of shareholders held May 25, 1995, shareholders of LDDS
Communications, Inc. voted to change the name of the Company to WorldCom, Inc.,
effective immediately. Information in this document has also been revised to
reflect the stock splits of the Company's common stock.
BUSINESS COMBINATIONS
On December 31, 1996, WorldCom, through a wholly owned subsidiary, merged with
MFS Communications Company, Inc. ("MFS"). MFS provides telecommunications
services and systems for business and government customers. MFS is a leading
provider of alternative local network access facilities via digital fiber optic
cable networks that it has installed in and around approximately 41 United
States cities, and in several major European cities. MFS also provides
domestic and international long distance telecommunications services via its
network platform, which consists of MFS-owned transmission and switching
facilities, and network capacity leased from other carriers primarily in the
United States and Western Europe.
As a result of the merger (the "MFS Merger"), each share of MFS common stock
was converted into the right to receive 2.1 shares of WorldCom common stock
(the "Common Stock") or approximately 471.0 million WorldCom common shares in
the aggregate. Each share of MFS Series A 8% Cumulative Convertible Preferred
Stock ("MFS Series A Preferred Stock") was converted into the right to receive
one share of Series A 8% Cumulative Convertible Preferred Stock of WorldCom
("WorldCom Series A Preferred Stock") or 94,992 shares of WorldCom Series A
Preferred Stock in the aggregate. Each share of MFS Series B Convertible
Preferred Stock was converted into the right to receive one share of Series B
Convertible Preferred Stock of WorldCom ("WorldCom Series B Preferred Stock")
or approximately 12.7 million shares of WorldCom Series B Preferred Stock in
the aggregate. In addition, each depositary share representing 1/100th of a
share of MFS Series A Preferred Stock was exchanged for a depositary share
representing 1/100th of a share of WorldCom Series A Preferred Stock.
Upon effectiveness of the MFS Merger, the then outstanding and unexercised
options and warrants exercisable for shares of MFS common stock were converted
into options and warrants, respectively, exercisable for shares of Common Stock
having substantially the same terms and conditions as the MFS options and
warrants, except that (i) the exercise price and the number of shares issuable
upon exercise were divided and multiplied, respectively, by 2.1 and (ii) the
holders of each then outstanding and unexercised MFS "Shareworks Plus Award"
granted under the MFS 1993 Stock Plan instead received the cash value of such
award in accordance with the terms of such plan.
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On August 12, 1996, MFS acquired UUNET Technologies, Inc. ("UUNET") through a
merger of a subsidiary of MFS with and into UUNET (the "UUNET Acquisition").
UUNET is a leading worldwide provider of a comprehensive range of Internet
access options, applications, and consulting services to businesses,
professionals and on-line services providers. UUNET provides both dedicated
and dial-up Internet access, and other applications and services which include
Web server hosting and integration services, client software and security
products, training, and network integration and consulting services.
On January 5, 1995, WorldCom completed the acquisition of the network services
operations of Williams Telecommunications Group, Inc. ("WilTel"), a subsidiary
of The Williams Companies, Inc. ("Williams"), for approximately $2.5 billion in
cash (the "WilTel Acquisition"). Through this purchase, the Company acquired a
nationwide transmission network of approximately 11,000 miles of fiber optic
cable and digital microwave facilities.
On December 30, 1994, WorldCom, through a wholly owned subsidiary, merged with
IDB Communications Group, Inc. ("IDB"). IDB operates a domestic and
international communications network providing private line and public switched
long distance telecommunications services, facsimile and data connections,
television and radio transmission services, and mobile satellite communications
capabilities. As a result of this merger (the "IDB Merger"), each share of
common stock of IDB was converted into the right to receive 0.953758 shares of
Common Stock resulting in the issuance of approximately 71.8 million shares of
Common Stock. In addition, WorldCom assumed, on a subordinated basis, jointly
and severally with IDB, the obligations of IDB to pay the principal of and
interest on $195.5 million 5% convertible subordinated notes due 2003, issued
by IDB. On July 15, 1996, WorldCom announced that it had exercised its option
to redeem on August 16, 1996 all of the outstanding IDB notes. Prior to such
redemption date, a majority of the holders of the IDB notes elected to convert
their notes into Common Stock, resulting in the issuance of approximately 10.3
million shares of Common Stock. The IDB Merger was accounted for under the
pooling-of-interests method.
In 1993, upon effectiveness of the Prior Mergers, each share of the outstanding
common stock of LDDS-TN was converted into the right to receive 3.838 shares of
Common Stock. The 500,000 shares of LDDS-TN Series B 6.5% Cumulative Senior
Perpetual Convertible Preferred Stock outstanding were converted into 2,000,000
shares of WorldCom Series 2 6.5% Cumulative Senior Perpetual Convertible
Preferred Stock (the "Series 2 Preferred Stock"). As a result of the
consummation of the Prior Mergers, Metromedia Company ("Metromedia"), the sole
stockholder of MCC, received 5,517,240 shares of the Common Stock, 10,896,785
shares of WorldCom Series 1 $2.25 Cumulative Senior Perpetual Convertible
Preferred Stock (the "Series 1 Preferred Stock"), warrants to purchase
10,000,800 shares of the Common Stock at an average price of $4.18 per share,
and $150.0 million in cash. The common stock of Resurgens was unchanged in the
Prior Mergers.
In August 1995, Metromedia converted its Series 1 Preferred Stock into Common
Stock and exercised its warrants to acquire Common Stock and immediately sold
its position of 61,699,096 shares of Common Stock in a public offering. In
connection with the preferred stock conversion, WorldCom made a non-recurring
payment of $15.0 million to Metromedia, representing a discount to the minimum
nominal dividends that would have been payable on the Series 1 Preferred Stock
prior to the September 15, 1996 optional call date of approximately $26.6
million (which amount includes an annual dividend requirement of $24.5 million
plus accrued dividends to such call date). The Company did not receive any
proceeds from the sale of the shares, but did receive approximately $33.7
million in proceeds from the exercise of the warrants, which were used to repay
certain existing bank debt.
In connection with the announcement in May 1996, that the Company would redeem
its Series 2 Preferred Stock on June 5, 1996, all of the remaining outstanding
Series 2 Preferred Stock was converted into 5,266,160 shares of Common Stock in
the second quarter of 1996.
On December 4, 1992, LDDS-TN, through a wholly owned subsidiary, merged with
Advanced Telecommunications Corporation ("ATC"). As a result of this merger
(the "ATC Merger"), each share of common stock of ATC was converted into the
right to receive 4.778 shares of common stock of LDDS-TN. The ATC Merger was
accounted for under the pooling-of-interests method.
The following table sets forth certain data concerning the Company's
acquisitions, during the past five years, of companies with annual revenues
exceeding $100.0 million, other than the IDB Merger and the ATC Merger.
<TABLE>
<CAPTION>
Revenues for Fiscal Year
Preceding Acquisition
Name Acquisition Date (In thousands)
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<S> <C> <C>
Metromedia Communications Corporation September 1993 $ 368,532
Resurgens Communications Group, Inc. September 1993 151,963
TRT Communications, Inc. ("TRT") September 1993 175,057
Williams Telecommunications Group, Inc. January 1995 921,813
MFS/UUNET December 1996 1,238,533
</TABLE>
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In addition to the acquisitions reflected in the above table, WorldCom and its
predecessors have completed other acquisitions involving companies each with
annual revenues of less than $100.0 million.
COMPANY STRATEGY
The Company's strategy is to become the premier provider of business
communications services in the world. The enactment of the Telecommunications
Act of 1996 (the "Telecom Act") in February 1996 and the FCC's release of its
First Report and Order in the Matter of Implementation of the Local Competition
Provisions in the Telecom Act (the "FCC Interconnect Order") in August 1996,
have made it possible for WorldCom to compete in both the local and long
distance markets. The MFS Merger has allowed the Company to take advantage of
the Congressional intent behind the Telecom Act and the FCC Interconnect Order
by bringing together the leading growth companies from four key telecom
industry segments: long distance, local, Internet and international.
Consistent with this strategy, the Company believes that the MFS Merger
enhances the combined entity's opportunities for future growth, creates a
stronger competitor in the changing telecommunications industry, allows
provision of end-to-end bundled service over a global network, and provides the
opportunity for significant cost savings for the combined organization.
SERVICES
GENERAL. The Company is one of the four largest United States based long
distance telecommunications companies in the industry, based on 1995 revenues,
and serves its customers domestically and internationally. The products and
services provided by the Company include 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 NAPs to
Internet service providers. Based on FCC statistics as of December 31, 1995
(the most recent statistics available), WorldCom's share of total toll service
revenues for 1995 was 4.3%.
DOMESTIC LONG DISTANCE AND LOCAL SERVICE. A predominant share of the Company's
total revenues is derived from commercial customers. Commercial customers
typically use higher volumes of telecommunications services than residential
customers and concentrate their usage on weekdays during business hours when
rates are highest. Consequently, commercial customers, on average, generate
higher revenues per account than residential customers. The Company has also
become a significant participant in the long distance wholesale market and
intends to pursue opportunities, if any, for continued expansion in this area.
While total revenues in the wholesale market are less than from commercial
customers, expenses are generally lower in servicing these customers as the
result of fewer invoices, fewer customer service personnel and a smaller sales
force.
Through the MFS Merger, the Company will be able to provide a single source for
integrated local and long distance telecommunications services and facilities
management services to business, government, other telecommunications companies
and consumer customers.
There are several ways in which a customer can access the Company's network for
domestic long distance services. In areas where equal access has been made
available, a customer who has selected the Company as its IXC can utilize the
Company's network for inter-LATA long distance calls through "one plus" dialing
of the desired call destination. Equal access customers can access the
Company's long distance network only for inter-LATA long distance calls,
because under equal access, all intra-LATA calls are routed through the LEC.
Customers in areas without equal access or customers in equal access areas who
do not select the Company as their IXC can utilize the Company's network for
all their long distance calls through three methods of "dial-up access." They
can dial a local telephone number to access the Company's computerized
switching equipment and then enter a personal authorization code and the area
code and telephone number of the desired call destination. Alternatively,
customers can access the Company's network by using its automatic dialers,
which eliminate the need for the customer to dial the local access number and
personal authorization code,
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effectively giving the customer "one plus" dialing. Customers may also access
the Company's network by dialing 10 plus the three digit Carrier Identification
Number belonging to the Company and the area code and telephone number of the
desired call location. Regardless of the method used, dial-up customers can
access the Company's network for all of their long distance calls, both
intra-LATA and inter-LATA. High volume customers can access the WorldCom
network through the use of high-capacity dedicated circuits.
Customer billing is generated internally and through a facilities management
agreement under which Electronic Data Systems Corporation ("EDS") performs
significant data processing functions. See Note 7 of Notes to Consolidated
Financial Statements.
The market for local exchange services consists of a number of distinct service
components. These service components are defined by specific regulatory tariff
classifications including: (i) local network services, which generally include
basic dial tone charges and private line services; (ii) network access
services, which consist of access charges received by LECs from long distance
carriers for the local portion of long distance telephone calls; (iii) long
distance network services, which include the variable portion of charges
received by LECs for intra-LATA long distance calls; and (iv) additional value
added services such as caller identification, voice mail and call waiting.
Unlike the RBOCs and other large LECs which were organized geographically in
response to the regulatory environment that existed before the AT&T Divesture
Decree, the Company, through the MFS Merger, is organized around its customers
to take advantage of ongoing technological, competitive and regulatory changes.
INTERNATIONAL SERVICES. The Company offers international public switched
voice, private line and data services to other carriers and to commercial,
government and consumer customers. The Company has over 200 operating
agreements with foreign carriers to provide switched voice and/or private line
services, thereby making the Company a leading participant in the international
telecommunications market.
The Company offers public switched international telecommunications services
worldwide and provides direct services to approximately 55 foreign countries.
The Company sells public switched telecommunications services to corporate and
residential customers, and to domestic long distance carriers that lack
transmission facilities to locations served by the Company or need more
transmission capacity. Customers can access the Company's international
switching centers to make international telephone calls via dedicated
connections or via dial-up access.
The Company both delivers and receives international traffic pursuant to its
operating agreements. The terms of most switched voice operating agreements,
as well as established FCC policy, require that inbound switched voice traffic
from the foreign carrier to the United States be routed to United States
international carriers, like WorldCom, in proportion to the percentage of
United States outbound traffic routed by that United States international
carrier to the foreign carrier. The Company's revenues and costs of sales are
sensitive to changes in international settlement rates and international
traffic routing patterns.
The Company also provides permanent and temporary international private line
services to customers for a number of applications. These applications
generally involve establishing private, international point-to-point
communications links for customers with high traffic volumes or special needs,
such as greater security or route diversity. The Company has private line
operating agreements with approximately 160 foreign correspondents. The Company
is the carrier for some of the world's most critical communications links,
including the Washington-Moscow hotline, the Nuclear Risk Reduction Committee
and the NASA Space Program. The Company provides international private line
services for a range of financial, airline, commercial and governmental
communications networks.
WorldCom also provides switched voice and private line communications services
over its own facilities and leased facilities in the United Kingdom and Sweden.
In the fourth quarter of 1996, the Company received a license to provide
facilities-based international services to and from the United Kingdom, Germany
and France. The Company has also received authority to construct and operate a
high capacity digital fiber optic submarine cable between the United States and
the United Kingdom. The Company provides private line and closed user group
voice and data services over its own facilities and leased facilities in
Germany and France. The Company is building local facilities in Belgium and
the Netherlands, and already provides services through affiliates in those
countries, as well as in Ireland. The Company offers certain international
services over leased facilities in Switzerland and other European countries,
and in certain Asian markets including Japan and Hong Kong. Such operations
are subject to certain risks including licensing requirements, changes in
foreign government regulations and telecommunications standards,
interconnection and leased line charges, taxes, fluctuating exchange rates,
various trade barriers, and political and economic instability.
INTERNET. As a result of the MFS Merger, the Company now provides through its
subsidiary, UUNET, a comprehensive range of Internet access options,
applications and consulting services tailored to meet the needs of businesses
and professionals. UUNET's solution has been designed to address many of the
needs of businesses and professionals relating to Internet use. The UUNET
solution
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is based upon UUNET's high performance, domestic and international network
infrastructure designed specifically to provide reliable Internet connectivity
to businesses with demanding throughput requirements.
UUNET makes available to customers a variety of products and services,
including dedicated and dial-up Internet access, Web server hosting and content
development services, client software and security products and training, all
of which can be integrated by UUNET through its network integration and
consulting services. UUNET enables Internet users to purchase access,
applications and services, including integration services, through a single
source. UUNET's products and services are supported by a technical staff that
is highly experienced in Internet operations and services. UUNET's network
operations center monitors traffic across UUNET's network 24 hours per day,
seven days per week.
UUNET's primary Internet access options include (i) dedicated Internet access,
with service ranging from high speed services (T-1 and above) for very large
businesses with demanding throughput requirements to medium speed service via
dedicated lines or frame-relay for small to mid-size businesses, and (ii)
dial-up Internet access. These Internet access options are sold in the United
States and in many foreign countries, and are also offered under varying names
and different prices.
OTHER SERVICES. The Company offers a broad range of related services which
enhance customer convenience, add value and provide additional revenue sources.
Advanced "800" service offers features for caller and customer convenience,
including a variety of call routing and call blocking options, customer
reconfiguration, termination overflow to switched or dedicated lines, Dialed
Number Identification Service (DNIS), real-time Automatic Number Identification
(ANI), and flexible after-hours call handling services. The Company's travel
cards offer worldwide calling services, caller-friendly voice mail with message
waiting signal, message storage and delivery, conference calling, personal
greetings, speed dialing, customer deactivation and reactivation of cards,
customer card, and private-label card options. The Company is also a market
leader for the prepaid calling card which allows a purchaser to pay in advance
for a specific number of long distance minutes. The prepaid calling card is
successful in the collectors' market and continues to be a growing source of
revenues for the Company.
The Company outsources the management of its broadcast operations, which
provides satellite transmission and distribution of radio and television
programming for major network, cable, syndication, pay-per-view, sports and
special event programmers.
The Company also designs, installs, and integrates "turnkey" transmission
facilities and communications networks primarily for international customers.
Services provided include fixed customer premise earth stations, network
management systems, system integration consulting and project management.
As a result of the MFS Merger, the Company also provides development, design
and engineering, project management, construction and support of networks and
systems to a range of third-party customers. It is an industry leader in the
creation of advanced communication and transportation systems, through the
integration of advanced technologies for telecommunications, transportation and
security applications.
TRANSMISSION FACILITIES
Domestically, the Company owns one of four nationwide fiber optic networks in
the country, consisting of more than 22,000 miles of fiber optic cable, fiber
optic backbone and distribution rings, and microwave equipment with access to
over 50,000 miles of additional fiber optic network through lease agreements
with other carriers. The Company acquired the majority of this network through
the purchase of WilTel, which owned a network of approximately 11,000 miles of
fiber optic cable and digital microwave facilities with access to approximately
30,000 miles of additional fiber optic network through lease agreements with
other carriers. For local service, the Company serves over 13,200 buildings in
the United States and 928 buildings in six foreign countries are currently
serviced either directly or through interconnection.
Deployed in approximately 41 business centers throughout the United States,
Europe and the United Kingdom, the Company's local networks are constructed
using ring topology. Transmission networks are based on either conventional
asynchronous multiplexing or SONET ("Synchronous Optical Network") equipment.
European networks are based on Synchronous Digital Hierarchy ("SDH")
technology. Network backbones are installed in conduits owned by the Company
or leased from third parties such as utilities, railroads, long distance
carriers, state highway authorities, local governments and transit authorities.
Lease arrangements are generally executed under multi-year terms with renewal
options and are non- exclusive.
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Buildings are connected to the Company's network using extensions (known as
"laterals") which are then connected to a local distribution loop and
ultimately to a high speed fiber backbone which originates and terminates at
one of the Company's central nodes. To serve customers in buildings that are
not located on the network, the Company utilizes leased T-1s or unbundled local
loops obtained from the LECs. Transmission signals are generally sent through
the network simultaneously on both primary and secondary paths thereby
providing route diversity and disaster protection.
Most buildings served have a discrete Company presence (referred to as a
"remote hub") located within the building. Company-owned internal building
wiring connects the remote hub to the customer premises. Customer terminal
equipment is connected to Company-provided electronic equipment generally
located in the remote hub where ongoing customer transmission signals are
digitized, combined and converted into optical signals for transport to the
central node. Signals are then reconfigured and routed to their final
destination.
Internationally, the Company owns fiber optic facilities on most major
international undersea cable systems in the Pacific and Atlantic Ocean regions,
providing fiber optic cable connections between the United States and the
Pacific Rim and the United States and Europe. WorldCom also owns fiber optic
cable for services to the Commonwealth of Independent States, Central America,
South America and the Caribbean. The Company also owns and operates 15
international gateway satellite earth stations, which enable it to provide
public switched and private line voice and data communications to and from
locations throughout the World. Through the MFS Merger, the Company also
provides international service by leasing submarine cable capacity from
international carriers as well as taking ownership interests and obtaining
indefeasible rights of use capacity on other submarine cables. The Company
will continue to consider whether to purchase or lease submarine cable capacity
on a case-by-case, site specific basis. In 1996, the Company received
authority to construct and operate a high capacity digital fiber optic
submarine cable between the United States and the United Kingdom and has begun
construction.
The Company's ability to generate profits is largely dependent upon its ability
to optimize the different types of transmission facilities used to process and
complete calls. These facilities are complemented by a least cost routing plan
which is accomplished through digital switching technology and network routing
software. Calls can be routed over fixed cost transmission facilities or
variable cost transmission facilities. Fixed cost facilities, including the
Company's owned networks, are typically most cost effective for routes that
carry high volumes of traffic. The Company's expansion has generally been to
contiguous geographic areas which has enabled the Company to concentrate a
significant portion of its traffic over fixed cost transmission facilities and
thereby achieve an overall lower network cost. In addition, a variety of lease
agreements for fixed and variable cost (usage sensitive) services ensure
diversity in processing calls.
NETWORK SWITCHING
The Company owns or leases computerized network switching equipment that routes
its customers' long distance calls. The Company presently maintains
approximately 50 digital switching centers. The Company's digital switching
equipment is interconnected with digital transmission lines. The Company's
entire switching network utilizes SS7 common channel signaling, which increases
efficiencies by eliminating connect time delays and provides "look ahead"
routing. In addition to networking, the Company's switching equipment verifies
customers' pre-assigned authorization codes, records billing data and monitors
system quality and performance.
The Company currently has 14 domestic switches and 4 international local
switches . The local switches are capable of providing both local and long
distance call functions while the gateway switches have the specific purpose of
transferring domestically originated calls to the rest of the world. It is the
intention of the Company to deploy a number of additional switches in 1997 both
in existing CAP service areas and in new markets not currently providing
facilities-based switched local service.
In addition to the switching centers, the Company has a number of other network
facility locations known as points of presence ("POPs"). These POPs allow the
Company to concentrate customers' traffic at locations where the Company has
not installed switching equipment. The traffic is carried to switching centers
from POPs over the Company's digital transmission network.
The Company's ATM network utilizes the Company's intracity fiber connections to
customers, Company-owned ATM switches and high capacity intercity fiber
connections generally leased from other carriers. ATM is a recently
commercialized switching and transmission technology based on encapsulation of
information in short (53-byte) fixed-length packets or "cells." ATM switching
was specifically developed to allow switching and transmission of mixed voice,
data and video (sometimes referred to as "multimedia" information). In
addition, certain characteristics of ATM switching allow switching information
to be directly encoded in integrated circuitry rather than in software.
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INTERNET NETWORK INFRASTRUCTURE
UUNET's Internet infrastructure is based on its own 45 Mbps, DS-3 leased line,
frame relay-based network. This network infrastructure enables customers to
access the Internet through dedicated lines or by placing a local telephone
call (dial-up) through a modem to the nearest UUNET POP. Once connected, the
customer's traffic is routed through UUNET's network to the desired Internet
location, whether on UUNET's network or elsewhere on the Internet. As of
December 1996, UUNET's network infrastructure allowed local access to users at
845 UUNET POPs, 516 of them outside of the United States.
In February 1997, WorldCom announced a $300 million expansion and upgrade plan
for the UUNET network infrastructure. The plan involves migrating network
backbone segments to support OC12 IP transmission, the highest speed currently
available, and will more than quadruple the available capacity in terms of both
backbone bandwidth and dial-up capacity.
RATES AND CHARGES
LONG DISTANCE AND LOCAL SERVICE. The Company charges switched customers on the
basis of minutes or partial minutes of usage at rates that vary with the
distance, duration and time of day of the call. For local service, customers
are billed a fixed charge plus usage. The rates charged are not affected by
the particular transmission facilities selected by the Company's network
switching centers for transmission of the call. Additional discounts are
available to customers who generate higher volumes of monthly usage.
Domestic and international business services are primarily billed in six-second
increments; others are billed in partial minutes rounded to the next minute.
Switched long distance and local services are billed in arrears, with monthly
billing statements itemizing date, time, duration and charges; private line
services are billed monthly in advance, with the invoice indicating the number
of circuits and applicable rates.
The Company's rates are generally designed to be competitive with those charged
by other long distance and local carriers. The rates offered by the Company
may be adjusted in the future if other IXCs, LECs and CAPs continue to adjust
their rates. Continued improvement in the domestic and international cost
structures allows the Company to offer competitive rates while maintaining
acceptable margins.
INTERNET ACCESS AND SERVICES. UUNET's Internet access options are sold in the
United States and in many foreign countries for domestic Internet access.
Prices vary, based on service type. Due to various factors, such as available
telecommunications technology, foreign government regulation, and market
demand, the service options offered outside of the United States by UUNET vary
as to speed, price and suitability for various purposes.
MARKETING AND SALES
WorldCom markets its long distance services primarily through a direct sales
force targeted at specific geographic markets. With the MFS Merger, the
Company believes that it is positioned to offer a unique combination of local,
long distance and international calling and Internet-based services sold by a
combined sales force of over 2,500 people. WorldCom's sales force also
provides advanced sales specialization for the data and international
marketplaces, including domestic and international private line services.
In each of its geographic markets, the Company employs full service support
teams that provide its customers with prompt and personal attention. With
offices nationwide, WorldCom's localized management, sales and customer support
are designed to engender a high degree of customer loyalty and service quality.
COMPETITION
Virtually all markets for telecommunications services are extremely
competitive, and the Company expects that competition will intensify in the
future. In each of the markets in which it offers telecommunications services,
the Company faces significant competition from carriers with greater market
share and financial resources. The Company competes domestically with
incumbent providers which have historically dominated their local
telecommunications markets, and long distance carriers, for the provision of
long distance services. In certain markets, the incumbent provider offers both
local and long distance services. The incumbent LECs presently have numerous
advantages as a result of their historic monopoly control of the local exchange
market. A continuing trend toward business combinations and alliances in the
telecommunications industry may create significant new competitors to the
Company. Many of the Company's existing and potential competitors have
financial, personnel and other resources significantly greater than those of
the Company. The Company also faces competition from one or more competitors
in most markets in which it operates, including other CAPs operating fiber
optic networks, in some cases in conjunction with the local cable television
operator. Each of AT&T, MCI and Sprint has indicated its intention to offer
local telecommunications services in major United States markets
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using its own facilities or by resale of the LECs' or other providers'
services. Other potential competitors include foreign telephone companies,
cable television companies, wireless telephone companies, electric utilities,
microwave carriers and private networks of large end users. In addition, the
Company competes with equipment vendors and installers and telecommunications
management companies with respect to certain portions of its business.
In overseas markets, the Company competes with incumbent providers, many of
which still have special regulatory status and the exclusive rights to provide
certain services, and virtually all of which have historically dominated their
local, domestic long distance and international services markets. These
incumbent providers have numerous advantages including existing facilities,
customer loyalty, and substantial financial resources. The Company also
competes with other service providers in overseas markets, many of which are
affiliated with incumbent providers in other countries. Typically, the Company
must devote extensive resources to obtaining regulatory approvals necessary to
operate in overseas markets, and then to obtaining access to and
interconnection with the incumbent's network on a non- discriminatory basis.
For most of the Company's communications services, the factors critical to a
customer's choice of a service provider are cost, ease of use, speed of
installation, quality, reputation and, in some cases, geography, and network
size. WorldCom's objective is to be one of the most responsive service
providers, particularly when providing customized communications services.
WorldCom's array of communications facilities and international relationships,
together with its engineering and operations capability, provide WorldCom with
considerable flexibility in tailoring cost-effective communications services to
meet its customers' requirements. Ownership of this network allows WorldCom to
implement complex permanent and temporary communications circuits to and from
virtually any location in the world. WorldCom relies on its decentralized
management structure and the local orientation of its operations and personnel
to distinguish itself from larger, less personalized operations. In addition,
WorldCom's understanding of international telecommunications technical and
regulatory issues has often allowed WorldCom to provide prompt solutions to the
diverse communications needs of multinational corporations, government entities
and other organizations. No assurance can be given, however, that the
Company's strategies will be successful.
The Company may also be subject to additional competition due to the
development of new technologies and increased availability of domestic and
international transmission capacity. For example, even though fiber-optic
networks, such as that of the Company, are now widely used for long distance
transmission, it is possible that the desirability of such networks could be
adversely affected by changing technology. The telecommunications industry is
in a period of rapid technological evolution, marked by the introduction of new
product and service offerings and increasing satellite and fiber optic
transmission capacity for services similar to those provided by the Company.
The Company cannot predict which of many possible future product and service
offerings will be important to maintain its competitive position or what
expenditures will be required to develop and provide such products and
services.
Under the Telecom Act and ensuing federal and state regulatory initiatives,
barriers to local exchange competition are being removed. The introduction of
such competition, however, also establishes the predicate for the BOCs to
provide in-region interexchange long distance services. The BOCs are currently
allowed to offer certain "incidental" long distance service in-region and to
offer out-of-region long distance services. Once the BOCs are allowed to offer
in- region long distance services, they could be in a position to offer single
source local and long distance service similar to those being offered by the
Company. The Company expects that the increased competition made possible by
regulatory reform could result in certain pricing and margin pressures in the
domestic telecommunications services business.
The Company, through UUNET, also competes in the market for Internet access and
on-line services. This market is also extremely competitive. The Company
expects that competition will intensify in the future. The Company believes
that its ability to compete successfully in this market depends on a number of
factors, including: market presence; the ability to execute a rapid expansion
strategy; the capacity, reliability and security of its network infrastructure;
ease of access to and navigation on the Internet; the pricing policies of its
competitors and suppliers; the timing of the introduction of new products and
services by the Company and its competitors; UUNET's ability to support
industry standards; and industry and general economic trends. The success of
the Company in this market will depend heavily upon UUNET's ability to provide
high quality Internet connectivity and value-added Internet services at
competitive prices.
The Company expects that all of the major on-line services providers and
telecommunications companies will expand their current services to compete
fully in the Internet access market. The Company believes that new
competitors, including large computer hardware, software, media and other
technology and telecommunications companies could enter the Internet access
market, resulting in even greater competition for the Company. Certain
companies, including America Online, AT&T, MCI, BBN Corporation and PSINet,
Inc., have obtained or expanded their Internet access products and services as
a result of acquisitions and strategic investments. Such acquisitions may
permit UUNET's competitors to devote greater resources to the development and
marketing of new competitive products and services and the marketing of
existing competitive products and services. The Company expects these
acquisitions and strategic investments to increase, thus creating significant
new competitors for UUNET.
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As UUNET continues to expand Internet operations outside of the United States,
UUNET will be forced to compete with and buy services from government-owned or
subsidized telecommunications providers, some of which may enjoy a monopoly on
telecommunications services essential to its business. UUNET will also
encounter competition from companies whose operating styles are substantially
different from those that it usually experiences. For example, in the United
Kingdom, the Company competes directly with: (1) telecommunications companies,
such as British Telecommunications plc, Mercury Communications Limited and
others; (2) other Internet access providers, such as Demon Internet Limited and
EUnet GB Limited; and (3) on-line services providers, such as CompuServe,
America Online/Bertelsmann, Microsoft and AT&T. These foreign competitors may
also possess a better understanding of their local markets and may have better
working relationships with local telecommunications companies. There can be no
assurance that UUNET can obtain similar levels of local knowledge, and failure
to obtain that knowledge could place UUNET at a competitive disadvantage.
REGULATION
GENERAL. The Company is subject to varying degrees of federal, state, local
and overseas regulation. In the United States, the Company is most heavily
regulated by the states, especially for the provision of local exchange
services. The Company must be separately certified in each state to offer
local exchange and intrastate long distance services. No state, however,
subjects the Company to price cap or rate of return regulation, nor is the
Company currently required to obtain FCC authorization for installation or
operation of its fiber optic network facilities and switches used for domestic
services. FCC approval is required, however, for the installation and
operation of its international facilities and services. The Company is subject
to varying degrees of regulation in the foreign jurisdictions in which it
conducts business including authorization for the installation and operation of
its network facilities. Although the trend in federal, state and overseas
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 or abroad
would not have a material adverse effect on the Company.
On February 8, 1996, President Clinton signed the Telecom Act which: permits,
without limitation, the BOCs to provide domestic and international long
distance services to customers located outside of the BOCs' home regions;
permits a petitioning BOC to provide domestic and international long distance
service to customers within its home region upon a finding by the FCC that a
petitioning BOC has satisfied certain criteria for opening up its local
exchange network to competition and that its provision of long distance
services would further the public interest; and removes existing barriers to
entry into local service markets. Additionally, there are significant changes
in the manner in which carrier-to-carrier arrangements are regulated at the
federal and state levels; procedures to revise universal service standards; and
penalties for unauthorized switching of customers. The FCC has instituted
proceedings addressing the implementation of this legislation.
On August 8, 1996, the FCC released its FCC Interconnect Order which
established nationwide rules designed to encourage new entrants to participate
in the local service markets through interconnection with the incumbent local
exchange carriers ("ILECs"), resale of the ILEC's retail services and unbundled
network elements. Theses rules set the groundwork for the statutory criteria
governing BOC entry into the long distance market. WorldCom cannot predict the
effect such legislation or the implementing regulations will have on it or the
industry. Motions to stay implementation of the FCC Interconnect Order were
filed with the FCC and federal courts of appeal. Appeals challenging, among
other things, the validity of the FCC Interconnect Order were filed in several
federal courts of appeal and assigned to the Eighth Circuit Court of Appeals
for disposition. The Eighth Circuit Court of Appeals has stayed the pricing
provisions of the FCC Interconnect Order. WorldCom cannot predict either the
outcome of these challenges and appeals or the eventual effect on its business
or the industry in general.
On December 24, 1996, the FCC released a Notice of Proposed Rulemaking ("NPRM")
seeking to reform the FCC's current access charge policies and practices to
comport with a competitive or potentially competitive local access service
market. The NPRM seeks comment on a number of proposals for a series of
reforms to the existing switched access charge rate structure rules that are
designed to eliminate economic inefficiencies. In addition, the FCC proposes
to use, either alternatively or in combination, two approaches for addressing:
claims that access charges are excessive; a transition to economic based
pricing of access charges; and, deregulation of incumbent local exchange
carriers as competition develops. The FCC is evaluating the use of either a
market-based approach, a prescriptive approach or a combination of both. Such
charges are a principal component of the Company's line cost expense. The
Company cannot predict whether or not the result of this proceeding will have a
material impact upon its financial position or results of operations.
In the NPRM, the FCC tentatively concluded that information services providers
(including among others Internet service providers) should not be subject to
existing interstate access charges. However, the FCC recognized that these
services and recent technological advances may be constrained by current
regulatory practices that have their foundations in traditional services and
technologies. The FCC issued on December 24, 1996, a Notice of Inquiry to seek
comment on whether it should, in addition to access charge reform, consider
actions relating to interstate information services and the Internet. Changes
in the regulatory environment relating to the
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telecommunications or Internet-related services industry could have an adverse
effect on the Company's Internet-related services business. The Telecom Act
may permit telecommunications companies, BOCs or others to increase the scope
or reduce the cost of their Internet access services. The Company cannot
predict the effect that the Notice of Inquiry, the Telecom Act or any future
legislation, regulation or regulatory changes may have on its business.
INTERNATIONAL. In December 1996, the FCC adopted a new policy that will make
it easier for United States international carriers to obtain authority to route
international public switched voice traffic to and from the United States
outside of the traditional settlement rate and proportionate return regimes.
In February 1997, the United States entered into a World Trade Organization
Agreement (the "WTO Agreement") that should have the effect of liberalizing the
provision of switched voice telephone and other telecommunications services in
many foreign countries over the next several years. As a result of the WTO
Agreement, WorldCom expects the FCC, among other things, to reexamine its
policies regarding (i) the services that may be provided by foreign owned
United States international common carriers, including carriers owned or
controlled by foreign carriers that have market power in their home markets,
and (ii) the provision of international switched voice services outside of the
traditional settlement rate and proportionate return regimes. Although the
FCC's new flexible settlement rate policy, and the WTO Agreement and any
ensuing FCC policy changes, may result in lower costs to the Company to
terminate international traffic, there is a risk that the revenues that the
Company receives from inbound international traffic may decrease to an even
greater degree. The implementation of the WTO Agreement may also make it
easier for foreign carriers with market power in their home markets to offer
United States and foreign customers end-to-end services to the disadvantage of
WorldCom, which may face substantial obstacles in obtaining from foreign
governments and foreign carriers the authority and facilities to provide such
end-to-end services.
The Company is or will be subject to the applicable laws and has obtained or
will need to obtain the approval of the regulatory authority of each overseas
country in which it provides or proposes to provide telecommunications
services. The laws and regulatory requirements vary from country to country.
Some countries have substantially deregulated various communications services,
while other countries have maintained strict regulatory regimes. The
application procedure to enter new markets can be time-consuming and costly,
and terms of licenses vary for different countries. There can be no assurance
that the Company will receive all authorizations or licenses necessary for new
communications services or that delays in the licensing process will not
adversely affect its business.
ALIEN OWNERSHIP. The Communications Act of 1934, as amended (the
"Communications Act") prohibits any entity in which more than 20% of the
capital stock is owned of record or voted by noncitizens or a foreign
government or its representative from receiving or holding a common carrier
radio transmission license (including microwave). The Communications Act also
prohibits subsidiaries of any entity of which more than 25% of the capital
stock is owned of record or voted by noncitizens from receiving or holding
common carrier radio transmission licenses (including microwave), if the FCC
finds that the public interest would be served by the refusal or revocation of
the licenses under those circumstances. The Company's charter restricts
aggregate beneficial ownership of the Common Stock by certain foreign
shareholders to 20% of the total outstanding stock, and subjects excess shares
to redemption.
RISK FACTORS
Prospective investors should carefully consider the following risk factors,
together with the other information contained in this Form 10-K, in evaluating
the Company and its business before purchasing its securities. In particular,
prospective investors should note that this Form 10-K contains forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995 and that actual results could differ materially from those contemplated
by such statements. The factors listed below represent certain important
factors the Company believes could cause such results to differ. These factors
are not intended to represent a complete list of the general or specific risks
that may affect the Company. It should be recognized that other risks may be
significant, presently or in the future, and the risks set forth below may
affect the Company to a greater extent than indicated.
RISKS OF INCREASED FINANCIAL LEVERAGE; DEBT SERVICE, INTEREST RATE
FLUCTUATIONS, POSSIBLE REDUCTION IN LIQUIDITY, DIVIDEND RESTRICTIONS AND OTHER
RESTRICTIVE COVENANTS. At December 31, 1996, the Company had $4.80 billion of
long-term debt (including capital leases and excluding current maturities) and
a long-term debt to equity ratio of 0.37 to 1.0. On June 28, 1996, the Company
replaced its then existing $3.41 billion credit facilities with a new $3.75
billion five- year revolving credit facility (the "Credit Facility"). The
Credit Facility has a five-year term and bears interest, payable in varying
periods, depending on the interest period, not to exceed six months, at rates
selected by the Company under the terms of the Credit Facility including a Base
Rate or the LIBOR, plus applicable margin. The applicable margin for a LIBOR
rate borrowing varies from 0.35% to 0.875% based upon a specified financial
test. The Credit Facility is unsecured and requires compliance with certain
financial and other operating covenants which limit, among other things, the
incurrence of additional indebtedness by WorldCom and restricts the payment of
cash dividends to WorldCom's shareholders. The Credit Facility is also subject
to an annual commitment fee not to exceed 0.25% of any unborrowed portion of
the Credit Facility.
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Increases in interest rates, economic downturns and other adverse developments,
including factors beyond the Company's control, could impair its ability to
service its indebtedness under the Credit Facility. In addition, the cash flow
required to service the Company's debt may reduce its ability to fund internal
growth, additional acquisitions and capital improvements. In addition, the
Credit Facility restricts the payment of cash dividends and otherwise limits
the Company's financial flexibility. See Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The Company has historically utilized cash flow from operations to finance
capital expenditures and a mixture of cash flow, debt and stock to finance
acquisitions. The Company expects to experience increased capital intensity
due to network expansions and believes that funding needs in excess of
internally generated cash flow will be met by accessing the debt markets. The
Company has filed a shelf Registration Statement on Form S-3 with the
Securities and Exchange Commission (the "SEC") for the sale, from time to time,
of one or more series of unsecured debt securities having an aggregate value of
up to $3.0 billion. The Company expects to draw down a portion of the shelf
registration in the first half of 1997 to pay down commercial bank debt but
maintain increased credit availability and flexibility for capital spending.
No assurance can be given that any public financing will be available on terms
acceptable to WorldCom.
ACQUISITION INTEGRATION. A major portion of the Company's growth in recent
years has resulted from acquisitions, which involve certain operational and
financial risks. Operational risks include the possibility that an acquisition
does not ultimately provide the benefits originally anticipated by management
of the acquiror, while the acquiror continues to incur operating expenses to
provide the services formerly provided by the acquired company. Financial
risks involve the incurrence of indebtedness by the acquiror in order to effect
the acquisition and the consequent need to service that indebtedness. In
addition, the issuance of stock in connection with acquisitions dilutes the
voting power and may dilute certain other interests of existing shareholders.
In carrying out its acquisition strategy, the Company attempts to minimize the
risk of unexpected liabilities and contingencies associated with acquired
businesses through planning, investigation and negotiation, but such unexpected
liabilities may nevertheless accompany acquisitions. There can be no assurance
that the Company will be successful in identifying attractive acquisition
candidates or completing additional acquisitions on favorable terms.
Additionally, achieving the expected benefits of the MFS Merger will depend in
part upon the integration of the businesses of WorldCom and MFS, together with
UUNET, in an efficient manner, and there can be no assurance that this will
occur. The transition to a combined company will require substantial attention
from management. The diversion of management attention and any difficulties
encountered in the transition process could have an adverse effect on the
revenues and operating results of the combined company. In addition, the
process of combining the three organizations could cause the interruption of,
or a disruption in, the activities of any or all of the companies' businesses,
which could have a material adverse effect on their combined operations. There
can be no assurance that the Company will realize any of the anticipated
benefits of the MFS Merger.
CONTINGENT LIABILITIES. WorldCom is subject to a number of legal and
regulatory proceedings. While WorldCom believes that the probable outcome of
these matters, or all of them combined, will not have a material adverse effect
on WorldCom's consolidated results of operations or financial position, no
assurance can be given that a contrary result will not be obtained. See Item 3
- - "Legal Proceedings."
RISKS OF INTERNATIONAL BUSINESS. The Company derives substantial revenues by
providing international communications services to United States commercial and
carrier customers. Such operations are subject to certain risks such as
changes in United States or foreign government regulatory policies, disruption,
suspension or termination of operating agreements, and currency fluctuations.
In particular, the Company's revenues and costs of sales are sensitive to
changes in international settlement rates and international traffic routing
patterns. The rates that the Company can charge its customers for
international services may decrease in the future due to the entry of new
carriers with substantial resources, aggressiveness on the part of new or
existing carriers, the widespread resale of international private lines, the
provision of international services via non-traditional means including the
Internet, the consummation of mergers and joint ventures among large
international carriers that facilitate targeted pricing and cost reductions,
and the rapid growth of international circuit capacity due to the deployment of
new undersea fiber optic cables and new high capacity satellite systems in the
Atlantic, Pacific and Indian Ocean Regions.
RISKS OF OVERSEAS BUSINESS OPERATIONS. The Company derives substantial
revenues from providing services to customers in overseas locations,
particularly the United Kingdom and Germany. Such operations are subject to
certain risks such as changes in the legal and regulatory policies of the
foreign jurisdiction, local political and economic developments, currency
fluctuations, exchange controls, royalty and tax increases, retroactive tax
claims, expropriation, and import and export regulations and other laws and
policies of the United States affecting foreign trade, investment and taxation.
In addition, in the event of any dispute arising from foreign operations, the
Company may be subject to the exclusive jurisdiction of foreign courts and may
not be successful in subjecting foreign persons or entities to the jurisdiction
of the courts in the United States. WorldCom may also be hindered or prevented
from enforcing its rights with respect to foreign governments because of the
doctrine of sovereign immunity.
11
<PAGE> 16
There can be no assurance that the laws, regulations or administrative
practices of foreign countries relating to WorldCom's ability to do business in
that country will not change. Any such change could have a material adverse
effect on the business and financial condition of WorldCom.
DEPENDENCE ON AVAILABILITY OF TRANSMISSION FACILITIES. The future
profitability of the Company will be dependent in part on its ability to
utilize transmission facilities leased from others on a cost-effective basis.
The acquisitions of MFS, WilTel and IDB have reduced the leasing risk through
the ownership of significant domestic and international facilities, however,
due to the possibility of unforeseen changes in industry conditions, the
continued availability of leased transmission facilities at historical rates
cannot be assured. See "Item 1 - Business - Transmission Facilities."
RAPID TECHNOLOGICAL CHANGE; DEPENDENCE UPON PRODUCT DEVELOPMENT. The
telecommunications industry is subject to rapid and significant changes in
technology. While WorldCom does not believe that, for the foreseeable future,
these changes will either materially or adversely affect the continued use of
fiber optic cable or materially hinder its ability to acquire necessary
technologies, the effect of technological changes, including changes relating
to emerging wireline and wireless transmission and switching technologies, on
the businesses of WorldCom cannot be predicted.
The market for the UUNET's Internet-related products and services is
characterized by rapidly changing technology, evolving industry standards,
emerging competition and frequent new product and service introductions. There
can be no assurance that UUNET will successfully identify new product and
service opportunities and develop and bring new products and services to market
in a timely manner. UUNET is also at risk from fundamental changes in the way
Internet access services are marketed and delivered. UUNET's Internet service
strategy assumes that the Transmission Control Protocol/Internet Protocol
("TCP/IP"), utilizing fiber optic or copper-based telecommunications
infrastructures, will continue to be the primary protocol and transport
infrastructure for Internet-related services. Emerging transport alternatives
include cable modems and satellite delivery of Internet information;
alternative open protocol and proprietary protocol standards have been or are
being developed. UUNET's pursuit of necessary technological advances may
require substantial time and expense, and there can be no assurance that UUNET
will succeed in adapting its Internet services business to alternate access
devices, conduits and protocols.
REGULATION RISKS. The Company is subject to extensive regulation at the
federal and state levels, as well as in various foreign countries in
connection with certain overseas business activities. The regulatory
environment varies substantially by jurisdiction.
The Company is subject to varying degrees of federal, state, local and
international regulation. In the United States, the Company is most heavily
regulated by the states, especially for the provision of local exchange
services. The Company must be separately certified in each state to offer
local exchange and intrastate long distance services. No state, however,
subjects the Company to price cap or rate of return regulation, nor is the
Company currently required to obtain FCC authorization for installation or
operation of its network facilities used for domestic services. FCC approval
is required, however, for the installation and operation of its international
facilities and services. The Company is subject to varying degrees of
regulation in the foreign jurisdictions in which it conducts business including
authorization for the installation and operation of its network facilities.
Although the trend in federal, state, local and international regulation
appears to favor increased competition, no assurance can be given that changes
in current or future regulations adopted by the FCC, state or foreign
regulators or legislative initiatives in the United States and abroad would not
have a material adverse effect on the Company.
On February 8, 1996, President Clinton signed the Telecom Act which: permits,
without limitation, the BOCs to provide domestic and international long
distance services to customers located outside of the BOCs' home regions;
permits a petitioning BOC to provide domestic and international long distance
service to customers within its home region upon a finding by the FCC that a
petitioning BOC has satisfied certain criteria for opening up its local
exchange network to competition and that its provision of long distance
services would further the public interest; and removes existing barriers to
entry into local service markets. Additionally, there are significant changes
in the manner in which carrier-to-carrier arrangements are regulated at the
federal and state levels; procedures to revise universal service standards; and
penalties for unauthorized switching of customers. The FCC has instituted
proceedings addressing the implementation of this legislation.
On August 8, 1996, the FCC released its FCC Interconnect Order which
established nationwide rules designed to encourage new entrants to participate
in the local service markets through interconnection with the ILECs, resale of
the ILEC's retail services and unbundled network elements. Theses rules set
the groundwork for the statutory criteria governing BOC entry into the long
distance market. WorldCom cannot predict the effect such legislation or the
implementing regulations will have on it or the industry. Motions to stay
implementation of the FCC Interconnect Order were filed with the FCC and
federal courts of appeal. Appeals challenging, among other things, the
validity of the FCC Interconnect Order were filed in several federal courts of
appeal and assigned to the Eighth Circuit Court of Appeals for disposition.
The Eighth Circuit Court of Appeals has stayed the pricing provisions of the
FCC
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<PAGE> 17
Interconnect Order. WorldCom cannot predict either the outcome of these
challenges and appeals or the eventual effect on its business or the industry
in general.
On December 24, 1996, the FCC released the NPRM seeking to reform the FCC's
current access charge policies and practices to comport with a competitive or
potentially competitive local access service market. The NPRM seeks comment on
a number of proposals for a series of reforms to the existing switched access
charge rate structure rules that are designed to eliminate economic
inefficiencies. In addition, the FCC proposes to use, either alternatively or
in combination, two approaches for addressing: claims that access charges are
excessive; a transition to economic based pricing of access charges; and, for
deregulation of incumbent local exchange carriers as competition develops. The
FCC is evaluating the use of either a market-based approach, a prescriptive
approach or a combination of both. Such charges are a principal component of
the Company's line cost expense. The Company cannot predict whether or not the
result of this proceeding will have a material impact upon its financial
position or results of operations.
In the NPRM, the FCC tentatively concluded that information services providers
(including among others Internet service providers) should not be subject to
existing interstate access charges. However, the FCC recognized that these
services and recent technological advances may be constrained by current
regulatory practices that have their foundations in traditional services and
technologies. The FCC issued on December 24, 1996, a Notice of Inquiry to seek
comment on whether it should, in addition to access charge reform, consider
actions relating to interstate information services and the Internet. Changes
in the regulatory environment relating to the telecommunications or
Internet-related services industry could have an adverse effect on the
Company's Internet-related services business. The Telecom Act may permit
telecommunications companies, BOCs or others to increase the scope or reduce
the cost of their Internet access services. The Company cannot predict the
effect that the Notice of Inquiry, the Telecom Act or any future legislation,
regulation or regulatory changes may have on its business.
In December 1996, the FCC adopted a new policy that will make it easier for
United States international carriers to obtain authority to route international
public switched voice traffic to and from the United States outside of the
traditional settlement rate and proportionate return regimes. In February
1997, the United States entered into a WTO Agreement that should have the effect
of liberalizing the provision of switched voice telephone and other
telecommunications services in scores of foreign countries over the next
several years. As a result of the WTO Agreement, WorldCom expects the FCC,
among other things, to reexamine its policies regarding (i) the services that
may be provided by foreign owned United States international common carriers,
including carriers owned or controlled by foreign carriers that have market
power in their home markets, and (ii) the provision of international switched
voice services outside of the traditional settlement rate and proportionate
return regimes. Although the FCC's new flexible settlement rate policy, and
the WTO Agreement and any ensuing FCC policy changes, may result in lower costs
to the Company to terminate international traffic, there is a risk that the
revenues that the Company receives from inbound international traffic may
decrease to an even greater degree. The implementation of the WTO Agreement
may also make it easier for foreign carriers with market power in their home
markets to offer United States and foreign customers end-to- end services to
the disadvantage of WorldCom, which may face substantial obstacles in obtaining
from foreign governments and foreign carriers the authority and facilities to
provide such end-to-end services.
The Company is or will be subject to the applicable laws and has obtained or
will need to obtain the approval of the regulatory authority of each overseas
country in which it provides or proposes to provide telecommunications
services. The laws and regulatory requirements vary from country to country.
Some countries have substantially deregulated various communications services,
while other countries have maintained strict regulatory regimes. The
application procedure to enter new markets can be time-consuming and costly,
and terms of licenses vary for different countries. There can be no assurance
that the Company will receive all authorizations or licenses necessary for new
communications services or that delays in the licensing process will not
adversely affect its business.
COMPETITION. Virtually all markets for telecommunications services are
extremely competitive, and the Company expects that competition will intensify
in the future. In each of the markets in which it offers telecommunications
services, the Company faces significant competition from carriers with greater
market share and financial resources. The Company competes domestically with
incumbent providers, which have historically dominated their local
telecommunications markets, and long distance carriers, for the provision of
long distance services. In certain markets the incumbent provider offers both
local and long distance services. The incumbent LECs presently have numerous
advantages as a result of their historic monopoly control of the local exchange
market. A continuing trend toward business combinations and alliances in the
telecommunications industry may create significant new competitors to the
Company. Many of the Company's existing and potential competitors have
financial, personnel and other resources significantly greater than those of
the Company. The Company also faces competition from one or more competitors
in most markets in which it operates, including CAPs operating fiber optic
networks, in some cases in conjunction with the local cable television
operator. Each of AT&T, MCI and Sprint has indicated its intention to offer
local telecommunications services in major United States markets using its own
facilities or by resale of the LECs' or other providers' services. Other
potential competitors include foreign telephone companies, cable television
companies, wireless telephone companies, electric utilities, microwave carriers
and private
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<PAGE> 18
networks of large end users. In addition, the Company competes with equipment
vendors and installers and telecommunications management companies with respect
to certain portions of its business.
In overseas markets, the Company competes with incumbent providers, many of
which still have special regulatory status and the exclusive rights to provide
certain services, and virtually all of which have historically dominated their
local, domestic long distance and international services markets. These
incumbent providers have numerous advantages including existing facilities,
customer loyalty, and substantial financial resources. The Company also
competes with other service providers in overseas markets, many of which are
affiliated with incumbent providers in other countries. Typically, the Company
must devote extensive resources to obtaining regulatory approvals necessary to
operate in overseas markets, and then to obtaining access to and
interconnection with the incumbent's network on a non- discriminatory basis.
For most of the Company's communications services, the factors critical to a
customer's choice of a service provider are cost, ease of use, speed of
installation, quality, reputation and, in some cases, geography, and network
size. WorldCom's objective is to be one of the most responsive service
providers, particularly when providing customized communications services.
WorldCom's array of communications facilities and international relationships,
together with its engineering and operations capability, provide WorldCom with
considerable flexibility in tailoring cost-effective communications services to
meet its customers' requirements. Ownership of this network allows WorldCom to
implement complex permanent and temporary communications circuits to and from
virtually any location in the world. WorldCom relies on its decentralized
management structure and the local orientation of its operations and personnel
to distinguish itself from larger, less personalized operations. In addition,
WorldCom's understanding of international telecommunications technical and
regulatory issues has often allowed WorldCom to provide prompt solutions to the
diverse communications needs of multinational corporations, government entities
and other organizations. No assurance can be given, however, that the
Company's strategies will be successful.
The Company may also be subject to additional competition due to the
development of new technologies and increased availability of domestic and
international transmission capacity. For example, even though fiber-optic
networks, such as that of the Company, are now widely used for long distance
transmission, it is possible that the desirability of such networks could be
adversely affected by changing technology. The telecommunications industry is
in a period of rapid technological evolution, marked by the introduction of new
product and service offerings and increasing satellite and fiber optic
transmission capacity for services similar to those provided by the Company.
The Company cannot predict which of many possible future product and service
offerings will be important to maintain its competitive position or what
expenditures will be required to develop and provide such products and
services.
Under the Telecom Act and ensuing federal and state regulatory initiatives,
barriers to local exchange competition are being removed. The introduction of
such competition, however, also establishes the predicate for the BOCs to
provide in-region interexchange long distance services. The BOCs are currently
allowed to offer certain "incidental" long distance service in-region and to
offer out-of-region long distance services. Once the BOCs are allowed to offer
in- region long distance services, they could be in a position to offer single
source local and long distance service similar to that being offered by the
Company. The Company expects that the increased competition made possible by
regulatory reform will result in certain pricing and margin pressures in the
domestic telecommunications services business.
The Company, through UUNET, also competes in the market for data communications
services, including Internet access and on-line services. This market is also
extremely competitive. The Company expects that competition will intensify in
the future. The Company believes that its ability to compete successfully in
this market depends on a number of factors, including: market presence; the
ability to execute a rapid expansion strategy; the capacity, reliability and
security of its network infrastructure; ease of access to and navigation on the
Internet; the pricing policies of its competitors and suppliers; the timing of
the introduction of new products and services by the Company and its
competitors; UUNET's ability to support industry standards; and industry and
general economic trends. The success of the Company in this market will depend
heavily upon UUNET's ability to provide high quality Internet connectivity and
value-added Internet services at competitive prices.
The Company expects that all of the major on-line services providers and
telecommunications companies will expand their current services to compete
fully in the Internet access market. The Company believes that new
competitors, including large computer hardware, software, media and other
technology and telecommunications companies will enter the Internet access
market, resulting in even greater competition for UUNET. Certain companies,
including America Online, AT&T, MCI, BBN Corporation and PSINet, Inc., have
obtained or expanded their Internet access products and services as a result of
acquisitions and strategic investments. Such acquisitions may permit UUNET's
competitors to devote greater resources to the development and marketing of new
competitive products and services and the marketing of existing competitive
products and services. UUNET expects these acquisitions and strategic
investments to increase, thus creating significant new competitors to UUNET.
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<PAGE> 19
As UUNET continues to expand Internet operations outside of the United States,
UUNET will be forced to compete with and buy services from government-owned or
subsidized telecommunications providers, some of which may enjoy an absolute
monopoly on telecommunications services essential to its business. UUNET will
also encounter competition from companies whose operating styles are
substantially different from those that it usually experiences. For example,
in the United Kingdom, the Company competes directly with: (1)
telecommunications companies, such as British Telecommunications plc, Mercury
Communications Limited and others; (2) other Internet access providers, such as
Demon Internet Limited and EUnet GB Limited; and (3) on-line services
providers, such as CompuServe, America Online/Bertelsmann, Microsoft and AT&T.
These foreign competitors may also possess a better understanding of their
local markets and may have better working relationships with local
telecommunications companies. There can be no assurance that UUNET can obtain
similar levels of local knowledge, and failure to obtain that knowledge could
place UUNET at a serious competitive disadvantage.
POTENTIAL LIABILITY OF ON-LINE SERVICE PROVIDERS. The law in the United States
relating to the liability of on-line service providers and Internet access
providers for information carried on, disseminated through or hosted on their
systems is currently unsettled. Several private lawsuits seeking to impose
such liability are currently pending. In one case brought against an Internet
access provider, Religious Technology Center v. Netcom On-Line Communication
Services, Inc., the United States District Court for the Northern District of
California ruled in a preliminary phase that under certain circumstances
Internet access providers could be held liable for copyright infringement. The
case has been settled by the parties. The Telecom Act prohibits and imposes
criminal penalties and civil liability for using an interactive computer
service for transmitting certain types of information and content, such as
indecent or obscene communications. On June 12, 1996, however, a panel of
three federal judges granted a preliminary injunction barring enforcement of
this portion of the Telecom Act to the extent that enforcement is based upon
allegations other than obscenity or child pornography as an impermissible
restriction on the First Amendment's right of free speech. In addition, the
United States Congress in consultation with the United States Patent and
Trademark Office and the Administration's National Information Infrastructure
Task Force, is currently considering legislation to address the liability of
on-line service providers and Internet access providers, and numerous states
have adopted or are currently considering similar types of legislation. The
imposition upon Internet access providers of potential liability for materials
carried on or disseminated through their systems could require UUNET to
implement measures to reduce its exposure to such liability, which may require
the expenditure of substantial resources or the discontinuation of certain
product or service offerings. The Company believes that it is currently
unsettled whether the Telecom Act prohibits and imposes liability for any
services provided by UUNET should the content or information transmitted be
subject to the statute.
The law relating to the liability of on-line service providers and Internet
access providers in relation to information carried, disseminated or hosted
also is being discussed by the World Intellectual Property Organization in the
context of ongoing consideration of updating existing, and adopting new,
international copyright treaties. Similar developments are ongoing in the
United Kingdom and other jurisdictions. The scope of authority of various
regulatory bodies in relation to on-line services is at present uncertain. The
Office of Telecommunications in the United Kingdom has recently published a
consultative document setting out a number of issues for discussion, including
the roles of traditional telecommunications and broadcasting regulators with
respect to on-line services. The Securities Investment Board in the United
Kingdom is investigating the status of on-line services and the transmission of
investment information over networks controlled by access providers. Such
transmissions may make an access provider liable for any violation of
securities and other financial services legislation and regulations. Decisions
regarding regulation, enforcement, content liability and the availability of
Internet access in other countries may significantly affect the ability to
offer certain services worldwide and the development and profitability of
companies offering Internet and on- line services in the future. For example,
an Internet access provider that competes with UUNET removed certain content
from its services worldwide in reaction to law enforcement activities in
Germany, and it has been reported that an Internet access provider in Germany
has been advised by prosecutors that it may have liability for disseminating
neo- Nazi writings by providing access to the Internet where these materials
are available.
The increased attention focused upon liability issues as a result of these
lawsuits, legislation and legislative proposals could affect the growth of
Internet use. Any costs incurred as a result of liability or asserted
liability for information carried on or disseminated through its systems could
have a material adverse effect on the business, financial condition and results
of operations of UUNET.
DEPENDENCE UPON NETWORK INFRASTRUCTURE; RISK OF SYSTEM FAILURE; SECURITY RISKS.
The success of the Company in marketing its services to business and government
users requires that the Company provide superior reliability, capacity and
security via its network infrastructures. These networks are subject to
physical damage, power loss, capacity limitations, software defects, breaches
of security (by computer virus, break-ins or otherwise) and other factors,
certain of which have caused, and will continue to cause, interruptions in
service or reduced capacity for the customers of such company. Similarly,
UUNET's business relies on the availability of its network infrastructure for
the provision of Internet access services. Interruptions in service, capacity
limitations or security breaches could have a material adverse effect on the
Company's business, financial condition and results of operations.
ANTI-TAKEOVER PROVISIONS. The Second Amended and Restated Articles of
Incorporation of WorldCom contain provisions (a) requiring a 70% vote for
approval of certain business combinations with certain 10% shareholders unless
approved by a majority of the
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continuing Board of Directors or unless certain minimum price, procedural and
other requirements are met; (b) restricting aggregate beneficial ownership of
the capital stock of WorldCom by foreign shareholders to 20% of the total
outstanding capital stock, and subjecting excess shares to redemption, and (c)
authorizing the WorldCom Board of Directors to issue preferred stock in one or
more classes without any action on the part of shareholders. In addition,
WorldCom has adopted a rights plan (the "WorldCom Rights Plan") and in
connection therewith entered into the Rights Agreement between WorldCom and The
Bank of New York, as Rights Agent, dated as of August 25, 1996 (the "WorldCom
Rights Agreement"), which will cause substantial dilution to a person or group
that attempts to acquire WorldCom on terms not approved by the WorldCom Board
of Directors. Further, WorldCom's Bylaws (a) contain requirements regarding
advance notice of nomination of directors by shareholders and (b) restrict the
calling of special meetings by shareholders to those owning shares representing
not less than 40% of the votes to be cast. These provisions, including the
WorldCom Rights Plan, may have an "anti-takeover" effect.
EMPLOYEES
As of March 3, 1997, the Company employed approximately 13,000 full-time
persons. Substantially all of the Company's employees are not represented by
any labor union.
ITEM 2. PROPERTIES
The tangible assets of the Company include a substantial investment in
telecommunications equipment. The aggregate value of the Company's
transmission equipment and communications equipment was $2.37 billion and $1.30
billion, respectively, at December 31, 1996. Approximately $2.5 billion is
currently anticipated for transmission and communications equipment purchases
in 1997 without regard to possible future acquisitions, if any.
The Company's rights-of-way for its fiber optic cable and 172 tower microwave
transmission network are typically held under leases, easements, licenses or
governmental permits. All other major equipment and physical facilities are
owned in fee and are operated, constructed and maintained pursuant to
rights-of-way, easements, permits, licenses or consents on or across properties
owned by others.
WilTel has sold to independent entities and leased back its microwave system
and its Kansas City to Los Angeles fiber optic system over primary lease terms
ranging from 15 to 20 years. The leases have renewal options permitting WilTel
to extend the leases for terms expiring during the years 2012 to 2019 and
purchase options based upon the fair market value at the time of purchase.
The Company leases space for sales office and/or administrative facilities,
collector node, collocation sites, general storage space, and equipment rooms
for switches and other peripheral equipment. Such leased properties do not
lend themselves to description by character or location. The Company's fiber
optic network includes aerial and underground cable and conduit which is
located on public streets and highways or on privately owned land. The Company
has permission to use these lands pursuant to governmental consent or lease,
permit, easement or other agreement.
The Company attempts to structure its leases of space for its network switching
centers and rights-of-way for its fiber optic network with initial terms and
renewal options so that the risk of relocation is minimized. The Company
anticipates that prior to termination of any of the leases, it will be able to
renew such leases or make other suitable arrangements.
WorldCom believes that all of its facilities and equipment are in good
condition and are suitable for their intended purposes.
ITEM 3. LEGAL PROCEEDINGS
IDB RELATED INVESTIGATIONS. On June 9, 1994, the SEC issued a formal order of
investigation concerning certain matters, including IDB's financial position,
books and records and internal controls and trading in IDB securities on the
basis of non-public information. The SEC has issued subpoenas to WorldCom, IDB
and others, including certain former officers of IDB, in connection with its
investigation. The National Association of Securities Dealers and other
self-regulatory bodies have also made inquiries of IDB concerning similar
matters.
The United States Attorney's Office for the Central District of California (the
"United States Attorney's Office") issued grand jury subpoenas to IDB and
WorldCom in 1994 and 1995 seeking documents relating to IDB's first quarter of
1994 results, the resignation of Deloitte & Touche LLP as IDB's auditors,
trading in IDB securities and other matters. In October 1996, the United
States Attorney's Office entered into an agreement with WorldCom not to
criminally prosecute IDB with respect to IDB's financial reporting on or before
January 1, 1995 (including but not limited to the resignation of Deloitte &
Touche LLP), trading in IDB securities, misuse of IDB's assets, attempts to
obstruct the proceedings of the SEC and other matters. The agreement does not
cover potential violations of the
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<PAGE> 21
federal tax code and is expressly contingent upon the cooperation of IDB and
WorldCom with the United States Attorney's Office, the Federal Bureau of
Investigation and any other federal law enforcement agency, including the SEC.
OTHER. The Company is involved in other legal and regulatory proceedings
generally incidental to its business. In some instances, rulings by regulatory
authorities in some states may result in increased operating costs to the
Company. While the results of these various legal and regulatory matters
contain an element of uncertainty, the Company believes that the probable
outcome of any of the legal or regulatory matters, or all of them combined,
should not have a material adverse effect on the Company's consolidated results
of operations or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 20, 1996, the Company held a Special Meeting of Shareholders for
the purpose of:
1. considering and voting upon a proposal to approve the issuance
of WorldCom capital stock to shareholders of MFS in connection
with the MFS Merger;
2. considering and voting upon a proposal to amend WorldCom's
Amended and Restated Articles of Incorporation, as amended, to
increase the number of authorized shares of WorldCom Common
Stock from 750,000,000 to 2,500,000,000; and
3. voting upon a proposal to adjourn the Special Meeting to allow
for additional solicitation of shareholder proxies or votes in
the event that the number of proxies or votes sufficient to
obtain a quorum or to approve Proposal 1 and Proposal 2 has
not been received by the date of the Special Meeting.
The tabulation of the voting is as follows:
<TABLE>
<CAPTION>
ABSTENTIONS AND
FOR AGAINST BROKER NON-VOTES
--- ------- ----------------
<S> <C> <C> <C>
Issuance of capital stock to MFS shareholders 277,852,901 2,436,764 809,100
Increase in Common Stock 281,799,677 4,074,816 831,497
Additional solicitation of shareholder proxies 235,593,385 46,680,392 1,164,801
</TABLE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
The shares of Common Stock are quoted on the Nasdaq National Market. On May
25, 1995, the Company changed its name to WorldCom, Inc. and the Common Stock
trading symbol became WCOM. Prior to the name change, the Company's Common
Stock was traded on the Nasdaq National Market under the trading symbol LDDS.
The following table sets forth the high and low sales prices per share of
Common Stock as reported on the Nasdaq National Market based on published
financial sources, for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
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
</TABLE>
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<PAGE> 22
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1996
- ----
First Quarter $23.31 $16.25
Second Quarter 27.72 21.31
Third Quarter 28.88 18.38
Fourth Quarter 26.13 21.00
</TABLE>
As of March 3, 1997, there were 891,860,640 shares of Common Stock issued and
outstanding held by 8,754 shareholders of record.
The Company has never paid cash dividends on its Common Stock. The policy of
the Company's Board of Directors has been to retain earnings to provide funds
for the operation and expansion of its business. Also, the Company's Credit
Facility restricts the payment of cash dividends on its Common Stock. See Note
4 of Notes to Consolidated Financial Statements.
PREFERRED STOCK
In connection with the MFS Merger, the Company issued 9,499,200 depositary
shares (the "Depositary Shares"), each representing 1/100th interest in a share
of WorldCom Series A Preferred Stock. There is no established public trading
market for the WorldCom Series A Preferred Stock. The Depositary Shares are
traded on the Nasdaq National Market under the trading symbol "WCOMP." As of
March 3, 1997, there were 9,499,200 Depositary Shares issued and outstanding
held by one shareholder of record.
Each Depositary Share is mandatorily convertible into 4.2 shares of Common
Stock on May 31, 1999. The Depositary Shares are also redeemable at the option
of the Company in exchange for shares of Common Stock on or after May 31, 1998
at a ratio that will vary depending upon certain factors, including the date of
redemption, the market price of the Common Stock at the time of redemption and
the amount of accrued and unpaid dividends. The Depositary Shares are also
convertible at the option of the holder at any time into 3.44274 shares of
Common Stock for each Depositary Share, plus unpaid dividends.
The Depositary Shares are entitled to receive dividends, when, as and if
declared by the Board of Directors, accruing at the rate of $2.68 per share per
annum, payable quarterly in arrears on each February 28, May 31, August 31 and
November 30. Dividends are payable in cash or in shares of Common Stock, at
the election of the Company. The Company paid the initial dividend on February
28, 1997 in cash and expects to continue to pay cash dividends on the WorldCom
Series A Preferred Stock.
The Depositary Shares are entitled to vote on the basis of 0.10 of a vote for
each Depositary Share held (equivalent to 10 votes for each share of WorldCom
Series A Preferred Stock). The Series A Preferred Stock has a liquidation
preference equal to the greater of (i) the sum of (a) $3,350 per share and (b)
all accrued and unpaid dividends thereon to the date of liquidation and (ii)
the value of the shares of Common Stock into which such Series A Preferred
Stock are convertible on the date of liquidation.
The WorldCom Series B Preferred Stock is convertible into shares of Common
Stock at any time at a conversion rate of 0.0973912 shares of Common Stock for
each share of WorldCom Series B Preferred Stock (an effective initial
conversion price of $10.268 per share of Common Stock). Dividends on the
WorldCom Series B Preferred Stock accrue at the rate per share of $0.0775 per
annum and are payable in cash. Dividends will be paid only when, as and if
declared by the Board of Directors. The Company anticipates that dividends on
the WorldCom Series B Preferred Stock will not be declared but will continue to
accrue. Upon conversion, accrued but unpaid dividends are payable in cash or
shares of Common Stock at the Company's election.
The WorldCom Series B Preferred Stock is also redeemable at the option of the
Company at any time after September 30, 2001 at a redemption price of $1.00 per
share, plus accrued and unpaid dividends. The redemption price will be payable
in cash or shares of the Common Stock at the Company's election.
The WorldCom Series B Preferred Stock is entitled to one vote per share with
respect to all matters. The WorldCom Series B Preferred Stock has a
liquidation preference of $1.00 per share plus all accrued and unpaid dividends
thereon to the date of liquidation. As of March 3, 1997, there were 12,675,598
shares of WorldCom Series B Preferred Stock outstanding held by 1,166
shareholders of record.
RECENT SALES OF UNREGISTERED SECURITIES
On July 10, 1996, 200,000 shares of Common Stock were issued to Jump, Inc. upon
exercise of an option to purchase an aggregate of 2,000,000 shares of Common
Stock granted by the Company in July 1995. The exercise price under the option
was $14.8125 per share, which was the price per share of the Common Stock on
the date of the grant. Such option was granted pursuant to an agreement
18
<PAGE> 23
under which an affiliate of Jump, Inc. provided certain marketing and
promotional services to the Company. The option has a term of ten years with a
vesting schedule of 200,000 per year.
On July 24, 1996, in connection with its acquisition of Choice Communications,
Inc. ("Choice"), the Company issued to certain former shareholders and related
entities of Choice 1,123,955 shares of Common Stock. The Company also issued
to certain of such shareholders, in connection with this acquisition, options
to purchase 30,916 shares of Common Stock, in exchange for certain outstanding
options to purchase common stock of Choice. The options issued in such
exchange, which are currently exercisable, permit the holders to purchase
30,916 shares of Common Stock at an exercise price of $7.44 per share and
expire December 1, 2004. Such options may be exercised in whole or in part at
any time during such period.
On August 23, 1996, in connection with its acquisition of certain assets of
Target Telecom, Incorporated ("Target"), the Company issued to Target 934,050
shares of Common Stock. Such shares were subsequently distributed by Target to
its sole shareholder.
The above-referenced shares of Common stock and options to purchase Common
Stock were issued and granted by WorldCom without registration under the
Securities Act of 1933 in reliance upon the exemption provided by Section 4(2)
thereof and Rule 506 thereunder based on, among other factors, the lack of
general solicitation or general advertising in connection with the issuance and
grant, the number of the recipients of the Common Stock and options, the level
of sophistication and financial resources of these recipients, and the
information available to these recipients.
ITEM 6. SELECTED FINANCIAL DATA
The following is a summary of selected financial data of the Company as of and
for the five years ended December 31, 1996. The historical financial data as
of December 31, 1996 and 1995 and for the years ended December 31, 1996, 1995,
and 1994 have been derived from the historical financial statements of the
Company, which financial statements have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report included elsewhere
herein. This data should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Company's Consolidated Financial Statements and the notes thereto appearing
elsewhere in this document.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------
1996 1995 1994 1993 1992
------ ------ ------- ---------- ----------
(In thousands, except ratios and per share data)
<S> <C> <C> <C> <C> <C>
Operating Results:
Revenues $ 4,485,130 $3,696,345 $2,245,663 $1,474,257 $948,060
Operating income (loss) (1,844,094) 675,144 66,528 238,833 51,983
Income (loss) before
extraordinary item (2,188,944) 266,271 (124,013) 124,321 8,344
Extraordinary item (24,434) - - (7,949) (5,800)
Net income (loss) (2,213,378) 266,271 (124,013) 116,372 2,544
Preferred dividend
requirement 860 33,191 27,766 11,683 2,112
Earnings (loss) per common share:
Income (loss)
before extraordinary item --
Primary (5.50) 0.64 (0.48) 0.41 0.03
Fully diluted (5.50) 0.64 (0.48) 0.40 0.03
Net income (loss)--
Primary (5.56) 0.64 (0.48) 0.38 0.00
Fully diluted (5.56) 0.64 (0.48) 0.37 0.00
Weighted average shares --
Primary 397,890 386,898 315,610 275,854 225,306
Fully diluted 397,890 402,990 315,610 281,592 226,106
Financial position:
Total assets $ 19,861,977 $6,656,629 $ 3,441,474 $ 3,236,718 $ 1,241,278
Long-term debt 4,803,581 3,391,598 794,001 730,023 448,496
Shareholders' investment 12,959,976 2,187,681 1,827,410 1,911,800 478,823
</TABLE>
19
<PAGE> 24
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
1996 1995 1994 1993 1992
------ ------ ------- ---------- ----------
(In thousands, except ratios and per share data)
<S> <C> <C> <C> <C> <C>
Ratio of earnings to combined
fixed charges and preferred
stock dividends N/A 2.31:1 0.10:1 4.14:1 1.40:1
Deficiency of earnings to
combined fixed charges
and preferred stock
dividends $(2,067,851) $ - $ (80,363) $ - $ -
</TABLE>
NOTES TO SELECTED FINANCIAL DATA:
(1) On December 31, 1996, WorldCom completed the MFS Merger. The MFS
Merger is being accounted for as a purchase; accordingly, the
operating results for MFS are not reflected above and will be
included from the date of acquisition.
(2) Results for 1996 include a $2.14 billion charge for in-process
research and development related to the MFS Merger. The charge is
based upon a valuation analysis of the technologies of MFS'
worldwide information system, the Internet network expansion system
of UUNET, and certain other identified research and development
projects purchased in the Merger. The expense includes $1.6 billion
associated with UUNET and $0.54 billion related to MFS.
Additionally, 1996 results include other after-tax charges of $121.0
million for employee severance, employee compensation charges,
alignment charges, and costs to exit unfavorable telecommunications
contracts and $343.5 million after-tax write-down of operating
assets within the Company's non-core businesses. On a pre-tax
basis, these charges totaled $600.1 million.
(3) In 1995, Metromedia converted its Series 1 Preferred Stock into
Common Stock, exercised warrants to acquire Common Stock and
immediately sold its position of 61,699,096 shares of Common Stock
in a public offering. In connection with the preferred stock
conversion, WorldCom made a non-recurring payment of $15.0 million
to Metromedia, representing a discount to the minimum nominal
dividends that would have been payable on the Series 1 Preferred
Stock prior to the September 15, 1996 optional call date of
approximately $26.6 million (which amount includes an annual
dividend requirement of $24.5 million plus accrued dividends to such
call date).
(4) As a result of the IDB Merger and the ATC Merger, the Company
initiated plans to reorganize and restructure its management and
operational organization and facilities to eliminate duplicate
personnel, physical facilities and service capacity, to abandon
certain products and marketing activities, and to take further
advantage of the synergies available to the combined entities.
Also, during the fourth quarter of 1993, plans were approved to
reduce IDB's cost structure and to improve productivity.
Accordingly, in 1994, 1993 and 1992, the Company charged to
operations the estimated costs of such reorganization and
restructuring activities, including employee severance, physical
facility abandonment and duplicate service capacity. These costs
totaled $43.7 million in 1994, $5.9 million in 1993 and $79.8
million in 1992.
Also, during 1994 and 1992, the Company incurred direct merger costs
of $15.0 million and $7.3 million, respectively, related to the IDB
Merger (in 1994) and the ATC Merger (in 1992). These costs include
professional fees, proxy solicitation costs, travel and related
expenses and certain other direct costs attributable to these
mergers.
(5) In connection with certain debt refinancing, the Company recognized
in 1996, 1993 and 1992 extraordinary items of approximately $4.2
million, $7.9 million and $5.8 million, respectively, net of taxes,
consisting of unamortized debt discount, unamortized issuance cost
and prepayment fees. Additionally, in 1996 the Company recorded an
extraordinary item of $20.2 million, net of taxes, related to a
write-off of deferred international costs. See Note 1 and Note 4 of
Notes to Consolidated Financial Statements and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
(6) Long-term debt as of December 31, 1995 includes $1.1 billion related
to the Company's previous credit facilities which were classified as
a current maturity on the December 31, 1995 balance sheet. In June
1996, WorldCom replaced its then existing $3.41 billion credit
facilities with a new $3.75 billion revolving credit facility with
no reduction of principal for five years.
20
<PAGE> 25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis relates to the financial condition and
results of operations of the Company for the three years ended December 31,
1996 after giving effect to the IDB Merger, which was accounted for as a
pooling-of- interests. This information should be read in conjunction with the
"Selected Financial Data" and the Company's Consolidated Financial Statements
appearing elsewhere in this document.
GENERAL
The Company's emphasis on acquisitions has taken the Company from a small
regional long distance carrier to one of the largest long distance
telecommunications companies in the industry, serving customers domestically
and internationally. The Company's operations have grown significantly in each
year of its operations as a result of internal growth, the selective
acquisition of smaller long distance companies with limited geographic service
areas and market shares, the consolidation of certain third tier long distance
carriers with larger market shares, and international expansion.
As a result of the MFS Merger on December 31, 1996, 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 WorldCom common shares in the aggregate.
Each share of MFS Series A Preferred Stock was converted into the right to
receive one share of WorldCom Series A Preferred Stock or 94,922 shares in the
aggregate. Each share of MFS Series B Convertible Preferred Stock was
converted into the right to receive one share of WorldCom Series B Convertible
Preferred Stock or approximately 12.7 million shares in the aggregate. In
addition, each depositary share representing 1/100th of a share of MFS Series A
Preferred Stock was exchanged for a depositary share representing 1/100th of a
share of WorldCom Series A Preferred Stock.
Upon effectiveness of the MFS Merger, the then outstanding and unexercised
options and warrants exercisable for shares of MFS common stock were converted
into options and warrants, respectively, exercisable for shares of Common Stock
having substantially the same terms and conditions as the MFS options and
warrants, except that (i) the exercise price and the number of shares issuable
upon exercise were divided and multiplied, respectively, by 2.1 and (ii) the
holders of each then outstanding and unexercised MFS "Shareworks Plus Award"
granted under the MFS 1993 Stock Plan instead received the cash value of such
option in accordance with the terms of such plan.
MFS provides telecommunications services and systems for business and
government customers. MFS is a leading provider of alternative local network
access facilities via digital fiber optic cable networks that it has installed
in and around approximately 41 United States cities, and in several major
European cities. MFS also provides domestic and international long distance
telecommunications services via its network platform, which consists of
MFS-owned transmission and switching facilities, and network capacity leased
from other carriers primarily in the United States and Western Europe. The MFS
Merger is being accounted for as a purchase; accordingly, the operating results
of MFS are not reflected in the Company's results of operations and will be
included from the acquisition date.
On August 12, 1996, MFS completed the UUNET Acquisition. UUNET is a leading
worldwide provider of a comprehensive range of Internet access options,
applications, and consulting services to businesses, professionals and on-line
services providers. UUNET provides both dedicated and dial-up Internet access,
and other applications and services which include Web server hosting and
integration services, client software and security products, training, and
network integration and consulting services.
The MFS Merger has allowed the Company to take advantage of the congressional
intent behind the Telecom Act and the FCC Interconnect Order by bringing
together the leading growth companies from four key telecom industry segments:
long distance, local, Internet and international. The Company believes that
the MFS Merger enhances the combined entity's opportunities for future growth,
creates a stronger competitor in the changing telecommunications industry,
allows provision of end-to-end bundled services over a global network, and
provides the opportunity for significant cost savings for the combined
organization.
On January 5, 1995, the Company completed the WilTel Acquisition for
approximately $2.5 billion in cash. Through this purchase, the Company
acquired a nationwide common carrier network of approximately 11,000 miles of
fiber optic cable and digital microwave facilities.
The Company's long distance revenues are derived principally from the number of
minutes of use billed by the Company. Minutes billed are those conversation
minutes during which a call is actually connected at the Company's switch
(except for minutes during which the customer receives a busy signal or the
call is unanswered at its destination). The Company's profitability is
dependent upon, among other things, its ability to achieve line costs that are
less than its revenues. The principal components of line costs are access
charges and transport charges.
21
<PAGE> 26
The most significant portion of the Company's line costs is access charges
which are highly regulated. Accordingly, the Company cannot predict what
effect continued regulation and increased competition between LECs and other
IXCs will have on future access charges. However, the Company believes that it
will be able to continue to reduce transport costs through effective
utilization of its network, favorable contracts with carriers and network
efficiencies made possible as a result of expansion of the Company's customer
base by acquisitions and internal growth.
On February 8, 1996, President Clinton signed the Telecom Act which permits,
without limitations, the BOCs to provide domestic and international long
distance services to customers located outside of the BOC's home regions;
permits a petitioning BOC to provide domestic and international long distance
service to customers within its home region upon a finding by the FCC that a
petitioning BOC has satisfied certain criteria for opening up its local
exchange network to competition and that its provision of long distance
services would further the public interest; and removes existing barriers to
entry into local service markets. Additionally, there are significant changes
in: the manner in which carrier-to-carrier arrangements are regulated at the
federal and state level; procedures to revise universal service standards; and
penalties for unauthorized switching of customers. The FCC has instituted
proceedings addressing the implementation of this legislation.
In the FCC Interconnect Order, which was released on August 8, 1996, the FCC
established nationwide rules designed to encourage new entrants to participate
in the local service markets through interconnection with the ILEC, resale of
the ILEC's retail services and unbundled network elements. These rules set the
groundwork for the statutory criteria governing BOC entry into the long
distance market. The Company cannot predict the effect such legislation or the
implementing regulations will have on the Company or the industry. Motions to
stay implementation of the FCC Interconnect Order have been filed with the FCC
and federal courts of appeal. Appeals challenging, among other things, the
validity of the FCC Interconnect Order were filed in several federal courts of
appeal and assigned to the Eighth Circuit Court of Appeals for disposition. The
Eighth Circuit Court of Appeals has stayed the pricing provisions of the FCC
Interconnect Order. The Circuit Justice of the Supreme Court has declined to
review the propriety of the stay. The Company cannot predict either the
outcome of these challenges and appeals or the eventual effect on its business
or the industry in general.
On December 24, 1996, the FCC released the NPRM seeking to reform the FCC's
current access charge policies and practices to comport with a competitive or
potentially competitive local access service market. The NPRM seeks comment on
a number of proposals for a series of reforms to the existing switched access
charge rate structure rules that are designed to eliminate economic
inefficiencies. In addition, the FCC proposes to use, either alternatively or
in combination, two approaches for addressing: claims that access charges are
excessive; a transition to economic based pricing of access charges; and, for
deregulation of incumbent local exchange carriers as competition develops. The
FCC is evaluating the use of either a market-based approach, a prescriptive
approach or a combination of both. Such charges are a principal component of
the Company's line cost expense. The Company cannot predict whether or not the
result of this proceeding will have a material impact upon its financial
position or results of operations.
In the NPRM, the FCC tentatively concluded that information services providers
(including among others Internet service providers) should not be subject to
existing interstate access charges. However, the FCC recognized that these
services and recent technological advances may be constrained by current
regulatory practices that have their foundations in traditional services and
technologies. The FCC issued on December 24, 1996, a Notice of Inquiry to seek
comment on whether it should, in addition to access charge reform, consider
actions relating to interstate information services and the Internet. Changes
in the regulatory environment relating to the telecommunications or
Internet-related services industry could have an adverse effect on the
Company's Internet-related services business. The Telecom Act may permit
telecommunications companies, BOCs or others to increase the scope or reduce
the cost of their Internet access services. The Company cannot predict the
effect that the Notice of Inquiry, the Telecom Act or any future legislation,
regulation or regulatory changes may have on its business.
In December 1996, the FCC adopted a new policy that will make it easier for
United States international carriers to obtain authority to route international
public switched voice traffic to and from the United States outside of the
traditional settlement rate and proportionate return regimes. In February
1997, the United States entered into a WTO Agreement that should have the
effect of liberalizing the provision of switched voice telephone and other
telecommunications services in many foreign countries over the next several
years. As a result of the WTO Agreement, WorldCom expects the FCC, among other
things, to reexamine its policies regarding (i) the services that may be
provided by foreign owned United States international common carriers,
including carriers owned or controlled by foreign carriers that have market
power in their home markets, and (ii) the provision of international switched
voice services outside of the traditional settlement rate and proportionate
return regimes. Although the FCC's new flexible settlement rate policy, and
the WTO Agreement and any ensuing FCC policy changes, may result in lower costs
to the Company to terminate international traffic, there is a risk that the
revenues that the Company receives from inbound international traffic may
decrease to an even greater degree. The implementation of the WTO Agreement
may also make it easier for foreign carriers with market power in their home
markets to offer United States and foreign customers end-to-end services to the
disadvantage of WorldCom, which may face substantial obstacles in obtaining
from foreign governments and foreign carriers the authority and facilities to
provide such end-to-end services.
22
<PAGE> 27
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the Company's
statement of operations as a percentage of its operating revenues.
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0%
Line costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54.8 54.9 65.3
Selling, general and administrative . . . . . . . . . . . . . . . . 18.5 18.3 19.7
Depreciation and amortization . . . . . . . . . . . . . . . . . . . 6.7 8.5 7.3
Direct merger costs, restructuring and other charges . . . . . . . 13.4 - 4.7
Charge for in-process research and development . . . . . . . . . . 47.7 - -
----- ------ ------
Operating income (loss): . . . . . . . . . . . . . . . . . . . . . (41.1) 18.3 3.0
Other income (expense):
Interest expense . . . . . . . . . . . . . . . . . . . . . . . (4.9) (6.7) (2.1)
Shareholder litigation settlement . . . . . . . . . . . . . . . - - (3.4)
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . 0.1 0.3 0.3
---- ---- ----
Income (loss) before income taxes and extraordinary item . . . . . (45.9) 11.9 (2.2)
Provision for income taxes . . . . . . . . . . . . . . . . . . . . 2.9 4.6 3.3
----- ---- ----
Net income (loss) before extraordinary item . . . . . . . . . . . (48.8) 7.3 (5.5)
Extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . 0.6 - -
----- ----- -----
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . (49.4) 7.3 (5.5)
Preferred dividend requirement . . . . . . . . . . . . . . . . . . - 1.0 1.3
------ ----- -----
Net income (loss) applicable to common shareholders . . . . . . . . (49.4%) 6.3% (6.8)%
====== ===== =====
</TABLE>
YEAR ENDED DECEMBER 31, 1996 VS.
YEAR ENDED DECEMBER 31, 1995:
Revenues for 1996 increased 21% to $4.49 billion on 24.51 billion revenue
minutes as compared to $3.70 billion on 19.57 billion revenue minutes for 1995.
The increase in total revenues and minutes is primarily attributable to
internal growth of the Company.
Revenues for 1996 include the acquisitions of Choice and BLT Technologies which
were accounted for as poolings of interests. Revenues from these businesses
increased 97% over the prior year.
Internally, private line and frame relay revenues increased 28% over the prior
year while switched commercial and wholesale revenues increased 23% to $3.31
billion on a 26% increase in traffic.
Line costs as a percentage of revenues decreased to 54.8% of revenues as
compared to 54.9% for 1995. These changes are attributable to changes in the
product mix, and synergies and economies of scale resulting from network
efficiencies achieved from the assimilation of recent acquisitions into the
Company's operations.
Selling, general and administrative expenses for 1996 increased to $828.7
million or 18.5% of revenues as compared to $677.9 million or 18.3% of revenues
for 1995. The increase in selling, general and administrative expenses results
from the Company's expanding operations, primarily through stronger internal
growth, offset by changes in the product mix.
Depreciation and amortization expense for 1996 decreased to $303.3 million or
6.7% of revenues from $312.7 million or 8.5% of revenues for 1995. This
decrease reflects the reduction in depreciation and amortization associated
with the second quarter 1996 write-down in the carrying value of certain assets
offset by additional depreciation related to capital expenditures. The
reduction in percentage is due to a relatively stable amount of amortization on
a higher revenue base. In 1997, the Company expects depreciation and
amortization expense as a percentage of revenues to increase as a result of the
MFS Merger.
In the second quarter of 1996, the Company incurred non-cash charges related to
a write-down in the carrying value of certain assets, including goodwill and
equipment. Because of events resulting from the passage of the Telecom Act,
and changes in circumstances impacting certain non-core operations, management
estimates of the Company's fair value of operating assets within its core and
non-core businesses resulted in a non-cash charge of $343.5 million after tax.
On a pre-tax basis, the write-down was $402.0 million and included $139.1
million for network facilities and $262.9 million for non-core businesses,
primarily operator services goodwill.
23
<PAGE> 28
In the fourth quarter of 1996, the Company recorded other after-tax charges of
$121.0 million for employee severance, employee compensation charges, alignment
charges and costs to exit unfavorable telecommunications contracts. On a
pre-tax basis, this charge was $198.1 million and is reflected in operating
loss for the 1996 period.
The results for 1996 include a $2.14 billion, fourth quarter charge for
in-process research and development related to the MFS Merger. The charge is
based upon a valuation analysis of the technologies of MFS' worldwide
information system, the Internet network expansion system of UUNET, and certain
other identified research and development projects purchased in the merger. The
Company believes that the efforts to complete these projects will consist of
internally-staffed engineering costs and further development and construction
of the network. These costs are estimated to be approximately $1.0 billion and
will be incurred over the next five years.
Interest expense in 1996 was $221.8 million or 4.9% of revenues, as compared to
$249.2 million or 6.7% of revenues in 1995. The decrease in interest expense
is attributable to lower interest rates in effect on the Company's long-term
debt. For the twelve months ended December 31, 1996 and 1995, weighted average
annual interest rates on the Company's long-term debt was 6.2% and 7.2%,
respectively, while weighted average annual levels of borrowing were $3.49
billion and $3.45 billion, respectively.
The Company recorded a tax provision of $129.5 million on a pretax loss of $2.1
billion in 1996. Although the Company generated a consolidated pre-tax loss in
1996, permanent items aggregating approximately $2.4 billion resulted in the
recognition of taxable income. Included in the permanent items was the $2.14
billion charge for in-process research and development related to the MFS
Merger.
In the second quarter of 1996, the Company recorded extraordinary items
totaling $24.4 million, net of income tax benefit of $15.6 million. The items
included $4.2 million in connection with the Company's debt refinancing, and
$20.2 million related to a write-off of deferred international costs.
Previously, a portion of the outbound call fee due the foreign carrier was
deferred and accounted for as a cost attributable to the revenue associated
with the inbound call. Currently, the outbound call fee due the foreign
carrier is expensed as incurred.
For the year ended December 31, 1996, net income, before non-recurring charges,
increased 67% to $414.9 million compared with $248.1 million for the 1995
period. Fully diluted earnings per common share, before the non-recurring
charges increased 49% to $1.01 per share versus $0.68 per share for the
comparable 1995 period.
YEAR ENDED DECEMBER 31, 1995 VS.
YEAR ENDED DECEMBER 31, 1994:
Revenues for 1995 increased 65% to $3.70 billion on 19.57 billion revenue
minutes as compared to $2.25 billion on 11.06 billion revenue minutes for 1994.
On a pro forma basis, as though the acquisition of WilTel occurred at the
beginning of 1994, revenues and traffic for 1995 increased 20% and 30%,
respectively, compared with pro forma revenues of $3.09 billion on 15.03
billion revenue minutes for 1994. Revenue growth for 1995 was driven by strong
performance from the Company's retail and wholesale switched services offset
insignificantly by declines in operator services revenue. Switched retail and
wholesale revenues and traffic rose 22% and 31%, respectively. Operator
services revenues and traffic decreased 6% and 15%, respectively, yet
represented less than 5% of total Company revenues for 1995.
Private line revenues for 1995 also reflected positive growth, increasing 21%
over 1994 pro forma results due to growth in commercial Internet business and
other frame relay applications.
Line costs as a percentage of revenues decreased to 54.9% in 1995 compared to
65.3% for 1994. These decreases are attributable to changes in product mix,
rate reductions resulting from favorable contract negotiations and synergies
and economies of scale resulting from network efficiencies achieved from the
assimilation of the IDB Merger and the WilTel Acquisition into the Company's
operations. Additionally, through the WilTel Acquisition, the Company has been
able to achieve further network efficiencies associated with owning the WilTel
nationwide fiber optic cable network rather than leasing similar capacity from
other providers at a higher cost.
Selling, general and administrative expenses for 1995 increased to $677.9
million or 18.3% of revenues as compared to $441.9 million or 19.7% of revenues
for 1994. The increase in selling, general and administrative expenses results
from the Company's expanding operations, primarily through the WilTel
Acquisition and internal growth. The decrease in expense as a percentage of
revenues reflects the assimilation of recent acquisitions into the Company's
strategy of cost control.
Depreciation and amortization expense for 1995 increased to $312.7 million or
8.5% of revenues from $164.4 million or 7.3% of revenues for 1994. This
increase reflects depreciation and amortization of the additional property and
equipment and goodwill from the WilTel Acquisition.
24
<PAGE> 29
Interest expense in 1995 was $249.2 million or 6.7% of revenues, as compared to
$47.3 million or 2.1% of revenues in 1994. The increase in interest expense
was due primarily to an increase in the average debt outstanding by the Company
to finance the WilTel Acquisition. Also, higher interest rates were in effect
on the Company's long-term debt, reflecting higher prevailing interest rates in
the market generally.
The effective income tax rate for 1995 was 39% of income before taxes versus a
1994 rate in excess of 100%. The 1995 effective rate of 39% includes the
effect of a $7.0 million decrease in the Company's valuation allowance. The
valuation allowance decreased due to the Company's ability to utilize net
operating losses that management had previously determined would not be
utilized under a "more likely than not" scenario. This is mainly attributable
to the profitability of individual operating units in 1995. The unusually high
income tax rate in 1994 was due to permanent items not deductible for tax
purposes as well as a $90.0 million valuation allowance placed on the deferred
tax asset in connection with IDB net operating losses.
In the third quarter of 1995, Metromedia converted its Series 1 Preferred Stock
into Common Stock and exercised its warrants to acquire Common Stock and
immediately sold its position of 61.7 million shares of Common Stock in a
public offering. In connection with the preferred stock conversion, WorldCom
made a non-recurring payment of $15.0 million to Metromedia, representing a
discount to the minimum nominal dividends that would have been payable on the
Series 1 Preferred Stock prior to the September 15, 1996 optional call date of
approximately $26.6 million (which amount includes an annual dividend
requirement of $24.5 million plus accrued dividends to such call date).
Net income applicable to common shareholders was $233.1 million for 1995 versus
a $151.8 million loss in the comparable 1994 period. Operating results for
1995 include the non-recurring payment of $15.0 million to Metromedia.
Excluding this payment, earnings for 1995 would have been $248.1 million or
$0.68 per common share.
LIQUIDITY AND CAPITAL RESOURCES
On June 28, 1996, WorldCom replaced its then existing $3.41 billion credit
facilities (the "Previous Facilities") with a new $3.75 billion revolving
credit facility (the "Credit Facility"). Borrowings under the Credit Facility
were used to refinance the Previous Facilities and have been and will be used
to finance capital expenditures and provide additional working capital. As a
result of the refinancing, WorldCom recorded an extraordinary charge of $4.2
million, net of $2.7 million in taxes, related to the charge-off of the
unamortized portion of costs associated with the refinanced debt.
The Credit Facility has a five-year term and bears interest, payable in varying
periods, depending on the interest periods, not to exceed six months, at rates
selected by the Company under the terms of the Credit Facility including a Base
Rate or the LIBOR, plus applicable margin. The applicable margin for a LIBOR
rate borrowing varies from 0.35% to 0.875% based upon a specified financial
test. The Credit Facility is unsecured and requires compliance with certain
financial and other operating covenants which limit, among other things, the
incurrence of additional indebtedness by WorldCom and restricts the payment of
cash dividends to WorldCom's shareholders. The Credit Facility is also subject
to an annual commitment fee not to exceed 0.25% of any unborrowed portion of
the Credit Facility.
Borrowings under the Credit Facility bear interest at rates that fluctuate with
prevailing short-term interest rates. Under the provisions of the Credit
Facility, the Company is required to hedge 25% of its debt against adverse
interest movements in short-term rates. The Company believes that it can
adequately address this requirement through financial hedging measures or
increasing the amount of fixed rate debt outstanding.
The Company has historically utilized cash flow from operations to finance
capital expenditures and a mixture of cash flow, debt and stock to finance
acquisitions. The Company expects to experience increased capital intensity
due to network expansions and believes that funding needs in excess of
internally generated cash flow will be met by accessing the debt markets. The
Company has filed a shelf Registration Statement on Form S-3 with the SEC for
the sale, from time to time, of one or more series of unsecured debt securities
having an aggregate value of $3.0 billion. The Company expects to draw down a
portion of the shelf registration in the first half of 1997 to pay down the
Credit Facility but maintain increased credit availability for capital
spending. No assurance can be given that any public financing will be
available on terms acceptable to the Company.
In connection with the MFS Merger and pursuant to a change of control
provision, WorldCom offered to repurchase the MFS $924.0 million 8 7/8% Senior
Discount Notes due 2006 and the MFS $788.3 million 9 3/8% Senior Discount Notes
due 2004 (collectively the "MFS Notes") at 101% of the accreted value as of
February 27, 1997, which was $670.0 million and $666.1 million, respectively.
The offer to repurchase began January 28, 1997 and ended February 27, 1997. As
of the expiration approximately $14.3 million of the MFS Notes were
repurchased. The MFS Notes contain certain covenants which, among other
things, restrict MFS' ability to incur additional debt, create liens, enter
into sale-leaseback transactions, pay dividends, make certain restricted
payments, enter into transactions with affiliates and sell assets or merge with
another company.
25
<PAGE> 30
For the twelve months ended December 31, 1996, the Company's cash flow from
operations was $798.1 million, increasing from $616.7 million in the comparable
period for 1995. Excluding the change in deferred taxes, cash flow increased
by approximately $300 million or 66% over the comparable period for 1995. The
increase in cash flow from operations was primarily attributable to internal
growth.
During 1996, the Company's existing receivables purchase agreement generated
additional proceeds of $79.6 million, bringing the total amount outstanding to
$375.0 million. The Company used these proceeds to reduce outstanding debt
under the Company's Credit Facility. As of December 31, 1996, the purchaser
owned an undivided interest in a $821.7 million pool of receivables which
includes the $375.0 million sold.
Cash used in investing activities in the twelve months ended December 31, 1996
totaled $752.8 million and included $427.6 million for normal capital
expenditures and an additional $229.5 million for additional city pair network
construction. Primary capital expenditures include purchases of switching,
transmission, communication and other equipment. Approximately $2.5 billion is
currently anticipated for transmission and communications equipment purchases
in 1997 without regard to possible future acquisitions, if any. This amount
includes additional city pair network construction opportunities which could
approximate $500 million to $700 million.
Cash flows from investing activities for 1996 also includes net cash received
from acquisitions of $116.1 million. The net cash inflow from acquisitions is
due to $209.3 million of cash and cash equivalents received in the MFS Merger.
Included in cash flows from financing activities are payments of $0.9 million
for preferred dividend requirements. In connection with the announcement in
May 1996, that the Company would redeem its Series 2 Preferred Stock on June 5,
1996, all of the remaining outstanding Series 2 Preferred Stock was converted
into 5.3 million shares of Common Stock in the second quarter of 1996. The
fully diluted common shares outstanding were unaffected by the conversion and
the Company has no further dividend requirements with respect thereto.
On July 15, 1996, WorldCom announced that it had exercised its option to redeem
on August 16, 1996, all of the outstanding IDB WorldCom, Inc. 5% Convertible
Subordinated Notes due 2003 (the "Notes"). Prior to the redemption date,
substantially all of the holders of the Notes elected to convert their Notes
into Common Stock, resulting in the issuance of approximately 10.3 million
shares of Common Stock. The fully diluted common shares outstanding were
unaffected by the conversion, and the Company has no further cash interest
requirement related to the Notes.
The Company has never paid cash dividends on its Common Stock. WorldCom's
Credit Facility restricts the payment of cash dividends on WorldCom capital
stock without prior consent of the lenders. The Depositary Shares are entitled
to receive dividends, when, as, and if they are declared by the Board of
Directors, accruing at the rate of $2.68 per share per annum, payable quarterly
in arrears on each February 28, May 31, August 31 and November 30. Dividends
are payable in cash or in shares of Common Stock, at the election of the
Company. The Company paid the initial dividend on February 28, 1997 in cash
and expects to continue to pay cash dividends on the WorldCom Series A
Preferred Stock. Dividends on the WorldCom Series B Preferred Stock accrue at
the rate per share of $0.0775 per annum and are payable in cash. Dividends
will be paid only when, as and if declared by the Board of Directors of the
Company. The Company anticipates that dividends on the WorldCom Series B
Preferred Stock will not be declared but will continue to accrue. Upon
conversion, accrued but unpaid dividends are payable in cash or shares of
Common Stock at the Company's election.
Absent significant capital requirements for other acquisitions, the Company
believes that cash flow from operations, funds available under the Credit
Facility and funds anticipated to be received from debt to be issued under the
shelf Registration Statement will be adequate to meet the Company's capital
needs for the remainder of 1997.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." This
Statement establishes accounting and reporting standards for transfers and
servicing of financial assets and extinguishment of liabilities. This
Statement provides standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings. This Statement is
effective for transfers and servicing of financial assets and extinguishments
of liabilities occurring after December 31, 1996, and is to be applied
prospectively. WorldCom believes that the adoption of this standard will not
have a material effect on the Company's consolidated results of operations or
financial position.
26
<PAGE> 31
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements and notes thereto are included
elsewhere in this report on Form 10-K as follows:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of independent public accountants F-2
Consolidated financial statements-
Consolidated balance sheets - December 31, 1996
and 1995 F-3
Consolidated statements of operations for the three
years ended December 31, 1996 F-4
Consolidated statements of shareholders' investment
for the three years ended December 31, 1996 F-5
Consolidated statements of cash flows for the
three years ended December 31, 1996 F-6
Notes to consolidated financial statements F-7
Financial statement schedule F-23
Pro forma financial statements (unaudited) F-24
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following states each director and each executive officer's age,
principal occupation, present position with the Company and the year in which
each director first was elected a director (each serving continuously since
first elected except as set forth otherwise). Unless indicated otherwise, each
individual has held his present position for at least five years.
CARL J. AYCOCK, 47, has been a director of the Company since 1983.
Mr. Aycock served as Secretary of the Company from 1987 to 1995 and was the
Secretary and Chief Financial Officer of Master Corporation, a motel management
and ownership company, from 1989 until 1992. Subsequent to 1992, Mr. Aycock
has been self employed as a financial administrator.
MAX E. BOBBITT, 52, has been a director of the Company since 1992.
Mr. Bobbitt was a director of ATC until the ATC Merger. Mr. Bobbitt is
currently President and Chief Executive Officer of Metromedia Asia Corporation,
a telecommunications company. From 1996 until February 1997, Mr. Bobbitt was
President and Chief Executive Officer of Asian American Telecommunications
Corporation. Prior to 1996, Mr. Bobbitt held various positions including
President and Chief Operating Officer and director of ALLTEL Corporation, a
telecommunications company, from 1970 until January 1995.
R. DOUGLAS BRADBURY, 46, has been a director of the Company since the
MFS Merger. Mr. Bradbury served as Chief Financial Officer of MFS from January
1992 until February 1997, Executive Vice President of MFS from August 1995 to
February 1997, Senior Vice President of MFS from September 1992 to August 1995
and a director of MFS from August 1994 to February 1997. From 1990 to 1992,
Mr. Bradbury was Senior Vice President - Corporate Affairs for MFS Telecom,
Inc. ("MFS Telecom").
27
<PAGE> 32
JAMES Q. CROWE, 47, serves as Chairman of the Board of the
Company. Mr. Crowe has served as a director of the Company since the
MFS Merger. Mr. Crowe has served as Chairman of the Board of MFS
since 1988 and Chief Executive Officer since November 1991 and was
President of MFS (January 1988 - June 1989 and April 1990 - January
1992).
BERNARD J. EBBERS, 55, has been President and Chief Executive
Officer of the Company since April 1985. Mr. Ebbers has served as a
director of the Company since 1983.
FRANCESCO GALESI, 66, has been a director of the Company since
1992. Mr. Galesi was a director of ATC until the ATC Merger. Mr.
Galesi is the Chairman and Chief Executive Officer of the Galesi
Group, which includes companies engaged in distribution,
manufacturing, real estate and telecommunications. Mr. Galesi serves
as a director of Amnex, Inc., and Walden Residential Properties, Inc.
RICHARD R. JAROS, 45, has been a director of the Company since
the MFS Merger and has served as a director of MFS since 1992. Mr.
Jaros has been President of Kiewit Diversified Group, Inc. ("KDG"), a
coal mining and telecommunications company, since July 1996, Executive
Vice President and Chief Financial Officer of Peter Kiewit Sons'
("PKS"), a construction and mining company since April 1993, and was a
Vice President of PKS from 1990 until 1992. Mr. Jaros was the
Chairman of the Board of CalEnergy Company, Inc. ("CEC"), a geothermal
energy producer, from January 1994 until May 1995 and the President
and Chief Operating Officer of CEC from 1992 until April 1993. Mr.
Jaros is a director of PKS, CEC and C-TEC Corporation ("C-TEC"), a
telecommunications company.
STILES A. KELLETT, JR., 53, has served as a director of the
Company since 1981. Mr. Kellett has been Chairman of Kellett
Investment Corp. since 1995. From 1978 to 1995, Mr. Kellett served as
Chairman of the Board of Directors of Convalescent Services, Inc., a
long-term health care company in Atlanta, Georgia. Mr. Kellett
serves as a director of Frederica Bank & Trust Company, St. Simons
Island, Georgia, and Mariner Health Group, Inc., New London,
Connecticut.
DAVID C. MCCOURT, 40, has been a director of the Company since
the MFS Merger and has served as a director of MFS since January 1992.
Mr. McCourt has served as Chairman of the Board and Chief Executive
Officer of C-TEC since October 1993. Mr. McCourt is also the
President, as well as a director of Kiewit Telecom Holdings, Inc. Mr.
McCourt has served as President of Metropolitan Fiber Systems/McCourt,
Inc., a subsidiary of MFS Telecom, since 1988. Mr. McCourt is a
director of C-TEC and Mercom, Inc.
JOHN A. PORTER, 53, has been a director of the Company since
1988. Mr. Porter served as Vice Chairman of the Board of the Company
from September 1993 until the MFS Merger and served as Chairman of the
Board of Directors of the Company from 1988 until September 1993.
From May 1995 to the present, Mr. Porter has served as Chairman of the
Board of Directors and Chief Executive Officer of Industrial Electric
Manufacturing, Inc., a manufacturer of electrical power distribution
products. Mr. Porter also serves as Chairman of the Board of
Directors of Phillips & Brooks/Gladwin, Inc., a manufacturer of pay
telephone enclosures and equipment. Mr. Porter was previously
President and sole shareholder of P.M. Restaurant Group, Inc. which
filed for protection under Chapter 11 of the United States Bankruptcy
Code in March 1995. Subsequent to March 1995, Mr. Porter sold all of
his shares in P.M. Restaurant Group, Inc. He is also a director of
Uniroyal Technology Corporation, Intelligent Electronics, Inc. and XL
Connect, Inc.
WALTER SCOTT, JR., 65, has been a director of the Company
since the MFS Merger and has served as a director of MFS since January
1992. Mr. Scott has been the Chairman of the Board and President of
PKS for more than the last five years. He also is a director of
Berkshire Hathaway, Inc., Burlington Resources, Inc., CEC, ConAgra,
Inc., First Bank System, Inc., Valmont Industries, Inc., KDG, RCN
Corporation, and C-TEC.
JOHN W. SIDGMORE, 45, serves as Vice Chairman of the Board and
Chief Operations Officer of the Company. Mr. Sidgmore has been a
director of the Company since the MFS Merger and has served as a
director of MFS since August 1996. Mr. Sidgmore was President and
Chief Operating Officer of MFS from August 1996 until the MFS Merger
and has been Chief Executive Officer and a director of UUNET from June
1994 to the present, and also held the position of President of UUNET
from June 1994 to August 1996 and from January 1997 to the present.
From 1989 to 1994, he was President and Chief Executive Officer of CSC
Intelicom, a telecommunications software company. Mr. Sidgmore is a
director of Saville Systems PLC, and Earthlink Network, Inc.
SCOTT D. SULLIVAN, 35, serves as Chief Financial Officer and
Secretary of the Company. From the ATC Merger until December 1994,
Mr. Sullivan served as Vice President and Assistant Treasurer of the
Company. From 1989 until 1992, Mr. Sullivan served as an executive
officer of two long-distance companies, including ATC. From 1983 to
1989, Mr. Sullivan served in various capacities with KPMG Peat Marwick
LLP. Mr. Sullivan has served as a director of the Company since March
1996.
28
<PAGE> 33
LAWRENCE C. TUCKER, 54, is a general partner of Brown Brothers Harriman
& Co. ("Brown Brothers"), which is the general and managing partner of The 1818
Fund, L.P. and The 1818 Fund II, L.P. (collectively, "The 1818 Funds"). He is
also a director of The WellCare Management Group, Inc. and Riverwood
International Corporation. Mr. Tucker has served as a director of the Company
since May 1995, and previously served as director of the Company from May 28,
1992 until the ATC Merger.
MICHAEL B. YANNEY, 63, has been a director of the Company since the MFS
Merger and has served as a director of MFS since March 1993. Mr. Yanney has
been the President, Chairman and Chief Executive Officer of America First
Companies L.L.C., a bank holding company in Omaha, Nebraska, since 1984. He
also serves as a director of Burlington Northern Santa Fe Corporation, C-TEC,
Forest Oil Corporation and Mid-America Apartment Communities, Inc.
COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires
directors, executive officers and 10% or greater shareholders of the Company
("Reporting Persons") to file with the SEC initial reports of ownership and
reports of changes in ownership of equity securities of the Company. To the
Company's knowledge, based solely on its review of the copies of such reports
furnished to the Company and written representations that certain reports were
not required, during the year ended December 31, 1996, all Section 16(a) filing
requirements applicable to Reporting Persons were complied with, except that
Mr. Galesi filed one late report covering four transactions.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation of the named executive
officers of the Company for the three years ended December 31, 1996. The table
also sets forth, for informational purposes, the Compensation paid by MFS
and/or UUNET during 1996 to Messrs. Crowe and Sidgmore, who became executive
officers of the Company upon completion of the MFS Merger.
<TABLE>
<CAPTION>
Long Term
Compensation
------------
Annual Compensation Awards
--------------------------- ------------
Securities
Underlying
Options/ All Other
Name and Principal Position Year Salary ($) Bonus($) SARs (#) Compensation($)
- --------------------------- ---- ---------- -------- -------- ---------------
<S> <C> <C> <C> <C> <C>
Bernard J. Ebbers 1996 935,000 2,337,500(1) 1,200,000/0 4,500(2)
President and 1995 860,000 2,125,000 900,000/0 4,500
Chief Executive Officer 1994 711,000 750,000 200,000/0 4,500
James Q. Crowe (3) 1996 496,923 1,000,000 -0- 149,692(4)
Chief Executive Officer,
MFS
John W. Sidgmore (3) 1996 283,577 494,443 -0- 2,182,654(5)
President and Chief
Operating Officer,
MFS
Scott D. Sullivan 1996 375,000 500,000 100,000/0 4,500(2)
Chief Financial Officer 1995 294,000 225,000 240,000/0 4,500
and Secretary 1994 147,584 250,000 210,000/0 4,500
Roy A. Wilkens 1996 450,000 450,000 100,000/0 1,004,500(6)
President and Chief 1995 427,500 300,000 400,000/0 1,004,500
Executive Officer, Wiltel 1994 0 0 0/0 0
- --------------------
</TABLE>
(1) Includes $1,687,500 paid under the Company's Annual Performance Bonus
Plan and $650,000 paid under the Company's Special Performance Bonus
Plan. The Compensation and Stock Option Committee awarded to Mr.
Ebbers the
29
<PAGE> 34
$1,000,000 maximum amount allowed under the Company's Special
Performance Bonus Plan for 1996, but Mr. Ebbers accepted only $650,000
of such award.
(2) Matching contributions to the Company's 401(k) Plan.
(3) Represents compensation paid to these individuals as executive
officers of MFS and/or UUNET.
(4) Matching contributions to MFS' Shareworks Match Plan.
(5) Pursuant to option and stock purchase agreements between Mr. Sidgmore
and UUNET, upon consummation of the UUNET Acquisition, the lapse of
repurchase rights accelerated with respect to 50% of outstanding
shares issued upon option exercise subject to a right of repurchase as
of the effective date of the UUNET Acquisition. As a result of such
acceleration, Mr. Sidgmore incurred an excise tax pursuant to Section
4999 of the Internal Revenue Code of 1986 and corresponding provisions
of applicable state law. UUNET paid an amount (the "Transfer")
sufficient to pay (i) the excise tax and (ii) any and all federal,
state and local taxes payable with respect to the receipt of the
Transfer. The amount that UUNET paid to Mr. Sidgmore in this
connection was $2,182,654.
(6) Includes $1,000,000 received by Mr. Wilkens in connection with the
termination of certain contract rights with Williams
Telecommunications Group, Inc. and $4,500 in matching contributions to
the Company's 401(k) Plan. In connection with the WilTel Acquisition,
the Company assumed the employment agreement among Mr. Wilkens,
Williams and Williams Telecommunications Group, Inc. (the
"Agreement"). Mr. Wilkens resigned from the Company in January 1997,
at which time the Agreement was terminated.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning stock option
grants made in the fiscal year ended December 31, 1996, to the individuals
named in the Summary Compensation Table. There were no grants of SARs to said
individuals during the year.
<TABLE>
<CAPTION>
Individual Grants Potential Realizable Value
- ----------------------------------------------------------------------------------------- at Assumed Annual Rates of
Number of Stock Price Appreciation
Securities for Option Term(3)
Underlying --------------------------
Options % of Total
Granted Options Granted
------- to Employees Exercise or Base Expiration
Name (#)(1) in FY Price ($/Sh)(2) Date 5% ($) 10% ($)
---- ------ --------------- --------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Bernard J. Ebbers 1,200,000 20.8% 17.875 01/01/06 13,489,790 34,185,776
James Q. Crowe --- --- --- --- --- ---
John W. Sidgmore --- --- --- --- --- ---
Scott D. Sullivan 100,000 1.7% 17.875 01/01/06 1,124,149 2,848,815
Roy A. Wilkens 100,000 1.7% 17.875 01/01/06 1,124,149 2,848,815
- --------------------
</TABLE>
(1) The options terminate on the earlier of their expiration date or ten
years after grant or, generally, immediately on termination for
reasons other than retirement, disability, death or without cause;
three months after termination of employment on retirement; 12 months
after termination for disability, death or without cause; or upon the
consummation of a specified change of control transaction.
Mr. Ebbers' option becomes exercisable in three equal annual
installments beginning January 1, 1997 through January 1, 1999. Mr.
Sullivan's option becomes exercisable beginning January 1, 1999.
Pursuant to Mr. Wilkens' separation agreement with the Company, and
assuming his compliance with the terms thereof, 50,000 shares under
such option will vest and become exercisable on January 31, 1998.
Additionally, Mr. Wilkens' options may be exercised through February
10, 1998.
(2) The exercise price may be paid in cash or, in the discretion of the
Company's Compensation and Stock Option Committee, by shares of Common
Stock already owned or to be issued pursuant to the exercise, valued
at the closing quoted selling price on the date of exercise, or a
combination of cash and Common Stock.
(3) The indicated 5% and 10% rates of appreciation are provided to comply
with SEC regulations and do not necessarily reflect the views of the
Company as to the likely trend in the stock price. Actual gains, if
any, on stock option exercises and the sale of Common Stock holdings
will be dependent on, among other things, the future performance of
the Common
30
<PAGE> 35
Stock and overall stock market conditions. There can be no assurance
that the amounts reflected in this table will be achieved.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
The following table sets forth information concerning the number and value
realized as to options exercised during 1996 and options held at December 31,
1996, by the individuals named in the Summary Compensation Table and the value
of those options held at such date. The options exercised were not exercised
as SARs and no SARs were held at year end. All options had exercise prices
lower than the fair market value of the Common Stock on December 31, 1996
("in-the-money" options).
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Shares Unexercised Options at FY-End In-The-Money Options at
Acquired on (#) FY-End ($)(2)
Exercise Value ------------------------------- ----------------------------
Name (#) Realized($)(1) Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------------------------------------------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Bernard J. Ebbers - - 1,075,696 1,800,000 18,172,348 17,362,500
James Q. Crowe 1,680,000 34,280,400 937,701(3) 872,562 21,748,568 20,237,767
John W. Sidgmore - - 35,371 - 734,774 -
Scott D. Sullivan - - 273,028(4) 300,000 4,497,392 3,331,250
Roy A. Wilkens(5) - - 400,000 50,000 6,287,000 409,375
</TABLE>
- ----------------------
(1) Based upon the difference between the closing price on the date of
exercise and the option exercise price.
(2) Based upon a price of $26.0625 per share, which was the closing price
of Common Stock on December 31, 1996.
(3) Subsequent to December 31, 1996, Mr. Crowe exercised his then
exercisable options and sold the underlying shares of Common Stock.
(4) Subsequent to December 31, 1996, Mr. Sullivan exercised his then
exercisable options and sold the underlying shares of Common Stock.
(5) Giving effect to the provisions of Mr. Wilkens' separation agreement.
COMPENSATION OF DIRECTORS. WorldCom's directors are paid fees of $22,500 per
year and $1,000 per meeting attended of the Board plus certain expenses.
Committee members are paid a fee of $750 for any committee meeting attended on
the same day as a Board meeting and $1,000 for any other committee meeting
attended, 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 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 the Company, a reorganization, merger or consolidation of the
Company in which the Company is not the surviving corporation, or a sale of
substantially all of the assets or 80% or more of the outstanding stock of the
Company to another entity. The exercise price may be paid in cash or, in the
discretion of the Compensation Committee and Stock Option Committee, the Common
Stock. In the discretion of the Compensation and Stock Option Committee,
shares receivable on exercise may be withheld to pay applicable taxes on the
exercise.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS. Pursuant to
an employment arrangement, Mr. Crowe will not have any direct operating
responsibility but will continue to serve as a director and Chairman of the
Board of the Company for the term of his employment, subject to his nomination
and election as such by the Company's shareholders. The term of Mr. Crowe's
employment continues until November 23, 1997 and may be extended by mutual
agreement. In connection with this arrangement, Mr. Crowe will receive a base
salary of $120,000 per year for certain services provided to and as directed by
the Company. In addition, Mr. Crowe's options to purchase an aggregate of
872,562 shares of Common Stock at an exercise price of $2.896 per share will
become fully exercisable at any time after November 24, 1997 and all shares
granted to him under the WorldCom/MFS Employee Stock Bonus Plan and the
WorldCom/MFS 1995 Deferred Stock Purchase Plan will vest immediately.
Pursuant to the employment agreement of Mr. Sidgmore with UUNET, approximately
420,000 restricted shares of Common Stock vested as a result of the MFS Merger.
Pursuant to the terms of Mr. Sidgmore's employment agreement with UUNET, Mr.
Sidgmore's initial base salary was $220,000 per year, plus a bonus targeted at
$130,000 per year. Mr. Sidgmore received a bonus of $400,000 for 1996 under his
employment agreement. If Mr. Sidgmore's employment is terminated without cause,
he will receive severance payments totaling $300,000. Under the employment
agreement, Mr. Sidgmore also received options to purchase at $0.04 per share
4,644,635 shares of Common Stock (which options were exercised and certain of
the shares issued remain subject to a right of repurchase, which right lapses
over time). In the event of a change in control of WorldCom or an involuntary
termination other than for cause of Mr. Sidgmore's employment, WorldCom's right
of repurchase lapses with respect to 50 percent of any of the shares subject to
a right of repurchase at the time and such right also lapses over time.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. Prior to the MFS
Merger, the Company's Compensation and Stock Option Committee was composed of
Stiles A. Kellett, Jr. (Chairman), Silvia Kessel and Lawrence C. Tucker.
Subsequent to the
31
<PAGE> 36
MFS Merger, the members of the Company's Compensation and Stock Option
Committee have been Stiles A. Kellett, Jr. (Chairman) Walter Scott,
Jr., Lawrence C. Tucker and Michael B. Yanney.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL HOLDERS OF VOTING SECURITIES. As of March 3, 1997, the following
persons, individually or as a group, were known to the Company to be deemed to
be the beneficial owners of more than five percent of the issued and
outstanding Common Stock, each of which persons has sole voting and investment
power over such 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) 7.9%
82 Devonshire Street
Boston, Massachusetts 02109
- --------------------
</TABLE>
(1) Based upon 891,860,640 shares of 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 March 3, 1997.
(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 ro various non-United States investment
companies.
The number of shares beneficially owned by Fidelity includes 4,301,357
shares issuable upon conversion of the 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.
To the knowledge of the Company, 7,791 shares, or approximately 8.2% of the
94,992 outstanding shares of WorldCom Series A Preferred Stock are beneficially
owned by Salomon Brothers Inc ("SBI"), a wholly owned subsidiary of Salomon
Brothers Holding Company ("SBHC") which is in turn a wholly owned subsidiary of
Salomon Inc. The principal address of SBI is Seven World Trade Center, New
York, New York 10048. As of March 3, 1997, the 7,791 outstanding shares of
WorldCom Series A Preferred Stock owned by SBI were convertible into 2,682,238
shares of Common Stock, representing less than one percent of the outstanding
Common Stock.
SECURITY OWNERSHIP OF MANAGEMENT. The following table sets forth the
beneficial ownership of Common Stock, as of March 3, 1997, by each director,
the named executive officers and by all persons, as a group, who are currently
directors and executive officers of the Company. 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>
Carl J. Aycock 721,706(2) *
Max E. Bobbitt 151,252(3) *
R. Douglas Bradbury 49,017(4) *
James Q. Crowe 1,007,417(5) *
Bernard J. Ebbers 14,964,672(6) 1.7%
Francesco Galesi 3,517,108(7) *
Richard R. Jaros 784,937(8) *
</TABLE>
32
<PAGE> 37
<TABLE>
<CAPTION>
Number of Shares Percent
Name of Beneficial Owner Beneficially Owned(1) of Class(1)
------------------------ ------------------ --------
<S> <C> <C>
Stiles A. Kellett, Jr. 3,102,175(9) *
David C. McCourt 7,115(10) *
John A. Porter 4,736,392(11) *
Walter Scott, Jr. 19,833,029(12) 2.2%
John W. Sidgmore 3,531,045(13) *
Scott D. Sullivan 376,571(14) *
Lawrence C. Tucker 3,165,096(15) *
Roy A. Wilkens 456,974(16) *
Michael B. Yanney 30,759(17) *
All Directors and Current Executive
Officers as a Group (15 persons) 55,947,572(18) 6.3%
</TABLE>
- --------------------
* Less than one percent.
(1) Based upon 891,860,640 shares of 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 March 3, 1997.
(2) Includes 5,576 shares owned by Mr. Aycock's spouse; 85,316 shares
purchasable upon exercise of options; and 3,312 shares held as custodian
for children.
(3) Includes 33,512 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 344 shares issuable upon conversion of WorldCom Series B
Preferred Stock; and 7,744 shares issuable pursuant to the WorldCom/MFS
1995 Deferred Stock Purchase Plan. All of the shares beneficially owned
by Mr. Bradbury were obtained upon consummation of the MFS Merger.
(5) Includes 8,511 shares issuable upon conversion of WorldCom Series B
Preferred Stock; 16,971 shares issuable pursuant to the WorldCom/MFS
1995 Deferred Stock Purchase Plan; and 349 shares held as custodian for
children. All of the shares beneficially owned by Mr. Crowe were
obtained upon consummation of the MFS Merger.
(6) Includes 36,432 shares held as custodian for children; 1,775,696 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.
(7) Consists of 3,483,596 shares owned by Rotterdam Ventures, Inc., of which
Mr. Galesi is sole shareholder; and 33,512 shares purchasable upon
exercise of options.
(8) Includes 6,449 shares issuable upon conversion of WorldCom Series B
Preferred Stock; 8,400 shares held jointly with Mr. Jaros' spouse; and
15,930 shares held as custodian for Mr. Jaros' children as to which Mr.
Jaros disclaims beneficial ownership. All of the shares beneficially
owned by Mr. Jaros were obtained upon consummation of the MFS Merger.
(9) Includes 8,000 shares owned by Mr. Kellett's spouse; 860 shares held as
custodian for minor daughter; and 85,316 shares purchasable upon
exercise of options.
(10) Includes 95 shares issuable upon conversion of WorldCom Series B
Preferred Stock. All of the shares is beneficially owned by Mr. McCourt
were obtained upon consummation of the MFS Merger.
(11) Includes 165,560 shares held as custodian or trustee for minor children;
68,048 shares purchasable upon exercise of options; 218,000 shares
owned by spouse, as to which beneficial ownership is disclaimed; and
85,812 shares held in trust for son of majority age, as to which
beneficial ownership is also disclaimed.
(12) Includes 172,594 shares issuable upon conversion of WorldCom Series B
Preferred Stock; 72,916 shares owned by Mr. Scott's spouse; and 633
shares issuable upon conversion of WorldCom Series B Preferred Stock
also owned by Mr. Scott's spouse. All of the shares beneficially owned
by Mr. Scott were obtianed upon consummation of the MFS Merger.
33
<PAGE> 38
(13) Includes 35,371 shares purchasable upon exercise of options. All of the
shares beneficially owned by Mr. Sidgmore were obtained upon
consummation of the MFS Merger.
(14) Includes 373,028 shares purchasable upon exercise of options.
(15) A total of 3,131,828 of these shares are beneficially owned by The 1818
Funds. Brown Brothers is the general and managing partner of The 1818
Funds and Mr. Tucker, as a general partner of Brown Brothers, shares
voting and investment power with respect to such securities. Also
includes 33,268 shares purchasable upon exercise of options.
(16) Includes 400,000 shares purchasable upon exercise of options.
(17) Includes 2,956 shares owned by Mr. Yanney's spouse; and 21,000 shares
beneficially owned by America First Companies L.L.C. Mr. Yanney is
President, Chairman and Chief Executive Officer of America First
Companies, L.L.C. All of the shares beneficially owned by Mr. Yanney
were obtained upon consummation of the MFS Merger.
(18) Includes 2,736,408 shares purchasable upon exercise of options or
conversion of WorldCom Series B Preferred Stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
As of December 31, 1996, Messrs. Bradbury, Crowe and Sidgmore held 52,500,
200,000 and 25,000 MFS Shareworks Plus Awards, respectively. Such awards were
paid out on January 9, 1997 in connection with the MFS Merger. The value
received from such awards was $6.4 million, $20.3 million and $1.0 million,
respectively.
Additionally, in accordance with the WorldCom/MFS 1992 Stock Option Plan, upon
the termination of Mr. Bradbury as Chief Financial Officer of MFS on February
28, 1997, all of Mr. Bradbury's options to purchase an aggregate of 749,725
shares of Common Stock at an exercise price of $2.869 per share were
immediately vested. Mr. Bradbury subsequently exercised all such options and
sold the underlying shares of Common Stock.
Prior to the MFS Merger, WorldCom and MFS were parties to certain
interconnection or other service agreements entered into with each other and
certain of their affiliates in the ordinary course of their businesses. In
fiscal 1996, WorldCom received revenues from MFS and/or UUNET of $88.4 million.
Each of WorldCom, MFS and UUNET believe that the terms and conditions of such
interconnection or other services agreements were no less favorable to
WorldCom, MFS or UUNET than those that would have been available to WorldCom,
MFS or UUNET in comparable, arm's-length transaction at the date of such
agreements.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) 1 and 2
Financial statements, financial statement schedule and unaudited pro forma
financial statements
See Index to Consolidated Financial Statements and Financial Statement
Schedule.
(a) 3
Exhibits required by Item 601 of Regulation S-K
See Exhibit Index for the exhibits filed as part of or incorporated by
reference into this Report. There are omitted from the exhibits filed with or
incorporated by reference into this Annual Report on Form 10-K certain
promissory notes and other instruments and agreements with respect to long-term
debt of the Company, none of which authorizes securities in a total amount that
exceeds 10% of the total assets of the Company on a consolidated basis.
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the Company hereby agrees to
furnish to the Securities and Exchange Commission copies of any such omitted
promissory notes or other instruments or agreements as the Commission requests.
34
<PAGE> 39
(b) Reports on Form 8-K
Current Report on Form 8-K dated August 25, 1996 (filed November 4,
1996), reporting information required to be reported under Item 7(a) Financial
Statements of Business Acquired and Item 7(b) Pro Forma Financial Information,
the following financial statements:
MFS Communications Company, Inc. as of December 31, 1995 and 1994 and
for the three years ended December 31, 1995:
Report of Independent Accountants
Consolidated Statements of Operations
Consolidated Balance Sheets
Consolidated Statements of Changes in Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
MFS Communications Company, Inc. for the six month periods ended June
30, 1996 and 1995 (unaudited):
Consolidated Statements of Operations
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
UUNET Technologies, Inc. as of December 31, 1995 and 1994 and for the
three years ended December 31, 1995:
Report of Independent Public Accountants
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
UUNET Technologies, Inc. for the six month periods ended June 30, 1996
and 1995 (unaudited):
Consolidated Statements of Operations
Consolidated Balance Sheets
WorldCom, Inc.:
Pro Forma Condensed Combined Financial Statements
Pro Forma Condensed Combined Balance Sheet as of June 30, 1996
Pro Forma Condensed Combined Income Statement for the six months
ended June 30, 1996
Pro Forma Condensed Combined Income Statement for the fiscal year
ended December 31, 1995
Notes to the Pro Forma Condensed Combined Financial Statements
MFS Adjusted Historical Financial Statements
MFS Adjusted Historical Balance Sheets as of June 30, 1996
MFS Adjusted Historical Income Statement for the six months ended
June 30, 1996
MFS Adjusted Historical Income Statement for the year ended
December 31, 1995
Notes to MFS Adjusted Historical Financial Statements
Current Report on Form 8-K dated August 25, 1996 (filed November
20, 1996), reporting information required to be reported under Item 7(a)
Financial Statements of business acquired and Item 7(b) Pro Forma Financial
Information, the following financial statements:
MFS Communications Company, Inc. for the nine month period ended
September 30, 1996 and 1995 (unaudited):
Consolidated Statements of Operations
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
35
<PAGE> 40
WorldCom, Inc.:
Pro Forma Condensed Combined Financial Statements
Pro Forma Condensed Combined Balance Sheet as of September 30,
1996
Pro Forma Condensed Combined Income Statement for the nine months
ended September 30, 1996
Pro Forma Condensed Combined Income Statement for the fiscal year
ended December 31, 1995
Notes to Pro Forma Condensed Combined Financial Statements
MFS Adjusted Historical Financial Statements
MFS Adjusted Historical Income Statement for the nine months ended
September 30, 1996
MFS Adjusted Historical Income Statement for the year ended
December 31, 1995
Notes to MFS Adjusted Historical Financial Statements
36
<PAGE> 41
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
WorldCom, Inc.
By: /s/ Scott D. Sullivan
--------------------------------------
Date: March 17, 1997 Scott D. Sullivan,
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Carl J. Aycock Director March 17, 1997
- --------------------------------
Carl J. Aycock
/s/ Max E. Bobbitt Director March 17, 1997
- --------------------------------
Max E. Bobbitt
/s/ James Q. Crowe Director March 17, 1997
- --------------------------------
James Q. Crowe
Director, President
/s/ Bernard J. Ebbers and Chief Executive March 17, 1997
- -------------------------------- Officer
Bernard J. Ebbers
/s/ Francesco Galesi Director March 17, 1997
- --------------------------------
Francesco Galesi
/s/ Richard R. Jaros Director March 17, 1997
- --------------------------------
Richard R. Jaros
/s/ Stiles A. Kellett, Jr. Director March 17, 1997
- --------------------------------
Stiles A. Kellett, Jr.
/s/ David C. McCourt Director March 17, 1997
- --------------------------------
David C. McCourt
/s/ John A. Porter Director March 17, 1997
- --------------------------------
John A. Porter
/s/ Walter Scott, Jr. Director March 17, 1997
- --------------------------------
Walter Scott, Jr.
/s/ John W. Sidgmore Director March 17, 1997
- --------------------------------
John W. Sidgmore
</TABLE>
37
<PAGE> 42
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
Director,
/s/ Scott D. Sullivan Principal Financial March 17, 1997
- -------------------------------- Officer and Principal
Scott D. Sullivan Accounting Officer
/s/ Lawrence C. Tucker Director March 17, 1997
- --------------------------------
Lawrence C. Tucker
/s/ Michael B. Yanney Director March 17, 1997
- --------------------------------
Michael B. Yanney
/s/ R. Douglas Bradbury Director March 17, 1997
- --------------------------------
R. Douglas Bradbury
</TABLE>
38
<PAGE> 43
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of independent public accountants F-2
Consolidated financial statements-
Consolidated balance sheets - December 31, 1996
and 1995 F-3
Consolidated statements of operations for the
three years ended December 31, 1996 F-4
Consolidated statements of shareholders' investment
for the three years ended December 31, 1996 F-5
Consolidated statements of cash flows for the
three years ended December 31, 1996 F-6
Notes to consolidated financial statements F-7
Financial statement schedule:
II. Valuation and qualifying accounts F-23
Pro forma financial statements (unaudited):
WorldCom pro forma condensed combined financial statement F-24
MFS adjusted historical financial statement F-27
</TABLE>
Schedules other than the schedule listed above have been omitted because of the
absence of conditions under which they are required or because the information
is included in the financial statements or notes thereto.
F-1
<PAGE> 44
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To WorldCom, Inc.
and Subsidiaries:
We have audited the accompanying consolidated balance sheets of WorldCom, Inc.
(a Georgia corporation) and Subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of operations, shareholders' investment and
cash flows for each of the years in the three-year period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of WorldCom, Inc. and
Subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the Index to Financial
Statements and Financial Statement Schedule is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not a
required part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in our audit of the basic
financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Jackson, Mississippi,
February 26, 1997.
F-2
<PAGE> 45
WORLDCOM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars, Except Per Share Data)
<TABLE>
<CAPTION>
December 31,
-----------------------------
1996 1995
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 222,729 $ 42,244
Marketable securities 772,510 --
Accounts receivable, net of allowance for bad debts of $110,041 and $59,185 at
December 31, 1996 and 1995, respectively 999,962 538,442
Income taxes receivable 12,301 17,499
Deferred tax asset 276 17,437
Other current assets 288,314 52,630
------------ ------------
Total current assets 2,296,092 668,252
------------ ------------
Property and equipment:
Transmission equipment 2,371,376 1,376,242
Communications equipment 1,296,723 403,414
Furniture, fixtures and other 614,476 287,156
------------ ------------
4,282,575 2,066,812
Less - accumulated depreciation (385,451) (488,950)
------------ ------------
3,897,124 1,577,862
------------ ------------
Excess of cost over net tangible assets acquired, net of accumulated amortization 12,947,432 4,292,752
Deferred income taxes 392,634 --
Other assets 328,695 117,763
------------ ------------
$ 19,861,977 $ 6,656,629
============ ============
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities:
Short-term debt and current maturities of long-term debt $ 22,424 $ 1,113,816
Accounts payable 588,738 146,455
Accrued line costs 649,324 391,604
Income taxes payable 1,481 1,249
Other current liabilities 648,070 345,681
------------ ------------
Total current liabilities 1,910,037 1,998,805
------------ ------------
Long-term liabilities, less current portion:
Long-term debt 4,803,581 2,280,098
Deferred income taxes payable -- 26,172
Other liabilities 188,383 163,873
------------ ------------
Total long-term liabilities 4,991,964 2,470,143
------------ ------------
Commitments and contingencies
Shareholders' investment:
Series A preferred stock, par value $.01 per share; authorized, issued and
outstanding: 94,992 shares in 1996 and none in 1995 (variable liquidation preference) 1 --
Series B preferred stock, par value $.01 per share; authorized, issued and
outstanding: 12,699,948 shares in 1996 and none in 1995 (liquidation
preference of $1.00 per share plus unpaid dividends) 127 --
Series 2 preferred stock, par value $.01 per share; authorized, issued and
outstanding: none in 1996 and 1,244,048 shares in 1995 (liquidation
preference of $31,101 in 1995) -- 12
Preferred stock, par value $.01 per share; authorized: 37,205,060 shares in
1996 and 48,755,952 shares in 1995; none issued -- --
Common stock, par value $.01 per share; authorized: 2,500,000,000 shares; issued
and outstanding: 885,080,264 shares in 1996 and 386,485,278 shares in 1995 8,851 3,865
Additional paid-in capital 14,855,881 1,903,282
Unrealized holding gain on marketable equity securities 28,832 --
Retained earnings (deficit) (1,933,716) 280,522
------------ ------------
Total shareholders' investment 12,959,976 2,187,681
------------ ------------
$ 19,861,977 $ 6,656,629
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 46
WORLDCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
For the Year Ended December 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenues $ 4,485,130 $ 3,696,345 $ 2,245,663
----------- ----------- -----------
Operating expenses:
Line costs 2,457,102 2,030,635 1,465,674
Selling, general and administrative 828,673 677,895 441,893
Depreciation and amortization 303,301 312,671 164,362
Provision to reduce carrying value of certain assets 402,000 -- 48,500
Direct merger costs -- -- 15,002
Restructuring and other charges 198,148 -- 43,704
Charge for in-process research and development 2,140,000 -- --
----------- ----------- -----------
Total 6,329,224 3,021,201 2,179,135
----------- ----------- -----------
Operating income (loss) (1,844,094) 675,144 66,528
Other income (expense):
Interest expense (221,801) (249,216) (47,303)
Shareholder litigation settlement -- -- (76,000)
Miscellaneous 6,479 11,801 6,078
----------- ----------- -----------
Income (loss) before income taxes and extraordinary item (2,059,416) 437,729 (50,697)
Provision for income taxes 129,528 171,458 73,316
----------- ----------- -----------
Net income (loss) before extraordinary item (2,188,944) 266,271 (124,013)
Extraordinary item (net of income taxes of $15,621 in 1996) (24,434) -- --
----------- ----------- -----------
Net income (loss) (2,213,378) 266,271 (124,013)
Preferred dividend requirement 860 18,191 27,766
Special dividend payment to Series 1 preferred shareholder -- 15,000 --
----------- ----------- -----------
Net income (loss) applicable to common shareholders $(2,214,238) $ 233,080 $ (151,779)
=========== =========== ===========
Earnings (loss) per common share -
Net income (loss) before
extraordinary item:
Primary $ (5.50) $ 0.64 $ (0.48)
Fully diluted (5.50) 0.64 (0.48)
Extraordinary item (0.06) -- --
Net income (loss):
Primary (5.56) 0.64 (0.48)
Fully diluted (5.56) 0.64 (0.48)
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 47
WORLDCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
For the Three Years Ended December 31, 1996
(In Thousands)
<TABLE>
<CAPTION>
Series A Series B Series 1 Preferred
Preferred Stock Preferred Stock Stock
----------------------- ---------------------- ---------------------
Shares Amount Shares Amount Shares Amount
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1993 - $ - - $ - 10,897 $ 109
Exercise of stock options - - - - - -
Common stock issued - - - - - -
Tax adjustment resulting from exercise
of stock options - - - - - -
Shares issued for acquisitions - - - - - -
Net loss - - - - - -
Cash dividends on preferred
stock - - - - - -
--------------------------------------------------------------------
Balances, December 31, 1994 - - - - 10,897 109
Exercise of stock options - - - - - -
Conversion of Series 1 Preferred Stock - - - - (10,897) (109)
Conversion of Series 2 Preferred Stock - - - - - -
Tax adjustment resulting from exercise
of stock options - - - - - -
Cash for fractional shares - - - - - -
Shares issued for acquisitions - - - - - -
Net income - - - - - -
Cash dividends on preferred
stock - - - - - -
--------------------------------------------------------------------
Balances, December 31, 1995 - - - - - -
Exercise of stock options - - - - - -
Conversion of Series 2 Preferred Stock - - - - - -
Conversion of IDB convertible notes - - - - - -
Tax adjustment resulting from exercise
of stock options - - - - - -
Net change in unrealized holding gain on
marketable equity securities - - - - - -
Shares issued for acquisitions 95 1 12,700 127 - -
Net loss - - - - - -
Cash dividends on preferred
stock - - - - - -
--------------------------------------------------------------------
Balances, December 31, 1996 95 $ 1 12,700 $ 127 - $ -
====================================================================
<CAPTION>
Series 2 Preferred Additional Retained
Stock Common Stock Paid-in Unrealized Earnings
------------------------------------------------
Shares Amount Shares Amount Capital Holding Gain (Deficit)
--------------------- -------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1993 2,000 $ 20 306,908 $ 3,069 $ 1,706,084 $ - $206,156
Exercise of stock options - - 6,418 64 15,863 - -
Common stock issued - - 4,390 44 22,949 - (6,935)
Tax adjustment resulting from exercise
of stock options - - - - 15,918 - -
Shares issued for acquisitions - - 1,569 15 17,377 - -
Net loss - - - - - - (124,013)
Cash dividends on preferred
stock - - - - - - (27,766)
--------------------- -------------------------------------------------------------------
Balances, December 31, 1994 2,000 20 319,285 3,192 1,778,191 - 47,442
Exercise of stock options - - 18,966 190 90,342 - -
Conversion of Series 1 Preferred Stock - - 43,754 438 (329) - -
Conversion of Series 2 Preferred Stock (756) (8) 3,200 32 (24) - -
Tax adjustment resulting from exercise
of stock options - - - - 22,280 - -
Cash for fractional shares - - - - (15) - -
Shares issued for acquisitions - - 1,280 13 12,837 - -
Net income - - - - - - 266,271
Cash dividends on preferred
stock - - - - - - (33,191)
--------------------- -------------------------------------------------------------------
Balances, December 31, 1995 1,244 12 386,485 3,865 1,903,282 - 280,522
Exercise of stock options - - 6,416 64 39,695 - -
Conversion of Series 2 Preferred Stock (1,244) (12) 5,266 53 (40) - -
Conversion of IDB convertible notes - - 10,266 103 190,971 - -
Tax adjustment resulting from exercise
of stock options - - - - 32,726 - -
Net change in unrealized holding gain on
marketable equity securities - - - - - 28,832 -
Shares issued for acquisitions - - 476,647 4,766 12,689,247 - -
Net loss - - - - - - (2,213,378)
Cash dividends on preferred
stock - - - - - - (860)
------------------------------------------------------------------------------------------
Balances, December 31, 1996 - $ - 885,080 $ 8,851 $ 14,855,881 $ 28,832 $ (1,933,716)
==========================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 48
WORLDCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
For the Year Ended December 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(2,213,378) $ 266,271 $ (124,013)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Extraordinary item 24,434 -- --
Provision to reduce carrying value of certain assets 402,000 -- 48,500
Restructuring and other charges 198,148 -- --
Charge for in-process research and development 2,140,000 -- --
Depreciation and amortization 303,301 312,671 164,362
Provision for losses on accounts receivable 57,678 40,250 59,202
Provision for shareholder litigation -- -- 76,000
Provision for deferred income taxes 58,449 171,425 24,461
Change in assets and liabilities, net of effect of business
combinations:
Accounts receivable (206,507) (83,808) (150,817)
Income taxes, net 40,831 (6,351) 21,505
Other current assets (76,568) 1,003 (15,143)
Accrued line costs (970) 63,830 18,629
Shareholder litigation reserve -- (75,000) --
Accounts payable and other current liabilities 79,567 (63,165) 105,188
Other (8,867) (10,469) 17,602
----------- ----------- -----------
Net cash provided by operating activities 798,118 616,657 245,476
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (657,061) (359,281) (194,340)
Sale of short-term investments, net -- 1,000 11,672
Acquisitions and related costs 116,053 (2,766,355) (91,750)
Increase in intangible assets (60,056) (46,062) (14,877)
Proceeds from disposition of long-term assets 21,962 34,970 3,080
Increase in other assets (131,450) (8,171) (8,585)
Decrease in other liabilities (42,284) (83,553) (42,018)
----------- ----------- -----------
Net cash used in investing activities (752,836) (3,227,452) (336,818)
----------- ----------- -----------
Cash flows from financing activities:
Borrowings 113,000 2,712,159 78,599
Principal payments on debt (16,696) (138,276) (41,643)
Common stock issuance 39,759 90,532 38,431
Dividends paid on preferred stock (860) (33,191) (27,766)
Other -- 1,828 969
----------- ----------- -----------
Net cash provided by financing activities 135,203 2,633,052 48,590
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 180,485 22,257 (42,752)
Cash and cash equivalents at beginning of period 42,244 19,987 62,739
----------- ----------- -----------
Cash and cash equivalents at end of period $ 222,729 $ 42,244 $ 19,987
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 49
WORLDCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES -
DESCRIPTION OF BUSINESS AND ORGANIZATION:
WorldCom, Inc., a Georgia corporation ("WorldCom" or the "Company"), is one of
the four largest long distance telecommunications companies in the United
States, serving customers domestically and internationally. The Company
provides long distance telecommunications services to business, consumer and
other carrier customers, through its network of fiber optic cables, digital
microwave, and fixed and transportable satellite earth stations, with service
to points throughout the nation and the world. The products and services
provided by WorldCom include: switched and dedicated long distance 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 ATM-based backbone service and interconnection via network access
points ("NAPs") to Internet Service Providers.
THE MERGERS:
On December 31, 1996, WorldCom, through a wholly owned subsidiary, merged with
MFS Communications Company, Inc. ("MFS") in a transaction accounted for as a
purchase. The excess purchase price over net tangible assets acquired has been
allocated to in-process research and development projects (See Note 3),
goodwill, developed technology and assembled workforce. MFS provides
telecommunications services and systems for business and government customers.
MFS is a leading provider of alternative local network access facilities via
digital fiber optic cable networks that it has installed in and around
approximately 41 United States cities, and in several major European cities.
MFS also provides domestic and international long distance telecommunications
services via its network platform, which consists of MFS- owned transmission
and switching facilities, and network capacity leased from other carriers
primarily in the United States and Western Europe.
As a result of the merger (the "MFS Merger"), each share of MFS common stock
was converted into the right to receive 2.1 shares of WorldCom common stock
(the "Common Stock") or approximately 471.0 million WorldCom common shares in
the aggregate. Each share of MFS Series A 8% Cumulative Convertible Preferred
Stock ("MFS Series A Preferred Stock") was converted into the right to receive
one share of Series A 8% Cumulative Convertible Preferred Stock of WorldCom
("WorldCom Series A Preferred Stock") or 94,922 shares of WorldCom Series A
Preferred Stock in the aggregate. Each share of MFS Series B Convertible
Preferred Stock was converted into the right to receive one share of Series B
Convertible Preferred Stock of WorldCom ("WorldCom Series B Preferred Stock")
or approximately 12.7 million shares of WorldCom Series B Preferred Stock in
the aggregate. In addition, each depositary share representing 1/100th of a
share of MFS Series A Preferred Stock was exchanged for a depositary share
representing 1/100th of a share of WorldCom Series A Preferred Stock.
Upon effectiveness of the MFS Merger, the then outstanding and unexercised
options and warrants exercisable for shares of MFS common stock were converted
into options and warrants, respectively, exercisable for shares of Common Stock
having substantially the same terms and conditions as the MFS options and
warrants, except that (i) the exercise price and the number of shares issuable
upon exercise were divided and multiplied, respectively, by 2.1 and (ii) the
holders of each then outstanding and unexercised MFS Shareworks Plus Award
granted under the MFS 1993 Stock Plan instead received the cash value of such
option in accordance with the terms of such plan.
On August 12, 1996, MFS acquired UUNET Technologies, Inc. ("UUNET") through a
merger of a subsidiary of MFS with and into UUNET (the "UUNET Acquisition").
UUNET is a leading worldwide provider of a comprehensive range of Internet
access options, applications, and consulting services to businesses,
professionals and on-line services providers. UUNET provides both dedicated
and dial-up Internet access, and other applications and services which include
Web server hosting and integration services, client software and security
products, training, and network integration and consulting services.
On December 30, 1994, WorldCom, through a wholly owned subsidiary, merged with
IDB Communications Group, Inc., a Delaware corporation ("IDB"), and in
connection therewith issued approximately 71.8 million shares of Common Stock,
for all of the outstanding shares of IDB common stock, (the "IDB Merger"). In
addition, WorldCom assumed, on a subordinated basis, jointly and severally with
IDB, the obligations of IDB to pay the principal of and interest on $195.5
million 5% convertible subordinated notes due 2003, issued by IDB. On July 15,
1996, WorldCom announced that it had exercised its option to redeem on August
16, 1996 all of the outstanding IDB notes. Prior to such redemption date, a
majority of the holders of the IDB notes elected to convert their notes into
WorldCom common stock, resulting in the issuance of approximately 10.3 million
shares of WorldCom Common Stock. The IDB Merger was accounted for as a
pooling-of-
F-7
<PAGE> 50
interests and, accordingly, the Company's financial statements for periods
prior to the IDB Merger have been restated to include the results of IDB for
all periods presented.
On September 15, 1993, a three-way merger occurred whereby (i) Metromedia
Communications Corporation, a Delaware corporation ("MCC"), merged with and
into Resurgens Communications Group, Inc., a Georgia corporation ("Resurgens"),
and (ii) LDDS Communications, Inc., a Tennessee corporation ("LDDS-TN"), merged
with and into Resurgens (the "Prior Mergers"). The Prior Mergers were
accounted for as a purchase.
At the time of the Prior Mergers, the name of Resurgens, the legal survivor,
was changed to LDDS Communications, Inc., and the separate corporate existences
of LDDS-TN and MCC terminated. For accounting purposes, however, LDDS-TN was
the survivor because the former shareholders of LDDS-TN acquired majority
ownership of the Company. Accordingly, unless otherwise indicated, all
historical information presented herein reflects the operations of LDDS-TN. At
the annual meeting of shareholders held May 25, 1995, shareholders of LDDS
Communications, Inc. voted to change the name of the Company to WorldCom, Inc.,
effective immediately. Information in this document has also been revised to
reflect the stock splits of the Company's Common Stock.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany transactions and balances have
been eliminated in consolidation. Investments in joint ventures and other
equity investments in which the Company owns a 20% to 50% ownership interest,
are accounted for by the equity method. Investments of less than 20% ownership
are recorded at cost.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts for cash, marketable securities, accounts receivable,
notes receivable, accounts payable and accrued liabilities approximate their
fair value. The fair value of the long-term debt is determined based on the
cash flows from such financial instruments discounted at the Company's
estimated current interest rate to enter into similar financial instruments.
The recorded amounts for all other long-term debt of the Company approximate
fair values.
CASH AND CASH EQUIVALENTS AND MARKETABLE SECURITIES:
The Company considers cash in banks and short-term investments with original
maturities of three months or less as cash and cash equivalents. The Company
has classified all marketable securities other than cash equivalents as
available- for-sale. At December 31, 1996, the amortized cost of the Company's
marketable securities equals the estimated fair value. Fair values are
estimated based on quoted market prices.
Marketable securities at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Estimated
Fair Value
----------
<S> <C>
United States Treasury and other United States government corporations and agencies debt
securities $443,175
Corporate debt securities 329,335
----------
$ 772,510
==========
The estimated fair value of marketable securities at December 31, 1996, by contractual maturity are as follows:
Estimated
Fair Value
----------
Due within 1 year $567,082
Due after 1 year through 5 years 200,380
Due after 5 years through 10 years 1,012
Due after 10 years 4,036
----------
$772,510
==========
</TABLE>
These securities were included in the net assets acquired in connection with
the MFS Merger. Accordingly, there was no sales activity in available-for-sale
securities for the twelve months ended December 31, 1996.
F-8
<PAGE> 51
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost. Depreciation is provided for
financial reporting purposes using the straight-line method over the following
estimated useful lives:
Transmission equipment 5 to 45 years
Communications equipment 5 to 25 years
Furniture, fixtures and other 5 to 30 years
Maintenance and repairs are expensed as incurred. Replacements and betterments
are capitalized. The cost and related reserves of assets sold or retired are
removed from the accounts, and any resulting gain or loss is reflected in
results of operations.
The Company constructs certain of its own transmission systems and related
facilities. All internal costs directly related to the construction of such
facilities, including interest and salaries of certain employees, are
capitalized. Such costs were $28.7 million ($7.6 million in interest), $14.7
million ($4.9 million in interest), and $6.8 million ($1.2 million in
interest), in 1996, 1995, and 1994, respectively.
EXCESS OF COST OVER NET TANGIBLE ASSETS ACQUIRED:
The major classes of intangible assets are summarized below (in thousands):
<TABLE>
<CAPTION>
December 31,
Amortization Period 1996 1995
------------------- ---------- ----------
<S> <C> <C> <C>
Goodwill 5 to 40 years $12,464,556 $4,417,964
Software development 5 years 112,702 89,478
Developed technology 5 years 400,000 -
Other intangibles 5 to 10 years 327,876 89,208
---------- ----------
13,305,134 4,596,650
Less accumulated amortization 357,702 303,898
---------- ----------
$12,947,432 $4,292,752
=========== ==========
</TABLE>
Intangible assets are amortized using the straight-line method for the periods
noted above.
Goodwill is recognized for the excess of the purchase price of the various
business combinations over the value of the identifiable net tangible and
intangible assets acquired. See Note 2. Realization of acquisition-related
intangibles, including goodwill, is periodically assessed by the management of
the Company based on the current and expected future profitability and cash
flows of acquired companies and their contribution to the overall operations of
WorldCom.
Costs incurred to develop software for internal use are capitalized as
incurred. Developed technology represents the allocation of purchase price in
the MFS Merger.
LINE INSTALLATION COSTS:
The Company defers the costs associated with the installation of local access
lines and other network facilities. Amortization of these costs is provided
over five years using the straight-line method. Accumulated amortization on
line installation costs was $55.1 million and $41.0 million as of December 31,
1996 and 1995, respectively.
UNREALIZED HOLDING GAIN ON MARKETABLE EQUITY SECURITIES:
In the second quarter of 1996, one of the Company's equity investments became
publicly traded. This investment, previously recorded at cost, has been
classified as an available-for-sale security under Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" ("SFAS 115"). Accordingly, this investment is
recorded at its fair value of approximately $49.7 million at December 31, 1996,
and is included in other assets in the accompanying consolidated financial
statements. The unrealized holding gain on this marketable equity security,
net of taxes, is included as a component of shareholders' investment at
December 31, 1996.
F-9
<PAGE> 52
OTHER LONG-TERM LIABILITIES:
At December 31, 1996 and 1995, other long-term liabilities includes $137.2
million and $149.3 million, respectively, related to estimated costs of closing
duplicate facilities of acquired entities, and other non-recurring costs
arising from various acquisitions and mergers. See Note 2.
RECOGNITION OF REVENUES:
The Company records revenues for long distance telecommunications sales at the
time of customer usage. The Company also performs systems integration services
consisting of design and installation of transmission equipment and systems for
its customers. Revenues and related costs for these services are recorded
under the percentage of completion method.
ACCOUNTING FOR INTERNATIONAL LONG DISTANCE TRAFFIC:
The Company enters into operating agreements with telecommunications carriers
in foreign countries under which international long distance traffic is both
delivered and received. The terms of most switched voice operating agreements,
as well as established Federal Communications Commission ("FCC") policy,
require that inbound switched voice traffic from the foreign carrier to the
United States be routed to United States international carriers, like WorldCom,
in proportion to the percentage of United States outbound traffic routed by
that United States international carrier to foreign carrier. Mutually
exchanged traffic between the Company and foreign carriers is settled in cash
through a formal settlement policy that generally extends over a six-month
period at an agreed upon settlement rate. Although the Company can estimate
the amount of inbound traffic it will receive, under the FCC's proportional
share policy, it generally must wait up to six months before it actually
receives the inbound traffic.
EXTRAORDINARY ITEMS:
In the second quarter of 1996, the Company recorded charges for extraordinary
items totaling $24.4 million, net of income tax benefit of $15.6 million. The
items consisted of $4.2 million in connection with the Company's debt
refinancing, as discussed in Note 4 and $20.2 million related to a write-off of
deferred international costs. Previously, a portion of the outbound call fee
due the foreign carrier was deferred and accounted for as a cost attributable
to the revenue associated with the inbound call. Currently, the outbound call
fee due the foreign carrier is expensed as incurred. This change in accounting
for international line costs was immaterial to the results of operations.
LINE COSTS:
Line costs primarily include all payments to local exchange carriers ("LECs"),
interexchange carriers and post telephone and telegraph administrations
("PTTs") primarily for access and transport charges.
INCOME TAXES:
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." SFAS 109 has as its basic objective the
recognition of current and deferred income tax assets and liabilities based
upon all events that have been recognized in the consolidated financial
statements as measured by the provisions of the enacted tax laws. See Note 10.
EARNINGS PER SHARE:
For the year ended December 31, 1995, earnings per share was calculated based
on the weighted average number of shares outstanding during the period plus the
dilutive effect of stock options and warrants determined using the treasury
stock method. For the years ended December 31, 1996 and 1994, earnings per
share were calculated based on the weighted average number of shares
outstanding during the period. The effect of common stock equivalents was not
considered in 1996 and 1994 because the effect of such options and warrants
would have been anti-dilutive.
Average common shares and common equivalent shares utilized were 397,890,000;
386,898,000; and 315,610,000, respectively, for primary earnings per share and
397,890,000; 402,990,000; and 315,610,000, respectively, for fully diluted
earnings per share, for the years ended December 31, 1996, 1995 and 1994.
STOCK SPLITS:
On May 23, 1996, the Board of Directors authorized a 2-for-1 stock split in the
form of a 100% stock dividend which was distributed on July 3, 1996 to
shareholders of record on June 6, 1996. On November 18, 1993, the Board of
Directors authorized a 2-for-1 stock split in the form of a 100% stock dividend
which was distributed on January 6, 1994, to shareholders of record on December
7, 1993. All per share data and numbers of common shares have been
retroactively restated to reflect these stock splits.
F-10
<PAGE> 53
CONCENTRATION OF CREDIT RISK:
A portion of the Company's revenues is derived from services provided to others
in the telecommunications industry, mainly resellers of long distance
telecommunications service. As a result, the Company has some concentration of
credit risk among its customer base. The Company performs ongoing credit
evaluations of its larger customers' financial condition and, at times,
requires collateral from its customers to support its receivables, usually in
the form of assignment of its customers' receivables to the Company in the
event of nonpayment. Additionally, marketable securities potentially subject
the Company to concentration of credit risks, but is limited due to investments
in short-term, investment grade securities.
RECENTLY ISSUED ACCOUNTING STANDARDS:
In June 1996, the FASB issued SFAS No. 125, "Accounting For Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." This
Statement establishes accounting and reporting standards for transfers and
servicing of financial assets and extinguishment of liabilities. This
Statement provides standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings. This Statement is
effective for transfers and servicing of financial assets and extinguishments
of liabilities occurring after December 31, 1996, and is to be applied
prospectively. WorldCom believes that the adoption of this standard will not
have a material effect on the Company's consolidated results of operations or
financial position.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that effect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the period reported. Actual results could differ
from those estimates. Estimates are used when accounting for long-term
contracts, allowance for doubtful accounts, depreciation and amortization,
taxes, restructuring reserves and contingencies.
RECLASSIFICATIONS:
Certain consolidated financial statement amounts have been reclassified for
consistent presentation.
(2) BUSINESS COMBINATIONS -
On December 31, 1996, WorldCom completed the MFS Merger. The MFS Merger is
being accounted for as a purchase; accordingly, the operating results are not
reflected in the consolidated results of operations. On January 5, 1995,
WorldCom completed the acquisition of Williams Telecommunications Group, Inc.
("WilTel"), a subsidiary of The Williams Companies, Inc., for approximately
$2.5 billion in cash (the "WilTel Acquisition"). Through this purchase, the
Company acquired a nationwide common carrier network of approximately 11,000
miles of fiber optic cable and digital microwave facilities.
The Company has acquired other telecommunications companies offering similar or
complementary services to those offered by the Company. Such acquisitions have
been accomplished through the purchase of the outstanding stock or assets of
the acquired entity for cash, notes, shares of the Company's common stock, or a
combination thereof. The cash portion of acquisition costs has generally been
financed through the Company's bank loan agreements. See Note 4.
Most of the acquisitions have been accounted for as purchases and resulted in
an excess of the purchase costs over the net tangible assets acquired. These
costs, composed primarily of goodwill, are amortized over 5 to 40 years using
the straight-line method. The results of those purchased businesses have been
included since the dates of acquisition. Business combinations which have been
accounted for as poolings-of-interests have been included in all periods
presented. The table below sets forth information concerning certain other
recent acquisitions which were accounted for as purchases.
<TABLE>
<CAPTION>
PURCHASE PRICE
------------------------------
Shares Issued
-----------------
Acquired Entity Acquisition Date Cash Number Value Goodwill
- --------------- ---------------- ---- ------ ----- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
WilTel January 1995 $2,500,000 - - $2,216,909
MFS December 1996 - * * 8,333,669
- ------------------------
</TABLE>
* See the third paragraph of Note 1 for a description of the common and
preferred shares.
F-11
<PAGE> 54
In addition to those acquisitions listed above, the Company or its predecessors
completed several smaller acquisitions during 1994 through 1996.
The initial purchase price allocations for the MFS Merger is based on current
estimates and the Company will make the final purchase price allocation based
upon final values for certain assets and liabilities. As a result, the final
purchase price allocations may differ from the presented estimate.
The following unaudited pro forma combined results of operations for the
Company assume that the MFS Merger and the UUNET Acquisition were completed on
January 1, 1995.
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------
1996 1995
---------- ------------
(In thousands, except per share data)
<S> <C> <C>
Revenues $5,635,223 $4,323,777
Loss before extraordinary item (2,767,906) (272,665)
Loss applicable to common shareholders (2,792,340) (272,665)
Loss per common share:
Loss before extraordinary item ($3.18) ($0.37)
Net loss ($3.21) ($0.37)
</TABLE>
These pro forma amounts represent the historical operating results of these
acquired entities combined with those of the Company with appropriate
adjustments which give effect to interest expense, amortization and the common
shares issued. These pro forma amounts are not necessarily indicative of
operating results which would have occurred if MFS and UUNET had been operated
by current management during the periods presented because these amounts do not
reflect full network optimization and the synergistic effect on operating,
selling, general and administrative expenses.
(3) DIRECT MERGER COSTS, RESTRUCTURING AND OTHER CHARGES -
RESTRUCTURING AND OTHER CHARGES:
In the fourth quarter of 1996, the Company recorded charges for employee
severance, employee compensation charges, alignment charges and costs to exit
unfavorable telecommunications contracts.
Additionally, during the fourth quarter of 1994, as a result of the IDB Merger,
the Company initiated plans to reorganize and restructure its management and
operational organization and facilities to eliminate duplicate personnel,
physical facilities and service capacity, to abandon certain products and
marketing activities, and to take further advantage of the synergies available
to the combined entities. Accordingly, the Company charged to operations, the
estimated costs of such reorganization and restructuring activities, including
employee severance, physical facility abandonment, and duplicate service
capacity.
The following table reflects the components of the significant items shown as
restructuring and other charges in 1996 and 1994 (in thousands):
<TABLE>
<CAPTION>
For the Year Ended December 31,
----------------------------------
1996 1994
-------- ---------
<S> <C> <C>
Severance and other employee related costs $ 57,916 $ 18,702
Duplicate facilities and other restructuring - 13,990
Provision for settlement of certain legal issues - 8,000
Reduction in carrying amount of certain assets - 2,423
Costs to exit unfavorable telecommunications contracts 134,866 -
Other 5,366 589
--------- ---------
$ 198,148 $ 43,704
========= =========
</TABLE>
As of December 31, 1996 and 1995, the accompanying consolidated financial
statements reflect $166.4 million and $5.3 million, respectively, in other
current liabilities and $2.5 million and $5.6 million, respectively, in other
long-term liabilities, in connection with the restructuring and other charges.
F-12
<PAGE> 55
DIRECT MERGER COSTS:
During 1994, the Company recorded direct merger costs of $15.0 million related
to the IDB Merger. These costs included professional fees, proxy solicitation
costs, travel and related expenses and certain other direct costs attributable
to this merger.
PROVISION TO REDUCE THE CARRYING VALUE OF CERTAIN ASSETS:
In the second quarter of 1996, the Company incurred non-cash charges related to
a write-down in the carrying value of certain assets, including goodwill and
equipment. Because of events resulting from the passage of the
Telecommunications Act of 1996 (the "Telecom Act"), and changes in
circumstances impacting certain non-core operations, management estimates of
the Company's fair value of operating assets within its core and non-core
businesses resulted in a non-cash charge of $344 million after-tax. On a
pre-tax basis, the write-down was $402 million and included $139 million for
network facilities and $263 million for non-core businesses, primarily operator
services goodwill. Fair value of the non-core business was determined by
estimating the present value of future cash flows to be generated from those
operations while the majority of the network facilities were recorded at net
salvage value due to anticipated early disposal.
In connection with the signing of agreements to provide long distance
telecommunications services to certain local exchange carriers, and after the
successful assimilation of recent facilities-based acquisitions, WorldCom
evaluated the impact that the increased traffic volumes would have on the
Company's network. This review resulted in the Company's current plans to
expand and upgrade its existing network switching, transmission and other
communications equipment. This capital project directly affected the estimated
useful lives of certain network facilities which will result in replacement of
these facilities prior to June 30, 1997.
Additionally, due to the decreasing emphasis on operator services, including
non-renewal of existing long-term contracts, management adjusted the fair value
of this non-core business based upon its projections of future cash flow.
Operator services now comprises less than 3% of WorldCom's consolidated
revenues.
During 1994 several events occurred which caused the Company to evaluate the
realization of its investment in the assets of IDB Broadcast. These events
included a proposed but never consummated sale of IDB Broadcast at amounts
significantly below book value, and the continued emergence of
telecommunications as the core business of IDB (making IDB Broadcast a non-core
operation). These factors, combined with broad economic factors adversely
impacting broadcast assets in general, have caused a decline in the value of
the Company's investment in these assets. Broadcast services comprise less
than 1% of WorldCom's consolidated revenues.
The Company assessed the impact of these factors relative to its ability to
recover the recorded values of these broadcast assets, and determined that such
values should be reduced. Accordingly, the Company recorded adjustments of
$48.5 million, to reduce the carrying value of these broadcast assets
(primarily intangible assets and property and equipment) to the Company's best
estimate of the net realizable value. During 1995, the Company sold its
simulcasting operations and entered into an agreement to outsource the
management of the remaining IDB Broadcast operations.
CHARGE FOR IN-PROCESS RESEARCH AND DEVELOPMENT:
In the fourth quarter of 1996, the Company recorded a $2.14 billion charge for
in-process research and development related to the MFS Merger. The charge is
based upon a valuation analysis of the technologies of MFS' worldwide
information system, the Internet network expansion system of UUNET, and
certain other identified research and development projects purchased in the
merger. At the date of the MFS Merger, the technological feasibility of the
acquired technology had not yet been established and the technology has no
future alternative uses. The expense includes $1.6 billion associated with
UUNET and $0.54 billion related to MFS.
(4) LONG-TERM DEBT -
Long-term debt outstanding consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
Revolving credit agreements $3,284,500 $3,171,500
Senior Discount Notes due 2006 674,520 -
Senior Discount Notes due 2004 685,838 -
Convertible subordinated notes - 195,500
Other debt (maturing through 2001) 181,147 26,914
---------- ----------
4,826,005 3,393,914
Less: Short-term debt and current maturities 22,424 1,113,816
---------- ----------
$4,803,581 $2,280,098
========== ==========
</TABLE>
F-13
<PAGE> 56
On June 28, 1996, WorldCom replaced its then existing $3.41 billion credit
facilities (the "Previous Facilities") with a new $3.75 billion revolving
credit facility (the "Credit Facility"). Borrowings under the Credit Facility
were used to refinance the Previous Facilities and will be used to finance
capital expenditures and provide additional working capital. As a result of
the refinancing, WorldCom recorded an extraordinary charge of $4.2 million, net
of $2.7 million in taxes, related to the charge-off of the unamortized portion
of costs associated with the Previous Facilities.
The Credit Facility has a five-year term and bears interest, payable in varying
periods, depending on the interest periods, not to exceed six months, at rates
selected by the Company under the terms of the Credit Facility including a Base
Rate or the London Interbank Offering Rate ("LIBOR"), plus applicable margin.
The applicable margin for LIBOR rate borrowings varies from 0.35% to 0.875%
based upon a specified financial test. The Credit Facility is unsecured and
requires compliance with certain financial and other operating covenants which
limit, among other things, the incurrence of additional indebtedness by
WorldCom and restricts the payment of cash dividends to WorldCom's
shareholders. The Credit Facility is also subject to an annual commitment fee
not to exceed 0.25% of any unborrowed portion of the Credit Facility. For the
year ended December 31, 1996, the weighted average interest rate under the
Credit Facility was 6.3%.
Borrowings under the Credit Facility bear interest at rates that fluctuate with
prevailing short-term interest rates. Under the provisions of the Credit
Facility, the Company is required to hedge 25% of its debt against adverse
interest movements in short-term rates. The Company believes that it can
adequately address this requirement through financial hedging measures or
increasing the amount of fixed rate debt outstanding.
In connection with the MFS Merger, the Company acquired the MFS Senior Discount
Notes due January 15, 2004 (the "1994 Notes") and the MFS Senior Discount Notes
due January 15, 2006 (the "1996 Notes") (collectively, the "MFS Notes").
MFS is accruing to the principal amount of the 1994 Notes of $788,320,000
through January 1999. Cash interest will not accrue on the 1994 Notes prior to
January 15, 1999, however, MFS may elect to commence the accrual of cash
interest at any time prior to that date. Commencing July 15, 1999 cash
interest will be payable semi-annually.
On or after January 15, 1999, the 1994 Notes will be redeemable at the option
of MFS, in whole or in part from time to time, at the following prices
(expressed in percentages of the principal amount at the stated maturity), if
redeemed during the twelve months beginning January 15 of the years indicated
below, in each case together with interest accrued to the redemption date.
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
1999 103.52%
2000 102.34%
2001 101.17%
2002 and thereafter 100.00%
</TABLE>
MFS is accruing to the principal amount of the 1996 Notes of $924,000,000
through January 2001. Cash interest will not accrue on the 1996 Notes prior to
January 15, 2001, however, MFS may elect to commence the accrual of cash
interest at any time prior to that date. Commencing January 15, 2001, cash
interest will be payable semi-annually.
On or after January 15, 2001, the 1996 Notes will be redeemable at the option
of MFS, in whole or in part from time to time, at the following prices
(expressed in percentages of the principal amount at the stated maturity), if
redeemed during the twelve months beginning January 15 of the year indicated
below, in each case together with interest accrued to the redemption date:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2001 103.32%
2002 102.21%
2003 101.11%
2004 and thereafter 100.00%
</TABLE>
In connection with the MFS Merger, WorldCom offered to repurchase the MFS Notes
at 101% of the accreted value as of February 27, 1997. The offer to repurchase
ended February 27, 1997. As of the expiration of the offer, approximately
$14.3 million of the MFS Notes were repurchased. The MFS Notes are senior
unsecured obligations of MFS and are subordinated to all current and future
indebtedness of MFS' subsidiaries, including trade accounts payable.
The MFS Notes contain certain covenants which, among other things, restrict
MFS' ability to incur additional debt, create liens, enter into sale-leaseback
transactions, pay dividends, make certain restricted payments, enter into
transactions with affiliates and sell assets or merge with another company.
F-14
<PAGE> 57
During 1996, WorldCom exercised its option to redeem on August 16, 1996, all of
the outstanding IDB WorldCom, Inc. 5% Convertible Subordinated Notes due 2003
(the "Notes"), at a price equal to 103.5% of the principal amount, plus accrued
and unpaid interest. Prior to such redemption date, substantially all of the
holders of the Notes elected to convert their notes into Common Stock,
resulting in the issuance of approximately 10.3 million shares of Common Stock.
The aggregate principal repayments and reductions required in each of the years
ending December 31, 1997 through December 31, 2001 and thereafter for the
Company's long-term debt including capital leases is as follows (in thousands):
<TABLE>
<S> <C>
1997 $ 22,424
1998 45,521
1999 43,680
2000 49,605
2001 3,291,031
Thereafter 1,373,744
----------
$4,826,005
==========
</TABLE>
(5) PREFERRED STOCK -
In connection with the MFS Merger, the Company issued 9,499,200 depositary
shares (the "Depositary Shares"), each representing 1/100th interest in a share
of WorldCom Series A Preferred Stock. There is an established public trading
market for the WorldCom Series A Preferred Stock. The Depositary Shares are
traded on the Nasdaq National Market under the trading symbol "WCOMP."
Each Depositary Share is mandatorily convertible into 4.2 shares of Common
Stock on May 31, 1999. The Depositary Shares are also redeemable at the option
of the Company in exchange for shares of Common Stock on or after May 31, 1998
at a ratio that will vary depending upon certain factors, including the date of
redemption, the market price of the Common Stock at the time of redemption and
the amount of accrued and unpaid dividends. The Depositary Shares are also
convertible at the option of the holder at any time into 3.44274 shares of
Common Stock for each Depositary Share, plus unpaid dividends.
The Depositary Shares are entitled to receive dividends, when, as and if
declared by the Board of Directors, accruing at the rate of $2.68 per share per
annum, payable quarterly in arrears on each February 28, May 31, August 31 and
November 30. Dividends are payable in cash or in shares of Common Stock, at
the election of the Company. The Company paid the initial dividend on February
28, 1997 in cash.
The Depositary Shares are entitled to vote on the basis of 0.10 of a vote for
each Depositary Share held (equivalent to 10 votes for each share of WorldCom
Series A Preferred Stock). The Series A Preferred Stock has a liquidation
preference equal to the greater of (i) the sum of (a) $3,350 per share and (b)
all accrued and unpaid dividends thereon to the date of liquidation and (ii)
the value or the shares of Common Stock into which such Series A Preferred
Stock are convertible on the date of liquidation.
The WorldCom Series B Preferred Stock is convertible into shares of Common
Stock at any time at a conversion rate of 0.0973912 shares of Common Stock for
each share of WorldCom Series B Preferred Stock (an effective initial
conversion price of $10.268 per share of Common Stock). Dividends on the
WorldCom Series B Preferred Stock accrue at the rate per share of $0.0775 per
annum and are payable in cash. Dividends will be paid only when, as and if
declared by the Board of Directors. The Company anticipates that dividends on
the WorldCom Series B Preferred Stock will not be declared but will continue to
accrue. Upon conversion, accrued but unpaid dividends are payable in cash or
shares of Common Stock at the Company's election.
The WorldCom Series B Preferred Stock is also redeemable at the option of the
Company at any time after September 30, 2001 at a redemption price of $1.00 per
share, plus accrued and unpaid dividends. The redemption price will be payable
in cash or shares of Common Stock at the Company's election.
The WorldCom Series B Preferred Stock is entitled to one vote per share with
respect to all matters. The WorldCom Series B Preferred Stock has a
liquidation preference of $1.00 per share plus all accrued and unpaid dividends
thereon to the date of liquidation.
As a result of the Prior Mergers, 10,896,785 shares of the Series 1 Preferred
Stock were issued to Metromedia, the sole stockholder of MCC. Also in 1993,
the IDB convertible preferred stock issued in connection with the acquisition
of World Communications, Inc. was converted into common stock of IDB.
In connection with the announcement in May 1996, that the Company would redeem
its Series 2 Preferred Stock on June 5, 1996, all of the remaining outstanding
Series 2 Preferred Stock was converted into 5,266,160 shares of Common Stock in
the second quarter of 1996.
F-15
<PAGE> 58
In August 1995, Metromedia converted its Series 1 Preferred Stock into 61.7
million shares of WorldCom Common Stock. In connection with the preferred
stock conversion, WorldCom made a non-recurring payment of $15.0 million to
Metromedia, representing a discount to the minimum nominal dividends that would
have been payable on the Series 1 Preferred Stock prior to the September 15,
1996 optional call date of approximately $26.6 million (which amount includes
an annual dividend requirement of $24.5 million plus accrued dividends to such
call date).
(6) SHAREHOLDER RIGHTS PLAN -
On August 25, 1996, the Board of Directors of WorldCom declared a dividend of
one preferred share purchase right (a "Right") for each outstanding share of
Common Stock. Each Right entitles the registered holder to purchase from the
Company one one-thousandth of a share of Series 3 Junior Participating
Preferred Stock, par value $.01 per share (the "Junior Preferred Stock") of the
Company at a price of $160.00 per one one-thousandth of a share of Junior
Preferred Stock (the "Purchase Price"), subject to adjustment.
The Rights generally will be exercisable only after the close of business on
the tenth business day following the date of public announcement or the date on
which the Company first has notice or determines that a person or group of
affiliated or associated persons (an "Acquiring Person") has acquired, or
obtained the right to acquire, 15% or more of the outstanding shares of voting
stock of the Company without the prior express written consent of the Company,
by a person which, upon consummation, would result in such party's control of
15% or more of the Company's voting stock. The Rights will expire, if not
previously exercised, exchanged or redeemed, on September 6, 2006.
If any person or group acquires 15% or more of the Company's outstanding voting
stock without prior written consent of the Board of Directors, each Right,
except those held by such persons, would entitle each holder of a Right to
acquire such number of shares of the Company's Common Stock as shall equal the
result obtained by multiplying the then current Purchase Price by the number of
one one-thousandths of a share of Junior Preferred Stock for which a Right is
then exercisable and dividing that product by 50% of the then current per-share
market price of Common Stock.
If any person or group acquires more than 15% of the outstanding Common Stock
without prior written consent of the Board of Directors, each Right, except
those held by such persons, may be exchanged by the Board of Directors for one
share of Common Stock.
If the Company were acquired in a merger or other business combination
transaction where the Company is not the surviving corporation or where Common
Stock is exchanged or changed or 50% or more of the Company's assets or
earnings power is sold in one or several transactions without the prior written
consent of the Board of Directors, each Right would entitle the holders thereof
(except for the Acquiring Person) to receive such number of shares of the
acquiring company's common stock as shall be equal to the result obtained by
multiplying the then current Purchase Price by the number one one-thousandths
of a share of Junior Preferred Stock for which a 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.
At any time prior to the time an Acquiring Person becomes such, the Board of
Directors of the Company may redeem the Rights in whole, but not in part, at a
price of $.01 per Right (the "Redemption Price"). The redemption of the Rights
may be made effective at such time, on such basis and with such conditions as
the Board of Directors in its sole discretion may establish. Immediately upon
any redemption of the Rights, the right to exercise the Rights will terminate
and the only right of the holders of the Rights will be to receive the
Redemption Price.
(7) LEASES AND OTHER COMMITMENTS -
The Company leases office facilities and certain equipment under noncancellable
operating leases having initial or remaining terms of more than one year. In
addition, the Company leases a right-of-way from a railroad company under a
fifteen-year lease with three fifteen-year renewal options. The Company is
also obligated under rights-of-way and franchise agreements with various
entities for the use of their rights-of-way for the installation of its
telecommunications systems. Rental expense under these operating leases was
$56.7 million, $45.1 million, and $30.9 million, in 1996, 1995 and 1994,
respectively.
In prior years, WilTel sold to independent entities and leased back its
microwave system and its Kansas City to Los Angeles fiber optic system over
primary lease terms ranging from 15 to 20 years. The leases have renewal
options permitting the Company to extend the leases for terms expiring during
the years 2012 to 2019 and purchase options based upon the fair market value.
The annual lease commitments pursuant to the sale-leaseback are included below
under the heading Telecommunication Facilities.
F-16
<PAGE> 59
At the end of 1996, minimum lease payments under noncancellable
operating leases and commitments were as follows (in thousands):
<TABLE>
<CAPTION>
Minimum Lease Payments
-------------------------------------
Office
Facilities
and Telecommunication
Year Equipment Facilities Total
---- --------- ---------- --------
<S> <C> <C> <C>
1997 $60,817 $185,559 $246,376
1998 54,529 94,921 149,450
1999 44,291 86,115 130,406
2000 34,185 86,335 120,520
2001 25,894 82,742 108,636
</TABLE>
Certain of the Company's facility leases include renewal options, and most
leases include provisions for rent escalation to reflect increased operating
costs and/or require the Company to pay certain maintenance and utility costs.
Pursuant to an agreement with a joint venture, the Company is obligated to
invest up to $75 million over the next two years in the form of capital
contributions and to pay $60 million over the next four years to purchase an
indefeasible right of use for certain undersea capacity that is being
constructed by the joint venture between the United States and Europe.
WorldCom also has agreements with a company that installs, operates and
maintains certain WorldCom data processing, telecommunications and billing
systems. The agreements expire in 2000 and are renewable on an annual basis
thereafter. The agreements require minimum annual payments of approximately
$17.3 million.
During 1996, the Company's existing receivables purchase agreement generated
additional proceeds of $79.6 million, bringing the total amount outstanding to
$375.0 million. The Company used these proceeds to reduce outstanding debt
under the Company's Credit Facility. As of December 31, 1996, the purchaser
owned an undivided interest in a $821.7 million pool of receivables which
includes the $375.0 million sold.
(8) CONTINGENCIES -
IDB RELATED INVESTIGATIONS. On June 9, 1994, the SEC issued a formal order of
investigation concerning certain matters, including IDB's financial position,
books and records and internal controls and trading in IDB securities on the
basis of non-public information. The SEC has issued subpoenas to WorldCom, IDB
and others, including certain former officers of IDB, in connection with its
investigation. The National Association of Securities Dealers and other
self-regulatory bodies have also made inquiries of IDB concerning similar
matters.
The United States Attorney's Office for the Central District of California (the
"United States Attorney's Office") issued grand jury subpoenas to IDB and
WorldCom in 1994 and 1995 seeking documents relating to IDB's first quarter of
1994 results, the resignation of Deloitte & Touche LLP as IDB's auditors,
trading in IDB securities and other matters. In October 1996, the United
States Attorney's Office entered into an agreement with WorldCom not to
criminally prosecute IDB with respect to IDB's financial reporting on or before
January 1, 1995 (including but not limited to the resignation of Deloitte &
Touche LLP), trading in IDB securities, misuse of IDB's assets, attempts to
obstruct the proceedings of the SEC and other matters. The agreement does not
cover potential violations of the federal tax code and is expressly contingent
upon the cooperation of IDB and WorldCom with the United States Attorney's
Office, the Federal Bureau of Investigation and any other federal law
enforcement agency, including the SEC.
FEDERAL REGULATION. On February 8, 1996, President Clinton signed the Telecom
Act, which permits, without limitation, the Bell Operating Companies (the
"BOCs") to provide domestic and international long distance services to
customers located outside of the BOC's home regions; permits a petitioning BOC
to provide domestic and international long distance service to customers within
its home region upon a finding by the Federal Communications Commission (the
"FCC") that a petitioning BOC has satisfied certain criteria for opening up its
local exchange network to competition and that its provision of long distance
services would further the public interest; and removes existing barriers to
entry into local service markets. Additionally, there are significant changes
in: the manner in which carrier-to-carrier arrangements are regulated at the
federal and state level; procedures to revise universal service standards; and,
penalties for unauthorized switching of customers. The FCC has instituted
proceedings addressing the implementation of this legislation.
On August 8, 1996 the FCC released its First Report and Order in the Matter of
Implementation of the Local Competition Provisions in the Telecom Act (the "FCC
Interconnect Order"). In the FCC Interconnect Order, the FCC established
nationwide rules designed to encourage new entrants to participate in the local
service markets through interconnection with the incumbent local exchange
carriers
F-17
<PAGE> 60
("ILEC"), resale of the ILEC's retail services and unbundled network elements.
These rules set the groundwork for the statutory criteria governing BOC entry
into the long distance market. The Company cannot predict the effect such
legislation or the implementing regulations will have on the Company or the
industry. Motions to stay implementation of the FCC Interconnect Order have
been filed with the FCC and federal courts of appeal. Appeals challenging,
among other things, the validity of the FCC Interconnect Order have been filed
in several federal courts of appeal and assigned to the Eighth Circuit Court of
Appeals for disposition. The Eighth Circuit Court of Appeals has stayed the
pricing provisions of the FCC Interconnect Order. The Circuit Justice of the
Supreme Court has declined to review the propriety of the stay. The Company
cannot predict either the outcome of these challenges and appeals or the
eventual effect on its business or the industry in general.
On December 24, 1996, the FCC released a Notice of Proposed Rulemaking ("NPRM")
seeking to reform the FCC's current access charge policies and practices to
comport with a competitive or potentially competitive local access service
market. The NPRM seeks comment on a number of proposals for a series of reform
to the existing switched access charge rate structure rules that are designed
to eliminate economic inefficiencies. In addition, the FCC proposes to use,
either alternatively or in combination, two approaches for addressing: claims
that access charges are excessive; a transition to economic based pricing of
access charges; and, for deregulation of incumbent local exchange carriers as
competition develops. The FCC is evaluating the use of either a market-based
approach, a prescriptive approach or a combination of both. Such charges are a
principal component of the Company's line cost expense. The Company cannot
predict whether or not the result of this proceeding will have a material
impact upon its financial position or results of operations.
In the NPRM, the FCC tentatively concluded that information services providers
(including among others Internet service providers) should not be subject to
existing interstate access charges. However, the FCC recognized that these
services and recent technological advances may be constrained by current
regulatory practices that have their foundations in traditional services and
technologies. The FCC issued on December 24, 1996, a Notice of Inquiry to seek
comment on whether it should, in addition to access charge reform, consider
actions relating to interstate information services and the Internet. Changes
in the regulatory environment relating to the telecommunications or
Internet-related services industry could have an adverse effect on the
Company's Internet-related services business. The Telecom Act may permit
telecommunications companies, BOCs or others to increase the scope or reduce
the cost of their Internet access services. The Company cannot predict the
effect that the Notice of Inquiry, the Telecom Act or any future legislation,
regulation or regulatory changes may have on its business.
INTERNATIONAL. In December 1996, the FCC adopted a new policy that will make it
easier for United States international carriers to obtain authority to route
international public switched voice traffic to and from the United States
outside of the traditional settlement rate and proportionate return regimes.
In February 1997, the United States entered into a World Trade Organization
Agreement (the "WTO Agreement") that will have the effect of liberalizing the
provision of switched voice telephone and other telecommunications services in
scores of foreign countries over the next several years. As a result of the
Agreement, WorldCom expects the FCC, among other things, to reexamine its
policies regarding (i) the services that may be provided by foreign owned
United States international common carriers, including carriers owned or
controlled by foreign carriers that have market power in their home markets,
and (ii) the provision of international switched voice services outside of the
traditional settlement rate and proportionate return regimes. Although the
FCC's new flexible settlement rate policy, and the WTO Agreement and any
ensuing FCC policy changes, may result in lower costs to the Company to
terminate international traffic, there is a risk that the revenues that the
Company receives from inbound international traffic may decrease to an even
greater degree. The implementation of the WTO Agreement may also make it
easier for foreign carriers with market power in their home markets to offer
United States and foreign customers end-to-end services to the disadvantage of
WorldCom, which may face substantial obstacles in obtaining from foreign
governments and foreign carriers the authority and facilities to provide such
end-to-end services.
The Company is involved in other legal and regulatory proceedings generally
incidental to its business. In some instances, rulings by regulatory
authorities in some states may result in increased operating costs to the
Company. While the results of these various legal and regulatory matters
contain an element of uncertainty, the Company believes that the probable
outcome of any of the legal or regulatory matters, or all of them combined,
should not have a material adverse effect on the Company's consolidated results
of operations or financial position.
(9) EMPLOYEE BENEFIT PLANS -
STOCK OPTION PLANS:
The Company has several stock option plans under which options to acquire up to
164.3 million shares may be granted to directors, officers and certain
employees of the Company (including the stock option plans acquired through the
MFS Merger). The Company accounts for
F-18
<PAGE> 61
these plans under APB Opinion No. 25, under which no compensation cost is
recognized. Terms and conditions of the Company's options, including exercise
price and the period in which options are exercisable, generally are at the
discretion of the Compensation and Stock Option Committee of the Board of
Directors; however, no options are exercisable for more than 10 years after
date of grant. As of December 31, 1996, 130.0 million options had been granted
under these plans, and 25.2 million options were fully exercisable.
Additionally, there are outstanding warrants to acquire shares of Common Stock
at $6.25 per share which were granted by MFS prior to the MFS Merger.
Additional information regarding options and warrants granted and outstanding
is summarized below:
<TABLE>
<CAPTION>
Number of Exercise
Options Price
------------ -------------------
<S> <C> <C> <C>
Balance, December 31, 1993 31,922,890 $ 0.30 - 15.07
Granted to employees/directors 3,501,420 8.88 - 9.63
Granted in connection with acquisition 123,100 11.01 - 11.50
Exercised (6,418,466) 0.30 - 8.94
Expired or canceled (334,834) 0.88 - 4.00
------------
Balance, December 31, 1994 28,794,110 0.30 - 15.07
Granted to employees/directors 12,862,876 10.35 - 16.94
Granted in connection with acquisition 2,304,004 9.20 - 10.96
Exercised (18,965,034) 0.30 - 15.07
Expired or canceled (1,791,780) 1.59 - 15.07
------------
Balance, December 31, 1995 23,204,176 0.34 - 16.94
Granted to employees/directors 7,963,412 14.81 - 27.50
Granted in connection with acquisition 52,930,232 6.25 - 11.13
Exercised (6,215,165) 1.58 - 15.07
Expired or canceled (864,993) 0.34 - 27.50
------------
Balance, December 31, 1996 77,017,662 $ 0.34 - 27.50
============
</TABLE>
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123 requires disclosure of the compensation cost for
stock-based incentives granted after January 1, 1995 based on the fair value at
grant date for awards. Applying SFAS No. 123 would result in pro forma net
income (loss) and earnings (loss) per share ("EPS") amounts as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1996 1995
------------ ----------
<S> <C> <C> <C>
Net income (loss) As reported $(2,214,238) $ 233,080
Pro forma (2,229,841) 226,954
Primary EPS As reported (5.56) 0.64
Pro forma (5.60) 0.63
Fully diluted EPS As reported (5.56) 0.64
Pro forma (5.60) 0.62
</TABLE>
The fair value of each option or restricted stock grant is estimated on the
date of grant using an option-pricing model with the following weighted-average
assumptions used for grant:
F-19
<PAGE> 62
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE GRANT-
DATE
FAIR VALUE
Date Granted Expected Volatility Risk-free Interest Rate ----------
------------ ------------------- -----------------------
<S> <C> <C> <C>
January 1995 25.6% 7.9% $4.06
July 1995 24.5% 6.0% $4.65
September 1995 23.1% 6.0% $5.66
January 1996 21.6% 5.4% $5.56
July 1996 21.3% 6.5% $9.26
</TABLE>
Additionally, for all options, a 15% forfeiture rate was assumed with an
expected life of 5 years with no dividend yield.
Because the SFAS No. 123 method of accounting has been applied only to grants
after December 31, 1994, the resulting pro forma compensation cost may not be
representative of that to be expected in future periods.
SHAREWORKS:
Through the MFS Merger, the Company offers MFS employees a grant plan and a
match plan jointly known as Shareworks. The plan is made available to certain
MFS employees that choose to be ineligible for future grants under MFS' Stock
Option Plans. The grant plan enables the Company to grant shares of Common
Stock to eligible MFS employees based upon a percentage of that employee's
eligible pay, up to 5%. The original grants vest after three years with any
additional grants vesting immediately once the initial three year period has
been met.
The match plan allows eligible employees to defer between 1% and 10% of
eligible pay to purchase Common Stock at the stock price on each pay period
date. The Company will match the shares purchased by the employee on a
one-for-one basis. The stock which is credited to each employee's account to
match the employee's purchase during any calendar quarter, vests three years
after the end of that quarter.
401(K) PLANS:
The Company and its subsidiaries offer its qualified employees the opportunity
to participate in one of its defined contribution retirement plans qualifying
under the provisions of Section 401(k) of the Internal Revenue Code. Each
employee may contribute on a tax deferred basis a portion of annual earnings
not to exceed $9,500. The Company matches individual employee contributions in
certain plans, up to a maximum level which in no case exceeds 6% of the
employee's compensation.
Expenses recorded by the Company relating to its 401(k) plans were $5.7
million, $3.6 million and $3.1 million for the years ended December 31, 1996,
1995, and 1994, respectively.
(10) INCOME TAXES -
The Company accounts for income taxes in accordance with SFAS No. 109
"Accounting for Income Taxes." When SFAS No. 109 was adopted, the cumulative
effect of this change in accounting principle was not material to the Company.
The provision for income taxes is composed of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Current $ 71,079 $ 33 $48,855
Deferred 58,449 171,425 24,461
-------- --------- -------
Total provision for income taxes $129,528 $171,458 $73,316
======== ======== =======
</TABLE>
F-20
<PAGE> 63
The following is a reconciliation of the provisions for income taxes to
the expected amounts using the statutory rate:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Expected statutory amount (35.0)% 35.0% (35.0)%
Nondeductible amortization of excess of
cost over net tangible assets acquired 1.0 4.5 37.1
State income taxes 0.4 2.9 5.7
Effect of company owned life insurance (0.1) (0.4) (3.4)
Direct merger, restructuring and other charges - - 20.7
Charge for in-process research and development 36.4 - -
Write-down of assets 4.2 - 26.1
Valuation allowance (1.7) (1.6) 96.6
Other 1.1 (1.2) (3.2)
---- ----- ------
Actual tax provision 6.3% 39.2% 144.6 %
==== ===== =======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes and the impact of available
net operating loss carryforwards.
At December 31, 1996, the Company had unused net operating loss ("NOL")
carryforwards for federal income tax purposes of approximately $1.2 billion
which expire in various amounts during the years 2002 through 2010. These NOL
carryforwards together with state and other NOL carryforwards result in a
deferred tax asset of approximately $488.9 million at December 31, 1996. A
valuation allowance of $109.9 million has been established related to deferred
tax assets due to the uncertainty of realizing the full benefit of the NOL
carryforwards. In evaluating the amount of valuation allowance needed, the
Company considers the acquired companies' prior operating results and future
plans and expectations. The utilization period of the NOL carryforwards and
the turnaround period of other temporary differences are also considered.
Approximately $391.4 million of the Company's deferred tax assets are related
to preacquisition NOL carryforwards attributable to entities acquired in
transactions accounted for as purchases. Accordingly, any future reductions in
the valuation allowance related to such deferred tax assets will result in a
corresponding reduction in goodwill. If, however, subsequent events or
conditions dictate an increase in the valuation allowance attributable to such
deferred tax assets, income tax expense for the period of the increase will be
increased accordingly.
The following is a summary of the significant components of the Company's
deferred tax assets and liabilities as of December 31, 1996 and 1995 (in
thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------
1996 1995
--------------------------- ---------------------------
Assets Liabilities Assets Liabilities
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Allowance for bad debts $ 10,644 $ - $ 22,767 $ -
Fixed assets - (50,728) - (56,129)
Goodwill - (58,906) - (30,777)
Software and other intangibles - (267,592) - -
Investments - (17,376) - -
Line installation costs - (23,427) - (13,303)
Accrued liabilities 102,685 - 10,586 -
NOL carryforwards 488,931 - 168,057 -
Stock options 297,135 - - -
Other 34,543 (13,075) 3,631 (11,888)
---------- ----------- ----------- ----------
933,938 (431,104) 205,041 (112,097)
Valuation allowance (109,924) - (101,679) -
---------- ----------- ----------- ----------
$ 824,014 $ (431,104) $ 103,362 $ (112,097)
========== =========== =========== ==========
</TABLE>
The increase in the valuation allowance during 1996 results from the placement
of a valuation allowance on certain NOL carryforwards acquired in the
acquisition of MFS. Under a "more likely than not" scenario, management
determined that statutory restrictions on certain preacquisition NOL
carryforwards impair their realizability.
F-21
<PAGE> 64
(11) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Interest paid by the Company during the years ended December 31, 1996, 1995 and
1994 amounted to $234.7 million, $224.3 million, and $48.5 million,
respectively. Income taxes paid, net of refunds, during the years ended
December 31, 1996, 1995 and 1994 were $6.0 million, $7.3 million and $12.8
million, respectively.
In conjunction with business combinations during the years ended December 31,
1996, 1995, and 1994 (see Note 2), assets acquired, liabilities assumed and
common stock issued were as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------------------------------
1996 1995 1994
------------ ---------- ---------
<S> <C> <C> <C>
Fair value of assets acquired $ 3,319,514 $ 805,482 $ 13,522
Excess of cost over net
tangible assets acquired 9,013,060 2,301,567 157,942
Liabilities assumed (1,894,614) (327,844) (62,322)
Common stock issued (10,554,013) (12,850) (17,392)
------------ ------------ ---------
Net cash paid (acquired) $ (116,053) $2,766,355 $ 91,750
============ ========== =========
</TABLE>
(11) UNAUDITED QUARTERLY FINANCIAL DATA -
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------------------------------------------------------
March 31, June 30, September 30, December 31,
-------- ------- ------------ -----------
1996 1995 1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $1,034,060 $875,286 $1,073,538 $906,729 $1,143,428 $949,540 $1,234,104 $964,790
Operating income
(loss) 195,857 149,933 (183,749) 162,166 232,343 177,592 (2,088,545) 185,453
Net income (loss) 86,307 53,357 (267,602) 61,208 109,255 72,139 (2,141,338) 79,567
Preferred dividend
requirement 505 6,939 355 6,936 - 3,811 - 505
Special dividend
payment to Series 1
preferred
shareholder - - - - - 15,000 - -
Earnings (loss) per
common share:
Primary $ 0.21 $ 0.14 $ (0.69) $ 0.16 $ 0.27 $ 0.14 $ (5.22) $ 0.20
Fully diluted 0.21 0.14 (0.69) 0.16 0.27 0.14 (5.22) 0.20
</TABLE>
Results for 1996 include a $2.14 billion, fourth quarter charge for in-process
research and development related to the MFS Merger. The charge is based upon
a valuation analysis of the technologies of MFS' worldwide information system,
the Internet network expansion system of UUNET, and certain other identified
research and development projects purchased in the Merger. The expense includes
$1.6 billion associated with UUNET and $0.54 billion related to MFS.
Additionally, fourth quarter 1996 results include other after-tax charges of
$121 million for employee severance, employee compensation charges, alignment
charges, and costs to exit unfavorable telecommunications contracts and $344
million after-tax write-down of operating assets within its non-core
businesses. On a pre-tax basis, these charges totaled $600.1 million.
In 1995, Metromedia converted its Series 1 Preferred Stock into Common Stock,
exercised warrants to acquire Common Stock and immediately sold its position of
61,699,096 shares of Common Stock in a public offering. In connection with the
preferred stock conversion, WorldCom made a non-recurring payment of $15.0
million to Metromedia, representing a discount to the minimum nominal dividends
that would have been payable on the Series 1 Preferred Stock prior to the
September 15, 1996 optional call date of approximately $26.6 million (which
amount includes an annual dividend requirement of $24.5 million plus accrued
dividends to such call date).
In connection with certain debt refinancing, the Company recognized in 1996,
extraordinary items of approximately $4.2 million, net of income taxes,
consisting of unamortized debt discount, unamortized issuance cost and
prepayment fees. Additionally, in 1996 the Company recorded an extraordinary
item of $20.2 million, net of income taxes, related to a write-off of deferred
international costs. See Note 4.
F-22
<PAGE> 65
WORLDCOM, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
--------------------------------------
Balance at Charged to From Deductions
Beginning of Costs and Purchase and Accounts Balance at
Description Period Expenses Transactions Written Off End of Period
----------- -------------- ------------ --------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Accounts Receivable
1996 $59,185 $57,678 $38,094 $44,916 $110,041
1995 53,199 40,250 22,042 56,306 59,185
1994 26,613 59,202 1,090 33,706 53,199
</TABLE>
F-23
<PAGE> 66
WORLDCOM PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENT
The following unaudited Pro Forma Condensed Combined Income Statement for the
year ended December 31, 1996 illustrates the effect of the MFS Merger as if the
MFS Merger had occurred on January 1, 1996.
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 WorldCom common shares in the aggregate. Each
share of MFS Series A 8% Cumulative Convertible Preferred Stock was converted
into the right to receive one share of Series A 8% Cumulative Convertible
Preferred Stock of WorldCom 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 Series B Convertible Preferred Stock of
WorldCom 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.
The Pro Forma Condensed Combined Income Statement should be read in conjunction
with the historical financial statements of WorldCom, MFS and UUNET and the MFS
Adjusted Historical Financial Statement which is set forth elsewhere herein.
The Pro Forma Condensed Combined Income Statement 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.
F-24
<PAGE> 67
WORLDCOM PRO FORMA CONDENSED COMBINED INCOME STATEMENT (1)
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MFS WorldCom
WorldCom Adjusted Pro Forma Pro Forma
Historical(2) Historical(3) Adjustments Combined
------------- ------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues $ 4,485,130 $ 1,238,533 $ (88,440)(4) $ 5,635,223
Operating expenses:
Cost of sales 2,457,102 752,619 (88,440)(4) 3,121,281
Selling, general
and administrative 828,673 558,661 -- 1,387,334
Depreciation and
amortization 303,301 390,856 144,207(5) 838,364
Other charges 600,148 -- -- 600,148
----------- ----------- ----------- -----------
Operating income (loss) 295,906 (463,603) (144,207) (311,904)
Other income (expense):
Interest expense (221,801) (63,081) -- (284,882)
Other 6,479 (2,310) -- 4,169
----------- ----------- ----------- -----------
Income (loss) before tax 80,584 (528,994) (144,207) (592,617)
Provision for income taxes 129,528 594 (125,122)(6) 5,000
----------- ----------- ----------- -----------
Net income (loss) from
continuing operations (48,944) (529,588) (19,085) (597,617)
Preferred dividend requirement 860 29,429 -- 30,289
----------- ----------- ----------- -----------
Net income (loss) applicable to
common shareholders $ (49,804) $ (559,017) $ (19,085) $ (627,906)
=========== =========== =========== ===========
Number of shares issued and outstanding:
Primary 397,890 471,500 869,390
=========== =========== ===========
Fully diluted 397,890 471,500 869,390
=========== =========== ===========
Earnings (loss) per share (7):
Primary $ (0.13) $ (0.72)
=========== ===========
Fully diluted $ (0.13) $ (0.72)
=========== ===========
</TABLE>
F-25
<PAGE> 68
NOTES TO WORLDCOM PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENT
1. The pro forma financial data do not give effect to any potential cost
savings and synergies that could result from the MFS Merger. The effect
of the write-off of intangible assets consisting of in-process research
and development ("R&D") projects of $2.14 billion related to the MFS
Merger has not been reflected in the accompanying Pro Forma Condensed
Combined Income Statement as it is a non-recurring charge. Additionally,
the Pro Forma Condensed Combined Income Statement does not give effect to
WorldCom's offer to repurchase the MFS Notes for cash at 101% of the
accreted value as of February 27, 1997. The offer to repurchase ended
February 27, 1997. An immaterial amount of the MFS Notes were
repurchased. Charges related to extraordinary items of $24.4 million, net
of taxes, have also not been included in the accompanying Pro Forma
Condensed Combined Income Statement. The pro forma data are not
necessarily indicative of the operating results or financial position that
would have occurred had the Merger been consummated at the dates
indicated, nor necessarily indicative of future operating results or
financial position.
2. This column represents WorldCom's historical results of operations.
3. The MFS Adjusted Historical Financial Statements for the year ended
December 31, 1996 include the effect of MFS's acquisition of UUNET on
August 12, 1996. See "MFS Adjusted Historical Financial Statement" which
is set forth elsewhere herein.
4. These adjustments eliminate the revenues and corresponding line costs
attributable to the intercompany traffic among WorldCom, MFS and UUNET.
5. This entry reflects the adjustment to amortization for the effect of the
intangible assets acquired in the MFS Merger. For purposes of allocating
the acquisition costs among the various assets acquired, WorldCom has
tentatively considered the carrying value of the acquired assets to
approximate their fair value, with all of the excess of such acquisition
costs being attributed to R&D in-process (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 is
being amortized over 40 years while network technology and assembled work
force are being amortized over 5 years and 10 years, respectively.
6. These entries represent the tax effect of adjustments due to inclusion of
the acquired operations.
7. Pro forma per share data are based on the number of WorldCom common
shares that would have been outstanding had the MFS Merger occurred on the
earliest date presented.
F-26
<PAGE> 69
MFS ADJUSTED HISTORICAL FINANCIAL STATEMENT
The following unaudited adjusted historical financial statement for the year
ended December 31, 1996 gives pro forma effect to the merger of MFS with UUNET.
The adjusted historical statement of operations assumes that the UUNET
Acquisition occurred as of January 1, 1996. The adjusted historical financial
statement is not necessarily indicative of the results that actually would have
been attained if the UUNET Acquisition had been in effect on the dates
indicated or which may be attained in the future. Such statements should be
read in conjunction with the MFS and UUNET historical consolidated financial
statements and notes thereto.
F-27
<PAGE> 70
MFS ADJUSTED HISTORICAL INCOME STATEMENT (1)
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UUNET MFS
MFS January 1, 1996 - Pro Forma Adjusted
Historical (2) August 12, 1996 (2) Adjustments Historical
-------------- ------------------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues $ 1,115,006 $ 129,047 $ (5,520)(3) $ 1,238,533
Operating expenses:
Cost of sales 687,034 71,105 (5,520)(3) 752,619
Selling, general
and administrative 514,558 44,103 -- 558,661
Depreciation and
amortization 286,131 11,811 92,914(4) 390,856
---------------- ---------------- ---------------- ----------------
Operating income (loss) (372,717) 2,028 (92,914) (463,603)
Other income (expense):
Interest expense, net (62,161) (920) -- (63,081)
Other (2,652) 342 -- (2,310)
---------------- ---------------- ---------------- ----------------
Income (loss) before tax (437,530) 1,450 (92,914) (528,994)
Provision for income taxes 500 94 -- 594
---------------- ---------------- ---------------- ----------------
Net income (loss) from
continuing operations (438,030) 1,356 (92,914) (529,588)
Preferred dividend requirement 29,429 -- -- 29,429
---------------- ---------------- ---------------- ----------------
Net income (loss) applicable to
common shareholders $ (467,459) $ 1,356 $ (92,914) $ (559,017)
================ ================ ================ ================
Number of shares issued
and outstanding:
Primary N/M N/M N/M
Fully diluted N/M N/M N/M
Earnings (loss) per share (5):
Primary N/M N/M N/M
Fully diluted N/M N/M N/M
</TABLE>
(N/M - Not Meaningful)
F-28
<PAGE> 71
NOTES TO MFS ADJUSTED HISTORICAL FINANCIAL STATEMENT
1. The unaudited adjusted historical financial data do not give effect to
any potential cost savings and synergies that could result from the UUNET
Acquisition. The effect of the write-off of intangible assets consisting
of in-process research and development ("R&D") projects of $1.4 billion
related to the UUNET Acquisition has not been reflected in the
accompanying MFS Adjusted Historical Financial Statement. The adjusted
historical data are not necessarily indicative of the operating results
that would have occurred had the UUNET Acquisition been consummated on the
date indicated nor necessarily indicative of future operating results.
2. This column represents historical results of operations. The UUNET
historical column for the year ended December 31, 1996 includes results
through the date of acquisition, August 12, 1996. One-time merger related
costs of $15.7 million have not been included in UUNET's results of
operations for this period. The results of operations for UUNET since
August 12, 1996 are included in the MFS historical column.
3. This adjustment reflects the elimination of intercompany revenues and
expenses.
4. This adjustment reflects the amortization of the excess of the purchase
price over the net book value (which approximates fair value) of the net
tangible assets acquired which was recorded as R&D in process (network
design and development projects in-process), goodwill, a customer contract
and customer list. The pro forma adjustment to depreciation and
amortization represents the amortization of the goodwill and other
intangibles and was calculated using the straight-line method over a five
year life for goodwill and three to four year lives for other intangibles.
5. Number of shares issued and outstanding and per share data have not been
presented as it is not meaningful. At December 31, 1996, there was one
share of MFS common stock outstanding which was owned by WorldCom.
F-29
<PAGE> 72
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
----------- ----------- ----
<S> <C> <C>
2.1 Amended and Restated Agreement and Plan of Merger by and among WorldCom, Inc.
("WorldCom"), HIJ Corp. and MFS Communications Company, Inc. ("MFS") dated as of
August 25, 1996 (filed as Appendix I to the Joint Proxy Statement/Prospectus on Form
S-4 filed by WorldCom (Registration No. 333-16015) and incorporated herein by
reference) *
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 the Current Report on Form 8-K dated December 31, 1996)
4.2 Restated Bylaws of WorldCom, Inc. _____
4.3 Form of Deposit Agreement between WorldCom, The Bank of New York and the holders from
time to time of the Depositary Shares representing 1/100 of a share of WorldCom Series
A Preferred Stock (the "WorldCom Depositary Shares") (incorporated by reference to
Exhibit 4.5 to Registration Statement on Form S-4 filed by WorldCom (Registration No.
333-16015))
4.4 Form of certificate representing WorldCom Depositary Shares (incorporated by reference
to Exhibit A to the Deposit Agreement filed as Exhibit 4.5 to Registration Statement
on Form S-4 filed by WorldCom (Registration No. 333-16015))
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 on
August 26, 1996 (File No. 0-11258))
4.6 Indenture for the Company's 9 3/8% Senior Discount Notes due 2004, between MFS and IBJ
Schroeder Bank & Trust Company, as the Trustee (incorporated herein by reference to
MFS' Current Report on Form 8-K dated January 31, 1994 (File No. 0-21594))
4.7 First Supplemental Indenture, dated as of March 31, 1995, amending the Indenture for
the Company's 9 3/8% Senior Discount Notes due 2004 (incorporated by reference to
Exhibit No. 10.3 to MFS' Current Report on Form 8-K dated April 27, 1995 (File No. 0-
21594))
4.8 Indenture for the Company's 8 7/8% Senior Discount Notes due 2006, between MFS and
IBJ Schroeder Bank and Trust Company, as trustee (incorporated herein by reference to
Exhibit No. 4.1 to MFS's Current Report on Form 8-K dated January 23, 1996 (File No.
0-21594))
4.9 First Supplemental Indenture, dated as January 15, 1996, between MFS and IBJ Schroeder
Bank and Trust Company, as trustee, relating to the Company's 8 7/8% Senior Discount
Notes due 2006 (incorporated herein by reference to Exhibit No. 4.2 to MFS' Current
Report on Form 8-K dated January 23, 1996 (File No. 0-21594))
10.1 Amended and Restated Credit Agreement among WorldCom, NationsBank of Texas, N.A.
(Managing Agent and Administrative Agent), Bank of America Illinois, The Bank of New
York, The Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Chemical Bank,
Credit Lyonnais New York Branch, First Union National Bank of North Carolina, The
Industrial Bank of Japan, Limited, Atlanta Agency, The First National Bank of Chicago,
The Long-Term Credit Bank of Japan, Limited, New York Branch, Toronto Dominion
(Texas), Inc., and Wachovia Bank of Georgia N.A. (Agents) and the Lenders named
therein (Lenders) dated as of June 28, 1996, (incorporated herein by reference to
Exhibit 10.1 to the Quarterly Report on Form 10-Q filed by WorldCom (File No. 0-11258)
for the quarter ended June 30, 1996)
10.2 First Amendment to Amended and Restated Credit Agreement and Consent to MFS _______
Acquisition
10.3 Agreement between LDDS-TN and MCI Telecommunications Corporation, effective as of
September 13, 1991 (incorporated herein by reference to the exhibits to LDDS-TN's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1991, as amended
under cover of Form 8 on February 3, 1992 (File No. 0-7116))
10.4 Amendment dated July 29, 1994, to the Agreement between the Company and MCI
Telecommunications Corporation (incorporated herein by reference to Exhibit 10.2 to
the Quarterly Report on Form 10-Q filed by the Company (File No. 1-10415) for the
quarter ended June 30, 1994)
</TABLE>
E-1
<PAGE> 73
<TABLE>
<CAPTION>
Exhibit No. Description Page
----------- ----------- ----
<S> <C> <C>
10.5 Amended and Restated Agreement for Information Technology Services between the Company
and Electronic Data Systems Corporation ("EDS"), dated December 8, 1993 ("EDS
Agreement") (incorporated herein by reference to Exhibit 10.5 of the Company's
Transition Report on Form 10-K for the period ended June 30, 1993 to December 31, 1993
(File No. 1-10415) (the "Transition Report II")*
10.6 Amendment No. 1 to the EDS Agreement dated December 8, 1993 (incorporated herein by
reference to Exhibit 10.6 of the Transition Report II)
10.7 Amended and Restated Transfer and Administration Agreement between Enterprise Funding
Corporation, WorldCom Funding Corporation as Transferor, WorldCom, individually and as
Collection Agent, Sheffield Receivables Corporation and NationsBank, N.A. as Agent and
Investor dated as of December 31, 1996 * ______
10.8 Amendment Number 1 to Amended and Restated Transfer and Administration Agreement ______
10.9 WorldCom, Inc. Third Amended and Restated 1990 Stock Option Plan (incorporated herein
by reference to Exhibit A to WorldCom's Proxy Statement dated April 22, 1996 used in
connection with WorldCom's 1996 Annual Meeting of Shareholders) (compensatory plan)
10.10 LDDS Communications, Inc. 1988 Nonqualified Stock Option Plan (incorporated herein by
reference to the exhibits to LDDS-TN's Registration Statement on Form S-4 (File No.
33-29051)) (compensatory plan)
10.11 LDDS Annual Performance Bonus Plan (incorporated by reference to the Company's Proxy
Statement used in connection with the Company's 1994 Annual Meeting of Shareholders
(File No. 1-10415)) (compensatory plan)
10.12 WorldCom, Inc. Special Performance Bonus Plan (incorporated herein by reference to
Exhibit B to the Company's Proxy Statement dated April 22,1996 used in connection with
the Company's 1996 Annual Meeting of Shareholders) (compensatory plan)
10.13 WorldCom/MFS 1995 Deferred Stock Purchase Plan (compensatory plan) ______
10.14 WorldCom/MFS Employee Stock Bonus Plan (compensatory plan) ______
10.15 WorldCom/MFS 1992 Stock Plan (compensatory plan) ______
10.16 WorldCom/MFS 1993 Stock Plan (compensatory plan) ______
10.17 WorldCom/MFS/UUNET 1995 Performance Option Plan (compensatory plan) ______
10.18 WorldCom/MFS/UUNET Equity Incentive Plan (compensatory plan) ______
10.19 WorldCom/MFS/UUNET Incentive Stock Plan (compensatory plan) ______
10.20 WorldCom/MFS Employee Stock Purchase Plan (compensatory plan) ______
10.21 Employment Agreement between UUNET and John W. Sidgmore dated May 13, 1994
(incorporated herein by reference to UUNET's Registration Statement on Form S-1
(Registration No. 33-91028)) (compensatory plan)
10.22 Ongoing Relationship Memorandum between the Company and James Q. Crowe dated ______
February 11, 1997 (compensatory plan)
11.1 Computation of Per Share Earnings ______
12.1 Statement regarding computation of ratio of earnings to combined fixed charges and ______
preferred stock dividends.
21.1 Subsidiaries of the Company ______
23.1 Consent of Arthur Andersen LLP ______
27.1 Financial Data Schedule ______
</TABLE>
___________________________________________
* The Registrant hereby agrees to furnish supplementally a copy of any
omitted schedules to this Agreement to the Securities and Exchange
Commission upon its request.
E-2
<PAGE> 1
EXHIBIT 4.2
As Adopted September 15, 1993,
and Amended on May 23, 1996
and August 25, 1996
------------------------------
RESTATED BYLAWS
OF
WORLDCOM, INC.
(a Georgia Corporation)
ARTICLE I
OFFICES
The principal office of the corporation shall be located in Jackson,
Mississippi. The principal books of the corporation shall be kept at such
principal office, with necessary books and records being kept at such other
place or places as the Board of Directors may from time to time determine. The
registered office of the corporation required by the Georgia Business
Corporation Code shall be located within the State of Georgia. The corporation
may have such other offices, either within or without the State of Georgia, as
the Board of Directors may designate or as the business of the corporation may
require from time to time.
ARTICLE II
SHAREHOLDERS
Section 1. Annual Meeting. The annual meeting of the shareholders
shall be held on the date and time fixed by the Board of Directors for the
purpose of electing directors and for the transaction of such other business as
may properly be brought before the meeting.
Section 2. Special Meetings. Special meetings of the shareholders, for
any purpose or purposes, unless otherwise prescribed by statute, may be called
by the Board of Directors or President, and shall be called by the President at
the written request of the holders of not less than forty percent (40%) of all
the votes entitled to be cast on any issue to be considered at the meeting,
which written request must describe the purpose or purposes for which the
special meeting is to be held.
Section 3. Place of Meeting. Meetings of the shareholders shall be
held at such place as may be designated by the Board of Directors and stated in
the notice of meeting.
Section 4. Notice of Meeting. Written notice stating the place, date
and time of the meeting and, in case of a special meeting, the purpose or
purposes for which the meeting is called, shall, unless otherwise prescribed by
statute, be delivered to each shareholder of record entitled to vote at such
meeting not less than ten (10) days or more than sixty (60) days before the
date of the meeting.
<PAGE> 2
Section 5. Record Date. In order that the corporation may determine
the shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock
or for the purpose of any other action, the Board of Directors may fix, in
advance, a record date, which shall not be more than seventy (70) days before
the date of such meeting or action. If no record date is fixed, (i) the record
date for determining shareholders entitled to notice of or to vote at a meeting
of shareholders shall be at the close of business on the day before the day on
which the first notice is given to such shareholders, and (ii) the record date
for determining shareholders for any other purpose shall be at the close of
business on the day which the Board of Directors authorizes the action. A
determination of shareholders of record entitled to notice of or to vote at a
meeting of shareholders shall apply to any adjournment of the meeting, unless
the Board of Directors fixes a new record date. The Board of Directors is
required to fix a new record date if the meeting is adjourned to a date more
than one hundred twenty (120) days after the date fixed for the original
meeting.
Section 6. Voting Record. The officer or agent having charge of the
stock transfer books for shares of the corporation shall make a complete record
of the shareholders entitled to vote at each meeting of shareholders or any
adjournment thereof, arranged by voting group in alphabetical order, with the
address of and the number of shares held by each. Such record shall be produced
and kept open beginning two (2) business days after notice of the meeting
through the meeting at the corporation's principal office. Upon written demand
of a shareholder, such record shall be subject to inspection by the shareholder
during regular business hours during such time. Such record may also be copied
by any shareholder, at his expense, if such shareholder does so in good faith,
for a proper purpose and in compliance with statutory requirements.
Section 7. Quorum. The holders of shares entitled to vote as a
separate voting group may take action on a matter at a meeting only if a quorum
exists with respect to that matter. Unless the Articles of Incorporation or the
Georgia Business Corporation Code, as amended from time to time, provides
otherwise, the holders of a majority of the votes entitled to be cast on a
matter by the voting group constitute a quorum of that voting group for action
on that matter. Once a share is represented for any purpose at a meeting, the
holder is deemed present for quorum purposes for the remainder of the meeting,
unless a new record date is or must be set for an adjournment of such meeting.
Section 8. Proxies. At all meetings of shareholders, a shareholder may
vote in person or by proxy executed in writing by the shareholder or by his
duly authorized attorney-in-fact. Such proxy shall be filed with the Secretary
of the corporation before or at the time of the meeting. No proxy shall be
valid after eleven (11) months from the date of its execution, unless otherwise
provided in the proxy. The appointment of a proxy is revocable by the
shareholder, unless the appointment form conspicuously states that it is
irrevocable and the appointment is coupled with an interest.
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Section 9. Voting of Shares. Directors shall be elected by a plurality
of the votes cast by shareholders entitled to vote in the election at a meeting
at which a quorum is present. Shareholder action on all other matters shall be
approved if the votes cast in favor of the action exceed the votes cast in
opposition to such action, unless otherwise provided by law or the Articles of
Incorporation. If two or more groups are entitled to vote separately on a
matter, action on a matter is taken only when approved by each voting group.
Each outstanding share of the capital stock having voting power shall be
entitled to one vote upon each matter submitted to a vote at a meeting of
shareholders; provided, however, that the preferred stock of the corporation
outstanding, if any, shall have such voting rights as granted to such shares of
preferred stock in or pursuant to the corporation's Articles of Incorporation.
Section 10. Adjournment. When a meeting of shareholders is adjourned
to another date, time or place, notice need not be given of the adjourned
meeting if the new date, time and place are announced at the meeting before the
adjournment; provided, however, that if a new record date is or must be fixed
under the Georgia Business Corporation Code, as amended from time to time, or
these Bylaws, a notice of the adjourned meeting must be given to shareholders
as of the new record date. At the adjourned meeting the shareholders may
transact any business which might have been transacted had a quorum been
present at the time originally designated for the meeting.
ARTICLE III
BOARD OF DIRECTORS
Section 1. General Powers. The powers of the corporation shall be
exercised, its business conducted and managed, and its property controlled
under the direction of the Board of Directors.
Section 2. Number, Tenure and Qualifications. The number of directors
of the corporation shall be not less than three (3); the number thereof to be
determined from time to time by the Board of Directors. Each director shall
hold office until the next annual meeting of shareholders following his
election or appointment and until his successor shall have been elected and
qualified or until his earlier resignation, removal from office, or death. A
director need not be a resident of the State of Georgia or a shareholder of the
corporation.
Section 3. Nomination. Nominations for the election of directors at an
annual meeting of shareholders will be made by the Board of Directors or a
committee appointed by the Board of Directors or by any shareholder entitled to
vote in the election of directors at the meeting. Shareholders entitled to vote
in such election may nominate one or more persons for election as directors
only if written notice of such shareholder's intent to make such nomination or
nominations has been given either by personal delivery or by United States
mail, postage prepaid, to the Secretary of the corporation not later than
ninety (90) days prior to the anniversary date of the immediately preceding
annual meeting. Such notice shall set forth: (a) the name and
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address of the shareholder who intends to make the nomination and of the
person or persons to be nominated; (b) a representation that the shareholder is
a holder of record of stock of the corporation entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice; (c) a description of all
arrangements or understandings between the shareholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the shareholder; (d) such other
information regarding each nominee proposed by such shareholder as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the Securities and Exchange Commission; and (e) the consent of each nominee
to serve as a director of the corporation if so elected. The presiding officer
of the meeting may refuse to acknowledge the nomination of any person not made
in compliance with the foregoing procedure.
Section 4. Regular Meetings. A regular meeting of the Board of
Directors shall be held without notice other than this Bylaw immediately after,
and at the same place as, the annual meeting of shareholders. The Board of
Directors may provide, by resolution, the time and place for the holding of
additional regular meetings without notice other than such resolution.
Section 5. Special Meetings. Special meetings of the Board of
Directors may be called by or at the request of the Chairman of the Board, the
President or a majority of directors. The person or persons authorized to call
special meetings of the Board of Directors may fix any place as the place for
holding any special meeting of the Board of Directors so called.
Section 6. Chairman of the Board. The Chairman of the Board shall be
chosen from among the members of the Board of Directors. If requested to do so,
the Chairman of the Board shall preside at all meetings of the Board of
Directors and shareholders. The Chairman of the Board shall perform such other
duties as from time to time may be assigned by the Board of Directors.
Section 7. Telephonic Meetings. Meetings of the Board of Directors may
be conducted by conference telephone or similar communications equipment by
means of which all person participating can hear each other, and participation
in such a meeting shall constitute presence in person at such meeting.
Section 8. Notice of Meeting. Notice of any special meeting shall be
given at least one (1) day prior thereto. Notice is not required prior to any
regular meeting of the Board of Directors. Any director may waive notice of any
meeting. The attendance of a director at a meeting shall constitute a waiver of
notice of such meeting, except where a director attends a meeting for the
express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of any regular or special meeting of the Board
of Directors need be specified in the notice or waiver of notice of such
meeting.
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Section 9. Adjournment. When a meeting of the Board of Directors is
adjourned to another time or place, notice need not be given of the adjourned
meeting if the new time and place are fixed at the meeting at which the
adjournment is taken and if the period of adjournment does not exceed one (1)
month in any one adjournment. At the adjourned meeting the Board of Directors
may transact any business which might have been transacted had a quorum been
present at the time originally designated for the meeting.
Section 10. Quorum and Voting. A quorum of the Board of Directors
consists of a majority of the number of directors fixed pursuant to these
Bylaws. The affirmative vote of a majority of the directors present at a
meeting at which a quorum is present shall be the act of the Board of
Directors, except as otherwise may be specifically provided by law, by the
Articles of Incorporation or by these Bylaws.
Section 11. Action without a Meeting. Any action required or permitted
to be taken by the Board of Directors at a meeting may be taken without a
meeting if all members of the Board consent thereto in writing, setting forth
the action so taken, and there is an affirmative vote of the number of
directors which would be necessary to authorize or take such action at a
meeting, evidenced in writing. The writing or writings are to be filed with the
minutes of the proceedings of the Board.
Section 12. Vacancies. Any vacancy occurring on the Board of Directors
created by an increase in the number of directors by action of the shareholders
shall be filled by the shareholders in the same manner as at an annual
election. The Board of Directors 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 set forth in Sections 14 and 15 of this
Article III, except such vacancy shall be filled pursuant to the Articles of
Incorporation to the extent the Articles of Incorporation 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 shall hold
office for the unexpired term of his predecessor.
Section 13. Compensation. By resolution of the Board of Directors,
each director may be paid his expenses, if any, of attendance at each meeting
of the Board of Directors, and may be paid a stated salary as director, or a
fixed sum for attendance at each meeting of the Board of Directors, or both,
payable in cash or securities of the corporation. No such payment shall
preclude any director from serving the corporation in any other capacity and
receiving compensation therefor.
Section 14. Removal. Any or all of the directors may be removed with
or without cause by majority vote of the shares represented at a meeting of the
shareholders at which a quorum is present.
Section 15. Resignation. A director may resign at any time by
delivering written notice to the corporation, the Chairman of the Board, the
Board of Directors or the President. A
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resignation is effective when the notice is delivered unless the notice
specifies a later effective date.
ARTICLE IV
OFFICERS
Section 1. Number. The officers of the corporation shall be a
President and a Secretary, each of whom shall be elected by the Board of
Directors. The Board may also elect or appoint a Chairman of the Board, one or
more Vice Presidents (with or without a modified title such as "Senior,"
"Executive," or "Assistant"), an Assistant Secretary, a Treasurer, an Assistant
Treasurer and such other officers and assistant officers as may be deemed
necessary. One person may hold any number of such offices, except the President
may not hold the office of Senior Vice President, Vice President, Secretary or
Assistant Secretary, and the Secretary and Treasurer shall not hold the office
of Assistant Secretary and Assistant Treasurer, respectively.
Section 2. Election and Term of Office. The officers of the
corporation shall be elected from time to time by the Board of Directors, as it
deems advisable. Each officer shall hold office until his successor shall have
been duly elected and qualified, or until his death, or until he shall resign
or shall have been removed in the manner hereinafter provided.
Section 3. Removal. The Board of Directors may remove any
officer or agent of the corporation at any time with or without cause. Removal
of an officer or agent shall be without prejudice to the contract rights, if
any, of the person so removed. Election or appointment of an officer or agent
shall not of itself create any contract rights.
Section 4. Resignation. Any officer may resign at any time by
delivering notice to the corporation. A resignation is effective when the
notice is delivered unless the notice specifies a later effective date. If a
resignation is made effective at a later date and the corporation accepts the
future effective date, the Board of Directors may fill the pending vacancy
before the effective date if it provides that the successor does not take
office until the effective date. An officer's resignation does not affect the
corporation's contract rights, if any, with the officer.
Section 5. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise, may be filled by the
Board of Directors for the unexpired portion of the term. In the event of an
absence of any officer of the corporation, or for any other reason which the
Board of Directors may deem sufficient, the Board may delegate for the time
being the powers or duties, or any of them, of such officer to any other
officer or director, in connection with these Bylaws.
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Section 6. Salaries. The salaries of the officers shall be fixed from
time to time by the Board of Directors, and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
corporation.
Section 7. President. The President shall be the chief executive
officer of the corporation and, subject to the control of the Board of
Directors, shall be primarily responsible for the general management of the
business affairs of the corporation and for implementing the policies and
directives of the Board of Directors, shall in general supervise and control
all of the business and affairs of the corporation and shall see that all
orders and resolutions of the Board of Directors are carried into effect, shall
have authority to make contracts on behalf of the corporation in the ordinary
course of business of the corporation, shall preside at all meetings of the
Board of Directors and shareholders if requested to do so and shall perform
such other duties as from time to time may be assigned by the Board of
Directors.
Section 8. The Vice Presidents. The Vice Presidents shall assist the
President in the management of the business. During the absence or disability
of the President, the Vice Presidents in the order designated by the President
or the Board of Directors, or in the absence of any designation, then in the
order of their election, shall perform the duties of the President, and when so
acting, shall have all the powers of and be subject to all the restrictions
upon the President. The Vice Presidents shall perform such other duties as from
time to time may be assigned to them by the President.
Section 9. The Secretary. The Secretary shall: (a) keep the minutes of
the proceedings of the shareholders, the Board of Directors and the standing
committees in one or more books provided for that purpose; (b) see that all
notices are duly given in accordance with the provisions of these Bylaws or as
required by law; (c) be custodian of the corporate records and of the seal of
the corporation and see that the seal of the corporation is affixed to all
documents, the execution of which on behalf of the corporation under its seal
is duly authorized; (d) keep a register of the post office address of each
shareholder which shall be furnished to the Secretary by such shareholder; (e)
sign, with the President, certificates for shares of the corporation, the
issuance of which shall have been authorized by resolution of the Board of
Directors; (f) have general charge of the stock transfer books of the
corporation; and (g) in general perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the Board of Directors or the President.
Section 10. The Treasurer. The Treasurer shall be the chief financial
officer of the corporation and shall have custody of all valuables. The
Treasurer shall: (a) have charge and custody of and be responsible for all
funds and securities of the corporation; (b) receive and give receipts for
monies due and payable to the corporation from any source whatsoever, and
deposit all such monies in the corporation's account(s); and (c) in general
perform all of the duties incident to the office of Treasurer and such other
duties as from time to time may be assigned to him by the President.
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Section 11. Assistant Secretaries and Assistant Treasurers. The
Assistant Secretaries may sign with the President certificates for shares of
the corporation, the issuance of which shall have been authorized by a
resolution of the Board of Directors. The Assistant Treasurers shall, if
required by the Board of Directors, give bonds for the faithful discharge of
their duties in such sums and with such sureties as the Board of Directors
shall determine. The Assistant Secretaries and Assistant Treasurers, in
general, shall perform such duties as shall be assigned to them by the
Secretary or the Treasurer, respectively, or the President.
ARTICLE V
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares. Shares may be issued by the
corporation by the delivery of certificates representing such shares and in
such form as shall be determined by the Board of Directors. Such certificates
shall be signed by the President and by the Secretary or an Assistant
Secretary. The signature of such officers upon a certificate may be facsimiles
if the certificate is manually signed on behalf of a transfer agent or a
registrar, other than the corporation itself or one of its employees. Each
certificate for shares shall be consecutively numbered or otherwise identified.
The name and address of the person to whom the shares represented thereby are
issued, with the number and class of shares, the designation of the series, if
any, the certificate represents, and date of issue, shall be entered on the
stock transfer books of the corporation. All certificates surrendered to the
corporation for transfer shall be cancelled, and no new certificate shall be
issued until the former certificate for a like number of shares shall have been
surrendered and cancelled, except that in case of a lost, destroyed, or
mutilated certificate a new one may be issued therefor upon such terms and
indemnity to the corporation as the President or the Board of Directors may
prescribe.
Section 2. Shares without Certificates. Shares of common stock of the
corporation need not be represented by certificates. The Board of Directors of
the corporation may authorize the issuance of some or all of the shares of any
or all of the corporation's other classes or series of stock without
certificates. Any such authorization shall not affect shares already
represented by certificates until such certificated shares are surrendered to
the corporation. Within a reasonable time after the issue or transfer of shares
without certificates, the corporation shall send to the holder thereof a
written statement which includes: (1) the name of the corporation and that it
is organized under the laws of the State of Georgia; (2) the name of the person
to whom the shares are issued; (3) the number and class and designation of the
series, if any, of the shares; and (4) any restrictions on the transfer or
registration of transfer of such shares.
Section 3. Transfer of Shares. Transfers of shares of the corporation
shall be made only on the stock transfer books of the corporation by the holder
of record thereof or by his legal representative, who shall furnish proper
evidence of his authority to transfer, or by his attorney thereunto authorized
by power of attorney duly executed and filed with the Secretary of
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the corporation or a transfer agent or registrar, and on surrender for
cancellation of the certificate for such shares, if a certificate representing
such shares shall have been issued. The person in whose name shares stand on
the books of the corporation shall be deemed by the corporation to be the owner
thereof for all purposes.
ARTICLE VI
FISCAL YEAR
The fiscal year of the corporation shall be determined and fixed by
the Board of Directors.
ARTICLE VII
CORPORATE SEAL
The Board of Directors of the corporation may adopt a corporate seal
for the corporation and when so adopted and impressed on the margin hereof or
the margin of the minutes of the meeting at which the seal is adopted, the same
shall be and constitute the corporate seal of this corporation, but unless and
until such action be taken by the Board of Directors, this corporation shall
have no corporate seal. In the event that no corporate seal is adopted, or if
it is inconvenient to use such seal at any time, the signature of the
corporation followed by the word "Seal" enclosed in parentheses shall be deemed
the seal of the corporation, but the absence of such seal on any instrument, or
its addition thereto, shall not affect its character or validity or legal
effect in any respect.
ARTICLE VIII
WAIVER OF NOTICE
Whenever any notice is required to be given to any shareholder or
director of the corporation pursuant to law or under the provisions of the
Articles of Incorporation or these Bylaws, a waiver thereof in writing signed
by the person or persons entitled to such notice delivered to the corporation
and filed in the corporation's minutes or corporate records, whether before or
after the time stated therein, shall be deemed equivalent to the giving of such
notice. A shareholder's or director's attendance at, or participation in, a
meeting shall constitute waiver of notice and consent to the consideration of
matters not described in any notice as set forth in the Georgia Business
Corporation Code, as amended from time to time. Neither the business to be
transacted at, nor the purpose of, any meeting of the shareholders or directors
is required to be specified in any waiver of notice.
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ARTICLE IX
COMMITTEES
Section 1. Appointment. The Board of Directors, by resolution adopted
by a majority of all the directors in office when the action is taken, may
designate one or more of its members to constitute a committee. The designation
of a committee and the delegation of authority thereto shall not operate to
relieve the Board of Directors, or any member thereof, of any responsibility
imposed by law. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disabled
member at any meeting of the committee.
Section 2. Tenure. The members of a committee serve at the pleasure of
the Board of Directors, which may at any time, for any or no reason, remove any
individual committee member, increase or decrease the number of members of a
committee, or terminate the existence of a committee. The membership of a
committee member shall terminate on the date of his removal, resignation or
death. The Board of Directors may fill any vacancy on a committee created by
removal, resignation, death or an increase in the number of members of the
committee.
Section 3. Authority. All duly delegated committees may exercise such
power and authority in the management of the business and affairs of the
corporation as specified by resolution of the Board of Directors and to the
extent allowed by applicable law, the Articles of Incorporation and these
Bylaws and may have power to authorize the seal of the corporation to be
affixed to all papers which may require it.
Section 4. Executive Committee. The Board of Directors may appoint an
Executive Committee which, to the extent permitted by law, shall have and may
exercise when the Board of Directors is not in session all powers of the Board
of Directors regarding the supervision of the management of the business and
affairs of the corporation. The Executive Committee shall be chaired by the
President of the corporation.
ARTICLE X
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 1. Indemnification for Third Party Actions. Under the
circumstances prescribed in Sections 3 and 4 of this Article, the corporation
shall indemnify and hold harmless any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the
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corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in a manner he believed in good faith to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in a manner which he reasonably believed to be in or not opposed to the
best interests of the corporation, and with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 2. Indemnification for Derivative Actions. Under the
circumstances prescribed in Sections 3 and 4 of this Article, the corporation
shall indemnify and hold harmless any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor
by reason of the fact he is or was a director, officer, 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, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit, if he acted in good faith and in a manner he
believed in good faith to be in or not opposed to the best interests of the
corporation; except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
corporation, unless and only to the extent that the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the court shall deem proper.
Section 3. Indemnification for Expenses. To the extent that a
director, officer, employee or agent of a corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred
to in Sections 1 and 2 of this Article, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.
Section 4. Determination as to Indemnification. Except as provided in
Section 3 of this Article and except as may be ordered by a court, any
indemnification under Sections 1 and 2 of this Article shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth
in Sections 1 and 2. Such determination shall be made (1) by the Board of
Directors by a majority vote of a quorum consisting of directors not at the
time parties to the proceeding; (2) if a quorum cannot be obtained under
paragraph (1) of this subsection, by majority vote of a committee duly
designated by the Board of Directors (in which designation directors who are
parties may
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participate), consisting solely of two (2) or more directors not at the time
parties to the proceeding; (3) by special legal counsel (A) selected by the
Board of Directors or a committee thereof in the manner prescribed in paragraph
(1) or (2) of this subsection, or (B) if a quorum of the Board of Directors
cannot be obtained under paragraph (1) of this subsection and a committee
cannot be designated under paragraph (2) of this subsection, selected by
majority vote of the full Board of Directors (in which selection directors who
are parties may participate); or (4) by the shareholders, but shares owned by
or voted under the control of directors who are at the time parties to the
proceeding may not be voted on the determination. The obligation to indemnify
and the evaluation as to reasonableness of expenses shall be made in the same
manner as the determination whether indemnification is proper is made, except
that if the determination is made by special legal counsel, authorization of
indemnification and evaluation as to reasonableness of expenses also shall be
made by such special legal counsel.
Section 5. Advancement of Expenses. Reasonable expenses incurred by a
director, officer, employee or agent who is a party to a civil or criminal
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding as authorized by the Board
of Directors in the specific case upon receipt of (1) a written affirmation
from the director, officer, employee or agent of his good faith belief that he
has met the standard of conduct set forth in Sections 1 and 2 of this Article,
and (2) a written undertaking, executed personally or on behalf of such
director, officer, employee or agent, to repay any advances if it ultimately
shall be determined that he is not entitled to be indemnified by the
corporation as authorized in this section.
Section 6. Indemnification not Exclusive. The indemnification provided
by this Article shall not be deemed exclusive of any other rights, in respect
of indemnification or otherwise, to which those seeking indemnification may be
entitled under any Bylaw or resolution approved by the affirmative vote of the
holders of a majority of the shares entitled to vote thereon taken at a meeting
the notice of which specified that such Bylaw or resolution would be placed
before the shareholders, both as to action by a director, officer, employee or
agent in his official capacity while holding such office or position, and as to
action by a person who has ceased to be a director, officer, employee or agent
and shall inure to the benefit of the heirs, executors, and administrators of
such a person.
Section 7. Insurance. The corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, 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,
partnership, joint venture, trust, or other enterprise, against any liability
asserted against him and incurred by him in any such capacity, or arising out
of his status as such, whether or not the corporation would have the power to
indemnify him against such liability under the provisions of this Article.
Section 8. Statement to Shareholders. If and as required by the
Georgia Business Corporation Code, as amended from time to time, the
corporation shall send to its shareholders a statement regarding expenses or
other amounts paid by way of indemnification.
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ARTICLE XI
AMENDMENTS
The Bylaws of the corporation may be altered, amended or repealed, and
new Bylaws may be adopted, by the shareholders at any annual or special meeting
of the shareholders or by the Board of Directors at any regular or special
meeting of the Board of Directors; provided, however, that, the notice of such
meeting shall specify that amendments to the Bylaws will be considered at such
meeting and shall summarize the proposed amendments; and provided further, that
the Bylaws may not be altered, amended or repealed by the Board of Directors to
the extent: (1) the Articles of Incorporation or applicable law reserve the
power to alter, amend or repeal a particular Bylaw exclusively to the
shareholders, in whole or in part; or (2) the shareholders in altering,
amending or repealing a particular Bylaw provide expressly that the Board of
Directors may not alter, amend or repeal that Bylaw.
ARTICLE XII
ARTICLES OF INCORPORATION
In the event that any provision of these Bylaws is inconsistent or in
conflict with any provision contained in the corporation's Articles of
Incorporation (including any amendment thereto setting forth the preferences,
limitations and rights of any series or class of the corporation's preferred
stock) the provision contained in the Articles of Incorporation shall govern.
-13-
<PAGE> 1
EXHIBIT 10.2
FIRST AMENDMENT TO AMENDED
AND RESTATED CREDIT AGREEMENT AND
CONSENT TO MFS ACQUISITION
THIS FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT AND
CONSENT TO MFS ACQUISITION (the "AMENDMENT") is entered into as of December
20, 1996 (the "AMENDMENT DATE"), among WorldCom, Inc., a Georgia corporation
("BORROWER"), NationsBank of Texas, N.A., as Managing Agent and Administrative
Agent (in such capacity, "ADMINISTRATIVE AGENT"), Bank of America Illinois, The
Bank of New York, The Bank of Nova Scotia, Canadian Imperial Bank of Commerce,
The Chase Manhattan Bank, Credit Lyonnais New York Branch, First Union National
Bank of North Carolina, The Industrial Bank of Japan, Limited, Atlanta Agency,
The First National Bank of Chicago, The Long-Term Credit Bank of Japan,
Limited, New York Branch, Toronto Dominion (Texas), Inc., and Wachovia Bank of
Georgia, N.A., as AGENTS (herein so called), and certain LENDERS (herein so
called) named on SCHEDULE 2.1 (as amended and supplemented from time to time)
of the Credit Agreement (as hereinafter defined).
R E C I T A L S
A. Borrower, Lenders, Administrative Agent, and Agents entered
into that certain Amended and Restated Credit Agreement dated as of June 28,
1996 (as amended and supplemented to date, the "CREDIT AGREEMENT"). Unless
otherwise indicated herein, all terms used with their initial letter
capitalized are used herein with their meaning as defined in the Credit
Agreement; all Section references are to Sections in the Credit Agreement; and
all Paragraph references are to Paragraphs in this Amendment.
B. On August 26, 1996, Borrower and MFS Communications Company,
Inc. ("MFS") announced that the two companies had executed a definitive
agreement and plan of merger, pursuant to which MFS will merge with HIJ Corp.,
a wholly-owned subsidiary of Borrower. The surviving entity will be MFS, which
will continue as a wholly-owned subsidiary of Borrower (The transaction
described in this Recital is herein referred to as the "MFS ACQUISITION").
C. Borrower has advised Administrative Agent that MFS is party
to certain existing senior note agreements which prohibit MFS and its
Subsidiaries from guaranteeing the Obligation under the Credit Agreement.
Borrower has requested that Lenders consent to the MFS Acquisition as a
Permitted Acquisition notwithstanding the inability of MFS and its Subsidiaries
to deliver guaranties upon consummation of the MFS Acquisition as required by
the Loan Papers.
D. Additionally, Borrower has requested that the annual
limitation on investments in the Credit Agreement be increased from $50,000,000
to $85,000,000.
E. Lenders are willing to amend the Credit Agreement, to permit
the increase in the annual investment limitation, to consent to the MFS
Acquisition as a Permitted Acquisition, as requested, and to make certain other
clarifying changes, but only upon the conditions, among others, that Borrower,
Administrative Agent, and each Lender shall have executed and delivered this
Amendment and shall have agreed to the terms and conditions of this Amendment,
including, without limitation, provisions which: (i) provide for a category of
Unrestricted Subsidiaries consisting of MFS and its Subsidiaries until such
time
FIRST AMENDMENT
<PAGE> 2
as such companies are designated by Borrower as "Restricted Subsidiaries" and
such companies execute and deliver Guaranties in accordance with the terms of
the Credit Agreement (as herein amended); (ii) include the Unrestricted
Subsidiaries in the application of certain representations, covenants, and
default provisions under the Loan Papers; (iii) restrict use of the loan
proceeds by Unrestricted Subsidiaries; and (iv) restrict inter-company
transactions (e.g., investments, mergers, acquisitions, asset transfers,
dividends, and non-arm's length affiliate transactions) between the
Unrestricted Subsidiaries and Borrower and its other Subsidiaries.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Borrower, Administrative Agent, and Lenders hereby agree, as
follows:
PARAGRAPH 1. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is amended
and modified, as follows:
1.1 AMENDED DEFINITIONS. The following definitions in SECTION 1.1
are amended:
(a) The definition of "Companies" is amended in its
entirety, as follows:
"COMPANIES means, at any time of
determination thereof, Borrower and each of its
Subsidiaries, other than the Unrestricted
Subsidiaries."
(b) The definition of "Current Financials" is amended by
modifying CLAUSE (B) of such definition to read, as follows:
"(b) the Financial Statements (calculated for the
Companies on a consolidated basis) required to be
delivered under SECTIONS 7.3(A) or 7.3(B), as the
case may be."
(c) The definition of "Material Adverse Event" is amended
(i) by restyling the existing CLAUSE (C) as CLAUSE (D); (ii)
by deleting the word "or" after CLAUSE (B), and (iii) by
adding the following new CLAUSE (C) after CLAUSE (B):
"(c) material and adverse effect on the business,
properties, condition (financial or otherwise) or
results of operations of the Consolidated Companies,
in each case considered as a whole, or".
(d) The definition of "Operating Cash Flow" is amended by
modifying the proviso at the end of the first sentence thereof
and the second, third, and fourth sentences of such definition
to read, as follows:
"provided that, in calculating Operating Cash Flow of
the Companies, no more than 7.5% of Operating Cash
Flow may be comprised of Operating Cash Flow of
Foreign Restricted Subsidiaries and Companies which
are not Restricted Subsidiaries. Only for the purpose
of the calculation of the Leverage Ratio with respect
to the Companies, Operating Cash Flow of the
Companies shall be calculated after giving effect to
Acquisitions (other than the MFS Acquisition) and
divestitures of Companies permitted by the Loan
Papers during such period as if such transactions had
occurred on the
FIRST AMENDMENT
2
<PAGE> 3
first day of such period, regardless whether the
effect is positive or negative; provided that,
Operating Cash Flow of the Companies shall only be
adjusted to give effect to the MFS Acquisition on the
first day of the calculation period in which the
Unrestricted Subsidiaries are redesignated as
Restricted Companies (or Inactive Subsidiaries, as
the case may be) in accordance with SECTION 7.27. In
the case of any Permitted Acquisition (other than the
MFS Acquisition) during any period of calculation,
Operating Cash Flow of the Companies shall, for the
purposes of the foregoing calculations, be adjusted
to give effect to such Permitted Acquisition (other
than the MFS Acquisition), as if such Permitted
Acquisition occurred on the first day of such period,
by increasing, if positive, or decreasing, if
negative, the Operating Cash Flow of the Companies by
the Operating Cash Flow of such newly-acquired
business during such period of calculation occurring
prior to the date of such Permitted Acquisition;
provided that, Operating Cash Flow of the Companies
shall only be adjusted to give effect to the MFS
Acquisition on the first day of the calculation
period in which the Unrestricted Subsidiaries are
redesignated as Restricted Companies (or Inactive
Subsidiaries, as the case may be) in accordance with
SECTION 7.27. In the case of any Company being sold,
transferred, or otherwise disposed of by any Company
as permitted under the Loan Papers (a "PERMITTED
DISPOSITION") during any period of calculation,
Operating Cash Flow shall, for the purposes of the
foregoing calculations be adjusted to give effect to
such Permitted Disposition, as if such Permitted
Disposition occurred on the first day of such
period, by decreasing, if positive, or increasing, if
negative, the Operating Cash Flow of the Companies by
the Operating Cash Flow of such Companies during such
period prior to the date of the Permitted
Disposition."
(e) The definition of "Restricted Companies" is amended
in its entirety, as follows:
"RESTRICTED COMPANIES, at any time of
determination thereof, shall mean Borrower and each
of its Subsidiaries (other than Inactive
Subsidiaries, the Receivables Subsidiary, and the
Unrestricted Subsidiaries) of which more than 80% (by
number of votes) of the Voting Stock is beneficially
owned, directly or indirectly, by Borrower or any
Restricted Subsidiary."
(f) Each of the definitions of the following terms in
SECTION 1.1 shall be modified, by inserting the
phrase "calculated for the Companies on a
consolidated basis" after each reference to
"Financial Statements" in such definitions:
o "Annualized Operating Cash Flow"
o "Applicable Margin"
o "Competitive Bid Availability"
o "Leverage Ratio"
o "Operating Cash Flow"
FIRST AMENDMENT
3
<PAGE> 4
1.2 NEW DEFINITIONS. The following definitions are added
to SECTION 1.1 and shall be alphabetically inserted into such Section:
(a) The definition of "Consolidated Companies" is added,
as follows:
"CONSOLIDATED COMPANIES means, at any date of
determination thereof, Borrower and each of its
Subsidiaries (including the Unrestricted
Subsidiaries)."
(b) The definition of "First Amendment Effective Date" is
added, as follows:
"FIRST AMENDMENT EFFECTIVE DATE" means the
"Amendment Effective Date" as described in Paragraph
3 of the First Amendment to Amended and Restated
Credit Agreement and Consent to MFS Acquisition dated
as of December 20, 1996."
(c) The definition of "MFS Acquisition" is added, as
follows:
"MFS ACQUISITION means the Acquisition
consummated pursuant to the MFS Merger Agreement."
(d) The definition of "MFS Merger Agreement" is added as
follows:
"MFS MERGER AGREEMENT" means the Amended and
Restated Agreement and Plan of Merger dated as of
August 25, 1996, by and among Borrower, HIJ Corp. (a
wholly-owned Subsidiary of Borrower), and MFS
Communications Company, Inc., pursuant to which HIJ
Corp. merges with and into MFS Communications
Company, Inc. (as the same may have been amended,
modified, or supplemented prior to the First
Amendment Effective Date or as the same may
thereafter be amended, modified, or supplemented as
permitted by the Loan Papers)."
(e) The definition of "MFS Note Agreements" is added, as
follows:
"MFS NOTE AGREEMENTS" means collectively or
individually (i) the Indenture dated as of January
15, 1994, between MFS Communications Company, Inc.
("MFS") and IBJ Schroder Bank & Trust Company, as
Trustee, pursuant to which the 9-3/8% Senior Discount
Notes of MFS were issued, as supplemented by the
First Supplemental Indenture dated as of March 31,
1995 (as the same may be further supplemented,
amended, and modified subject to the provisions of
SECTION 7.25 on and after the date upon which the
Unrestricted Subsidiaries are redesignated as
Restricted Subsidiaries or Inactive
FIRST AMENDMENT
4
<PAGE> 5
Subsidiaries) and (ii) the Indenture dated as of
January 15, 1996, between MFS and IBJ Schroder Bank &
Trust Company, as Trustee, as supplemented by the
First Supplemental Indenture dated as of January 15,
1996, pursuant to which the 8-7/8% Senior Discount
Notes of MFS were issued (as the same may be further
supplemented, amended, and modified subject to the
provisions of SECTION 7.25 on and after the date upon
which the Unrestricted Subsidiaries are redesignated
as Restricted Subsidiaries)."
(f) The definition of "Unrestricted Subsidiaries" is
added, as follows:
"UNRESTRICTED SUBSIDIARY, at any time of
determination thereof, shall mean each of MFS
Communications Company, Inc. and its Subsidiaries,
until such time as any such Unrestricted Subsidiary
is redesignated by Borrower as a "Restricted
Subsidiary" or an "Inactive Subsidiary" in accordance
with the redesignation requirements set forth in
SECTION 7.27. UNRESTRICTED SUBSIDIARIES, at any time
of determination, shall mean collectively all
Unrestricted Subsidiaries."
1.3 PROVISIONS APPLICABLE TO CONSOLIDATED COMPANIES. In order to
reflect that certain provisions of the Loan Papers are applicable to the
Consolidated Companies, the following provisions are amended by replacing (a)
each reference to "Company" or "Restricted Company" therein with "Consolidated
Company," and (b) each reference to "Companies" or "Restricted Companies"
therein with "Consolidated Companies":
o The last sentence of SECTION 2.2(D)
o SECTION 2.2(G)
o SECTION 5.3
o CLAUSE (III) of the third sentence in SECTION 6.2
o CLAUSE (II) of the second sentence of SECTION 6.4
o SECTION 6.8
o SECTION 6.9
o SECTION 6.16
o SECTION 6.21
o SECTION 6.22
o SECTION 6.23
o SECTION 7.2
o SECTION 7.3(D), (F), and (H)
o SECTION 7.4
o SECTION 7.5
o SECTION 7.7
o SECTION 7.8
o SECTION 7.9
o SECTION 7.11
o SECTION 7.15
FIRST AMENDMENT
5
<PAGE> 6
o SECTION 7.19
o SECTION 8.2
o SECTION 8.3
o SECTION 8.5
o SECTION 8.6
o SECTION 8.11
o SECTION 9.3
o SECTION 9.5
o SECTION 9.11
o CLAUSES (A) AND (B) of the first sentence of
SECTION 9.13
1.4 AMENDMENT TO ASSET SALE PREPAYMENT AND NEGATIVE PLEDGE
PROVISIONS. The following clarifying changes are made in SECTION 3 of the
Credit Agreement.
(a) SECTION 3.2(F) is amended by (i) deleting the
reference to "Total Debt" in the third sentence thereof, and
(ii) substituting therefor the phrase "aggregate pari passu
Debt".
(b) SECTION 3.20 is amended by (i) restyling clauses
"(a)" and "(b)" to "(b)" and "(c)" respectively and (ii)
inserting a new clause "(a)" to read as follows:
"(a) the Companies hereby grant to Lenders an equal
and ratable Lien in and to the Property so
encumbered,".
1.5 AMENDMENTS TO REPRESENTATIONS AND WARRANTIES. In addition to
the amendments set forth in PARAGRAPH 1.3 hereof, certain other representations
and warranties in SECTION 6 are hereby amended, as follows:
(a) SECTION 6.3 is amended by adding the following
sentence after the first sentence of such Section:
"Each Unrestricted Subsidiary and Inactive Subsidiary
is identified as such on SCHEDULE 6.3(A)."
(b) SECTION 6.6 is amended by (i) replacing each
reference to "Companies" with the phrase "Companies or
Consolidated Companies (as the case may be )" and (ii)
replacing each reference to "Company" with the phrase "Company
or Consolidated Company (as the case may be)."
(c) SECTION 6.13 is amended by (i) substituting the term
"Consolidated Company" for each reference to "Company"
therein, and (ii) deleting the parenthetical "(excluding other
Companies)" in the third and fourth lines of such Section and
substituting the following phrase therefor:
"(excluding transactions between or among Restricted
Companies)".
1.6 AMENDMENTS TO COVENANTS. In addition to the amendments set
forth in PARAGRAPH 1.3 hereof, certain other covenants in SECTION 7 are hereby
amended, as follows:
FIRST AMENDMENT
6
<PAGE> 7
(a) The introductory paragraph of SECTION 7 is hereby
amended by (i) deleting the initial phrase "Borrower covenants
and agrees that" and (ii) substituting the following phrase
therefor:
"Borrower (and each Restricted Company by executing a
Guaranty) covenants and agrees (and agrees to cause
each other Consolidated Company to the extent any
covenant is applicable to such Consolidated Company)
to perform, observe, and comply with each of the
following covenants,".
(b) SECTION 7.3(A) is amended by (i) modifying the
introductory paragraph thereof to read as follows:
"(a) Promptly after preparation, and no later than
90 days after the last day of each fiscal year of
Borrower, Financial Statements showing the
consolidated financial condition and results of
operations calculated for the Consolidated Companies
(and calculated separately for the Companies on a
consolidated basis for so long as Borrower has any
Unrestricted Subsidiaries) as of, and for the year
ended on, such day, accompanied by:"
and (ii) modifying CLAUSE (I) by inserting the parenthetical
phrase "(calculated with respect to the Consolidated
Companies)" after the term "Financial Statements" in the third
line thereof and by substituting the term "Consolidated
Companies" for the word "Companies" in the last line thereof.
(c) SECTION 7.3(B) is amended to read as follows:
"(b) Promptly after preparation, and no later than
45 days after the last day of each fiscal quarter of
Borrower (other than the fourth fiscal quarter of
each fiscal year), Financial Statements showing the
consolidated financial condition and results of
operations calculated for the Consolidated Companies
(and calculated separately for the Companies on a
consolidated basis for so long as Borrower has any
Unrestricted Subsidiaries) for such fiscal quarter
and for the period from the beginning of the
then-current fiscal year to, such last day,
accompanied by a Compliance Certificate with respect
to such Financial Statements."
(d) The proviso in SECTION 7.3(E) is amended by (i)
deleting the "and" between references to "6.11" and "6.13"
therein and (ii) adding references to additional Schedules by
inserting the following phrase after the reference to "6.13"
in such proviso:
"7.12, 7.13, and 7.21,".
(e) SECTION 7.3(G) is amended by adding the phrase "or
any Consolidated Company" after the word "Borrower" therein.
(f) SECTION 7.12 is amended (i) by deleting the
parenthetical at the end of CLAUSE (F) of SECTION 7.12(I)(7),
which reads "(but expressly excluding obligations under
operating leases unless, and only to the extent permitted by
ITEM (1) under SECTION 7.12(I))" in order
FIRST AMENDMENT
7
<PAGE> 8
to make such provision consistent with the provisions of
SECTION 7.12(I)(1), and (ii) by adding the following CLAUSE
(J) at the end of such Section:
"(j) Debt of any Restricted Company to any
Consolidated Company (other than a Restricted
Company) so long as (i) such Debt is subordinate in
right of payment to the Obligation upon terms
satisfactory to Administrative Agent and its counsel
and (ii) such Debt is incurred and maintained in
compliance with SECTIONS 7.12(E) and 7.14 (it being
understood that such subordinated Debt shall be
included in Debt for purposes of the calculations and
determinations made in accordance with SECTION
7.12(E))."
(g) SECTION 7.14 is hereby amended by (i) substituting
the term "Consolidated Company" for each reference to
"Company" in such Section and (ii) deleting the parenthetical
clause which reads "(excluding other Restricted Companies
except Foreign Restricted Subsidiaries)" and substituting
therefor the following clause:
"(excluding transactions among or between Restricted
Subsidiaries, other than Foreign Restricted
Subsidiaries)".
(h) SECTION 7.16 is amended by substituting a semi-colon
(;) for the period (.) at the end thereof and adding the
following proviso after the semi-colon:
"provided that, notwithstanding the foregoing, in
connection with the MFS Acquisition, Borrower shall
only be required to deliver those items specified in
the separate consent of Determining Lenders to such
Acquisition at the times specified for delivery in
such consent, and the Unrestricted Subsidiaries
acquired in the MFS Acquisition shall not be required
to execute and deliver a Guaranty until such time as
they are designated as Restricted Subsidiaries
pursuant to, and in accordance with the procedures
specified in, SECTION 7.27."
(i) SECTION 7.21 is amended by (i) deleting the phrase
"by Restricted Companies" from CLAUSE (G) thereof; and (ii)
amending CLAUSE (K) by substituting "$85,000,000" for the
reference to "$50,000,000" therein.
(j) SECTION 7.22 is amended by (i) substituting the term
"Consolidated Company" for each reference to the word
"Company" therein, (ii) modifying CLAUSE (B) thereof to read
as follows:
"(b) Distributions by any Consolidated Company to
Borrower or any other Restricted Company or
Distributions between Unrestricted Subsidiaries; or";
and (iii) adding the following proviso at the end of the first
sentence thereof:
"; provided that, any Distribution permitted
hereunder is permitted only to the extent such
Distribution is made in accordance with applicable
Law and constitutes a valid, non-voidable
transaction."
FIRST AMENDMENT
8
<PAGE> 9
(k) SECTION 7.23 is amended by (i) substituting the term
"Consolidated Company" for the word "Company" in the initial
sentence thereof, and (ii) modifying CLAUSE (E) thereof to
read as follows:
"(e) sales, leases, or other dispositions from a
Consolidated Company to a Restricted Company or
between Unrestricted Subsidiaries;".
(l) SECTION 7.25 is amended by inserting the phrase,
"MFS Merger Agreement," after the reference to "Note
Agreements" therein.
(m) SECTION 7.26 is amended by (i) substituting the term
"Consolidated Company" for the reference to "Company" in the
first line thereof, and (ii) deleting the "or" before CLAUSE
(D) in the first sentence thereof, substituting a comma (,)
for the period at the end of the first sentence, and adding
the following CLAUSE (E):
"and (e) mergers among Unrestricted Subsidiaries."
(n) SECTION 7.27 is amended by (i) changing its heading
to read "Inactive Subsidiaries; Unrestricted Subsidiaries."
and (ii) adding the following provisions at the end thereof:
"Borrower may from time to time change the
designation of an Unrestricted Subsidiary to a
Restricted Company, so long as (a) immediately prior
to such designation and after giving effect thereto,
no Default or Potential Default exists and (b)
concurrently with such designation, (i) the
requirements of SECTION 5.2 and SECTION 7.16 are or
have been satisfied and all items required to be
delivered thereunder have been so delivered, (ii)
Borrower delivers to Administrative Agent (with
sufficient copies for Lenders) a revised SCHEDULE
6.3(A) reflecting the redesignation, together with a
written statement executed by a Responsible Officer
of Borrower representing and warranting, on behalf of
Borrower, that the conditions set forth in the
immediately preceding CLAUSES (A) and (B) have been
satisfied and that the statements in such clauses are
true and correct as to the newly-designated
Restricted Company, and (iii) Borrower delivers to
Administrative Agent (with sufficient copies for
Lenders) five year income and balance sheet
projections in respect of the Companies after giving
effect to the redesignation of the Unrestricted
Subsidiaries as Restricted Companies."
1.7 AMENDMENTS TO DEFAULT PROVISIONS. In addition to the
amendments specified in PARAGRAPH 1.3 above, certain other Default
provisions are hereby modified, as follows:
(a) SECTION 8.7 is amended by changing the term
"Borrower" to "Any Consolidated Company".
(b) SECTION 8.17 is amended by inserting the phrase,
"any MFS Note Agreement," after each reference to "Note
Agreement" therein.
FIRST AMENDMENT
9
<PAGE> 10
PARAGRAPH 2. CONSENT TO MFS ACQUISITION. Notwithstanding anything to the
contrary in the Loan Papers and upon satisfaction of the following terms and
conditions, Lenders consent to the MFS Acquisition; whereupon the MFS
Acquisition shall be deemed a "Permitted Acquisition" for all purposes under
the Loan Papers:
2.1 CONSENT OF BOARDS OF DIRECTORS. As of the closing of the MFS
Acquisition, the MFS Acquisition has been approved and recommended by
the board of directors of MFS Communications Company, Inc., Borrower,
and HIJ Corp.
2.2 SOLVENCY. Prior to and immediately after giving effect to
the MFS Acquisition, MFS and its Subsidiaries must be Solvent on a
consolidated basis and the Companies and Consolidated Companies must
be Solvent, on a consolidated basis.
2.3 NO DEFAULT. As of the closing of the MFS Acquisition, no
Default or Potential Default shall exist or occur as a result of, and
after giving effect to, such Acquisition.
2.4 NO LITIGATION. As of the closing of the MFS Acquisition,
there is no Litigation pending or threatened against the Consolidated
Companies arising out of the transactions contemplated by the MFS
Acquisition or seeking to enjoin the MFS Acquisition that would
constitute a Material Adverse Event if determined adversely to the
Consolidated Companies.
2.5 CONDITIONS PRECEDENT. Prior to consummation of the MFS
Acquisition, Administrative Agent shall have received each of the
following items which must be satisfactory to Administrative Agent and
its counsel in their reasonable determination:
(a) FIRST AMENDMENT. This First Amendment [together with
all Schedules thereto] executed by Borrower, each Guarantor,
Administrative Agent, and each Lender.
(b) SCHEDULES. Supplements or revisions of SCHEDULES
6.2(A), 6.2(B), and 6.3(A) and such other Schedule-revisions
or supplements which are required to make the representations
in the Loan Papers accurate and complete after giving effect
to the MFS Acquisition.
(c) PERMITTED ACQUISITION COMPLIANCE CERTIFICATE. A
compliance certificate in the form of EXHIBIT E-2 completed
without material exceptions and executed by a Responsible
Officer of Borrower with respect to the MFS Acquisition.
(d) FCC COUNSEL OPINION. An opinion of FCC counsel for
Borrower, addressed to Administrative Agent, Agents, and
Lenders, and given upon the express instructions of Borrower,
confirming that all authorizations for the change of control
of MFS effected as a consequence of the MFS Acquisition have
been obtained.
(e) OPINION LETTERS. Opinion letters delivered pursuant
to the MFS Acquisition rendered by counsel to Borrower and
MFS, which permit Lenders to rely on such opinions.
(f) INSURANCE. With respect to MFS and its Subsidiaries,
certificates of insurance for each policy of insurance
maintained by such company and evidence that such policies are
in full force and effect.
FIRST AMENDMENT
10
<PAGE> 11
(g) MERGER TRANSACTION. (i) A fully-executed copy of the
MFS Merger Agreement, together with all amendments, schedules
and exhibits thereto, certified as true, correct, and complete
by a Responsible Officer of Borrower, such certification also
including that there have been no modifications, amendments,
or waivers of the MFS Merger Agreement since the Amendment
Date except as agreed to by Determining Lenders or as
otherwise permitted pursuant to SECTION 7.25, (ii) evidence
satisfactory to Administrative Agent and its counsel that the
MFS Acquisition has been consummated in accordance with the
terms of the agreements described in clause (i) preceding, and
that all material conditions stated therein have been
satisfied without waiver (except that certain conditions may
be waived by Borrower and MFS if either (x) consented to by
Administrative Agent in the case of waivers which are not
materially disadvantageous to Lenders or (y) consented to by
Determining Lenders in all other cases); and (iii) evidence of
filing with the appropriate Tribunal of the Certificate of
Merger of Borrower and MFS.
(h) DEBT REPAYMENT AND RELATED LIEN RELEASES. Evidence
reasonably satisfactory to Administrative Agent and its
counsel that (a) MFS and its Subsidiaries shall have paid in
full (including principal, interest and fees) the outstanding
existing Debt under (i) the Credit Agreement dated as of April
14, 1995, among MFS Communications Company, Inc., Chemical
Bank as Administrative Agent, Bankers Trust Company as
Documentation Agent, and the Lenders named therein and (ii)
the Credit Agreement dated as of April 14, 1995, among MFS
Telecom, Inc., Chemical Bank, as Administrative Agent, Bankers
Trust Company as Documentation Agent, and the Lenders named
therein, and shall have canceled all commitments thereunder
and (b) MFS and its Subsidiaries shall have obtained releases
of all Liens securing such Debt.
(i) AUTHORIZATIONS. Evidence satisfactory to
Administrative Agent and its counsel that the Companies shall
have made all filings and registrations and shall have
obtained all Authorizations which are or may be required as
prerequisites to the validity, enforceability, and
non-voidability of the MFS Acquisition and the transactions
contemplated thereby.
(j) PREFERRED STOCK DOCUMENTS. Copies of all documents
related to the issuance of preferred stock issued by Borrower,
accompanied by a certificate executed by a Responsible Officer
of Borrower stating that such copies are true and correct.
(k) TAX SHARING AGREEMENTS. Copies of all tax sharing
agreements entered into between Borrower and MFS or between
Borrower and any of MFS's Subsidiaries.
(l) OTHER DOCUMENTS. Such other agreements, documents,
instruments, opinions, certificates, and evidences as
Administrative Agent may reasonably request.
PARAGRAPH 3. AMENDMENT EFFECTIVE DATE. This Amendment shall be binding upon
all parties to the Loan Papers on the last day upon which counterparts of this
Amendment shall have been executed and delivered to Administrative Agent by
Borrower, each Guarantor, Administrative Agent, and each Lender or when
Administrative Agent shall have received telecopied, telexed, or other evidence
satisfactory to it that all such parties have executed and are delivering to
Administrative Agent counterparts thereof; whereupon, this Amendment shall be
deemed effective as of November 13, 1996 (the "AMENDMENT EFFECTIVE DATE").
FIRST AMENDMENT
11
<PAGE> 12
PARAGRAPH 4. REPRESENTATIONS AND WARRANTIES. As a material inducement to
Lenders to execute and deliver this Amendment, Borrower hereby represents and
warrants to Lenders (with the knowledge and intent that Lenders are relying
upon the same in entering into this Amendment) the following: (a) the
representations and warranties in the Credit Agreement and in all other Loan
Papers are true and correct on the date hereof in all material respects, as
though made on the date hereof and (b) except for matters being waived in this
Amendment, no Default or Potential Default exists under the Loan Papers.
PARAGRAPH 5. MISCELLANEOUS.
5.1 EFFECT ON LOAN PAPERS. The Credit Agreement and all related
Loan Papers shall remain unchanged and in full force and effect,
except as provided in this Amendment, and are hereby ratified and
confirmed. On and after the Amendment Effective Date, all references
to the "Credit Agreement" shall be to the Credit Agreement as herein
amended. The execution, delivery, and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as a waiver of
any Rights of the Lenders under the Credit Agreement or any Loan
Papers, nor constitute a waiver under the Credit Agreement or any
other provision of the Loan Papers.
5.2 REFERENCE TO MISCELLANEOUS PROVISIONS. This Amendment and the
other documents delivered pursuant to this Amendment are part of the
Loan Papers referred to in the Credit Agreement, and the provisions
relating to Loan Papers set forth in SECTION 11 are incorporated
herein by reference the same as if set forth herein verbatim.
5.3 COSTS AND EXPENSES. Borrower agrees to pay promptly the
reasonable fees and expenses of counsel to Administrative Agent for
services rendered in connection with the preparation, negotiation,
reproduction, execution, and delivery of this Amendment.
5.4 COUNTERPARTS. This Amendment may be executed in a number of
identical counterparts, each of which shall be deemed an original for
all purposes, and all of which constitute, collectively, one
agreement; but, in making proof of this Amendment, it shall not be
necessary to produce or account for more than one such counterpart.
It is not necessary that all parties execute the same counterpart so
long as identical counterparts are executed by Borrower, each Company
named as a signatory in the Guarantor Acknowledgment attached hereto
(collectively, "GUARANTORS"), each Lender, each Agent, and
Administrative Agent.
5.5 THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT AMONG
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENT OF THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
REMAINDER OF PAGE INTENTIONALLY BLANK
SIGNATURE PAGE FOLLOWS
FIRST AMENDMENT
12
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have executed this Amendment in
multiple counterparts as of the respective dates indicated on each signature
page hereof, but effective as of the Amendment Effective Date.
WORLDCOM, INC.,
as Borrower
Date Executed:
By /s/ Scott D. Sullivan
- ------------- ------------------------------------------
(Name) Scott D. Sullivan
--------------------------------------
(Title) Chief Financial Officer
--------------------------------------
NATIONSBANK OF TEXAS, N.A.,
as Administrative Agent and a Lender
Date Executed:
By
- -------------- -----------------------------------------
(Name) Greg Meador
-------------------------------------
(Title) Vice President
-------------------------------------
FIRST AMENDMENT
<PAGE> 14
Signature Page to that certain First Amendment to Amended and Restated
Credit Agreement and Consent to MFS Acquisition dated as of December 20, 1996,
amending that certain Amended and Restated Credit Agreement dated as of June
28, 1996, among WorldCom, Inc., as Borrower, NationsBank of Texas, N.A., as
Administrative Agent, Bank of America Illinois, The Bank of New York, The Bank
of Nova Scotia, Canadian Imperial Bank of Commerce, Chemical Bank, Credit
Lyonnais Cayman New York Branch, First Union National Bank of North Carolina,
The Industrial Bank of Japan, Limited, Atlanta Agency, The First National Bank
of Chicago, The Long-Term Credit Bank of Japan, Limited, New York Branch,
Toronto Dominion (Texas), Inc., and Wachovia Bank of Georgia, N.A., as Agents,
and certain Lenders named therein, including the undersigned.
NAME OF LENDER:
-----------------------------
--------------------------------------------
Date Executed:
- ------------ By
-----------------------------------------
(Name)
--------------------------------------
(Title)
------------------------------------
FIRST AMENDMENT
<PAGE> 15
Signature Page to that certain First Amendment to Amended and Restated
Credit Agreement and Consent to MFS Acquisition dated as of December 20, 1996,
amending that certain Amended and Restated Credit Agreement dated as of June
28, 1996, among WorldCom, Inc., as Borrower, Bank of America Illinois, The Bank
of New York, The Bank of Nova Scotia, Canadian Imperial Bank of Commerce,
Chemical Bank, Credit Lyonnais Cayman New York Branch, First Union National
Bank of North Carolina, The Industrial Bank of Japan, Limited, Atlanta Agency,
The First National Bank of Chicago, The Long-Term Credit Bank of Japan,
Limited, New York Branch, Toronto Dominion (Texas), Inc., and Wachovia Bank of
Georgia, N.A., as Agents, and certain other Lenders named therein, including
the undersigned.
NAME OF LENDER:
------------------------------
---------------------------------------------
Date Executed:
- ------------ By
-------------------------------------------
(Name)
---------------------------------------
(Title)
-------------------------------------
By
-------------------------------------------
(Name)
---------------------------------------
(Title)
-------------------------------------
FIRST AMENDMENT
<PAGE> 16
GUARANTOR ACKNOWLEDGMENT
As an inducement to Administrative Agent, and Lenders to execute and
deliver this First Amendment to Amended and Restated Credit Agreement and
Consent to MFS Acquisition dated as of December 20, 1996, amending that certain
Amended and Restated Credit Agreement dated as of June 28, 1996, among
WorldCom, Inc., as Borrower, NationsBank of Texas, N.A., as Managing Agent and
Administrative Agent, Bank of America Illinois, The Bank of New York, The Bank
of Nova Scotia, Canadian Imperial Bank of Commerce, Chemical Bank, Credit
Lyonnais Cayman New York Branch, First Union National Bank of North Carolina,
The Industrial Bank of Japan, Limited, Atlanta Agency, The First National Bank
of Chicago, The Long-Term Credit Bank of Japan, Limited, New York Branch,
Toronto Dominion (Texas), Inc., and Wachovia Bank of Georgia, N.A., as Agents,
and certain other Lenders named therein (the "AMENDMENT"), the undersigned
hereby consent to the foregoing, and agree that the execution and delivery of
the Amendment shall in no way release, diminish, impair, reduce, or otherwise
affect the respective obligations and liabilities of each of the undersigned
under its Guaranty or Amended and Restated Guaranty (whichever is applicable, a
"GUARANTY") dated June 28, 1996 (or, in the case of each Subsidiary acquired
after June 28, 1996, as set forth in such Guaranty), executed by the
undersigned, in favor of Administrative Agent, Agents, Co-Agents, and Lenders,
which Guaranty shall continue in full force and effect. This consent and
agreement shall be binding upon the undersigned, and the successors and assigns
of each, and shall inure to the benefit of Administrative Agent, and Lenders,
and their respective successors and assigns.
EXECUTED the 20th day of December, 1996, but effective as of the
Amendment Effective Date, with the knowledge and intent that Lenders relied or
shall rely on same in entering into the Amendment.
Biz-Tel Corporation
Com Systems, Inc.
Digital Communications of America, Inc.
Healan Communications, Inc.
IDB WorldCom, Inc.
IDB WorldCom Services, Inc.
IDB Media Group, Inc.
International Computer Systems, Inc.
ITC Tele-Services, Inc.
LDDS Corporation
Military Communications Center, Inc.
Touch 1 Long Distance, Inc.
Transcall America, Inc.
Virginia WorldCom, Inc.
WorldCom Federal Systems, Inc.
WorldCom Network Services, Inc.
WorldCom Caribbean, Inc.
WorldCom International, Inc.
Choice Communications, Inc.
TTI National, Inc.
By /s/ Scott D. Sullivan
------------------------------
(Name) Scott D. Sullivan
--------------------------
(Title) Chief Financial Officer
-------------------------
FIRST AMENDMENT
<PAGE> 1
EXHIBIT 10.7
================================================================================
AMENDED AND RESTATED
TRANSFER AND ADMINISTRATION AGREEMENT
between
ENTERPRISE FUNDING CORPORATION,
as Company
WORLDCOM FUNDING CORPORATION,
as Transferor
WORLDCOM, INC.,
individually and
as Collection Agent
SHEFFIELD RECEIVABLES CORPORATION
and
NATIONSBANK, N.A.
as Agent and Bank Investor
Dated as of December 31, 1996
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
DEFINITIONS
SECTION 1.1. Certain Defined Terms . . . . . . . . . . . . . . . . 1
SECTION 1.2. Other Terms . . . . . . . . . . . . . . . . . . . . 37
SECTION 1.3. Computation of Time Periods . . . . . . . . . . . . 37
ARTICLE II
PURCHASES AND SETTLEMENTS
SECTION 2.1. Facility . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 2.2. Transfers; Certificate;
Eligible Receivables . . . . . . . . . . . . . . . . 39
SECTION 2.3. Selection of Enterprise Tranche
Periods Sheffield Tranche
Periods, Enterprise Tranche
Rates and Sheffield Tranche
Rates . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 2.4. Discount, Fees and Other Costs
and Expenses . . . . . . . . . . . . . . . . . . . . 50
SECTION 2.5. Non-Liquidation Settlement and
Reinvestment Procedures . . . . . . . . . . . . . . 51
SECTION 2.6. Liquidation Settlement Procedures . . . . . . . . . . 52
SECTION 2.7. Fees . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 2.8. Protection of Ownership Interest
of the Company, Sheffield and
Bank Investors . . . . . . . . . . . . . . . . . . . 54
SECTION 2.9. Deemed Collections; Application
of Payments . . . . . . . . . . . . . . . . . . . . 56
SECTION 2.10. Payments and Computations, Etc. . . . . . . . . . . 57
SECTION 2.11. Reports . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 2.12. Collection Account . . . . . . . . . . . . . . . . . 58
SECTION 2.13 Sharing of Payments . . . . . . . . . . . . . . . . 59
SECTION 2.14 Right of Setoff . . . . . . . . . . . . . . . . . . 60
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Representations and Warranties
of the Transferor . . . . . . . . . . . . . . . . . 61
SECTION 3.2. Reaffirmation of Representations
and Warranties of the
Transferor . . . . . . . . . . . . . . . . . . . . 66
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
SECTION 3.3. Representations and Warranties
of WorldCom . . . . . . . . . . . . . . . . . . . . 66
ARTICLE IV
CONDITIONS PRECEDENT
SECTION 4.1. Conditions to Closing. . . . . . . . . . . . . . . . 71
ARTICLE V
COVENANTS
SECTION 5.1. Affirmative Covenants of Transferor . . . . . . . . . 73
SECTION 5.2. Negative Covenants of Transferor . . . . . . . . . . 79
SECTION 5.3. Financial Covenants of WorldCom . . . . . . . . . . 82
SECTION 5.4. Affirmative Covenants of WorldCom . . . . . . . . . 83
SECTION 5.5. Negative Covenants of WorldCom . . . . . . . . . . . 85
ARTICLE VI
ADMINISTRATION AND COLLECTIONS
SECTION 6.1. Appointment of Collection Agent . . . . . . . . . . . 87
SECTION 6.2. Duties of Collection Agent . . . . . . . . . . . . . 87
SECTION 6.3. Rights After Designation of New
Collection Agent . . . . . . . . . . . . . . . . . . 90
SECTION 6.4. Collection Agent Default . . . . . . . . . . . . . . 91
SECTION 6.5. Responsibilities of the Transferor . . . . . . . . . 92
ARTICLE VII
TERMINATION EVENTS
SECTION 7.1. Termination Events . . . . . . . . . . . . . . . . . 93
SECTION 7.2. Termination . . . . . . . . . . . . . . . . . . . . . 96
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE VIII
INDEMNIFICATION; EXPENSES; RELATED MATTERS
SECTION 8.1. Indemnities by the Transferor . . . . . . . . . . . . 98
SECTION 8.2. Indemnity for Taxes,
Reserves and Expenses . . . . . . . . . . . . . . . 102
SECTION 8.3. Taxes . . . . . . . . . . . . . . . . . . . . . . . . 105
SECTION 8.4. Other Costs, Expenses and Related
Matters . . . . . . . . . . . . . . . . . . . . . . 106
SECTION 8.5. Reconveyance Under Certain
Circumstances . . . . . . . . . . . . . . . . . . . 107
ARTICLE IX
THE AGENT; THE ENTERPRISE AGENT; BANK COMMITMENT
SECTION 9.1. Authorization and Action . . . . . . . . . . . . . . 108
SECTION 9.2. Agent's Reliance, Etc. . . . . . . . . . . . . . . . 111
SECTION 9.3. Credit Decision . . . . . . . . . . . . . . . . . . . 112
SECTION 9.4. Indemnification of the Enterprise Agent . . . . . . . 112
SECTION 9.5. Successor Agent and Enterprise Agent . . . . . . . . 113
SECTION 9.6. Payments by the Agent and Enterprise
Agent . . . . . . . . . . . . . . . . . . . . . . . 114
SECTION 9.7. Bank Commitment; Assignment to Bank Investors . . . . 115
ARTICLE X
MISCELLANEOUS
SECTION 10.1. Term of Agreement . . . . . . . . . . . . . . . . . 121
SECTION 10.2. Waivers; Amendments . . . . . . . . . . . . . . . . 121
SECTION 10.3. Notices . . . . . . . . . . . . . . . . . . . . . . 122
SECTION 10.4. Governing Law; Submission to
Jurisdiction; Integration . . . . . . . . . . . . . 124
SECTION 10.5. Severability; Counterparts . . . . . . . . . . . . . 125
SECTION 10.6. Successors and Assigns . . . . . . . . . . . . . . . 125
SECTION 10.7. Waiver of Confidentiality . . . . . . . . . . . . . 126
SECTION 10.8. Confidentiality Agreement . . . . . . . . . . . . . 126
SECTION 10.9. No Bankruptcy Petition Against the
Company or Sheffield . . . . . . . . . . . . . . . 126
SECTION 10.10. No Recourse Against Stockholders,
Officers and Directors . . . . . . . . . . . . . . 127
SECTION 10.11. Characterization of the Transactions
Contemplated by the Agreement . . . . . . . . . . . 127
</TABLE>
iii
<PAGE> 5
EXHIBITS
EXHIBIT A Forms of Contracts
EXHIBIT B Credit and Collection Policies and
Practices
EXHIBIT C List of Lock-Box Banks and Accounts
EXHIBIT D Form of Lock-Box Agreement
EXHIBIT E Form of Investor Report
EXHIBIT F Form of Transfer Certificate
EXHIBIT G Form of Assignment and Assumption
Agreement
EXHIBIT H List of Actions and Suits
EXHIBIT I Location of Records
EXHIBIT J List of Subsidiaries, Divisions
and Tradenames
EXHIBIT K Forms of Opinions of Counsel for
the Transferor and WorldCom
EXHIBIT L Forms of Secretary's Certificate
for the Transferor, WorldCom
and Permitted Originators
EXHIBIT M Form of Company Certificate
EXHIBIT N Form of Weekly Report
EXHIBIT O Section 5.3 Definitions
iv
<PAGE> 6
AMENDED AND RESTATED
TRANSFER AND ADMINISTRATION AGREEMENT
THIS AMENDED AND RESTATED TRANSFER AND ADMINISTRATION AGREEMENT (as
amended, supplemented or otherwise modified and in effect from time to time,
this "Agreement"), dated as of December 31, 1996, by and among WORLDCOM FUNDING
CORPORATION, a Delaware corporation, as transferor (in such capacity, the
"Transferor"), WORLDCOM, INC., a Georgia corporation, individually and as
collection agent (in such capacity, the "Collection Agent"), ENTERPRISE FUNDING
CORPORATION, a Delaware corporation (the "Company"), SHEFFIELD RECEIVABLES
CORPORATION, a Delaware corporation ("Sheffield") and NATIONSBANK, N.A., a
national banking association ("NationsBank"), as agent for the Company,
Sheffield and the Bank Investors (in such capacity, the "Agent") and as a Bank
Investor.
PRELIMINARY STATEMENTS
WHEREAS, the Transferor, the Collection Agent, the Company and the
Agent entered into a Transfer and Administration Agreement dated as of October
25, 1996 (the "Existing Agreement");
WHEREAS, the Transferor has requested that the Existing Agreement be
amended and restated, among other things, to provide for the addition of
Sheffield as a purchaser and to provide for an increase to the aggregate
facility limit;
WHEREAS, the Transferor may desire to convey, transfer and assign, from
time to time, undivided percentage interests in certain accounts receivable,
and the Company may desire to, and the Bank Investors and Sheffield, if
requested, shall, accept such conveyance, transfer and assignment of such
undivided percentage interests, subject to the terms and conditions of this
Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
<PAGE> 7
ARTICLE I
DEFINITIONS
SECTION 1.1. Certain Defined Terms. As used in this
Agreement, the following terms shall have the following meanings:
"Administrative Agent" means NationsBank, N.A., as administrative agent
for the Company.
"Adverse Claim" means a lien, security interest, charge or encumbrance,
or other right or claim in, of or on any Person's assets or properties in favor
of any other Person (including any UCC financing statement or any similar
instrument filed against such Person's assets or properties).
"Affected Assets" means, collectively, the Receivables and the Related
Security, Collections and Proceeds relating thereto.
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. A Person shall be deemed to control another
Person if the controlling Person possesses, directly or indirectly, the power
to direct or cause the direction of the management or policies of the
controlled Person, whether through ownership of voting stock, by contract or
otherwise.
"Agent" means NationsBank, N.A., in its capacity as agent for the
Company, Sheffield and the Bank Investors, and any successor thereto appointed
pursuant to Article IX.
"Aggregate Unpaids" means, at any time, an amount equal to the sum of
(i) the aggregate accrued and unpaid Enterprise Discount and Sheffield Discount
with respect to all Enterprise Tranche Periods and Sheffield Tranche Periods,
as applicable, at such time, (ii) the Enterprise Net Investment and Sheffield
Net Investment, as applicable, at such time, and (iii) all other amounts owed
(whether due or accrued) hereunder by the Transferor
2
<PAGE> 8
to the Company, Sheffield, the Bank Investors, the Enterprise Agent and the
Agent at such time.
"Assignment Amount" with respect to a Bank Investor means, at any time,
an amount equal to the lesser of (i) such Bank Investor's Pro Rata Share of the
Enterprise Net Investment at such time and (ii) such Bank Investor's unused
Commitment.
"Assignment and Assumption Agreement" means an Assignment and
Assumption Agreement substantially in the form of Exhibit G attached hereto.
"Bank Investor Commitment Fee" means the commitment fee payable to the
Bank Investors in an amount agreed upon from time to time by the Transferor,
WorldCom and NationsBank, N.A.
"Bank Investors" means NationsBank, N.A. and its successors and
assigns.
"Bankruptcy Code" means the United States Bankruptcy Code (11 U.S.C. et
seq), as amended.
"Base Rate" or "BR" means, a rate per annum equal to the greater of (i)
the prime rate of interest announced by the Agent from time to time, changing
when and as said prime rate changes (such rate not necessarily being the lowest
or best rate charged by the Agent) and (ii) the sum of (a) 1.50% and (b) the
rate equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers, as published for such day (or, if such day is not a Business
Day, for the next preceding Business Day) by the Federal Reserve Bank of New
York, or, if such rate is not so published for any day that is a Business Day,
the average of the quotations for such day for such transactions received by
the Agent from three Federal funds brokers of recognized standing selected by
it.
"Benefit Plan" means any employee benefit plan as defined in Section
3(3) of ERISA in respect of which the Transferor, WorldCom or any ERISA
Affiliate of the Transferor or WorldCom is, or at any time during the
immediately preceding six years was, an "employer" as defined in Section 3(5)
of ERISA.
3
<PAGE> 9
"Billing Adjustments" means, for any period, an amount equal to the
aggregate actual billing adjustments or credits made by the Transferor or the
Collection Agent with respect to Receivables during such period.
"Billing Adjustments Ratio" means, the ratio (expressed as a
percentage) computed as of the last day of each calendar month by dividing (i)
the amount of Billing Adjustments for such calendar month by (ii) credit sales
on all Receivables for the calendar month immediately preceding the then
current calendar month.
"Business Day" means any day excluding Saturday, Sunday and any day on
which banks in New York, New York, Charlotte, North Carolina or Jackson,
Mississippi are authorized or required by law to close, and, when used with
respect to the determination of any Eurodollar Rate or any notice with respect
thereto, any such day which is also a day for trading by and between banks in
United States dollar deposits in the London interbank market.
"Capitalized Lease" of a Person means any lease of property by such
Person as lessee which would be capitalized on a balance sheet of such Person
prepared in accordance with GAAP.
"Certificate" means the certificate issued to the Agent for the benefit
of the Company, Sheffield and the Bank Investors pursuant to Section 2.2(d)
hereof.
"Closing Date" means December 31, 1996.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral Agent" means NationsBank, N.A., as collateral agent for any
Liquidity Provider, any Credit Support Provider, the holders of Commercial
Paper issued by the Company and certain other parties.
"Collection Account" means the account, established by the Agent, for
the benefit of the Company, Sheffield and the Bank Investors, pursuant to
Section 2.12.
4
<PAGE> 10
"Collection Agent" means at any time the Person then authorized
pursuant to Section 6.1 to service, administer and collect Receivables.
"Collection Agent Default" has the meaning specified in Section 6.4
hereof.
"Collections" means, with respect to any Receivable, all cash
collections and other cash proceeds of such Receivable, including, without
limitation, all Finance Charges, if any, and cash proceeds of Related Security
with respect to such Receivable.
"Commercial Paper" means the short- term promissory notes of the
Company or Sheffield issued by the Company or Sheffield, as applicable, in the
commercial paper market.
"Commitment" means for each Bank Investor, the commitment of such Bank
Investor to make acquisitions from the Transferor or the Company in accordance
herewith in an amount not to exceed the dollar amount set forth opposite such
Bank Investor's signature on the signature page hereto under the heading
"Commitment."
"Commitment Termination Date" means October 24, 1997, or such later
date to which the Commitment Termination Date may be extended by Transferor,
the Enterprise Agent and the Bank Investors not later than sixty (60) days
prior to the then current Commitment Termination Date.
"Company" means Enterprise Funding Corporation, and its successors and
assigns.
"Concentration Factor" means for any Designated Obligor on any date of
determination (a) 3% of the Eligible Receivables on such date; provided
however, that with respect to any Designated Obligor and its affiliates whose
long term unsecured debt obligations are rated at least "A1" by Moody's and at
least "A+" by Standard & Poor's and with respect to which rating neither
Moody's nor Standard & Poor's shall have made a public announcement
anticipating a downgrading of such Designated Obligor's long term unsecured
debt obligations to a rating less than the aforementioned ratings ("A1/A+ Rated
Obligors") 5% of the Eligible Receivables on such date,
5
<PAGE> 11
or (b) such other amount determined by the Agent in the reasonable exercise of
its good faith judgment and disclosed in a written notice delivered to the
Transferor.
"Contract" means an agreement or invoice in substantially the form of
one of the forms attached hereto as Exhibit A or otherwise approved by the
Company and Sheffield, pursuant to or under which an Obligor shall be obligated
to pay for merchandise purchased or services rendered.
"Credit Agreement" means the Amended and Restated Credit Agreement
dated as of June 28, 1996 among WorldCom, Inc., as borrower, NationsBank of
Texas, N.A., as managing agent and administrative agent, the agents named
therein and the lenders named therein, as the same may be amended from time to
time.
"Credit and Collection Policy" means the Transferor's credit and
collection policy or policies and practices, relating to Contracts and
Receivables existing on the date hereof and referred to in Exhibit B attached
hereto, as modified from time to time in compliance with Section 5.2(c).
"Credit Support Agreement" means any agreement between the Company or
Sheffield and any Credit Support Provider evidencing the obligation of such
Credit Support Provider to provide credit support to the Company or Sheffield
in connection with the issuance by the Company or Sheffield, as applicable, of
Commercial Paper.
"Credit Support Provider" means the Person or Persons who provides
credit support to the Company or Sheffield in connection with the issuance by
the Company or Sheffield, as applicable, of Commercial Paper.
"Deemed Collections" means any Collections on any Receivable deemed to
have been received pursuant to Section 2.9(a) or (b) hereof.
"Default Ratio" means the ratio (expressed as a percentage) computed as
of the last day of each calendar month by dividing (i) the aggregate
Outstanding Balance of all Defaulted Receivables as of such date by (ii) the
aggregate Outstanding Balance of all Receivables as of such date.
6
<PAGE> 12
"Defaulted Receivable" means a Receivable: (i) as to which any
payment, or part thereof, remains unpaid for ninety-one (91) days or more from
the original due date for such Receivable; (ii) as to which an Event of
Bankruptcy has occurred and is continuing with respect to the Obligor thereof;
(iii) which has been identified by the Transferor, WorldCom or the Collection
Agent as uncollectible; or (iv) which, consistent with the Credit and
Collection Policy, should be written off as uncollectible.
"Delinquency Ratio" means the ratio (expressed as a percentage)
computed as of the last day of each calendar month by dividing (i) the
aggregate Outstanding Balance of all Delinquent Receivables as of such date by
(ii) the aggregate Outstanding Balance of all Receivables (other than Defaulted
Receivables) as of such date.
"Delinquent Receivable" means a Receivable: (i) as to which any
payment, or part thereof, remains unpaid for more than thirty (30) days from
the original due date for such Receivable but less than ninety-one (91) days
from the original due date for such Receivable and (ii) which is not a
Defaulted Receivable.
"Designated Obligor" means, at any time, each Obligor, provided,
however, that any Obligor shall cease to be a Designated Obligor upon notice to
the Transferor from the Enterprise Agent or Sheffield, delivered at any time.
"Eligible Investments" means any of the following (a) negotiable
instruments or securities represented by instruments in bearer or registered or
in book-entry form which evidence (i) obligations fully guaranteed by the
United States of America; (ii) time deposits in, or bankers acceptances issued
by, any depositary institution or trust company incorporated under the laws of
the United States of America or any state thereof and subject to supervision
and examination by Federal or state banking or depositary institution
authorities; provided, however, that at the time of investment or contractual
commitment to invest therein, the certificates of deposit or short-term
deposits, if any, or long-term unsecured debt obligations (other than such
obligation whose rating is based on collateral or on the credit of a Person
other than such institution or trust company)
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<PAGE> 13
of such depositary institution or trust company shall have a credit rating from
Moody's and S&P of at least "P-1" and "A-1", respectively, in the case of the
certificates of deposit or short-term deposits, or a rating not lower than one
of the two highest investment categories granted by Moody's and by S&P; (iii)
certificates of deposit having, at the time of investment or contractual
commitment to invest therein, a rating from Moody's and S&P of at least "P-1"
and "A-1", respectively; or (iv) investments in money market funds rated in the
highest investment category or otherwise approved in writing by the applicable
rating agencies; (b) demand deposits in any depositary institution or trust
company referred to in (a)(ii) above; (c) commercial paper (having original or
remaining maturities of no more than 30 days) having, at the time of investment
or contractual commitment to invest therein, a credit rating from Moody's and
S&P of at least "P-1" and "A-1", respectively; (d) Eurodollar time deposits
having a credit rating from Moody's and S&P of at least "P-1" and "A-1",
respectively; and (e) repurchase agreements involving any of the Eligible
Investments described in clauses (a)(i), (a)(iii) and (d) hereof so long as the
other party to the repurchase agreement has at the time of investment therein,
a rating from Moody's and S&P of at least "P-1" and "A-1", respectively.
"Eligible Receivable" means, at any time, any Receivable:
(i)(A) which has been originated by WorldCom or a Permitted
Originator, (B) if originated by a Permitted Originator, which has been
sold to WorldCom pursuant to (and in accordance with) a valid purchase and
sale agreement, (C) which has been sold by WorldCom to the Transferor
pursuant to (and in accordance with) the Receivables Purchase Agreement and
(D) as to which the Transferor has good title thereto, free and clear of
all Adverse Claims;
(ii) which (together with the Collections and Related Security
related thereto) has been the subject of either a valid transfer and
assignment from the Transferor to
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<PAGE> 14
the Agent, on behalf of the Company, Sheffield and the Bank Investors, of
all of the Transferor's right, title and interest therein or the grant of a
first priority perfected security interest therein (and in the Collections
and Related Security related thereto), effective until the termination of
this Agreement;
(iii) the Obligor of which is a United States resident, is a
Designated Obligor at the time of the initial creation of an interest
therein hereunder and is not an Affiliate of any of the parties hereto;
(iv) which is not a Defaulted Receivable at the time of the
initial creation of an interest therein hereunder;
(v) which, (A) except with respect to any Private Line Receivable,
arises pursuant to a Contract with respect to which each of WorldCom or the
applicable Permitted Originator and the Transferor has performed all
obligations required to be performed by it thereunder, including without
limitation shipment of the merchandise and/or the performance of the
services purchased thereunder; (B) has been billed; and (C) according to
the Contract related thereto, is required to be paid in full (1) in the
case of a Switched Service Receivable, within thirty (30) days, (2) in the
case of a Private Line Receivable, within forty (40) days of the original
billing date therefor and (3) in the case of a Rebiller, within forty-five
(45) days of the original billing date therefor;
(vi) which is an "eligible asset" as defined in Rule 3a-7 under
the Investment Company Act of 1940, as amended;
(vii) a purchase of which with the proceeds of Commercial Paper
would constitute a "current transaction" within the meaning of Section
3(a)(3) of the Securities Act of 1933, as amended;
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<PAGE> 15
(viii) which is an "account" within the meaning of Article 9 of
the UCC of all applicable jurisdictions;
(ix) which is denominated and payable only in United States
dollars in the United States;
(x) which, arises under a Contract that together with the
Receivable related thereto, is in full force and effect and constitutes the
legal, valid and binding obligation of the related Obligor enforceable
against such Obligor in accordance with its terms and is not subject to any
litigation, dispute, offset, counterclaim or other defense;
(xi) which, together with the Contract related thereto, does not
contravene in any material respect any laws, rules or regulations
applicable thereto (including, without limitation, laws, rules and
regulations relating to truth in lending, fair credit billing, fair credit
reporting, equal credit opportunity, fair debt collection practices and
privacy) and with respect to which no part of the Contract related thereto
is in violation of any such law, rule or regulation in any material
respect;
(xii) which (A) satisfies all applicable requirements of the
Credit and Collection Policy, (B) is assignable without the consent of, or
notice to, the Obligor thereunder, and (C) complies with such other
criteria and requirements as the Agent may from time to time specify to the
Transferor following five (5) days' notice;
(xiii) which was generated in the ordinary course of business of
WorldCom or a Permitted Originator;
(xiv) the Obligor of which has been directed to make all payments
to a specified account of the Collection Agent with
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<PAGE> 16
respect to which there shall be a Lock-Box Agreement in effect;
(xv) as to which neither the Enterprise Agent nor Sheffield has
notified the Transferor that the Enterprise Agent or Sheffield, as
applicable, has determined, in its sole discretion, based on non- arbitrary
credit considerations with respect to the Obligor, that such Receivable (or
class of Receivables) is not acceptable for purchase hereunder, which
notice shall set forth the reasons for such determination;
(xvi) the assignment of which by a Permitted Originator to
WorldCom (if applicable) and by WorldCom to the Transferor under the
Receivables Purchase Agreement and hereunder by the Transferor to the Agent
on behalf of Enterprise, Sheffield and the Bank Investors does not violate,
conflict or contravene any applicable laws, rules, regulations, orders or
writs or any contractual or other restriction, limitation or encumbrance;
(xvii) which has not been compromised, adjusted or modified
(including by the extension of time for payment or the granting of any
discounts, allowances or credits); provided, however, that only such
portion of such Receivable that is the subject of such compromise,
adjustment or modification shall be deemed to be ineligible pursuant to the
terms of this clause (xviii);
(xviii) if the Obligor of such Receivable is a government agency
or subdivision, the Outstanding Balance of which, when added to the
aggregate Outstanding Balance of all Receivables the Obligor of which is a
government agency or subdivision, does not exceed 5% of the aggregate
Outstanding Balance of all Receivables;
(xix) if such Receivable is a Private Line Receivable, (A) the
Contract related thereto requires the Obligor to give
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WorldCom or the Permitted Originator at least thirty (30) days' notice of
cancellation and (B) the related Obligor has not provided notice to cancel
the related Contract; and
(xx) if such Receivable is a Private Line Receivable, the
Outstanding Balance thereof, when combined with the aggregate Outstanding
Balance of all other Private Line Receivables, does not exceed 20% of the
aggregate Outstanding Balance of all Receivables.
"Enterprise Agent" means NationsBank, N.A., in its capacity as agent
for the Company and the Bank Investors, and any successor thereto appointed
pursuant to Article IX.
"Enterprise Billing Adjustments Reserve" means, at any time, an amount
equal to the product of (i) the greater of (A) 5% and (B) 1.5 multiplied by the
highest Billing Adjustment Ratio over the last twelve (12) months and (ii) the
sum of the Enterprise Net Investment, the Enterprise Discount Reserve and the
Enterprise Servicing Fee Reserve at such time.
Notwithstanding the foregoing, the Enterprise Billing Adjustments Reserve shall
at all times be at least equal to $10,000,000.
"Enterprise BR Tranche" means an Enterprise Tranche as to which
Enterprise Discount is calculated at the Base Rate.
"Enterprise BR Tranche Period" means, with respect to an Enterprise BR
Tranche, either (i) prior to the Enterprise Termination Date, a period of up
to 30 days requested by the Transferor and agreed to by the Company,
NationsBank on behalf of any Liquidity Provider, or the Enterprise Agent, as
the case may be, commencing on a Business Day requested by the Transferor and
agreed to by the Company, NationsBank or the Enterprise Agent, as the case may
be, or (ii) after the Enterprise Termination Date, a period of one day. If
such Enterprise BR Tranche Period would end on a day which is not a Business
Day, such Enterprise BR Tranche Period shall end on the next succeeding
Business Day.
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"Enterprise CP Rate" means, with respect to any Enterprise CP Tranche
Period, the rate equivalent to the rate (or if more than one rate, the weighted
average of the rates) at which Commercial Paper issued by the Company having a
term equal to such Enterprise CP Tranche Period may be sold by any placement
agent or commercial paper dealer selected by the Company, provided, however,
that if the rate (or rates) as agreed between any such agent or dealer and the
Company is a discount rate, then the rate (or if more than one rate, the
weighted average of the rates) resulting from the Company's converting such
discount rate (or rates) to an interest-bearing equivalent rate per annum.
"Enterprise CP Tranche" means an Enterprise Tranche as to which
Enterprise Discount is calculated at an Enterprise CP Rate.
"Enterprise CP Tranche Period" means, with respect to an Enterprise CP
Tranche, a period of days not to exceed ninety (90) days commencing on a
Business Day requested by the Transferor and agreed to by the Company pursuant
to Section 2.3. If an Enterprise CP Tranche Period would end on a day which is
not a Business Day, such Enterprise CP Tranche Period shall end on the next
succeeding Business Day.
"Enterprise Dealer Fee" means the fee payable by the Transferor to the
Agent, pursuant to Section 2.4 hereof, the terms of which are set forth in the
Enterprise Fee Letter.
"Enterprise Discount" means, with respect to any Enterprise Tranche
Period:
(TR x TNI x AD)
360
Where:
TR = the Enterprise Tranche Rate applicable
to such Enterprise Tranche Period.
TNI = the portion of the Enterprise Net
Investment allocated to such
Enterprise Tranche Period.
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<PAGE> 19
AD = the actual number of days during such
Enterprise Tranche Period.
provided, however, that no provision of this Agreement shall require the
payment or permit the collection of Enterprise Discount in excess of the
maximum amount permitted by applicable law; and provided, further, that
Enterprise Discount shall not be considered paid by any distribution if at any
time such distribution is rescinded or must be returned for any reason.
"Enterprise Discount Reserve" means, at any time, an amount equal to:
TD + LY
Where:
TD = the sum of the unpaid Enterprise
Discount for all Enterprise Tranche Periods.
LY = the Enterprise Liquidation Yield.
"Enterprise Early Collection Fee" means, for any Enterprise Tranche
Period (such Enterprise Tranche Period to be determined without regard to the
last sentence in Section 2.3(a) hereof) during which the portion of the
Enterprise Net Investment that was allocated to such Enterprise Tranche Period
is reduced for any reason whatsoever, the excess, if any, of (i) the additional
Enterprise Discount that would have accrued during such Enterprise Tranche
Period if such reductions had not occurred, minus (ii) the income, if any,
received by the recipient of such reductions from investing the proceeds of
such reductions.
"Enterprise Eurodollar Tranche" means an Enterprise Tranche as to which
Enterprise Discount is calculated at the Eurodollar Rate.
"Enterprise Eurodollar Tranche Period" means, with respect to an
Enterprise Eurodollar Tranche, prior to the Enterprise Termination Date, a
period of up to one month requested by the Transferor and agreed to by the
Company, NationsBank, on behalf of Enterprise's Liquidity Provider, or the
Enterprise Agent, as the case may be, commencing on a Business Day requested by
the Transferor
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<PAGE> 20
and agreed to by the Company, NationsBank or the Enterprise Agent, as
applicable; provided, however, that if such Enterprise Eurodollar Tranche
Period would expire on a day which is not a Business Day, such Enterprise
Eurodollar Tranche Period shall expire on the next succeeding Business Day;
provided, further, that if such Enterprise Eurodollar Tranche Period would
expire on (a) a day which is not a Business Day but is a day of the month after
which no further Business Day occurs in such month, such Enterprise Eurodollar
Tranche Period shall expire on the next preceding Business Day or (b) a
Business Day for which there is no numerically corresponding day in the
applicable subsequent calendar month, such Enterprise Eurodollar Tranche Period
shall expire on the last Business Day of such month.
"Enterprise Facility Fee" means the fee payable by the Transferor to
the Company pursuant to Section 2.7(a) hereof, the terms of which are set forth
in the Enterprise Fee Letter.
"Enterprise Fee Letter" means the letter agreement dated October 25,
1996 between the Transferor and the Company with respect to the fees to be paid
by the Transferor hereunder, as amended, modified or supplemented from time to
time.
"Enterprise Liquidation Yield" means, at any time, an amount equal to:
(RVF x LBR x NI) x (EMP x 1.5)
-----------
360
Where:
RVF = the Enterprise Rate Variance Factor at such time;
LBR = the Base Rate at such time which is applicable to the liquidation
period after a Termination Event;
NI = the Enterprise Net Investment at such time; and
EMP = the Estimated Maturity Period of the Receivables.
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"Enterprise Loss Reserve" means, on any day, an amount equal to:
LP x (NI + DR + SFR)
Where:
LP = the Loss Percentage at the close of business of the Collection Agent on
such day;
NI = the Enterprise Net Investment at the close of business of the
Collection Agent on such day;
DR = the Enterprise Discount Reserve at the close of business of the
Collection Agent on such day; and
SFR = the Enterprise Servicing Fee Reserve at the close of business of the
Collection Agent on such day.
Notwithstanding the foregoing, the Enterprise Loss Reserve shall at all times
be at least equal to $30,000,000.
"Enterprise Maximum Net Investment" means $306,000,000; provided that
such amount may not at any time exceed the aggregate Commitments at any time in
effect; provided, further, that from and after the Enterprise Termination Date,
the Enterprise Maximum Net Investment shall at all times equal the Enterprise
Net Investment.
"Enterprise Net Investment" means the sum of the cash amounts paid to
the Transferor by Enterprise or the Bank Investors for each Incremental
Transfer less the aggregate amount of Collections received and applied by the
Agent to reduce such Enterprise Net Investment pursuant to Section 2.6 or 2.9
hereof; provided that the Enterprise Net Investment shall be restored and
reinstated in the amount of any Collections so received and applied if at any
time the distribution of such Collections is rescinded or must otherwise be
returned for any reason; and provided further that the Enterprise Net
Investment may be increased by the amount described in Section 9.7(d) as
described therein.
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<PAGE> 22
"Enterprise Percentage Factor" means the fraction (expressed as a
percentage) computed at any time of determination as follows:
NI + LR + BAR + DR + SFR
-------------------------
NRB
Where:
NI = the Enterprise Net Investment at the time of such computation;
LR = the Enterprise Loss Reserve at the time of such computation;
BAR = the Enterprise Billing Adjustment Reserve at the time of such
computation;
DR = the Enterprise Discount Reserve at the time of such computation;
SFR = the Enterprise Servicing Fee Reserve at the time of such computation;
and
NRB = the Net Receivables Balance at the time of such computation.
The Enterprise Percentage Factor shall be calculated by the Collection Agent
from time to time as described in Section 2.2(e).
"Enterprise Program Fee" means the fee payable by the Transferor to the
Company pursuant to Section 2.7 hereof, the terms of which are set forth in the
Enterprise Fee Letter.
"Enterprise Rate Variance Factor" means 1.15 or such other number
computed from time to time in good faith by the Enterprise Agent and set forth
in a written notice by the Enterprise Agent to the Transferor and the
Collection Agent.
"Enterprise Servicing Fee Reserve" means at any time an amount equal to
the product of (i) the aggregate Outstanding Balance of all Receivables at such
time, (ii) 0.5%, (iii) a fraction having, as the numerator, the sum of (a) 1.5
times the Estimated Maturity Period plus (b)
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<PAGE> 23
30 and, as the denominator, 360 and (iv) a fraction the numerator of which is
the Enterprise Net Investment and the denominator of which is the Net
Investment.
"Enterprise Termination Date" means the earliest of (i) the Business
Day designated by the Transferor to the Company as the "Enterprise Termination
Date" at any time following 60 days' written notice to the Company, (ii) the
date of termination of the commitment of any Liquidity Provider under any
Liquidity Provider Agreement, but only with respect to the Company, (iii) the
date of termination of the commitment of any Credit Support Provider under any
Credit Support Agreement, but only with respect to the Company (iv) the day
upon which the Termination Date is declared or automatically occurs pursuant to
Section 7.2(a) hereof, (v) two (2) Business Days prior to the Commitment
Termination Date, (vi) the day on which a Reinvestment Termination Date shall
occur, (vii) the Purchase Termination Date, (viii) October 24, 1997, (ix) on or
after the occurrence of a Sheffield Termination Date, the Business Day
designated by the Enterprise Agent, at its option, as the Enterprise
Termination Date or (x) the Business Day designated as the Enterprise
Termination Date by the Enterprise Agent on or after the day on which the
Commercial Paper issued by the Company shall not be rated at least "A-2" by
Standard & Poor's and at least "P-2" by Moody's.
"Enterprise Tranche" means a portion of the Enterprise Net Investment
allocated to an Enterprise Tranche Period pursuant to Section 2.3 hereof.
"Enterprise Tranche Period" means an Enterprise CP Tranche Period, an
Enterprise BR Tranche Period or an Enterprise Eurodollar Tranche Period.
"Enterprise Tranche Rate" means the Enterprise CP Rate, the Base Rate
or the Eurodollar Rate.
"ERISA" means the U.S. Employee Retirement Income Security Act of 1974,
as amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"ERISA Affiliate" means, with respect to any Person, (i) any
corporation which is a member of the same controlled group of corporations
(within the meaning of
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Section 414(b) of the Code (as in effect from time to time, the "Code")) as
such Person; (ii) a trade or business (whether or not incorporated) under
common control (within the meaning of Section 414(c) of the Code) with such
Person; or (iii) a member of the same affiliated service group (within the
meaning of Section 414(n) of the Code) as such Person, any corporation
described in clause (i) above or any trade or business described in clause (ii)
above.
"Estimated Maturity Period" means, at any time, the period, rounded
upward to the nearest whole number of days, equal to the weighted average
number of days until due of the Receivables as calculated by the Collection
Agent in good faith and set forth in the most recent Investor Report, such
calculation to be based on the assumptions that (a) each Receivable within a
particular aging category, (as set forth in the Investor Report) will be paid
on the last day of such aging category and (b) the last day of the last such
aging category coincides with the last date on which any Outstanding Balance of
any Receivables would be written off as uncollectible or charged against any
applicable reserve or similar account in accordance with the objective
requirements of the Credit and Collection Policy and WorldCom's normal
accounting practices applied on a basis consistent with those reflected in
WorldCom's financial statements; provided, however, that if the Agent, the
Enterprise Agent, the Company, Sheffield or any of the Bank Investors shall
reasonably disagree with any such calculation, the Agent may recalculate the
Estimated Maturity Period, and such recalculation, in the absence of manifest
error, shall be conclusive.
"Eurodollar Rate" means, with respect to any Enterprise Eurodollar
Tranche Period or Sheffield Eurodollar Tranche Period, a rate which is 0.625%
in excess of a rate per annum equal to the sum (rounded upwards, if necessary,
to the next higher 1/100 of 1%) of (A) the rate obtained by dividing (i) the
applicable LIBOR Rate by (ii) a percentage equal to 100% minus the reserve
percentage used for determining the maximum reserve requirement as specified in
Regulation D (including, without limitation, any marginal, emergency,
supplemental, special or other reserves) that is applicable to the Agent during
such Enterprise Eurodollar Tranche Period or Sheffield Eurodollar Tranche
Period in respect of
19
<PAGE> 25
eurocurrency or eurodollar funding, lending or liabilities (or, if more than
one percentage shall be so applicable, the daily average of such percentage for
those days in such Enterprise Eurodollar Tranche Period or Sheffield Eurodollar
Tranche Period during which any such percentage shall be applicable) plus (B)
the then daily net annual assessment rate (rounded upwards, if necessary, to
the nearest 1/100 of 1%) as estimated by the Agent for determining the current
annual assessment payable by the Agent to the Federal Deposit Insurance
Corporation in respect of eurocurrency or eurodollar funding, lending or
liabilities.
"Event of Bankruptcy" means, with respect to any Person, (i) that such
Person (a) shall generally not pay its debts as such debts become due or (b)
shall admit in writing its inability to pay its debts generally or (c) shall
make a general assignment for the benefit of creditors; (ii) any proceeding
shall be instituted by or against such Person seeking to adjudicate it as
bankrupt or insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief or composition of it or its debts
under any law relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment of a
receiver, trustee or other similar official for it or any substantial part of
its property or (iii) if such Person is a corporation, such Person or any
Subsidiary shall take any corporate action to authorize any of the actions set
forth in the preceding clauses (i) or (ii).
"Excluded Taxes" shall have the meaning specified in Section 8.3
hereof.
"Finance Charges" means, with respect to a Contract, any finance,
interest, late or similar charges owing by an Obligor pursuant to such
Contract.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
accounting profession, which are in effect as of the date of this Agreement.
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"Guaranty" means, with respect to any Person any agreement by which
such Person assumes, guarantees, endorses, contingently agrees to purchase or
provide funds for the payment of, or otherwise becomes liable upon, the
obligation of any other Person, or agrees to maintain the net worth or working
capital or other financial condition of any other Person or otherwise assures
any other creditor of such other Person against loss, including, without
limitation, any comfort letter, operating agreement or take-or-pay contract and
shall include, without limitation, the contingent liability of such Person in
connection with any application for a letter of credit.
"Incremental Transfer" means a Transfer which is made pursuant to
Section 2.2(a) hereof.
"Indebtedness" means, with respect to any Person such Person's (i)
obligations for borrowed money, (ii) obligations representing the deferred
purchase price of property other than accounts payable arising in the ordinary
course of such Person's business on terms customary in the trade, (iii)
obligations, whether or not assumed, secured by liens or payable out of the
proceeds or production from property now or hereafter owned or acquired by such
Person, (iv) obligations which are evidenced by notes, acceptances, or other
instruments, (v) Capitalized Lease obligations and (vi) obligations for which
such Person is obligated pursuant to a Guaranty.
"Indemnified Amounts" has the meaning specified in Section 8.1 hereof.
"Indemnified Parties" has the meaning specified in Section 8.1 hereof.
"Interest Component" means (i) with respect to any Commercial Paper
issued on an interest-bearing basis, the interest payable on such Commercial
Paper at its maturity (including any dealer commissions) and (ii) with respect
to any Commercial Paper issued on a discount basis, the portion of the face
amount of such Commercial Paper representing the discount incurred in respect
thereof (including any dealer commissions).
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"Investor Report" means a report, in substantially the form attached
hereto as Exhibit E or in such other form as is mutually agreed to by the
Transferor, the Enterprise Agent and Sheffield, furnished by the Collection
Agent pursuant to Section 2.11 hereof.
"Law" means any law (including common law), constitution, statute,
treaty, regulation, rule, ordinance, order, injunction, writ, decree or award
of any Official Body.
"LIBOR Rate" means, with respect to any Enterprise Eurodollar Tranche
Period or Sheffield Eurodollar Tranche Period, the rate at which deposits in
dollars are offered to the Agent, in the London interbank market at
approximately 11:00 A.M. (London time) two Business Days before the first day
of such Enterprise Eurodollar Tranche Period or Sheffield Eurodollar Tranche
Period in an amount approximately equal to the Enterprise Eurodollar Tranche
Period or Sheffield Eurodollar Tranche to which the Eurodollar Rate is to apply
and for a period of time approximately equal to the applicable Enterprise
Eurodollar Tranche Period or Sheffield Eurodollar Tranche Period.
"Liquidity Provider" means the Person or Persons who will provide
liquidity support to the Company or Sheffield in connection with the issuance
by the Company or Sheffield, as applicable, of its Commercial Paper.
"Liquidity Provider Agreement" means the agreement between the Company
or Sheffield, as applicable, and the Liquidity Provider evidencing the
obligation of such Liquidity Provider to provide liquidity support to the
Company or Sheffield in connection with the issuance by the Company or
Sheffield, as applicable, of its Commercial Paper.
"Lock-Box Account" means an account maintained by the Collection Agent
at a Lock- Box Bank for the purpose of receiving Collections from Receivables.
"Lock-Box Agreement" means an agreement between the Collection Agent
and a Lock-Box Bank in substantially the form of Exhibit D hereto or such other
form of agreement as shall have been approved by the Agent.
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<PAGE> 28
"Lock-Box Bank" means each of the banks set forth in Exhibit C hereto
and such banks as may be added thereto or deleted therefrom pursuant to Section
2.8 hereof.
"Loss Percentage" means, on any day, the greatest of (i) 2.5 times the
highest two- month rolling average Loss-to-Liquidation Ratio as of the last day
of each of the twelve (12) calendar months preceding the then current month and
(ii) 15%.
"Loss-to-Liquidation Ratio" means the ratio (expressed as a percentage)
computed as of the last day of each calendar month by dividing (i) the
aggregate Outstanding Balance of all Receivables which have been written off as
uncollectible by the Collection Agent during such calendar month, together with
the aggregate Outstanding Balance of all Receivables which are 91-120 days past
due, by (ii) the aggregate amount of Collections received by the Collection
Agent during such calendar month.
"Majority Investors" shall have the meaning specified in Section 9.1(a)
hereof.
"Material Adverse Effect" means any event or condition which would (i)
have a material and adverse effect on the collectibility of the Receivables,
(ii) have a material and adverse effect on the businesses, properties,
condition (financial or otherwise) or results of operations of the Transferor
or WorldCom, in each case considered as a whole (iii) cause a material
impairment of the ability of the Transferor or WorldCom to perform any of its
payment or material obligations under the Transaction Documents to which it is
a party or the ability of the Company, Sheffield, the Bank Investors, the
Enterprise Agent or the Agent to enforce such obligations or any of their
rights under the Transaction Documents and (iv) have a material and adverse
effect on the interests of the Agent, the Enterprise Agent, the Company,
Sheffield or the Bank Investors under the Transaction Documents.
"Maximum Net Investment" means the sum of the Enterprise Maximum Net
Investment and the Sheffield Maximum Net Investment.
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<PAGE> 29
"Maximum Percentage Factor" means 98%.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA which is or was at any time during the current year or the
immediately preceding five years contributed to by the Transferor, WorldCom or
any ERISA Affiliate of the Transferor or WorldCom on behalf of its employees.
"Net Asset Test" means, in connection with any assignment by the
Company to the Bank Investors of an interest in the Enterprise Net Investment
pursuant to Section 9.7 hereof, that on the day immediately prior to the day on
which such assignment is to take effect, the Net Receivables Balance shall be
greater than the sum of the Enterprise Net Investment plus the Sheffield Net
Investment plus the Enterprise Liquidation Yield plus the Sheffield Liquidation
Yield.
"Net Investment" means the sum of Enterprise Net Investment and the
Sheffield Net Investment.
"Net Receivables Balance" means at any time the Outstanding Balance of
the Eligible Receivables at such time reduced by the sum of (i) the aggregate
amount by which the Outstanding Balance of all Eligible Receivables of each
Designated Obligor exceeds the Concentration Factor for such Designated
Obligor, plus (ii) the aggregate Outstanding Balance of all Eligible
Receivables which are Defaulted Receivables, plus (iii) the product of (A) 30%
and (B) the aggregate Outstanding Balance of all Receivables which are Private
Line Receivables plus, (iv) at the request of the Enterprise Agent or
Sheffield, the aggregate Outstanding Balance of all Eligible Receivables of
each Obligor with respect to which either 25% or more of such Obligor's
Receivables are Defaulted Receivables or 50% or more of such Obligor's
Receivables are Delinquent Receivables.
"Obligor" means a Person obligated to make payments for the provision
of goods and services pursuant to a Contract.
"Official Body" means any government or political subdivision or any
agency, authority, bureau, central
24
<PAGE> 30
bank, commission, department or instrumentality of any such government or
political subdivision, or any court, tribunal, grand jury or arbitrator, in
each case whether foreign or domestic.
"Other Transferor" means any Person other than the Transferor that has
entered into a receivables purchase agreement or transfer and administration
agreement with the Company.
"Outstanding Balance" means, with respect to any Receivable at any
time, the then outstanding principal amount thereof excluding any accrued and
outstanding Finance Charges related thereto.
"Percentage Factor" means the sum of the Enterprise Percentage Factor
and the Sheffield Percentage Factor.
"Permitted Originator" means Com Systems Inc., a California
corporation, WorldCom Network Services, Inc., a Delaware corporation, and any
other Affiliate of WorldCom designated as a "Permitted Originator" in writing
by the Agent.
"Permitted Originator Receivables Purchase Agreement" shall have the
meaning specified in the Receivables Purchase Agreement.
"Person" means any corporation, limited liability company, natural
person, firm, joint venture, partnership, trust, unincorporated organization,
enterprise, government or any department or agency of any government.
"Potential Termination Event" means an event which but for the lapse of
time or the giving of notice, or both, would constitute a Termination Event.
"Private Line Receivable" means any right to payment from an Obligor,
whether constituting an account, chattel paper, instrument or general
intangible, arising from the sale by WorldCom or a Permitted Originator of
Private Line Services related to telecommunications, and includes the right to
payment of any interest or finance charges and other obligations of such
Obligor with respect thereto.
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"Private Line Services" means dedicated telecommunications services
provided by WorldCom or a Permitted Originator to its customers between
designated customer premises.
"Pro Rata Share" means, for a Bank Investor, the Commitment of such
Bank Investor divided by the sum of the Commitments of all Bank Investors.
"Proceeds" means "proceeds" as defined in Section 9-306(1) of the UCC.
"Purchased Interest" means the interest in the Receivables acquired by
a Liquidity Provider through purchase pursuant to the terms of a Liquidity
Provider Agreement.
"Purchase Termination Date" means the date upon which the Transferor
shall cease, for any reason whatsoever, to make purchases of Receivables from
WorldCom under the Receivables Purchase Agreement or the Receivables Purchase
Agreement shall terminate for any reason whatsoever.
"Rebiller" means any customer of WorldCom and the Permitted Originators
which purchases long distance service in bulk and resells such service to
smaller end-users.
"Receivable" means the indebtedness owed to WorldCom or any Permitted
Originator by any Obligor, with the exception of Cherry Communications,
American Teletronics Long Distance, Universal Network Services, Conetco,
Unidial, Oncor, Century and any other operator billed service (without giving
effect to any purchase under the Receivables Purchase Agreement by the
Transferor at any time) under a Contract (and, if originated by a Permitted
Originator, sold by such Permitted Originator to WorldCom) and, in either case,
sold by WorldCom to the Transferor pursuant to the Receivables Purchase
Agreement, whether constituting an account, chattel paper, instrument,
investment property or general intangible, arising in connection with the sale
or lease of merchandise or the rendering of services by WorldCom or a Permitted
Originator, and includes the right to payment of any Finance Charges and other
obligations of such Obligor with respect thereto. Notwithstanding the
foregoing,
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once a Receivable has been deemed collected pursuant to Section 2.9 hereof, it
shall no longer constitute a Receivable hereunder.
"Receivables Purchase Agreement" means the Receivables Purchase
Agreement dated as of October 25, 1996 by and between WorldCom, as seller, and
the Transferor, as purchaser, as such agreement may be amended, supplemented or
otherwise modified and in effect from time to time.
"Records" means all Contracts and other documents, books, records and
other information (including, without limitation, computer programs, tapes,
discs, punch cards, data processing software and related property and rights)
maintained with respect to Receivables and the related Obligors.
"Reinvestment Termination Date" means the second Business Day after the
delivery by the Company to the Transferor of written notice that the Company
elects to commence the amortization of its interest in the Enterprise Net
Investment.
"Related Commercial Paper" means, with respect to Commercial Paper
issued by the Company or Sheffield, Commercial Paper issued by the Company or
Sheffield, respectively, the proceeds of which were used to acquire, or
refinance the acquisition of, an interest in Receivables with respect to the
Transferor.
"Related Security" means, with respect to any Receivable, all of the
Transferor's rights, title and interest in, to and under:
(i) all of the Transferor's interest, if any, in the merchandise
(including returned or repossessed merchandise), if any, the sale of which
by the Transferor gave rise to such Receivable;
(ii) all other security interests or liens and property subject
thereto from time to time, if any, purporting to secure payment of such
Receivable, whether pursuant to the Contract related to such Receivable or
otherwise, together with all financing
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<PAGE> 33
statements signed by an Obligor describing any collateral securing such
Receivable;
(iii) all guarantees, indemnities, warranties, insurance (and
proceeds and premium refunds thereof) or other agreements or arrangements
of any kind from time to time supporting or securing payment of such
Receivable whether pursuant to the Contract related to such Receivable or
otherwise;
(iv) all Records related to such Receivable;
(v) all rights and remedies of (A) the Transferor under the
Receivables Purchase Agreement, together with all financing statements
filed by the Transferor against WorldCom in connection therewith and (B)
WorldCom under a sale and assignment agreement with a Permitted Originator,
together with all financing statements filed by WorldCom against such
Permitted Originator in connection therewith; and
(vi) all Proceeds of any of the foregoing.
"Section 8.2 Costs" has the meaning specified in Section 8.2(d) hereof.
"Servicing Fee" means the fees payable by the Company, Sheffield or
the Bank Investors to the Collection Agent, with respect to an Enterprise
Tranche or a Sheffield Tranche, as applicable, in an amount equal to 0.50% per
annum on the amount of the Enterprise Net Investment or Sheffield Net
Investment allocated to such Enterprise Tranche or Sheffield Tranche pursuant
to Section 2.3 hereof. Such fee shall accrue from the date of the initial
purchase of an interest in the Receivables to the later of the Termination Date
or the date on which the Enterprise Percentage Factor or
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<PAGE> 34
Sheffield Percentage Factor, as applicable, is reduced to zero. On or prior to
the Enterprise Termination Date or the Sheffield Termination Date, as
applicable, such fee shall be payable only from Collections pursuant to, and
subject to the priority of payments set forth in, Section 2.5 hereof. After
the Enterprise Termination Date or the Sheffield Termination Date, as
applicable,such fee shall be payable only from Collections pursuant to, and
subject to the priority of payments set forth in, Section 2.6 hereof.
"Sheffield" means Sheffield Receivables Corporation, a Delaware
corporation, and its successors and permitted assigns.
"Sheffield Billing Adjustments Reserve" means, at any time, an amount
equal to the product of (i) the greater of (A) 5% and (B) 1.5 multiplied by the
highest Billing Adjustment Ratio over the last twelve (12) months and (ii) the
sum of the Sheffield Net Investment, the Sheffield Discount Reserve and the
Sheffield Servicing Fee Reserve at such time.
Notwithstanding the foregoing, the Sheffield Billing Adjustments Reserve shall
at all times be at least equal to $2,500,000.
"Sheffield BR Tranche" means a Sheffield Tranche as to which Sheffield
Discount is calculated at the Base Rate.
"Sheffield BR Tranche Period" means, with respect to a Sheffield BR
Tranche, either (i) prior to the Sheffield Termination Date, a period of up to
30 days requested by the Transferor and agreed to by Sheffield, commencing on a
Business Day requested by the Transferor and agreed to by Sheffield, or (ii)
after the Sheffield Termination Date, a period of one day. If such Sheffield
BR Tranche Period would end on a day which is not a Business Day, such
Sheffield BR Tranche Period shall end on the next succeeding Business Day.
"Sheffield CP Rate" means, with respect to any Sheffield CP Tranche
Period, the rate equivalent to the rate (or if more than one rate, the weighted
average of the rates) at which Commercial Paper issued by Sheffield having a
term equal to such Sheffield CP Tranche Period may be sold by any placement
agent or commercial paper dealer selected by Sheffield, provided, however, that
if the rate (or rates) as agreed between any such agent or dealer and Sheffield
is a discount rate, then the rate (or if more than one rate, the weighted
average of the rates) resulting from Sheffield's converting such
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<PAGE> 35
discount rate (or rates) to an interest-bearing equivalent rate per annum.
"Sheffield CP Tranche" means a Sheffield Tranche as to which Sheffield
Discount is calculated at a Sheffield CP Rate.
"Sheffield CP Tranche Period" means, with respect to a Sheffield CP
Tranche, a period of days not to exceed ninety (90) days commencing on a
Business Day requested by the Transferor and agreed to by Sheffield pursuant to
Section 2.3. If a Sheffield CP Tranche Period would end on a day which is not
a Business Day, such Sheffield CP Tranche Period shall end on the next
succeeding Business Day.
"Sheffield Dealer Fee" means the fee payable by the Transferor to
Sheffield, pursuant to Section 2.4 hereof, the terms of which are set forth in
the Sheffield Fee Letter.
"Sheffield Discount" means, with respect to any Sheffield Tranche
Period:
(TR x TNI x AD)
--
360
Where:
TR = the Sheffield Tranche Rate applicable to such Sheffield Tranche Period.
TNI = the portion of the Sheffield Net Investment allocated to such Sheffield
Tranche Period.
AD = the actual number of days during such Sheffield Tranche Period.
provided, however, that no provision of this Agreement shall require the
payment or permit the collection of Sheffield Discount in excess of the maximum
amount permitted by applicable law; and provided, further, that Sheffield
Discount shall not be considered paid by any distribution if at any time such
distribution is rescinded or must be returned for any reason.
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"Sheffield Discount Reserve" means, at any time, an amount equal to:
TD + LY
Where:
TD = the sum of the unpaid Sheffield Discount for all Sheffield Tranche
Periods.
LY = the Sheffield Liquidation Yield.
"Sheffield Early Collection Fee" means, for any Sheffield Tranche
Period (such Sheffield Tranche Period to be determined without regard to the
last sentence in Section 2.3(a) hereof) during which the portion of the
Sheffield Net Investment that was allocated to such Sheffield Tranche Period is
reduced for any reason whatsoever, the excess, if any, of (i) the additional
Sheffield Discount that would have accrued during such Sheffield Tranche Period
if such reductions had not occurred, minus (ii) the income, if any, received by
the recipient of such reductions from investing the proceeds of such
reductions.
"Sheffield Eurodollar Tranche" means a Sheffield Tranche as to which
Sheffield Discount is calculated at the Eurodollar Rate.
"Sheffield Eurodollar Tranche Period" means, with respect to a
Sheffield Eurodollar Tranche, prior to the Sheffield Termination Date, a period
of up to one month requested by the Transferor and agreed to by Sheffield,
commencing on a Business Day requested by the Transferor and agreed to by
Sheffield; provided, however, that if such Sheffield Eurodollar Tranche Period
would expire on a day which is not a Business Day, such Sheffield Eurodollar
Tranche Period shall expire on the next succeeding Business Day; provided,
further, that if such Sheffield Eurodollar Tranche Period would expire on (a) a
day which is not a Business Day but is a day of the month after which no
further Business Day occurs in such month, such Sheffield Eurodollar Tranche
Period shall expire on the next preceding Business Day or (b) a Business Day
for which there is no numerically corresponding day in the applicable
subsequent calendar month, such
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<PAGE> 37
Sheffield Eurodollar Tranche Period shall expire on the last Business Day of
such month.
"Sheffield Facility Fee" means the fee payable by the Transferor to
Sheffield pursuant to Section 2.7(b) hereof, the terms of which are set forth
in the Sheffield Fee Letter.
"Sheffield Fee Letter" means the letter agreement dated the date hereof
between the Transferor and Sheffield with respect to the fees to be paid by the
Transferor hereunder, as amended, modified or supplemented from time to time.
"Sheffield Liquidation Yield" means, at any time, an amount equal to:
(RVF x LBR x NI) x (EMP x 1.5)
-----------
360
Where:
RVF = the Sheffield Rate Variance Factor at such time;
LBR = the Base Rate at such time which is applicable to the liquidation
period after a Termination Event;
NI = the Sheffield Net Investment at such time; and
EMP = the Estimated Maturity Period of the Receivables.
"Sheffield Loss Reserve" means, on any day, an amount equal to:
LP x (NI + DR + SFR)
Where:
LP = the Loss Percentage at the close of business of the Collection Agent on
such day;
NI = the Sheffield Net Investment at the close of business of the Collection
Agent on such day;
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<PAGE> 38
DR = the Sheffield Discount Reserve at the close of business of the
Collection Agent on such day; and
SFR = the Sheffield Servicing Fee Reserve at the close of business of the
Collection Agent on such day.
Notwithstanding the foregoing, the Sheffield Loss Reserve shall at all times be
at least equal to $7,500,000.
"Sheffield Maximum Net Investment" means $75,000,000; provided,
further, that from and after the Sheffield Termination Date, the Sheffield
Maximum Net Investment shall at all times equal the Sheffield Net Investment.
"Sheffield Net Investment" means the sum of the cash amounts paid to
the Transferor by Sheffield for each Incremental Transfer less the aggregate
amount of Collections received and applied by Sheffield to reduce such
Sheffield Net Investment pursuant to Section 2.6 or 2.9 hereof; provided that
the Sheffield Net Investment shall be restored and reinstated in the amount of
any Collections so received and applied if at any time the distribution of such
Collections is rescinded or must otherwise be returned for any reason.
"Sheffield Percentage Factor" means the fraction (expressed as a
percentage) computed at any time of determination as follows:
NI + LR + BAR + DR + SFR
-------------------------
NRB
Where:
NI = the Sheffield Net Investment at the time of such computation;
LR = the Sheffield Loss Reserve at the time of such computation;
BAR = the Sheffield Billing Adjustment Reserve at the time of such
computation;
DR = the Sheffield Discount Reserve at the time of such computation;
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<PAGE> 39
SFR = the Sheffield Servicing Fee Reserve at the time of such computation;
and
NRB = the Net Receivables Balance at the time of such computation.
The Sheffield Percentage Factor shall be calculated by the Collection Agent
from time to time as described in Section 2.2(e).
"Sheffield Program Fee" means the fee payable by the Transferor to
Sheffield pursuant to Section 2.7(b) hereof, the terms of which are set forth
in the Sheffield Fee Letter.
"Sheffield Rate Variance Factor" means 1.15 or such other number
computed from time to time in good faith by Sheffield and set forth in a
written notice by Sheffield to the Transferor and the Collection Agent.
"Sheffield Servicing Fee Reserve" means at any time an amount equal to
the product of (i) the aggregate Outstanding Balance of all Receivables at such
time, (ii) 0.5%, (iii) a fraction having, as the numerator, the sum of (a) 1.5
times the Estimated Maturity Period plus (b) 30 and, as the denominator, 360
and (iv) a fraction the numerator of which is the Sheffield Net Investment and
the denominator of which is the Net Investment.
"Sheffield Termination Date" means the earliest of (i) the Business Day
designated by the Transferor to Sheffield as the "Sheffield Termination Date"
at any time following 60 days' written notice to Sheffield, (ii) the date of
termination of the commitment of any Liquidity Provider under any Liquidity
Provider Agreement, but only with respect to Sheffield, (iii) the date of
termination of the commitment of any Credit Support Provider under any Credit
Support Agreement, but only with respect to Sheffield, (iv) the day upon which
the Termination Date is declared or automatically occurs pursuant to Section
7.2(a) hereof, (v) the Purchase Termination Date, (vi) October 24, 1997, or
(vii) on or after the occurrence of an Enterprise Termination Date, the
Business Day designated by Sheffield, at its option, as the Sheffield
Termination Date.
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"Sheffield Tranche" means a portion of the Sheffield Net Investment
allocated to a Sheffield Tranche Period pursuant to Section 2.3 hereof.
"Sheffield Tranche Period" means a Sheffield CP Tranche Period, a
Sheffield BR Tranche Period or a Sheffield Eurodollar Tranche Period.
"Sheffield Tranche Rate" means the Sheffield CP Rate, the Base Rate or
the Eurodollar Rate.
"Standard & Poor's" or "S&P" means Standard & Poor's Ratings Services,
a Division of The McGraw-Hill Companies.
"Subordinated Note" shall have the meaning specified in the Receivables
Purchase Agreement.
"Subsidiary" of a Person means any Person more than 50% of the
outstanding voting interests of which shall at any time be owned or controlled,
directly or indirectly, by such Person or by one or more Subsidiaries of such
Person or any similar business organization which is so owned or controlled.
"Switched Service Receivable" means any right to payment from an
Obligor, whether constituting an account, chattel paper, instrument or general
intangible, arising from the sale by WorldCom or a Permitted Originator of
Switched Services related to telecommunications, and includes the right to
payment of any interest or finance charges and other obligations of such
Obligor with respect thereto.
"Switched Services" means the measured services provided by WorldCom or
a Permitted Originator to its customers for originating and/or terminating
telecommunications transmissions.
"Taxes" shall have the meaning specified in Section 8.3 hereof.
"Termination Date" shall have the meaning specified in Section 7.2 (a)
hereof.
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"Termination Event" means an event described in Section 7.1 hereof.
"Transaction Costs" has the meaning specified in Section 8.4(a) hereof.
"Transaction Documents" means, collectively, this Agreement, the
Receivables Purchase Agreement, the Enterprise Fee Letter, the Sheffield Fee
Letter, the Lock-Box Agreements, the Certificates, the Transfer Certificates
and all of the other instruments, documents and other agreements executed and
delivered by WorldCom or the Transferor in connection with any of the
foregoing, in each case, as the same may be amended, restated, supplemented or
otherwise modified from time to time.
"Transfer" means a conveyance, transfer and assignment by the
Transferor to the Company, Sheffield or the Bank Investors of an undivided
percentage ownership interest in Receivables hereunder (including, without
limitation, as a result of any reinvestment of Collections in Transferred
Interests pursuant to Section 2.2(b) and 2.5).
"Transfer Certificate" has the meaning specified in Section 2.2(a)
hereof.
"Transfer Date" means, with respect to each Transfer, the Business Day
on which such Transfer is made.
"Transfer Price" means with respect to any Incremental Transfer, the
amount paid to the Transferor by the Company, Sheffield or the Bank Investors
as described in the applicable Transfer Certificate. The Transfer Price for
any Transfer shall be comprised of (a) a cash component equal to the Enterprise
Net Investment or the Sheffield Net Investment, as applicable, less the
Enterprise Net Investment or Sheffield Net Investment, as applicable, paid for
all prior Transfers, and (b) a deferred payment component payable in accordance
with Section 2.6 hereof.
"Transferor" means WorldCom Funding Corporation, a Delaware
corporation, and its successors and permitted assigns.
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<PAGE> 42
"Transferred Interest" means, at any time of determination, an
undivided percentage ownership interest in (i) each and every then outstanding
Receivable, (ii) all Related Security with respect to each such Receivable,
(iii) all Collections with respect thereto, and (iv) other Proceeds of the
foregoing, which undivided ownership interest shall be equal to the Percentage
Factor at such time, and only at such time (without regard to prior
calculations). The Transferred Interest in each Receivable, together with
Related Security, Collections and Proceeds with respect thereto, shall at all
times be equal to the Transferred Interest in each other Receivable, together
with Related Security, Collections and Proceeds with respect thereto. To the
extent that the Transferred Interest shall decrease as a result of a
recalculation of the Percentage Factor, the Company, Sheffield or the Bank
Investors, as applicable, shall be considered to have reconveyed to the
Transferor an undivided percentage ownership interest in each Receivable,
together with Related Security, Collections and Proceeds with respect thereto,
in an amount equal to such decrease such that in each case the Transferred
Interest in each Receivable shall be equal to the Transferred Interest in each
other Receivable.
"UCC" means, with respect to any state, the Uniform Commercial Code as
from time to time in effect in such state.
"U.S." or "United States" means the United States of America.
"WorldCom" means WorldCom, Inc., a Georgia corporation, and its
successors and assigns.
SECTION 1.2. Other Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP. All terms used in
Article 9 of the UCC in the State of New York, and not specifically defined
herein, are used herein as defined in such Article 9.
SECTION 1.3. Computation of Time Periods. Unless otherwise stated
in this Agreement, in the computation of a period of time from a specified date
to a later specified date, the word "from" means "from and including", the
words "to" and "until" each means "to but
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<PAGE> 43
excluding", and the word "within" means "from and excluding a specified date
and to and including a later specified date".
38
<PAGE> 44
ARTICLE II
PURCHASES AND SETTLEMENTS
SECTION 2.1. Facility. Upon the terms and subject to the
conditions herein set forth, at any time prior to the Enterprise Termination
Date (with respect to the Company and the Bank Investors) and the Sheffield
Termination Date (with respect to Sheffield)(x) the Transferor may, at its
option, convey, transfer and assign to the Company or the Bank Investors, as
applicable, and Sheffield and (y) the Company may, at its option, or Sheffield
and the Bank Investors shall, if so requested, accept such conveyance, transfer
and assignment from the Transferor of, without recourse except as provided
herein, undivided percentage ownership interests in the Receivables, together
with Related Security, Collections and Proceeds with respect thereto, from time
to time. By accepting any conveyance, transfer and assignment hereunder,
neither the Company, Sheffield, any Bank Investor nor the Agent assumes or
shall have any obligations or liability under any of the Contracts, all of
which shall remain the obligations and liabilities of the Transferor and
WorldCom.
SECTION 2.2. Transfers; Certificates; Eligible Receivables
(a) Incremental Transfers. Upon the terms and subject to the conditions herein
set forth the Transferor may, at its option, convey, transfer and assign to the
Company, Sheffield or the Bank Investors, as applicable, and (y) the Company
may, at its option, or Sheffield and the Bank Investors shall, if so requested,
accept such conveyance, transfer and assignment from the Transferor, without
recourse except as provided herein, undivided percentage ownership interests in
the Receivables, together with Related Security, Collections and Proceeds with
respect thereto (each, an "Incremental Transfer") from time to time prior to
the occurrence of the Enterprise Termination Date (with respect to the Company
and the Bank Investors) or the Sheffield Termination Date (with respect to
Sheffield); provided that after giving effect to the issuance of Related
Commercial Paper, or any drawings under any Liquidity Provider Agreement or any
Credit Support Agreement, to fund the cash portion of the Transfer Price of any
Incremental Transfer and the payment to the Transferor of the cash portion of
such Transfer Price
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<PAGE> 45
(i) the Enterprise Net Investment will not exceed $300,000,000, (ii) the
Sheffield Net Investment will not exceed $75,000,000, (iii) the Percentage
Factor will not exceed 98% and (iv) the sum of the Enterprise Net Investment
plus the Interest Component of all outstanding Related Commercial Paper issued
by the Company would not exceed the Enterprise Maximum Net Investment; and,
provided further, that the representations and warranties set forth in Section
3.1 shall be true and correct both immediately before and immediately after
giving effect to any such Incremental Transfer and the payment to the
Transferor of the cash portion of the Transfer Price related thereto and an
Investor Report shall have been delivered with respect to such Incremental
Transfer as required by Section 3.2 hereof.
The Transferor shall, by notice to the Agent given by telecopy, offer
to convey, transfer and assign to the Company, Sheffield or the Bank Investors,
as applicable, undivided percentage ownership interests in the Receivables and
the other Affected Assets relating thereto at least three (3) Business Days
prior to the proposed date of any Incremental Transfer. Each such notice shall
specify (w) whether, as between the Company and the Bank Investors, such
request is made to the Company or the Bank Investors (it being understood and
agreed that once the Bank Investors acquire any Transferred Interest hereunder,
the Bank Investors shall be required to purchase all Transferred Interests held
by the Company, pro rata and in accordance with Section 9.7 and thereafter the
Company shall no longer accept any additional Incremental Transfers hereunder),
(x) to the amount of the desired Transfer Price to be funded by the Company or
the Bank Investors on the one hand and Sheffield on the other (such amounts to
be a ratio to each other equal to 300/the amount of the Sheffield Maximum Net
Investment), the desired aggregate Transfer Price (which shall be at least
$1,000,000 or integral multiples of $500,000 in excess thereof) or to the
extent that the then available unused portion of the Maximum Net Investment is
less than such amount, such lesser amount equal to such available portion of
the Maximum Net Investment), (y) the desired date of such Incremental Transfer
and (z) the desired Enterprise Tranche Period and Sheffield Tranche Period and
allocations of the Enterprise Net Investment and Sheffield Net Investment of
such Incremental Transfer thereto as required by Section 2.3. The
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<PAGE> 46
Agent will promptly notify the Company or each of the Bank Investors, as the
case may be, and Sheffield of the Agent's receipt of any request for an
Incremental Transfer to be made to such Person. To the extent that any such
Incremental Transfer is requested of the Company, the Company shall accept or
reject such offer by notice given to the Transferor and the Agent by telephone
or telecopy by no later than the close of its business on the Business Day
following its receipt of any such request. Notwithstanding the foregoing, the
Incremental Transfer to occur on December 31, 1996 shall be wholly funded by
Sheffield in the amount of $75,000,000.
Each notice of proposed Transfer shall be irrevocable and binding on
the Transferor and the Transferor shall indemnify the Company, Sheffield and
each Bank Investor against any loss or expense incurred by the Company,
Sheffield or any Bank Investor, either directly or indirectly (including, in
the case of the Company, or Sheffield through any Liquidity Provider Agreement)
as a result of any failure by the Transferor to complete such Incremental
Transfer including, without limitation, any loss (including loss of anticipated
profits) or expense incurred by the Company, Sheffield or any Bank Investor,
either directly or indirectly (including, in the case of the Company or
Sheffield, pursuant to any Liquidity Provider Agreement) by reason of the
liquidation or reemployment of funds acquired by the Company, Sheffield (or the
Liquidity Provider) or any Bank Investor (including, without limitation, funds
obtained by issuing commercial paper or promissory notes or obtaining deposits
as loans from third parties) for the Company, Sheffield or any Bank Investor to
fund such Incremental Transfer.
On the date of the initial Incremental Transfer to Sheffield, Sheffield
shall deliver written confirmation to the Transferor of the cash portion of the
Transfer Price, the Sheffield Tranche Period and the Sheffield Tranche Rate
relating to such Transfer and the Transferor shall deliver to the Agent the
Transfer Certificate in the form of Exhibit F hereto (the "Transfer
Certificate"). The Agent shall indicate the amount of the initial Incremental
Transfer together with the date thereof on the grid attached to the Transfer
Certificate and shall also indicate the amount of any Incremental Transfer
funded by the Company prior to such date. On the date of each subsequent
Incremental Transfer, the
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<PAGE> 47
Agent shall send written confirmation to the Transferor of the cash portion of
the Transfer Price, the Enterprise Tranche Period and Sheffield Tranche Period,
the Transfer Date and the Enterprise Tranche Rate and Sheffield Tranche Rate
applicable to such Incremental Transfer. The Agent shall indicate the amount
of the Incremental Transfer together with the date thereof as well as any
decrease in the Enterprise Net Investment and Sheffield Net Investment on the
grid attached to the Transfer Certificate. The Transfer Certificate shall
evidence the Incremental Transfers. Following each Incremental Transfer, the
Agent shall deposit to the Transferor's account at the location indicated in
Section 10.3 hereof, in immediately available funds, an amount equal to the
cash portion of the Transfer Price for such Incremental Transfer made to the
Company or the Bank Investors and Sheffield.
By no later than 11:00 A.M. (New York time) on any Transfer Date, the
Company, Sheffield or each Bank Investor, as the case may be, shall remit its
share (which, in the case of an Incremental Transfer to the Bank Investors,
shall be equal to such Bank Investor's Pro Rata Share) of the aggregate
Transfer Price for such Transfer to the account of the Agent specified therefor
from time to time by the Agent by notice to such Persons. The obligation of
each Bank Investor to remit its Pro Rata Share of any such Transfer Price shall
be several from that of each other Bank Investor, and the failure of any Bank
Investor to so make such amount available to the Agent shall not relieve any
other Bank Investor of its obligation hereunder. Following each Incremental
Transfer and the Agent's receipt of funds from the Company, Sheffield or the
Bank Investors as aforesaid, the Agent shall remit the Transfer Price to the
Transferor's account at the location indicated in Section 10.3 hereof, in
immediately available funds, an amount equal to the cash portion of the
Transfer Price for such Incremental Transfer. Unless the Agent shall have
received notice from the Company, Sheffield or any Bank Investor, as
applicable, that such Person will not make its share of any Transfer Price
relating to any Incremental Transfer available on the applicable Transfer Date
therefor, the Agent may (but shall have no obligation to) make the Company's,
Sheffield's or any such Bank Investor's share of any such Transfer Price
available to the Transferor in anticipation of the receipt by the Agent of such
amount
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from the Company, Sheffield or such Bank Investor. To the extent the Company,
Sheffield or any such Bank Investor fails to remit any such amount to the Agent
after any such advance by the Agent on such Transfer Date, the Company,
Sheffield or such Bank Investor, on the one hand, and the Transferor, on the
other hand, shall be required to pay such amount, together with interest
thereon at a per annum rate equal to the Federal funds rate (as determined in
accordance with clause (ii) of the definition of "Base Rate"), in the case of
the Company, Sheffield or any such Bank Investor, or the Base Rate, in the case
of the Transferor, to the Agent upon its demand therefor (provided that neither
the Company nor Sheffield shall have any obligation to pay such interest
amounts except to the extent that it shall have sufficient funds to pay the
face amount of its Commercial Paper in full). Until such amount shall be
repaid, such amount shall be deemed to be Net Investment paid by the Agent and
the Agent shall be deemed to be the owner of a Transferred Interest hereunder.
Upon the payment of such amount to the Agent (x) by the Transferor, the amount
of the Agent's Net Investment shall be reduced by such amount or (y) by the
Company, Sheffield or such Bank Investor, such payment shall constitute such
Person's payment of its share of the applicable Transfer Price for such
Transfer. If agreed by the Agent and Sheffield (with notice to the Transferor
and the Collection Agent), Sheffield may remit its share of any Transfer Price
directly to the Transferor.
(b) Reinvestment Transfers. On each Business Day occurring after
the Incremental Transfer hereunder on the date hereof and prior to the
Enterprise Termination Date or Sheffield Termination Date, as applicable, the
Transferor hereby agrees to convey, transfer and assign to the Company,
Sheffield or the Bank Investors then owning any Transferred Interests, and in
consideration of Transferor's agreement to maintain at all times prior to the
Enterprise Termination Date or Sheffield Termination Date, as applicable, a Net
Receivables Balance in an amount at least sufficient to maintain the Percentage
Factor at an amount not greater than the Maximum Percentage Factor, the Company
may, and Sheffield and the Bank Investors shall (in either case, to the extent
such Persons then own any Transferred Interest), agree to purchase from the
Transferor undivided percentage ownership interests in each and every
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Receivable, together with Related Security, Collections and Proceeds with
respect thereto, to the extent that Collections are available for such Transfer
in accordance with Section 2.5 hereof, such that after giving effect to such
Transfer, (i) the amount of the Enterprise Net Investment and the Sheffield Net
Investment at the close of business on such Business Day shall be equal to the
amount of the Enterprise Net Investment and the Sheffield Net Investment,
respectively, at the close of the business on the Business Day immediately
preceding such Business Day plus the cash portion of the Transfer Price of any
Incremental Transfer made by Enterprise or the Bank Investors and Sheffield
made on such day, if any, and (ii) the Transferred Interest in each Receivable,
together with Related Security, Collections and Proceeds with respect thereto,
shall be equal to the Transferred Interest in each other Receivable, together
with Related Security, Collections and Proceeds with respect thereto.
(c) All Transfers. Each Transfer shall constitute a purchase of
undivided percentage ownership interests in each and every Receivable, together
with Related Security, Collections and Proceeds with respect thereto, then
existing, as well as in each and every Receivable, together with Related
Security, Collections and Proceeds with respect thereto, which arises at any
time after the date of such Transfer. The Company's, Sheffield's or the Bank
Investors', as applicable, aggregate undivided percentage ownership interest in
the Receivables, together with the Related Security, Collections and Proceeds
with respect thereto, shall equal the Enterprise Percentage Factor or Sheffield
Percentage Factor, as applicable, in effect from time to time. So long as the
Company, on the one hand, or the Bank Investors, on the other hand, own all of
the Transferred Interests related to the Enterprise Net Investment at such
time, each of the Company's and each Bank Investor's undivided percentage
ownership interest in the Affected Assets shall equal such Person's ratable
share (determined on the basis of the relationship that such Person's Net
Investment bears to the Enterprise Net Investment at such time) of the
Enterprise Percentage Factor at such time.
(d) Certificate. The Transferor shall issue to the Agent the
Certificate, in the form of Exhibit M, on or prior to the date hereof.
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(e) Percentage Factor. The Percentage Factor shall be initially
computed as of the opening of business on November 30, 1996. Thereafter until
the Enterprise Termination Date or the Sheffield Termination Date, the
Enterprise Percentage Factor and the Sheffield Percentage Factor, respectively,
shall be deemed to be recomputed as of the close of business by the Collection
Agent on each Business Day. Each Percentage Factor shall remain constant from
the time as of which any such computation or recomputation is made until the
time as of which the next such recomputation shall be made, notwithstanding any
additional Receivables arising, any Incremental Transfer made pursuant to
Section 2.2(a) or any reinvestment Transfer made pursuant to Section 2.2(b) and
2.5 during any period between computations of the Enterprise Percentage Factor
or the Sheffield Percentage Factor, as applicable. Each of the Enterprise
Percentage Factor and the Sheffield Percentage Factor, as calculated at the
close of business on the Business Day immediately preceding the Enterprise
Termination Date or Sheffield Termination Date, as applicable, shall remain
constant at all times thereafter until such time as the Agent, on behalf of the
Company, Sheffield and the Bank Investors, as applicable, shall have received
its Aggregate Unpaids, in cash, at which time the Enterprise Percentage Factor
or Sheffield Percentage Factor, as applicable, shall be recomputed in
accordance with Section 2.6.
SECTION 2.3. Selection of Enterprise Tranche Periods, Sheffield
Tranche Periods, Enterprise Tranche Rates and Sheffield Tranche Rates.
(a) Prior to the Enterprise Termination Date or Sheffield
Termination Date.
(i) Transferred Interest held by Company. At all times hereafter, but
prior to the Enterprise Termination Date and not with respect to any portion of
the Transferred Interest held by the Bank Investors (or any of them), the
Transferor may, subject to the Company's approval and the limitations described
below, request Enterprise
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Tranche Periods and allocate a portion of the Enterprise Net Investment to each
selected Enterprise Tranche Period, so that the aggregate amounts allocated to
outstanding Enterprise Tranche Periods at all times shall equal the Enterprise
Net Investment held by the Company. The Transferor shall give the Company
irrevocable notice by telephone of the new requested Enterprise Tranche Period
at least three (3) Business Days prior to the expiration of any then existing
Enterprise Tranche Period; provided, however, that the Company may select, in
its sole discretion, any such new Enterprise Tranche Period if (i) the
Transferor fails to provide such notice on a timely basis or (ii) the Company
determines, in its sole discretion, that the Enterprise Tranche Period
requested by the Transferor is commercially undesirable to the Company or the
Transferor. The Company confirms that it is its intention to allocate all or
substantially all of the Enterprise Net Investment held by it to one or more
Enterprise CP Tranche Periods; provided that the Company may determine, from
time to time, in its sole discretion, that funding such Enterprise Net
Investment by means of one or more Enterprise CP Tranche Periods is not
possible or is not desirable for any reason. If the Liquidity Provider
acquires from the Company a Purchased Interest with respect to the Receivables
pursuant to the terms of a Liquidity Provider Agreement, NationsBank, N.A.
"NationsBank" on behalf of such Liquidity Provider, may exercise the right of
selection granted to the Company hereby. The initial Enterprise Tranche Period
applicable to any such Purchased Interest shall be a period of not greater than
14 days and such Enterprise Tranche shall be an Enterprise BR Tranche.
Thereafter, provided that the Enterprise Termination Date shall not have
occurred, the Enterprise Tranche Period applicable thereto shall be the BR Rate
or the Eurodollar Rate, as determined by NationsBank. In the case of any
Enterprise Tranche Period outstanding upon the Enterprise Termination Date,
such Enterprise Tranche Period shall end on such date.
(ii) Transferred Interest held by Sheffield. At all times hereafter,
but prior to the Sheffield Termination Date, the Transferor may, subject to
Sheffield's approval and the limitations described below, request Sheffield
Tranche Periods and allocate a portion of the Sheffield Net Investment to each
selected Sheffield Tranche Period, so that the aggregate amounts allocated to
outstanding Sheffield Tranche Periods at all times shall equal the Sheffield
Net Investment held by Sheffield. The Transferor shall give Sheffield
irrevocable notice by telephone of the new requested Sheffield Tranche
Period(s) at least three (3) Business Days prior to the expiration of any then
existing Sheffield Tranche Period; provided, however, that Sheffield may
select, in
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its sole discretion, any such new Sheffield Tranche Period if (i) the
Transferor fails to provide such notice on a timely basis or (ii) Sheffield
determines, in its sole discretion, that the Sheffield Tranche Period requested
by the Transferor is unavailable or commercially undesirable to Sheffield or
the Transferor. Sheffield confirms that it is its intention to allocate all or
substantially all of the Sheffield Net Investment held by it to one or more
Sheffield CP Tranche Periods; provided that Sheffield may determine, from time
to time, in its sole discretion, that funding such Sheffield Net Investment by
means of one or more Sheffield CP Tranche Periods is not possible or is not
desirable for any reason. In the case of any Sheffield Tranche Period
outstanding upon the Sheffield Termination Date, such Sheffield Tranche Period
shall end on such date.
(b) After the Termination Date; Transferred Interest Held by
Company. At all times on and after the Enterprise Termination Date, with
respect to any portion of the Transferred Interest which shall not have been
transferred to the Bank Investors (or any of them), the Company or NationsBank,
as applicable, shall select all Enterprise Tranche Periods and Enterprise
Tranche Rates applicable thereto.
(c) Prior to the Enterprise Termination Date; Transferred
Interest Held by Bank Investor. At all times with respect to any portion of
the Transferred Interest transferred to the Bank Investors (or any of them)
pursuant to Section 9.7, but prior to the Enterprise Termination Date, the
initial Enterprise Tranche Period applicable to such portion of the Enterprise
Net Investment allocable thereto shall be a period of not greater than 14 days
and such Enterprise Tranche shall be an Enterprise BR Tranche. Thereafter,
with respect to such portion, and with respect to any other portion of the
Transferred Interest held by the Bank Investors (or any of them), provided that
the Enterprise Termination Date shall not have occurred, the Enterprise Tranche
Period applicable thereto shall be, at the Transferor's option, either an
Enterprise BR Tranche or an Enterprise Eurodollar Tranche. The Transferor
shall give the Enterprise Agent irrevocable notice by telephone of the new
requested Enterprise Tranche Period at least three (3) Business Days prior to
the expiration of any then existing Enterprise Tranche Period. In the case of
any
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Enterprise Tranche Period outstanding upon the occurrence of a Termination
Date, such Enterprise Tranche Period shall end on the date of such occurrence.
(d) After the Sheffield Termination Date or Enterprise
Termination Date; Transferred Interest Held by Sheffield or Bank Investor. At
all times on and after the Enterprise Termination Date, with respect to any
portion of the Transferred Interest which shall have been owned or transferred
to the Bank Investors (or any of them), respectively, the Enterprise Agent
shall select all Enterprise Tranche Periods and Enterprise Tranche Rates
applicable thereto. At all times on and after the Sheffield Termination Date,
with respect to any portion of the Transferred Interest which shall have been
owned or transferred to Sheffield, Sheffield shall select all Sheffield Tranche
Periods and Sheffield Tranche Rates applicable thereto.
(e) Eurodollar Rate Protection; Illegality. (i) If the Agent is
unable to obtain on a timely basis the information necessary to determine the
LIBOR Rate for any proposed Enterprise Eurodollar Tranche or Sheffield
Eurodollar Tranche, then
(A) the Agent shall forthwith notify the Company, Sheffield or Bank
Investors, as applicable and the Transferor that the Eurodollar Rate cannot
be determined for such Enterprise Eurodollar Tranche or Sheffield
Eurodollar Tranche, and
(B) while such circumstances exist, none of the Company, Sheffield,
the Bank Investor or the Agent shall allocate the Enterprise Net Investment
or the Sheffield Net Investment of any additional Transferred Interests
purchased during such period or reallocate the Enterprise Net Investment or
the Sheffield Net Investment allocated to any then existing Enterprise
Tranche or Sheffield Tranche ending during such period, to an Enterprise
Eurodollar Tranche or Sheffield Eurodollar Tranche.
(ii) If, with respect to any outstanding Enterprise Eurodollar Tranche
or Sheffield Eurodollar Tranche, the Company, Sheffield or any of the Bank
Investors owning any Transferred Interest therein notifies the Agent that it is
unable to obtain matching deposits in
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the London interbank market to fund its purchase or maintenance of such
Transferred Interest or that the Eurodollar Rate applicable to such Transferred
Interest will not adequately reflect the cost to the Person of funding or
maintaining its respective Transferred Interest for such Enterprise Tranche
Period or Sheffield Tranche Period then the Agent shall forthwith so notify the
Transferor, whereupon neither the Agent nor the Company, Sheffield or the Bank
Investors, as applicable, shall, while such circumstances exist, allocate any
Enterprise Net Investment or Sheffield Net Investment of any additional
Transferred Interest purchased during such period or reallocate the Enterprise
Net Investment or the Sheffield Net Investment allocated to any Enterprise
Tranche Period or Sheffield Tranche Period ending during such period, to an
Enterprise Eurodollar Tranche or a Sheffield Eurodollar Tranche.
(iii) Notwithstanding any other provision of this Agreement, if the
Company, Sheffield or any of the Bank Investors, as applicable, shall notify
the Agent that such Person has determined (or has been notified by any
Liquidity Provider) that the introduction of or any change in or in the
interpretation of any law or regulation makes it unlawful (either for the
Company, such Bank Investor, or such Liquidity Provider, as applicable), or any
central bank or other governmental authority asserts that it is unlawful, for
the Company, Sheffield, such Bank Investor or such Liquidity Provider, as
applicable, to fund the purchases or maintenance of Transferred Interests at
the Eurodollar Rate, then (x) as of the effective date of such notice from such
Person to the Agent, the obligation or ability of the Company, Sheffield or
such Bank Investor, as applicable, to fund its purchase or maintenance of
Transferred Interests at the Eurodollar Rate shall be suspended until such
Person notifies the Agent that the circumstances causing such suspension no
longer exist and (y) the Enterprise Net Investment or Sheffield Net Investment
of each Enterprise Eurodollar Tranche or Sheffield Eurodollar Tranche in which
such Person owns an interest shall either (1) if such Person may lawfully
continue to maintain such Transferred Interest at the Eurodollar Rate until the
last day of the applicable Enterprise Tranche Period or Sheffield Tranche
Period, be reallocated on the last day of such Enterprise Tranche Period or
Sheffield Tranche Period to another Enterprise Tranche Period or Sheffield
Tranche
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Period in respect of which the Enterprise Net Investment or Sheffield Net
Investment allocated thereto accrues discount at an Enterprise Tranche Rate or
Sheffield Tranche Rate other than the Eurodollar Rate or (2) if such Person
shall determine that it may not lawfully continue to maintain such Transferred
Interest at the Eurodollar Rate until the end of the applicable Enterprise
Tranche Period or Sheffield Tranche Period, such Person's share of the
Enterprise Net Investment or Sheffield Net Investment allocated to such
Eurodollar Tranche shall be deemed to accrue discount at the Base Rate from the
effective date of such notice until the end of such Enterprise Tranche Period
or Sheffield Tranche Period.
SECTION 2.4. Discount, Fees and Other Costs and Expenses.
Notwithstanding the limitation on recourse under Section 2.1 hereof, the
Transferor shall pay, as and when due in accordance with this Agreement, all
fees hereunder, Enterprise Discount and Sheffield Discount , all amounts
payable pursuant to Article VIII hereof, if any, and the Servicing Fees. On
the last day of each Enterprise Tranche Period and Sheffield Tranche Period,
the Transferor shall pay to the Agent, on behalf of the Company, Sheffield or
the Bank Investors, as applicable, an amount equal to the accrued and unpaid
Enterprise Discount and/or Sheffield Discount for such Enterprise Tranche
Period or Sheffield Tranche Period together with, in the event any portion of
the Transferred Interest is held by the Company, an amount equal to the
discount accrued on the Company's Commercial Paper to the extent such
Commercial Paper was issued in order to fund the Transferred Interest in an
amount in excess of the cash portion of the Transfer Price of an Incremental
Transfer, and together with, in the event any portion of the Transferred
Interest is held by Sheffield, an amount equal to any interest accrued on
advances made to Sheffield to the extent the proceeds of such advances were
used by Sheffield in order to fund the Transferred Interest in an amount equal
to the excess of the portion thereof funded by Sheffield's Commercial Paper.
Notwithstanding the foregoing, if agreed by the Transferor, the Agent and
Sheffield (with notice to the Collection Agent), the Transferor may remit
amounts in respect of Sheffield Discount directly to Sheffield. The Transferor
shall pay to the Agent, on behalf of the Company, on each day on which
Commercial Paper is issued by the Company, the Enterprise
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Dealer Fee. The Transferor shall pay to Sheffield, on each day on which
Commercial Paper is issued by Sheffield, the Sheffield Dealer Fee. All the
foregoing amounts may be paid out of Collections pursuant to Section 2.5 or
2.6, as applicable. Enterprise Discount shall accrue with respect to each
Enterprise Tranche on each day occurring during the Enterprise Tranche Period
related thereto. Sheffield Discount shall accrue with respect to each
Sheffield Tranche on each day occurring during the Sheffield Tranche Period
related thereto. Nothing in this Agreement shall limit in any way the
obligations of the Transferor to pay the amounts set forth in this Section 2.4.
SECTION 2.5. Non-Liquidation Settlement and Reinvestment Procedures.
On each day after the date of any Incremental Transfer but prior to the
Sheffield Termination Date with respect to Sheffield and the Enterprise
Termination Date with respect to the Company and the Bank Investors and
provided in either case that no Potential Termination Event shall have occurred
and be continuing, the Collection Agent shall out of the applicable Enterprise
Percentage Factor and Sheffield Percentage Factor of Collections received on or
prior to such day and not previously applied or accounted for: (i) set aside
and hold in trust for the Company or the Bank Investors, as applicable and
Sheffield (or deposit into the Collection Account if so required pursuant to
Section 2.12 hereof) an amount equal to all Enterprise Discount and Sheffield
Discount and the Servicing Fee accrued through such day and not so previously
set aside or paid and (ii) apply the balance of the Enterprise Percentage
Factor or Sheffield Percentage Factor of Collections remaining after
application of Collections as provided in clause (i) of this Section 2.5 hereof
to the Transferor, for the benefit of the Company or the Bank Investors, as
applicable, and Sheffield to the purchase of additional undivided percentage
interests in each Receivable pursuant to Section 2.2(b) hereof. On the last
day of each Enterprise Tranche Period and Sheffield Tranche Period, from the
applicable amounts set aside as described in clause (i) of the first sentence
of this Section 2.5 hereof, the Collection Agent shall deposit to the Agent's
account, for the benefit of the Company or the Bank Investors, as applicable,
and Sheffield an amount equal to the accrued and unpaid Enterprise Discount and
Sheffield Discount for such Enterprise Tranche Period or
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Sheffield Tranche Period and shall deposit to its own account an amount equal
to the accrued and unpaid Servicing Fee for such Enterprise Tranche Period or
Sheffield Tranche Period. The Agent, upon its receipt of such amounts in the
Agent's account, shall distribute such amounts to the Company and/or Sheffield
and the Bank Investors entitled thereto as set forth above; provided that if
the Agent shall have insufficient funds to pay all of the above amounts in full
on any such date, the Agent shall pay such amounts ratably (based on the
amounts owing to each such Person) to all such Persons entitled to payment
thereof. In addition, the Collection Agent shall remit to the Transferor at
the end of each Enterprise Tranche Period and Sheffield Tranche Period, such
portion of Collections not allocated to the Company, Sheffield and the Bank
Investors.
SECTION 2.6. Liquidation Settlement Procedures. If at any time on or
prior to the Enterprise Termination Date or the Sheffield Termination Date, the
Percentage Factor is greater than the Maximum Percentage Factor, then the
Transferor shall immediately pay to the Agent, for the benefit of the Company
or the Bank Investors, as applicable, and Sheffield from previously received
Collections, an amount equal to the amount such that, when applied in reduction
of the Net Investment, will result in a Percentage Factor less than or equal to
the Maximum Percentage Factor. Such amounts shall be applied pro rata to the
reduction of the Enterprise Net Investment of Enterprise Tranche Periods
selected by the Enterprise Agent and the Sheffield Net Investment of Sheffield
Tranche Periods selected by Sheffield. On the Sheffield Termination Date, with
respect to Sheffield, and the Enterprise Termination Date with respect to the
Company and the Bank Investors and on each day thereafter, and on each day on
which a Potential Termination Event has occurred and is continuing, the
Collection Agent shall set aside and hold in trust for the Company, Sheffield
and the Bank Investors, as applicable (or deposit into the Collection Account
if so required pursuant to Section 2.12 hereof) the Enterprise Percentage
Factor and the Sheffield Percentage Factor of all Collections received on such
day and shall set aside and hold in trust for the Transferor such portion of
Collections not allocated to the Company, Sheffield or the Bank Investors, as
applicable. On the Sheffield Termination Date, the Enterprise Termination Date
or the day on which
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a Potential Termination Event occurs, the Collection Agent shall deposit to the
Agent's account, for the benefit of the Company, Sheffield or the Bank
Investors, as applicable, any amounts set aside pursuant to Section 2.5(i)
above. On the last day of each Enterprise Tranche Period to occur on or after
the Enterprise Termination Date and the last day of each Sheffield Tranche
Period to occur on or after the Sheffield Termination Date, or in either case
during the continuance of a Potential Termination Event, the Collection Agent
shall deposit to the Agent's account, for the benefit of the Company, Sheffield
or the Bank Investors, as applicable, the amounts so set aside for the Company,
Sheffield or the Bank Investors pursuant to the second preceding sentence, but
not to exceed the sum of (i) the accrued Enterprise Discount or Sheffield
Discount for such Enterprise Tranche Period or Sheffield Tranche Period, as
applicable, (ii) the portion of the Enterprise Net Investment or Sheffield Net
Investment allocated to such Enterprise Tranche Period or Sheffield Tranche
Period, as applicable, and (iii) all other Aggregate Unpaids. On such day, the
Collection Agent shall deposit to its account, from the amounts set aside for
the Company, Sheffield and the Bank Investors pursuant to the preceding
sentence which remain after payment in full of the aforementioned amounts, the
accrued Servicing Fee for such Enterprise Tranche Period or Sheffield Tranche
Period. If there shall be insufficient funds on deposit for the Collection
Agent to distribute funds in payment in full of the aforementioned amounts, the
Collection Agent shall distribute funds first, in payment of the accrued
Enterprise Discount and Sheffield Discount, second, if the Transferor, WorldCom
or any Affiliate of the Transferor or WorldCom is not then the Collection
Agent, to the Collection Agent's account, in payment of the Servicing Fee
payable to the Collection Agent, third, in reduction of the Enterprise Net
Investment and Sheffield Net Investment allocated to any Enterprise Tranche
Period or Sheffield Tranche Period ending on such date, fourth, in payment of
all fees payable by the Transferor hereunder, fifth, in payment of all other
Aggregate Unpaids and sixth, if the Transferor, WorldCom or any Affiliate of
the Transferor or WorldCom is the Collection Agent, to its account as
Collection Agent, in payment of the Servicing Fee payable to such Person as
Collection Agent. The Agent, upon its receipt of such amounts in the Agent's
account, shall distribute such amounts to the
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Company and/or the Bank Investors and Sheffield entitled thereto as set forth
above; provided that if the Agent shall have insufficient funds to pay all of
the above amounts in full on any such date, the Agent shall pay such amounts in
the order of priority set forth above and, with respect to any such category
above for which the Agent shall have insufficient funds to pay all amounts
owing on such date, ratably (based on the amounts in such categories owing to
such Persons) among all such Persons entitled to payment thereof.
Following the date on which the Net Investment has been reduced to
zero, all accrued Enterprise Discount and Sheffield Discount and Servicing Fees
have been paid in full and all other Aggregate Unpaids have been paid in full,
(i) the Collection Agent shall recompute the Enterprise Percentage Factor and
the Sheffield Percentage Factor, (ii) the Agent, on behalf of the Company,
Sheffield and the Bank Investors, shall be considered to have reconveyed to the
Transferor all of the Company's, Sheffield's and the Bank Investors' right,
title and interest in and to the Affected Assets (including the Transferred
Interest), (iii) the Collection Agent shall pay to the Transferor any remaining
Collections set aside and held by the Collection Agent pursuant to the third
sentence of this Section 2.6 and (iv) the Agent, on behalf of the Company,
Sheffield and the Bank Investors, shall execute and deliver to the Transferor,
at the Transferor's expense, such documents or instruments as are necessary to
terminate the Company's, Sheffield's and the Bank Investors' respective
interests in the Affected Assets. Any such documents shall be prepared by or
on behalf of the Transferor. On the last day of each Enterprise Tranche Period
and Sheffield Tranche Period, the Collection Agent shall remit to the
Transferor such portion of Collections set aside for the Transferor pursuant to
this Section 2.6.
SECTION 2.7. Fees. Notwithstanding any limitation on recourse
contained in this Agreement, the Transferor shall pay the following
non-refundable fees:
(a) On the last day of each month, to the Company solely for its
own account, the Enterprise Program Fee and the Enterprise Facility Fee, and to
the Enterprise Agent for distribution to the Bank Investors
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as agreed upon by the Bank Investors, the Bank
Investor Commitment Fee; and
(b) On the last day of each month, to Sheffield solely for its
own account, the Sheffield Program Fee and the Sheffield Facility Fee.
SECTION 2.8. Protection of Ownership Interest of the Company,
Sheffield and the Bank Investors. (a) The Transferor agrees that it will, and
will cause WorldCom to, from time to time, at its expense, promptly execute and
deliver all instruments and documents and take all actions as may be necessary
or as the Agent may reasonably request in order to perfect or protect the
Transferred Interest or to enable the Agent, the Company, Sheffield or the Bank
Investors to exercise or enforce any of their respective rights hereunder.
Without limiting the foregoing, the Transferor will, and will cause WorldCom
to, upon the request of the Agent, the Company, Sheffield or any of the Bank
Investors, in order to accurately reflect this purchase and sale transaction,
(x) execute and file such financing or continuation statements or amendments
thereto or assignments thereof (as permitted pursuant to Section 9.7 hereof) as
may be requested by the Agent, Sheffield, the Company or any of the Bank
Investors and (y) mark its respective master data processing records and other
documents with a legend describing the conveyance to the Transferor (in the
case of WorldCom), the Agent, for the benefit of the Company, Sheffield and the
Bank Investors, of the Transferred Interest. The Transferor shall, and will
cause WorldCom to, upon request of the Agent, the Company, Sheffield or any of
the Bank Investors, obtain such additional search reports as the Agent, the
Company, Sheffield or any of the Bank Investors shall request. To the fullest
extent permitted by applicable law, the Agent shall be permitted to sign and
file continuation statements and amendments thereto and assignments thereof
without the Transferor's or WorldCom's signature. Carbon, photographic or
other reproduction of this Agreement or any financing statement shall be
sufficient as a financing statement. The Transferor shall not, and shall not
permit WorldCom to, change its respective name, identity or corporate structure
(within the meaning of Section 9-402(7) of the UCC) nor relocate its respective
chief executive office or any office where Records are kept unless it shall
have: (i) given the Agent at least thirty (30) days prior notice
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thereof and (ii) prepared at Transferor's expense and delivered to the Agent
all financing statements, instruments and other documents necessary to preserve
and protect the Transferred Interest or requested by the Agent in connection
with such change or relocation. Any filings under the UCC or otherwise that
are occasioned by such change in name or location shall be made at the expense
of Transferor.
(b) The Collection Agent shall instruct all Obligors to cause all
Collections to be deposited directly with a Lock-Box Bank. Any Lock-Box
Account maintained by a Lock-Box Bank pursuant to the related Lock-Box
Agreement shall be under the exclusive ownership and control of the Agent which
is hereby granted to the Agent by WorldCom and the Transferor. The Collection
Agent shall be permitted to give instructions to the Lock-Box Banks for so long
as neither a Collection Agent Default nor any other Termination Event has
occurred hereunder. The Collection Agent shall not add any bank as a Lock-Box
Bank to those listed on Exhibit C attached hereto unless such bank has entered
into a Lock-Box Agreement. The Collection Agent shall not terminate any bank
as a Lock- Box Bank unless the Administrative Agent shall have received fifteen
(15) days' prior notice of such termination. If the Transferor, WorldCom or
the Collection Agent receives any Collections, the Transferor, WorldCom or the
Collection Agent, as applicable, shall immediately, but in any event within
forty- eight (48) hours of receipt, remit (and shall cause WorldCom to remit)
such Collections to a Lock-Box Account.
SECTION 2.9. Deemed Collections; Application of Payments. (a) If on
any day the Outstanding Balance of a Receivable is either (x) reduced as a
result of any defective, rejected or returned merchandise or services, any
discount, credit, rebate, dispute, warranty claim, repossessed or returned
goods, chargeback, allowance, any billing adjustment, dilutive factor or other
adjustment, or (y) reduced or canceled as a result of a setoff or offset in
respect of any claim by any Person (whether such claim arises out of the same
or a related transaction or an unrelated transaction), and if such reduction or
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cancellation shall result in the Percentage Factor exceeding the Maximum
Percentage Factor, the Transferor shall be deemed to have received on such day
a Collection of such Receivable in the amount of such reduction or cancellation
and the Transferor shall pay to the Collection Agent an amount equal to such
reduction or cancellation and such amount shall be applied by the Collection
Agent as a Collection in accordance with Section 2.5 or 2.6 hereof, as
applicable. The Enterprise Net Investment and Sheffield Net Investment shall
be reduced by the amount of such payment applied pursuant to Section 2.5 or
Section 2.6 to the reduction of the Enterprise Net Investment or Sheffield Net
Investment, as applicable.
(b) If on any day any of the representations or warranties in
Article III was or becomes untrue with respect to a Receivable (whether on or
after the date of any transfer of an interest therein to the Agent, the
Company, Sheffield or the Bank Investors as contemplated hereunder), the
Transferor shall be deemed to have received on such day a Collection of such
Receivable in full and the Transferor shall on such day pay to the Collection
Agent an amount equal to the Outstanding Balance of such Receivable and such
amount shall be allocated and applied by the Collection Agent as a Collection
allocable to the Transferred Interest in accordance with Section 2.5 or 2.6
hereof, as applicable. The Enterprise Net Investment and Sheffield Net
Investment shall be reduced by the amount of such payment applied pursuant to
Section 2.5 or Section 2.6 to the reduction of the Enterprise Net Investment or
Sheffield Net Investment, as applicable.
(c) Any payment by an Obligor in respect of any indebtedness owed
by it to the Transferor or WorldCom shall, except as otherwise specified by
such Obligor or otherwise required by contract or law and unless otherwise
instructed by the Agent, be applied as a Collection of any Receivable of such
Obligor included in the Transferred Interest (starting with the oldest such
Receivable) to the extent of any amounts then due and payable thereunder before
being applied to any other receivable or other indebtedness of such Obligor.
SECTION 2.10. Payments and Computations, Etc. All amounts to be paid
or deposited by the Transferor or the Collection Agent hereunder shall be paid
or deposited in accordance with the terms hereof no later than 11:00 A.M.
(Central time) on the day when due in immediately available funds; if such
amounts are payable to the Company, Sheffield or any Bank Investor they shall
be
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paid or deposited in the account indicated in Section 10.3 hereof, until
otherwise notified by the Agent. The Transferor shall, to the extent permitted
by law, pay to the Agent, for the benefit of the Company, Sheffield and the
Bank Investors upon demand, interest on all amounts not paid or deposited when
due hereunder at a rate equal to 2% per annum plus the Base Rate. All
computations of Enterprise Discount and Sheffield Discount, interest and all
per annum fees hereunder shall be made on the basis of a year of 360 days for
the actual number of days (including the first but excluding the last day)
elapsed. Any computations by the Agent of amounts payable by the Transferor
hereunder shall be binding upon the Transferor absent manifest error.
SECTION 2.11. Reports. (a) On the 25th day of each month, (or the
next succeeding Business Day if such 25th day is not a Business Day), the
Collection Agent shall prepare and forward to the Agent and the Administrative
Agent (i) an Investor Report as of the end of the last day of the immediately
preceding month, (ii) as soon as is reasonably practicable after receipt of a
request by the Agent or the Administrative Agent, the Collection Agent shall
prepare and forward to the Agent or the Administrative Agent, a listing by
Obligor of all Receivables together with an aging of such Receivables and (iii)
within a reasonable time after request therefor, such other information as the
Agent or the Administrative Agent may reasonably request. The Agent shall
promptly upon receipt forward a copy of any such report or listing to
Sheffield.
(b) Promptly upon receipt by the Collection Agent of each weekly
report described in this Section 2.11(b), the Collection Agent shall forward to
the Administrative Agent and the Agent, a copy of each such report setting
forth the information contained therein in substantially the form of Exhibit N
attached hereto. The Agent shall promptly upon receipt forward a copy of any
such report to Sheffield.
SECTION 2.12. Collection Account. There shall be established on the
day of the initial Incremental Transfer hereunder and maintained, for the
benefit of the Company, Sheffield and the Bank Investors, with the Agent, a
segregated account (the "Collection Account"), bearing a designation clearly
indicating that the funds
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deposited therein are held for the benefit of the Company, Sheffield and the
Bank Investors. On and after the occurrence of a Collection Agent Default or a
Termination Event or a Potential Termination Event, the Collection Agent shall
remit daily within forty-eight hours of receipt to the Collection Account all
Collections received with respect to any Receivables. Funds on deposit in the
Collection Account (other than investment earnings) shall be invested by the
Agent in Eligible Investments that will mature so that such funds will be
available prior to the last day of each successive Enterprise Tranche Period
and Sheffield Tranche Period following such investment. On the last day of
each Enterprise Tranche Period and Sheffield Tranche Period, all interest and
earnings (net of losses and investment expenses) on funds on deposit in the
Collection Account shall be retained in the Collection Account and be available
to make any payments required to be made hereunder (including Enterprise
Discount or Sheffield Discount) by the Transferor. On the date on which the
Net Investment is zero, all accrued Enterprise Discount and Sheffield Discount
and Servicing Fees have been paid in full and all other Aggregate Unpaids have
been paid in full, any funds remaining on deposit in the Collection Account
shall be paid to the Transferor.
SECTION 2.13. Sharing of Payments, Etc. If the Company, Sheffield or
any Bank Investor (for purposes of this Section 2.13 only, being a "Recipient")
shall obtain any payment (whether voluntary, involuntary, through the exercise
of any right of setoff, or otherwise) on account of Transferred Interest owned
by it (other than pursuant to Section 2.7, or Article VIII and other than as a
result of the differences in the timing of the applications of Collections
pursuant to Section 2.5 or 2.6) in excess of its ratable share of payments on
account of Transferred Interest obtained by the Company and/or the Bank
Investors and Sheffield entitled thereto, such Recipient shall forthwith
purchase from the Company and/or the Bank Investors or Sheffield entitled to a
share of such amount participations in the Percentage Interests owned by such
Persons as shall be necessary to cause such Recipient to share the excess
payment ratably with each such other Person entitled thereto; provided,
however, that if all or any portion of such excess payment is thereafter
recovered from such Recipient, such purchase from each such other Person shall
be rescinded
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and each such other Person shall repay to the Recipient the purchase price paid
by such Recipient for such participation to the extent of such recovery,
together with an amount equal to such other Person's ratable share (according
to the proportion of (a) the amount of such other Person's required payment to
(b) the total amount so recovered from the Recipient) of any interest or other
amount paid or payable by the Recipient in respect of the total amount so
recovered.
SECTION 2.14. Right of Setoff. Without in any way limiting the
provisions of Section 2.13, each of the Company, Sheffield and the Bank
Investors is hereby authorized (in addition to any other rights it may have) at
any time after the occurrence of the Sheffield Termination Date, in the case of
Sheffield and the Enterprise Termination Date, in the case of the Bank
Investors and Enterprise, or during the continuance of a Potential Termination
Event, in either case, to set-off, appropriate and apply (without presentment,
demand, protest or other notice which are hereby expressly waived) any deposits
and any other indebtedness held or owing by the Company, Sheffield or such Bank
Investor to, or for the account of, the Transferor against the amount of the
Aggregate Unpaids owing by the Transferor to such Person (even if contingent or
unmatured).
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Representations and Warranties of the Transferor. The
Transferor represents and warrants to the Agent, the Company, Sheffield and the
Bank Investors that:
(a) Corporate Existence and Power. The Transferor is a
corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation and has all corporate power and all
material governmental licenses, authorizations, consents and approvals required
to carry on its business in each jurisdiction in which its business is now
conducted. The Transferor is duly qualified to do business in, and is in good
standing in, every other jurisdiction in which the nature of its business
requires it to be so qualified, except where the failure to be so qualified or
in good standing would not have a Material Adverse Effect.
(b) Corporate and Governmental Authorization; Contravention. The
execution, delivery and performance by the Transferor of this Agreement, the
Receivables Purchase Agreement, the Enterprise Fee Letter, the Sheffield Fee
Letter, the Certificates, the Transfer Certificates and the other Transaction
Documents to which the Transferor is a party are within the Transferor's
corporate powers, have been duly authorized by all necessary corporate action,
require no action by or in respect of, or filing with, any Official Body or
official thereof (except as contemplated by Section 3.1(d) hereof), and do not
contravene, or constitute a default under, any provision of applicable law,
rule or regulation or of the Certificate of Incorporation or Bylaws of the
Transferor or of any agreement, judgment, injunction, order, writ, decree or
other instrument binding upon the Transferor or result in the creation or
imposition of any Adverse Claim on the assets of the Transferor or any of its
Subsidiaries (except as contemplated by Section 3.1(d) hereof).
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(c) Binding Effect. Each of this Agreement, the Receivables
Purchase Agreement, the Fee Letter, the Certificates and the other Transaction
Documents to which the Transferor is a party constitutes and the Transfer
Certificate upon payment of the Transfer Price set forth therein will
constitute the legal, valid and binding obligation of the Transferor,
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, insolvency, moratorium or other similar laws affecting the rights
of creditors generally.
(d) Perfection. Immediately preceding each Transfer hereunder,
the Transferor shall be the owner of all of the Receivables, free and clear of
all Adverse Claims. On or prior to each Transfer and each recomputation of the
Transferred Interest, all financing statements and other documents required to
be recorded or filed in order to perfect and protect the Transferred Interest
against all creditors of and purchasers from the Transferor and WorldCom will
have been duly filed in each filing office necessary for such purpose and all
filing fees and taxes, if any, payable in connection with such filings shall
have been paid in full.
(e) Accuracy of Information. All information heretofore
furnished by the Transferor (including without limitation, the Investor
Reports, any reports delivered pursuant to Section 2.11 hereof and the
Transferor's financial statements) to the Company, Sheffield, any Bank
Investors, the Agent or the Administrative Agent for purposes of or in
connection with this Agreement or any transaction contemplated hereby is, and
all such information hereafter furnished by the Transferor to the Company,
Sheffield, any Bank Investors, the Agent or the Administrative Agent will be,
true and accurate in every material respect, on the date such information is
stated or certified.
(f) Tax Status. The Transferor has filed all material tax
returns (federal, state and local) required to be filed and has paid or made
adequate provision for the payment of all taxes, assessments and other
governmental charges.
(g) Action, Suits. Except as set forth in Exhibit H hereof,
there are no actions, suits or proceedings pending, or to the knowledge of the
Transferor
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threatened, against or affecting the Transferor or any Affiliate of the
Transferor or their respective properties, in or before any court, arbitrator
or other body, which may, individually or in the aggregate, have a Material
Adverse Effect.
(h) Use of Proceeds. No proceeds of any Transfer will be used by
the Transferor to acquire any security in any transaction which is subject to
Section 13 or 14 of the Securities Exchange Act of 1934, as amended.
(i) Place of Business. The principal place of business and chief
executive office of the Transferor are located at the address of the Transferor
indicated in Section 9.3 hereof and the offices where the Transferor keeps all
its Records, are located at the address(es) described on Exhibit I or such
other locations notified to the Company in accordance with Section 2.8 hereof
in jurisdictions where all action required by Section 2.8 hereof has been taken
and completed.
(j) Good Title. Upon each Transfer and each recomputation of
the Transferred Interest, the Company shall acquire a valid and perfected first
priority undivided percentage ownership interest to the extent of the
Transferred Interest or a first priority perfected security interest in each
Receivable that exists on the date of such Transfer and recomputation and in
the Related Security and Collections with respect thereto free and clear of any
Adverse Claim.
(k) Tradenames, Etc. As of the date hereof: (i) the
Transferor's chief executive office is located at the address for notices set
forth in Section 9.3 hereof; (ii) the Transferor has only the subsidiaries and
divisions listed on Exhibit J hereto; and (iii) the Transferor has, within the
last five (5) years, operated only under the tradenames identified in Exhibit J
hereto, and, within the last five (5) years, has not changed its name, merged
with or into or consolidated with any other corporation or been the subject of
any proceeding under Title 11, United States Code (Bankruptcy), except as
disclosed in Exhibit J hereto.
(l) Nature of Receivables. Each Receivable (x) represented by
the Transferor or the Collection
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Agent to be an Eligible Receivable (including in any Investor Report or other
report delivered pursuant to Section 2.11 hereof) or (y) included in the
calculation of the Net Receivables Balance in fact satisfies at such time the
definition of "Eligible Receivable" set forth herein and, in the case of clause
(y) above, is not a Receivable of the type described in clauses (i) through
(iii) of the definition of "Net Receivables Balance."
(m) Coverage Requirement; Amount of Receivables. The Percentage
Factor does not exceed the Maximum Percentage Factor. As of November 30, 1996,
the aggregate Outstanding Balance of the Receivables in existence was at least
$809,000,000 and the Net Receivable Balance was at least $597,000,000.
(n) Credit and Collection Policy. Since September 27, 1996,
there have been no material changes in the Credit and Collection Policy other
than as permitted hereunder. Since such date, no material adverse change has
occurred in the overall rate of collection of the Receivables.
(o) Collections and Servicing. Since September 27, 1996, there
has been no material adverse change in the ability of the Collection Agent (to
the extent it is WorldCom, the Transferor or any Subsidiary or Affiliate of any
of the foregoing) to service and collect the Receivables.
(p) No Termination Event. No event has occurred and is
continuing and no condition exists which constitutes a Termination Event or a
Potential Termination Event.
(q) Not an Investment Company. The Transferor is not, and is not
controlled by, an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, or is exempt from all provisions of such Act.
(r) ERISA. Each of the Transferor and its ERISA Affiliates is in
compliance in all material respects with ERISA and no lien exists in favor of
the Pension Benefit Guaranty Corporation on any of the Receivables.
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(s) Lock-Box Accounts. The names and addresses of all the
Lock-Box Banks, together with the account numbers of the Lock- Box Accounts at
such Lock-Box Banks, are specified in Exhibit C hereto (or at such other
Lock-Box Banks and/or with such other Lock-Box Accounts as have been notified
to the Agent and for which Lock-Box Agreements have been executed in accordance
with Section 2.8(b) hereof and delivered to the Collection Agent). All
Obligors have been instructed to make payment to a Lock-Box Account and only
Collections are deposited into the Lock-Box Accounts.
(t) Bulk Sales. No transaction contemplated hereby or by the
Receivables Purchase Agreement requires compliance with any bulk sales act or
similar law.
(u) Transfers Under Receivables Purchase Agreement. Each
Receivable which has been transferred to the Transferor by WorldCom has been
purchased by the Transferor from WorldCom pursuant to, and in accordance with,
the terms of the Receivables Purchase Agreement.
(v) Preference; Voidability. The Transferor shall have given
reasonably equivalent value to WorldCom in consideration for the transfer to
the Transferor of the Receivables and Related Security from WorldCom, and each
such transfer shall not have been made for or on account of an antecedent debt
owed by WorldCom to the Transferor and no such transfer is or may be voidable
under any Section of the Bankruptcy Reform Act of 1978 (11 U.S.C. Section
Section 101 et seq.), as amended.
(w) Representations and Warranties of WorldCom. Each of the
representations and warranties of WorldCom set forth in the Receivables
Purchase Agreement are true and correct in all material respects and the
Transferor hereby remakes all such representations and warranties for the
benefit of the Agent, the Company, Sheffield, the Bank Investors and the
Administrative Agent.
Any document, instrument, certificate or notice delivered to the
Company hereunder shall be deemed a representation and warranty by the
Transferor.
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SECTION 3.2. Reaffirmation of Representations and Warranties by the
Transferor. On each day that a Transfer is made hereunder, the Transferor, by
accepting the proceeds of such Transfer, whether delivered to the Transferor
pursuant to Section 2.2(a) or Section 2.5 hereof, shall be deemed to have
certified that all representations and warranties described in Section 3.1
hereof are correct on and as of such day as though made on and as of such day.
Each Incremental Transfer shall be subject to the further condition precedent
that prior to the date of such Incremental Transfer, the Collection Agent shall
have delivered to the Agent and the Administrative Agent, in form and substance
satisfactory to the Agent and the Administrative Agent, a completed Investor
Report dated within ten (10) days prior to the date of such Incremental
Transfer, together with a listing by Obligor, if requested, and such additional
information as may be reasonably requested by the Administrative Agent or the
Agent; and the Transferor shall be deemed to have represented and warranted
that such conditions precedent have been satisfied. The Agent shall promptly
upon receipt forward a copy of any such report to Sheffield.
SECTION 3.3. Representations and Warranties of WorldCom. WorldCom
represents and warrants to the Company, Sheffield and the Bank Investors that:
(a) Corporate Existence and Power. WorldCom is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all corporate power and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business in each jurisdiction in which its business is now conducted.
WorldCom is duly qualified to do business in, and is in good standing in, every
other jurisdiction in which the nature of its business requires it to be so
qualified, except where the failure to be so qualified or in good standing
would not have a Material Adverse Effect.
(b) Corporate and Governmental Authorization; Contravention.
The execution, delivery and performance by WorldCom of this Agreement and the
Receivables Purchase Agreement are within WorldCom's corporate powers, have
been duly authorized by all necessary corporate action, require no action by or
in respect of, or filing with, any Official Body or official thereof
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(except for the filing of UCC financing statements as required by the
Receivables Purchase Agreement), and do not contravene, or constitute a default
under, any provision of applicable law, rule or regulation or of the
Certificate of Incorporation or Bylaws of WorldCom or of any agreement,
judgment, injunction, order, writ, decree or other instrument binding upon
WorldCom or result in the creation or imposition of any Adverse Claim on the
assets of WorldCom or any of its Subsidiaries (except those created by the
Receivables Purchase Agreement).
(c) Binding Effect. Each of this Agreement and the Receivables
Purchase Agreement will constitute the legal, valid and binding obligation of
WorldCom, enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency, moratorium or other similar laws affecting the rights
of creditors.
(d) Perfection. Immediately preceding the sale of the
Receivables and related property pursuant to the Receivables Purchase
Agreement, WorldCom was the owner of all of the Receivables, free and clear of
all liens, encumbrances, security interests, preferences or other security
arrangement of any kind or nature whatsoever. On or prior to the date hereof,
all financing statements and other documents required to be recorded or filed
in order to perfect and protect the ownership interest of the Transferor in and
to the Receivables against all creditors of and purchasers from WorldCom will
have been duly filed in each filing office necessary for such purpose and all
filing fees and taxes, if any, payable in connection with such filings shall
have been paid in full.
(e) Accuracy of Information. All information heretofore
furnished by WorldCom to the Transferor, the Agent, the Company, Sheffield and
the Bank Investor or the Administrative Agent for purposes of or in connection
with the Receivables Purchase Agreement or any transaction contemplated thereby
is, and all such information hereafter furnished by WorldCom to the Transferor,
the Agent, the Enterprise Agent, the Company, Sheffield and Bank Investor or
the Administrative Agent will be, true and accurate in every material respect,
on the date such information is stated or certified.
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(f) Tax Status. WorldCom has filed all material tax returns
(federal, state and local) required to be filed and has paid or made adequate
provision for the payment of all taxes, assessments and other governmental
charges.
(g) Action, Suits. Except as set forth in the Receivables
Purchase Agreement, there are no actions, suits or proceedings pending, or to
the knowledge of WorldCom threatened, against or affecting WorldCom or any
Affiliate of WorldCom or their respective properties, in or before any court,
arbitrator or other body, which may, individually or in the aggregate, have a
Material Adverse Effect.
(h) Place of Business. The principal place of business and chief
executive office of WorldCom are located at Jackson, Mississippi and the
offices where WorldCom keeps all its Records, are located at the address(es)
described on Exhibit I or such other locations notified to the Transferor in
accordance with the Receivables Purchase Agreement in jurisdictions where all
action required by the terms of the Receivables Purchase Agreement has been
taken and completed.
(i) Good Title. Upon the sale of the Receivables and related
property to the Transferor pursuant to the receivable Purchase Agreement, the
Transferor shall acquire a valid and perfected first priority ownership
interest in each Receivable (and in the Related Security, Collections and
Proceeds with respect thereto) that exists on the date of the Receivables
Purchase Agreement and each Receivable created or acquired by WorldCom and in
the Related Security, Collections and Proceeds with respect thereto until the
Termination Date (as defined in the Receivables Purchase Agreement) in each
case free and clear of any Adverse Claim.
(j) Tradenames, Etc. As of the date hereof: (i) WorldCom's
chief executive office is located at the address for notices set forth in
Section 10.3; (ii) WorldCom has only the subsidiaries and divisions listed on
Exhibit J hereto; and (iii) WorldCom has, within the last five (5) years,
operated only under the tradenames identified in Exhibit J hereto, and, within
the last five (5) years, has not changed its name, merged with or into or
consolidated with any other corporation
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or been the subject of any proceeding under Title 11, United States Code
(Bankruptcy), except as disclosed in Exhibit J hereto.
(k) Nature of Receivables. Each Receivable (x) represented by
WorldCom to be an Eligible Receivable, or (y) included in the calculation of
the Net Receivables Balance in fact satisfies at such time the definition of
"Eligible Receivable" and is an "eligible asset" as defined in Rule 3a-7 under
the Investment Company Act, of 1940, as amended, and in the case of clause (y)
above, is not a Receivable of the type described in clauses (i) through (iii)
of the definition of "Net Receivables Balance".
(l) Amount of Receivables. As of November 30, 1996, the
aggregate Outstanding Balance of the Receivables in existence was at least
$809,000,000 and the Net Receivable Balance was at least $597,000,000.
(m) Credit and Collection Policy. Since September 27, 1996,
there have been no material changes in the Credit and Collection Policy other
than as permitted hereunder. Since such date, no material adverse change has
occurred in the overall rate of collection of the Receivables.
(n) Collections and Servicing. Since September 27, 1996, there
has been no material adverse change in the ability of WorldCom to service and
collect the Receivables.
(o) Not an Investment Company. WorldCom is not, and is not
controlled by, an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, or is exempt from all provisions of such Act.
(p) ERISA. Each of WorldCom and its ERISA Affiliates is in
compliance in all material respects with ERISA and no lien exists in favor of
the Pension Benefit Guaranty Corporation on any of the Receivables.
(q) Lock-Box Accounts. The names and addresses of all the
Lock-Box Banks, together with the account numbers of the Lock- Box Accounts at
such Lock-Box Banks, are specified in Exhibit C hereto (or at such
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other Lock-Box Banks and/or with such other Lock-Box Accounts as have been
notified to the Transferor and the Agent and for which Lock-Box Agreements have
been executed in accordance with Section 2.8(b) hereof and delivered to the
Collection Agent). All Obligors have been instructed to make payment to a
Lock-Box Account and only Collections are deposited into the Lock-Box Accounts.
(r) Bulk Sales. No transaction contemplated by the Receivables
Purchase Agreement requires compliance with any bulk sales act or similar law.
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ARTICLE IV
CONDITIONS PRECEDENT
SECTION 4.1. Conditions to Closing. On or prior to the date of
execution hereof, the Transferor shall deliver to the Agent the following
documents, instruments and fees all of which shall be in a form and substance
acceptable to the Agent:
(a) A copy of the resolutions of the Board of Directors of the
Transferor certified by its Secretary approving the execution, delivery and
performance by the Transferor of this Agreement, the Receivables Purchase
Agreement and the other Transaction Documents to be delivered by the Transferor
hereunder or thereunder.
(b) The Articles of Incorporation of the Transferor certified by
the Secretary of State or other similar official of the Transferor's
jurisdiction of incorporation dated a date reasonably prior to the Closing
Date, or a certification from the Treasurer of the Transferor to the effect
that such Articles have not been amended or modified since a date on or prior
to October 25, 1996.
(c) A Good Standing Certificate for the Transferor issued by the
Secretary of State or a similar official of the Transferor's jurisdiction of
incorporation and certificates of qualification as a foreign corporation issued
by the Secretaries of State or other similar officials of each jurisdiction
where such qualification is material to the transactions contemplated by this
Agreement and the other Transaction Documents, in each case, dated a date
reasonably prior to the Closing Date.
(d) A Certificate of the Secretary of the Transferor
substantially in the form of Exhibit L-1 attached hereto.
(e) Copies of proper financing statements (Form UCC-1) or
amendments, dated a date reasonably near to the date of the initial Incremental
Transfer naming the Transferor as the debtor in favor of the Agent, for the
benefit of the Company, Sheffield and the Bank Investors,
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secured party or other similar instruments or documents as may be necessary or
in the reasonable opinion of the Agent desirable under the UCC of all
appropriate jurisdictions or any comparable law to perfect the Agent's
undivided percentage interest in all Receivables and the Related Security and
Collections relating thereto.
(f) Certified copies of request for information or copies (Form
UCC-11) (or a similar search report certified by parties acceptable to the
Agent) dated a date reasonably near the date of the initial Incremental
Transfer listing all effective financing statements which name the Transferor,
WorldCom or any Permitted Originator (under their respective present names and
any previous names) as debtor and which are filed in jurisdictions in which the
filings were made pursuant to items (e) above together with copies of such
financing statements (none of which shall cover any Receivables or Contracts).
(g) An opinion of Hall, Estill, Hardwick, Gable, Golden & Nelson,
special counsel to the Transferor, each Permitted Originator, the Collection
Agent and WorldCom, covering the matters set forth in Exhibit K hereto.
(h) An opinion of William E. Anderson, Esq., counsel to WorldCom
covering certain corporate matters in form and substance to the Enterprise
Agent and Sheffield and their respective counsel.
(i) An executed copy of this Agreement, the Receivables Purchase
Agreement, the Sheffield Fee Letter and each of the other Transaction Documents
to be executed by WorldCom or the Transferor.
(j) The Transfer Certificate, duly executed by the Transferor.
(k) The Certificate, duly executed by the Transferor and
appropriately completed.
(l) An Investor Report for November 1996.
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(m) Such other documents, instruments, certificates and opinions
as the Enterprise Agent or Sheffield shall reasonably request.
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ARTICLE V
COVENANTS
SECTION 5.1. Affirmative Covenants of Transferor. At all times from
the date hereof to the later to occur of (i) the Enterprise Termination Date or
Sheffield Termination Date or (ii) the date on which the Net Investment has
been reduced to zero, all accrued Enterprise Discount and Sheffield Discount
and Servicing Fees shall have been paid in full and all other Aggregate Unpaids
shall have been paid in full, in cash, unless the Agent and Sheffield shall
otherwise consent in writing:
(a) Financial Reporting. The Transferor will, and will cause
WorldCom and each of the Transferor's and WorldCom's Subsidiaries to, maintain,
for itself and each of its respective Subsidiaries, a system of accounting
established and administered in accordance with GAAP, and furnish to the Agent
(which shall promptly upon receipt thereof forward a copy to Sheffield):
(i) Annual Reporting. Promptly after preparation, and no
later than ninety (90) days after the last day of each fiscal year of
WorldCom, financial statements showing the consolidated (as to WorldCom
and its Subsidiaries) financial condition and results of operations of
WorldCom and its Subsidiaries as of, and for the year ended on, such last
day, accompanied by:
(1) the unqualified opinion of a firm of nationally
-recognized independent certified public accountants, based on an audit
using generally accepted auditing standards, that such financial
statements were prepared in accordance with GAAP and present fairly the
consolidated financial condition and results of operations of WorldCom and
its Subsidiaries;
(2) any management letter prepared by such
accounting firm;
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(3) a certificate from such accounting firm to the
Agent indicating that during its audit it obtained no knowledge of any
Termination Event or Potential Termination Event or, if it obtained such
knowledge, the nature and period of existence thereof;
(4) a letter from such accounting firm addressed
to WorldCom, with a copy to the Agent, acknowledging that (A) WorldCom
plans to provide the Agent with such audited financial statements and
accompanying audit report, (B) the Agent has informed WorldCom that the
Agent intends to rely on such firm's audit report accompanying such
financial statements, and (C) WorldCom intends for the Agent to so rely;
and
(5) promptly after preparation, and no later than
ninety (90) days after the last day of each fiscal year of the Transferor,
unaudited financial statements showing the financial condition and results
of operations of the Transferor as of, and for the year ended on, such
last day,
(ii) Quarterly Reporting. Promptly after preparation,
and no later than 45 days after the last day of each fiscal quarter of
WorldCom and the Transferor (other than the fourth fiscal quarter of each
fiscal year), financial statements (which may be unaudited in the case of
the Transferor) showing the financial condition and results of operations
of the Transferor and WorldCom for such fiscal quarter and for the period
from the beginning of the current fiscal year to such last day (which
statements in the case of WorldCom shall show the consolidated financial
condition of Worldcom), accompanied by a compliance certificate with
respect to such Financial Statements.
(iii) Compliance Certificate. Together with the financial
statements required hereunder, a compliance certificate signed by the
Transferor's or WorldCom's, as applicable, chief financial officer or
Treasurer stating
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that (x) the attached financial statements have been prepared in
accordance with GAAP and accurately reflect the financial condition of the
Transferor or WorldCom as applicable and (y) to the best of such Person's
knowledge, no Termination Event or Potential Termination Event exists, or
if any Termination Event or Potential Termination Event exists, stating
the nature and status thereof and showing the computation of, and showing
compliance with each of the financial ratios and restrictions set forth in
Section 5.3 hereof.
(iv) Shareholders Statements and Reports. Promptly upon
the furnishing thereof to the shareholders of the Transferor or WorldCom,
copies of all financial statements, reports and proxy statements so
furnished.
(v) S.E.C. Filings. Promptly upon the filing thereof,
copies of all registration statements and annual, quarterly, monthly or
other regular reports which WorldCom or any subsidiary files with the
Securities and Exchange Commission (other than filings on Form S-8 or Form
S-3 for secondary markets sales of securities held by selling
shareholders).
(vi) Notice of Termination Events or Potential Termination
Events. As soon as possible and in any event within three (3) business
days after the Transferor becomes aware or should be aware of the
occurrence of a Termination Event or a Potential Termination Event, a
statement of the chief financial officer or chief accounting officer of
the Transferor setting forth details of such Termination Event or
Potential Termination Event and the action which the Transferor proposes
to take with respect thereto.
(vii) Change in Credit and Collection Policy and Debt
Ratings. Within ten (10) days after the date any material change in or
amendment to the Credit and Collection
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Policy is made, a copy of the Credit and Collection Policy then in effect
indicating such change or amendment. Within five (5) days after the date
of any downgrade in the Transferor's or WorldCom's public or private debt
ratings, if any, a written certification of the Transferor's or WorldCom's
public and private debt ratings after giving effect to any such change.
(viii) Credit and Collection Policy. Within ninety (90)
days after the close of each of WorldCom's and the Transferor's fiscal
years, a complete copy of the Credit and Collection Policy then in effect,
unless a copy thereof has been delivered during such fiscal year pursuant
to clause (vii) above and no other changes to the Credit and Collection
Policy have occurred since such delivery.
(ix) ERISA. Promptly after the filing or receiving
thereof, copies of all reports and notices with respect to any Reportable
Event (as defined in Article IV of ERISA) which the Transferor, WorldCom
or any ERISA Affiliate of the Transferor or WorldCom files under ERISA
with the Internal Revenue Service, the Pension Benefit Guaranty
Corporation or the U.S. Department of Labor or which the Transferor,
WorldCom or any ERISA Affiliates of the Transferor or WorldCom receives
from the Internal Revenue Service, the Pension Benefit Guaranty
Corporation or the U.S. Department of Labor.
(x) Other Information. Such other information including
non- financial information) as the Agent or the Administrative Agent may
from time to time reasonably request with respect to WorldCom, the
Transferor or any Subsidiary of any of the foregoing.
(b) Conduct of Business. The Transferor will, and will cause
WorldCom and each of the Transferor's and WorldCom's Subsidiaries to, carry on
and conduct its business in substantially the same manner and in substantially
the same fields of enterprise as it is
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presently conducted and do all things necessary to remain duly incorporated,
validly existing and in good standing as a domestic corporation in its
jurisdiction of incorporation and maintain all requisite authority to conduct
its business in each jurisdiction in which its business is conducted.
(c) Compliance with Laws. The Transferor will, and will cause
WorldCom and each of the Transferor's and WorldCom's Subsidiaries to, comply in
all material respects with all laws, rules, regulations, orders, writs,
judgments, injunctions, decrees or awards to which it or its respective
properties may be subject.
(d) Furnishing of Information and Inspection of Records. The
Transferor will, and will cause WorldCom to, furnish to the Enterprise Agent
and Sheffield from time to time such information with respect to the
Receivables as the Agent the Company or Sheffield may reasonably request,
including, without limitation, listings identifying the Obligor and the
Outstanding Balance for each Receivable. The Transferor will, and will cause
WorldCom to, at any time and from time to time during regular business hours
permit the Enterprise Agent and Sheffield, or their respective agents or
representatives, (i) to examine and make copies of and abstracts from all
Records and (ii) to visit the offices and properties of the Transferor or
WorldCom, as applicable, for the purpose of examining such Records, and to
discuss matters relating to Receivables or the Transferor's or WorldCom's
performance hereunder and under the other Transaction Documents to which such
Person is a party with any of the officers, directors, employees or independent
public accountants of the Transferor or WorldCom, as applicable, having
knowledge of such matters.
(e) Keeping of Records and Books of Account. The Transferor
will, and will cause WorldCom and any Permitted Originator to, maintain and
implement administrative and operating procedures (including, without
limitation, an ability to recreate records evidencing Receivables in the event
of the destruction of the originals thereof), and keep and maintain, all
documents, books, records and other information reasonably necessary or
advisable for the collection of all Receivables (including, without limitation,
records adequate to permit the daily identification of each new Receivable
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and all Collections of and adjustments to each existing Receivable). The
Transferor will, and will cause WorldCom and any Permitted Originator to, give
the Agent notice of any material change in the administrative and operating
procedures of the Transferor, WorldCom or the Permitted Originator, as
applicable, referred to in the previous sentence.
(f) Performance and Compliance with Receivables and Contracts.
The Transferor, at its expense, will, and will cause WorldCom and each
Permitted Originator to, timely and fully perform and comply with all material
provisions, covenants and other promises required to be observed by the
Transferor, WorldCom or the Permitted Originators under the Contracts related
to the Receivables.
(g) Credit and Collection Policies. The Transferor will, and
will cause WorldCom and each Permitted Originator to, comply in all material
respects with the Credit and Collection Policy in regard to each Receivable and
the related Contract.
(h) Collections. The Transferor shall, and shall cause
WorldCom and each Permitted Originator to, instruct all Obligors to cause all
Collections to be remitted directly to a Lock-Box Account.
(i) Collections Received. The Transferor shall, and shall
cause WorldCom and each Permitted Originator to, hold in trust, and deposit,
immediately, but in any event not later than forty-eight (48) hours of its
receipt thereof, to a Lock-Box Account all Collections received from time to
time by the Transferor, WorldCom or the Permitted Originators, as the case may
be.
(j) Sale Treatment. The Transferor will not (i) and will not
permit WorldCom to, account for (including for accounting and tax purposes), or
otherwise treat, the transactions contemplated by the Receivables Purchase
Agreement in any manner other than as a sale of Receivables by WorldCom to the
Transferor, or (ii) account for (other than for tax purposes) or otherwise
treat the transactions contemplated hereby in any manner other than a sale of
Receivables by the Transferor to the Company or the Bank Investors, as
applicable. In addition, the Transferor shall, and shall cause WorldCom to,
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disclose (in a footnote or otherwise) in all of its respective financial
statements (including any such financial statements consolidated with any other
Persons' financial statements) the existence and nature of the transaction
contemplated hereby and by the Receivables Purchase Agreement and the interest
of the Transferor (in the case of WorldCom's financial statements), the
Company, Sheffield and the Bank Investors in the Affected Assets.
(k) Separate Business. The Transferor shall at all times
comply in all respects with Articles X, XV and XVII of its Certificate of
Incorporation. The officers and directors of the Transferor (as appropriate)
shall make decisions with respect to the business and daily operations of the
Transferor independent of and not dictated by any controlling entity. The
Transferor shall not engage in any business not permitted by its Certificate of
Incorporation as in effect on the Closing Date.
(l) Corporate Documents. The Transferor shall only amend,
alter, change or repeal its Certificate of Incorporation with the prior written
consent of the Agent.
SECTION 5.2. Negative Covenants of the Transferor.
During the term of this Agreement, unless the Agent and Sheffield shall
otherwise consent in writing:
(a) No Sales, Liens, Etc. Except as otherwise provided herein
and the Receivables Purchase Agreement, the Transferor will not, and will not
permit WorldCom to, sell, assign (by operation of law or otherwise) or
otherwise dispose of, or create or suffer to exist any Adverse Claim upon (or
the filing of any financing statement) or with respect to (x) any of the
Affected Assets, (y) any inventory or goods, the sale of which may give rise to
a Receivable or any Receivable or related Contract, or (z) any account which
concentrates in a Lock-Box Bank to which any Collections of any Receivable are
sent, or assign any right to receive income in respect thereof.
(b) No Extension or Amendment of Receivables. Except as
otherwise permitted in Section 6.2 hereof, the Transferor will not, and will
not permit WorldCom to, extend, amend or otherwise modify the terms
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of any Receivable, or amend, modify or waive any term or condition of any
Contract related thereto.
(c) No Change in Business or Credit and Collection Policy. The
Transferor will not, and will not permit WorldCom to, make any change in the
character of its business or in the Credit and Collection Policy, which change
would, in either case, impair the collectibility of any Receivable or otherwise
have a Material Adverse Effect.
(d) No Mergers, Etc. The Transferor will not, and except as
otherwise permitted pursuant to the Receivables Purchase Agreement and Section
7.2.6 of the Credit Agreement, as amended and provided NationsBank of Texas,
N.A. remains as managing agent thereunder, will not permit WorldCom to, (i)
consolidate or merge with or into any other Person, or (ii) sell, lease or
transfer all or substantially all of its assets to any other Person.
(e) Change in Payment Instructions to Obligors. The Transferor
will not, and will not permit WorldCom to, add or terminate any bank as a
Lock-Box Bank or any account as a Lock-Box Account to or from those listed in
Exhibit C hereto or make any change in its instructions to Obligors regarding
payments to be made to any Lock-Box Account, unless (i) such instructions are
to deposit such payments to another existing Lock-Box Account or (ii) the Agent
shall have received written notice of such addition, termination or change at
least 30 days prior thereto and the Agent shall have received a Lock-Box
Agreement executed by each new Lock-Box Bank or an existing Lock-Box Bank with
respect to each new Lock-Box Account, as applicable.
(f) Deposits to Lock-Box Accounts. The Transferor will not,
and will not permit WorldCom to, deposit or otherwise credit, or cause or
permit to be so deposited or credited, to any Lock-Box Account cash or cash
proceeds other than Collections of Receivables.
(g) Change of Name, Etc. The Transferor will not, and will not
permit WorldCom to, change its name, identity or structure or the location of
its chief executive office, unless at least ten (10) days prior to the
effective date of any such change the Transferor or
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WorldCom, as applicable, delivers to the Agent (i) such documents, instruments
or agreements, executed by the Transferor or WorldCom, as applicable, as are
necessary to reflect such change and to continue the perfection of the Agent's
ownership interests or security interests in the Affected Assets and (ii) new
or revised Lock-Box Agreements executed by the Lock-Box Banks which reflect
such change and enable the Agent to continue to exercise its rights contained
in Section 2.8 hereof.
(h) Amendment to Receivables Purchase Agreement. The
Transferor will not, and will not permit WorldCom to, amend, modify, or
supplement the Receivables Purchase Agreement, except with the prior written
consent of the Agent and the Administrative Agent; nor shall the Transferor
take, or permit WorldCom to take, any other action under the Receivables
Purchase Agreement that shall have a material adverse affect on the Agent, the
Enterprise Agent, the Company, Sheffield or any Bank Investor or which is
inconsistent with the terms of this Agreement.
(i) ERISA Matters. The Transferor will not, and will not
permit WorldCom to, (i) engage or permit any of its respective ERISA Affiliates
to engage in any prohibited transaction (as defined in Section 4975 of the Code
and Section 406 of ERISA) for which an exemption is not available or has not
previously been obtained from the U.S. Department of Labor; (ii) permit to
exist any accumulated funding deficiency (as defined in Section 302(a) of ERISA
and Section 412(a) of the Code) or funding deficiency with respect to any
Benefit Plan other than a Multiemployer Plan; (iii) fail to make any payments
to any Multiemployer Plan that the Transferor, WorldCom or any ERISA Affiliate
of the Transferor or WorldCom is required to make under the agreement relating
to such Multiemployer Plan or any law pertaining thereto; (iv) terminate any
Benefit Plan so as to result in any liability; or (v) permit to exist any
occurrence of any reportable event described in Title IV of ERISA which
represents a material risk of a liability to the Transferor, WorldCom, or any
ERISA Affiliate of the Transferor of WorldCom under ERISA or the Code, if such
prohibited transactions, accumulated funding deficiencies, payments,
terminations and reportable events occurring within any fiscal year of the
Transferor and WorldCom, in the aggregate, involve a payment of money or an
incurrence of
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liability by the Transferor, WorldCom or any ERISA Affiliate of the Transferor
or WorldCom, in an amount in excess of $10,000,000.
(j) Payment to WorldCom. With respect to any Receivable sold
by WorldCom to the Transferor, the Transferor shall, and shall cause WorldCom
to, effect such sale under, and pursuant to the terms of, the Receivables
Purchase Agreement, including, without limitation, the payment by the
Transferor either in cash or by increase in the amount of the Subordinated Note
(as defined in the Receivables Purchase Agreement) to WorldCom of an amount
equal to the purchase price for such Receivable as required by the terms of the
Receivables Purchase Agreement.
SECTION 5.3. Financial Covenants. As calculated on a consolidated
basis for WorldCom and its Subsidiaries:
(a) WorldCom shall not permit its Leverage Ratio to exceed the
following during the applicable period:
<TABLE>
<CAPTION>
Maximum Ratio
Period Permitted
------ ---------
<S> <C>
Closing Date - June 30, 1998 4.00 : 1.00
July 1, 1998 - December 31, 1999 3.50 : 1.00
January 1, 2000 and thereafter 3.00 : 1.00
</TABLE>
(b) WorldCom shall not permit its ratio of the Operating Cash
Flow to the Interest Expense for any 6-month period ending on the date of
determination to be less than the following during the applicable period:
<TABLE>
<CAPTION>
Maximum Ratio
Period Permitted
------ ---------
<S> <C>
Closing Date - December 31, 1996 2.50 : 1.00
January 1, 1997 - December 31, 1997 2.75 : 1.00
January 1, 1998 and thereafter 3.00 : 1.00
</TABLE>
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(c) WorldCom shall not permit its Fixed Charge Ratio for any
12-month period ending on the date of determination to be less than 1.50 : 1.00.
All capitalized terms used in this Section 5.3, but not defined in Article I
shall be defined in Exhibit O hereto.
SECTION 5.4. Affirmative Covenants of WorldCom. At all times from
the date hereof to the date on which all Receivables sold hereunder have been
paid or charged-off in accordance with the Credit and Collection Policy, unless
the Agent and Sheffield shall otherwise consent in writing:
(a) Conduct of Business. WorldCom will, and will cause each of
its Subsidiaries to, carry on and conduct its business in substantially the
same manner and in substantially the same fields of enterprise as it is
presently conducted and do all things necessary to remain duly incorporated,
validly existing and in good standing as a domestic corporation in its
jurisdiction of incorporation and maintain all requisite authority to conduct
its business in each jurisdiction in which its business is conducted.
(b) Compliance with Laws. WorldCom will, and will cause each
of its Subsidiaries to, comply in all material respects with all laws, rules,
regulations, orders, writs, judgments, injunctions, decrees or awards to which
it or its properties may be subject.
(c) Furnishing of Information and Inspection of Records.
WorldCom will furnish to the Transferor and the Agent from time to time such
information with respect to the Receivables as the Transferor, the Enterprise
Agent or Sheffield may reasonably request, including, without limitation,
listings identifying the Obligor and the Outstanding Balance for each
Receivable. WorldCom will at any time and from time to time during regular
business hours permit the Transferor, the
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Enterprise Agent and Sheffield, or their respective agents or representatives,
(i) to examine and make copies of and abstracts from all Records and (ii) to
visit the offices and properties of WorldCom for the purpose of examining such
Records, and to discuss matters relating to Receivables or WorldCom's
performance hereunder with any of the officers, directors, employees or
independent public accountants of WorldCom having knowledge of such matters.
(d) Keeping of Records and Books of Account. WorldCom will
maintain and implement administrative and operating procedures (including,
without limitation, an ability to recreate records evidencing Receivables in
the event of the destruction of the originals thereof), and keep and maintain,
all documents, books, records and other information reasonably necessary or
advisable for the collection of all Receivables (including, without limitation,
records adequate to permit the daily identification of each new Receivable and
all Collections of and adjustments to each existing Receivable). WorldCom will
give the Transferor notice of any material change in the administrative and
operating procedures referred to in the previous sentence.
(e) Performance and Compliance with Receivables and Contracts.
WorldCom, at its expense, will, and will cause each Permitted Originator to,
timely and fully perform and will, and will cause each Permitted Originator to,
comply with all material provisions, covenants and other promises required to
be observed by it or a Permitted Originator under the Contracts related to the
Receivables.
(f) Credit and Collection Policies. WorldCom will, and will
cause each Permitted Originator to, comply in all material respects with the
Credit and Collection Policy in regard to each Receivable and the related
Contract.
(g) Collections. WorldCom shall, and shall cause each
Permitted Originator to, instruct all Obligors to cause all Collections to be
deposited directly to a Lock-Box Account.
(h) Collections Received. WorldCom shall, and shall cause each
Permitted Originator to, hold in trust, and deposit, immediately, but in any
event not
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later than forty-eight (48) hours of its receipt thereof, to a Lock-Box Account
all Collections received from time to time by WorldCom.
(i) Sale Treatment. WorldCom shall report the transactions
contemplated by the Receivables Purchase Agreement for financial reporting
purposes and tax reporting purposes as a sale of the Receivables to the
Transferor.
(j) Information Requests. Promptly upon receipt, one or more
computer tapes in the aggregate setting forth all Receivables and the
Outstanding Balances thereon and such other information as the Agent may
reasonably request.
SECTION 5.5. Negative Covenants of WorldCom. During the term of
this Agreement, unless the Agent shall otherwise consent in writing:
(a) No Sales, Liens, Etc. Except as otherwise provided herein,
the WorldCom will not sell, assign (by operation of law or otherwise) or
otherwise dispose of, or create or suffer to exist any Adverse Claim upon (or
the filing of any financing statement) or with respect to (x) any of the
Affected Assets, (y) any inventory or goods, the sale of which may give rise to
a Receivable or any Receivable or related Contract, or (z) any account which
concentrates in a Lock-Box Bank to which any Collections of any Receivable are
sent, or assign any right to receive income in respect thereof.
(b) No Extension or Amendment of Receivables. Except as
otherwise permitted in Section 6.2, WorldCom will not, and will cause each
Permitted Originator not to, extend, amend or otherwise modify the terms of any
Receivable, or amend, modify or waive any term or condition of any Contract
related thereto.
(c) No Change in Business or Credit and Collection Policy.
WorldCom will not, and will cause each Permitted Originator to not, make any
change in the character of its business or in the Credit and Collection Policy,
which change would, in either case, impair the collectibility of any Receivable
or otherwise have a Material Adverse Effect.
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(d) Change in Payment Instructions to Obligors. WorldCom will
not add or terminate any bank as a Lock-Box Bank or any account as a Lock-Box
Account to or from those listed in Exhibit C hereto or make any change in its
instructions to Obligors regarding payments to be made to any Lock-Box Account,
unless (i) such instructions are to deposit such payments to another existing
Lock- Box Account or (ii) the Transferor and the Agent shall have received
written notice of such addition, termination or change at least 30 days prior
thereto and the Agent shall have received a Lock-Box Agreement executed by each
new Lock-Box Bank or an existing Lock-Box Bank with respect to each new
Lock-Box Account, as applicable.
(e) Deposits to Lock-Box Accounts. WorldCom will not deposit
or otherwise credit, or cause or permit to be so deposited or credited, to any
Lock-Box Account cash or cash proceeds other than Collections of Receivables.
(f) Change of Name, Etc. WorldCom will not change its name,
identity or structure or location of its chief executive office, unless, at
least ten (10) days prior to the effective date of any such change, WorldCom
delivers to the Transferor and the Agent (i) such documents, instruments or
agreements, executed by the Transferor, as are necessary to reflect such change
and to continue the perfection of the Transferor's ownership interest in the
Receivables and (ii) new or revised Lock-Box Agreements executed by the
Lock-Box Banks which reflect such change and enable the Agent to continue to
exercise its rights contained in Section 2.8 hereof.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
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ARTICLE VI
ADMINISTRATION AND COLLECTIONS
SECTION 6.1. Appointment of Collection Agent. The servicing,
administering and collection of the Receivables shall be conducted by such
Person (the "Collection Agent") so designated from time to time in accordance
with this Section 6.1. Until the Agent gives notice to WorldCom of the
designation of a new Collection Agent, WorldCom is hereby designated as, and
hereby agrees to perform the duties and obligations of, the Collection Agent
pursuant to the terms hereof. The Collection Agent may not delegate any of its
rights, duties or obligations hereunder (provided that it may delegate certain
servicing activities to WorldCom Network Services, Inc. as long as it remains a
subsidiary of WorldCom), or designate a substitute Collection Agent, without
the prior written consent of the Agent, and provided that the Collection Agent
shall continue to remain solely liable for the performance of the duties as
Collection Agent hereunder notwithstanding any such assignment hereunder. The
Agent may, and upon the direction of the Enterprise Agent or Sheffield, the
Agent shall, after the occurrence of (i) a Collection Agent Default, (ii) any
event which materially adversely affects the collectibility of the Receivables
or any other event which materially adversely affects the ability of the
Transferor or Collection Agent to collect Receivables or the ability of the
Transferor or Collection Agent to perform hereunder or (iii) any other
Termination Event other than as specified in Section 7.1(k)-(q) designate as
Collection Agent any Person (including itself) to succeed WorldCom or any
successor Collection Agent, on the condition in each case that any such Person
so designated shall agree to perform the duties and obligations of the
Collection Agent pursuant to the terms hereof. The Agent may notify any
Obligor of the Transferred Interest.
SECTION 6.2. Duties of Collection Agent.
(a) The Collection Agent shall take or cause to be taken all
such action as may be necessary or advisable to collect each Receivable from
time to time, all in accordance with applicable laws, rules and regulations,
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with reasonable care and diligence, and in accordance with the Credit and
Collection Policy. Each of the Transferor, the Company, the Agent, Sheffield
and the Bank Investors hereby appoints as its agent the Collection Agent, from
time to time designated pursuant to Section 6.1 hereof, to enforce its
respective rights and interests in and under the Affected Assets. To the
extent permitted by applicable law, each of the Transferor and WorldCom (to the
extent not then acting as Collection Agent hereunder) hereby grants to any
Collection Agent appointed hereunder an irrevocable power of attorney to take
any and all steps in the Transferor's and/or WorldCom's name and on behalf of
the Transferor or WorldCom necessary or desirable, in the reasonable
determination of the Collection Agent, to collect all amounts due under any and
all Receivables, including, without limitation, endorsing the Transferor's
and/or WorldCom's name on checks and other instruments representing Collections
and enforcing such Receivables and the related Contracts. The Collection Agent
shall set aside for the account of the Transferor and the Company their
respective allocable shares of the Collections of Receivables in accordance
with Sections 2.5 and 2.6 hereof. The Collection Agent shall segregate and
deposit to the Agent's account the Company's, Sheffield's and the Bank
Investors' allocable share of Collections of Receivables when required pursuant
to Article II hereof. So long as no Sheffield Termination Date or Enterprise
Termination Date shall have occurred and be continuing, the Collection Agent
may, in accordance with the Credit and Collection Policy, extend the maturity
of Receivables or adjust the Outstanding Balance as the Collection Agent may
determine to be appropriate to maximize Collections thereof; provided, however,
that such extension or adjustment shall not alter the status of such Receivable
as a Delinquent Receivable or a Defaulted Receivable. The Transferor shall
deliver to the Collection Agent and the Collection Agent shall hold in trust
for the Transferor, the Company, the Agent, Sheffield and the Bank Investors,
in accordance with their respective interests, all Records which evidence or
relate to Receivables or Related Security. Notwithstanding anything to the
contrary contained herein, the Agent shall have the absolute and unlimited
right to direct the Collection Agent (whether the Collection Agent is WorldCom
or any other Person) to commence or settle any legal action to enforce
collection of any Receivable or to foreclose upon or repossess any
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Related Security. The Collection Agent shall not make the Agent, the Company,
Sheffield or any of the Bank Investors a party to any litigation without the
prior written consent of such Person.
(b) The Collection Agent shall, as soon as practicable
following receipt thereof, turn over to the Transferor any collections of any
indebtedness of any Person which is not on account of a Receivable. If the
Collection Agent is not the Transferor or WorldCom or an Affiliate of the
Transferor or WorldCom, the Collection Agent, by giving three Business Days'
prior written notice to the Agent, may revise the percentage used to calculate
the Servicing Fee so long as the revised percentage will not result in a
Servicing Fee that exceeds 110% of the reasonable and appropriate out-of-pocket
costs and expenses of such Collection Agent incurred in connection with the
performance of its obligations hereunder as documented to the reasonable
satisfaction of the Agent, provided, however, that at any time after the
Percentage Factor equals or exceeds 100%, any compensation to the Collection
Agent in excess of the Servicing Fee initially provided for herein shall be an
obligation of the Transferor and shall not be payable, in whole or in part,
from Collections allocated to the Company, Sheffield or the Bank Investors, as
applicable. The Collection Agent, if other than the Transferor or WorldCom or
an Affiliate of the Transferor or WorldCom, shall as soon as practicable upon
demand, deliver to WorldCom all Records in its possession which evidence or
relate to indebtedness of an Obligor which is not a Receivable.
(c) On or before 90 days after the end of each fiscal year,
beginning with the fiscal year ending December 31, 1996, (i) the Collection
Agent, at its expense, shall cause a firm of nationally recognized independent
public accountants (who may also render other services to the Collection Agent,
the Transferor, WorldCom or any Affiliates of any of the foregoing) or (ii)
upon mutual agreement of the Collection Agent and the Agent and at the
Collection Agent's expense, cause an audit team chosen by the Agent to furnish
a report to the Agent, in either case, to the effect that they have (i)
compared the information contained in the Investor Reports delivered during
such fiscal year then ended with the information contained in the Contracts and
the
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Collection Agent's records and computer systems for such period, and that, on
the basis of such examination and comparison, such firm is of the opinion that
the information contained in the Investor Reports reconciles with the
information contained in the Contracts and the Collection Agent's records and
computer system and that the servicing of the Receivables has been conducted in
compliance with this Agreement, (ii) confirmed the Net Receivables Balance as
of the end of each Enterprise Tranche Period and Sheffield Tranche Period
during such fiscal year, and (iii) verified that the Receivables treated by the
Collection Agent as Eligible Receivables in fact satisfied the requirements of
the definition thereof contained herein and (iv) conducted a 'negative
confirmation' of a sample of the Receivables and verified that the Collection
Agent's records and computer system used in servicing the Receivables contained
correct information with regard to due dates and outstanding balances, except,
in each case for (a) such exceptions as such firm shall believe to be
immaterial (which exceptions need not be enumerated) and (b) such other
exceptions as shall be set forth in such statement. The Agent shall promptly
upon receipt forward a copy of such report to Sheffield.
(d) Notwithstanding anything to the contrary contained in this
Article VI, the Collection Agent, if not the Transferor, WorldCom or any
Affiliate of the Transferor or WorldCom, shall have no obligation to collect,
enforce or take any other action described in this Article VI with respect to
any indebtedness that is not included in the Transferred Interest other than to
deliver to the Transferor the collections and documents with respect to any
such indebtedness as described in Section 6.2(b) hereof.
SECTION 6.3. Rights After Designation of New Collection Agent. At
any time following the designation of a Collection Agent (other than the
Transferor, WorldCom or any Affiliate of the Transferor or WorldCom) pursuant
to Section 6.1 hereof:
(i) The Agent may direct that payment of all amounts
payable under any Receivable be made directly to the Agent or its
designee.
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(ii) The Transferor shall, at the Agent's request and at
the Transferor's expense, give notice of the Agent's ownership of
Receivables to each Obligor and direct that payments be made directly to
the Agent or its designee.
(iii) The Transferor shall, at the Agent's
request, (A) assemble all of the Records, and shall make the same
available to the Agent or its designee at a place selected by the Agent or
its designee, and (B) segregate all cash, checks and other instruments
received by it from time to time constituting Collections of Receivables
in a manner acceptable to the Agent and shall, promptly upon receipt,
remit all such cash, checks and instruments, duly endorsed or with duly
executed instruments of transfer, to the Agent or its designee.
(iv) The Transferor and WorldCom hereby
authorize the Agent to take any and all steps in the Transferor's or
WorldCom's name and on behalf of the Transferor and WorldCom necessary or
desirable, in the determination of the Agent, to collect all amounts due
under any and all Receivables, including, without limitation, endorsing
the Transferor's or WorldCom's name on checks and other instruments
representing Collections and enforcing such Receivables and the related
Contracts.
SECTION 6.4. Collection Agent Default. The occurrence of any one or
more of the following events shall constitute a Collection Agent Default:
(a) failure of any Collection Agent (other than WorldCom) or
any of its Subsidiaries to pay when due any amounts due under any agreement
under which any Indebtedness greater than $1,000,000 is governed; or the
default by any Collection Agent (other than WorldCom) or any of its
Subsidiaries in the performance of any term, provision or condition contained
in any agreement under which any Indebtedness greater than $1,000,000 was
created or is governed, regardless of whether such event is an "event of
default" or "default" under any such agreement; or any Indebtedness of any
Collection Agent
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(other than WorldCom) or any of its Subsidiaries greater than $5,000,000 shall
be declared to be due and payable or required to be prepaid (other than by a
regularly scheduled payment) prior to the scheduled date of maturity thereof;
or
(b) any Event of Bankruptcy shall occur with respect to any
Collection Agent (other than WorldCom) or any of its Subsidiaries; or
(c) there shall have occurred any material adverse change in
the operations of the Collection Agent (other than WorldCom) since the end of
last fiscal year ending prior to the date of its appointment as Collection
Agent hereunder or any other event shall have occurred which, in the
commercially reasonably judgment of the Agent, materially and adversely affects
such Collection Agent's ability to either collect the Receivables or to perform
under this Agreement.
SECTION 6.5. Responsibilities of the Transferor and WorldCom.
Anything herein to the contrary notwithstanding, the Transferor shall, and/or
shall cause WorldCom to, (i) perform all of WorldCom's obligations under the
Contracts related to the Receivables to the same extent as if interests in such
Receivables had not been sold hereunder and under the Receivables Purchase
Agreement and the exercise by the Agent, the Enterprise Agent the Company,
Sheffield and the Bank Investors of their rights hereunder and under the
Receivables Purchase Agreement shall not relieve the Transferor or WorldCom
from such obligations and (ii) pay when due any taxes with respect to which the
failure to pay could cause a Material Adverse Effect, including without
limitation, any sales taxes payable in connection with the Receivables and
their creation and satisfaction. Neither the Agent, the Enterprise Agent, the
Company, Sheffield nor any of the Bank Investors shall have any obligation or
liability with respect to any Receivable or related Contracts, nor shall it be
obligated to perform any of the obligations of WorldCom thereunder.
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ARTICLE VII
TERMINATION EVENTS
SECTION 7.1. Termination Events. The occurrence of any one or more
of the following events shall constitute a Termination Event:
(a) the Transferor, WorldCom or the Collection Agent shall fail
to make any payment or deposit to be made by it hereunder or under the
Receivables Purchase Agreement when due hereunder or thereunder; or
(b) any representation, warranty, certification or statement
made by the Transferor, the Collection Agent or WorldCom in this Agreement, any
other Transaction Document to which it is a party or in any other document
delivered pursuant hereto or thereto shall prove to have been incorrect in any
material respect when made or deemed made; or
(c) the Transferor, WorldCom or the Collection Agent, shall
default in the performance of any payment or undertaking (other than those
covered by clause (a) above) (i) to be performed or observed under Sections
5.1(a)(vi), 5.1(a)(vii), 5.1(b), 5.1(f), 5.1(g), 5.1(h), 5.1(i), 5.1(k),
5.1(l), 5.2(a), (c), (d), (e), (f) or (g) or Section 5.3 or (ii) to be
performed or observed under any other provision hereof and such default in the
case of this clause (ii) shall continue for ten (10) days;
(d) failure of the Transferor, WorldCom or any Subsidiary of
the Transferor or WorldCom to pay when due any amounts due under any agreement
to which any such Person is a party and under which any Indebtedness
(individually or collectively) greater than $20,000,000 is governed; or the
default by the Transferor, WorldCom or any Subsidiary of the Transferor or
WorldCom in the performance of any term, provision or condition contained in
any agreement to which any such Person is a party and under which any
Indebtedness owing by the Transferor, WorldCom or any Subsidiary of the
Transferor or WorldCom (individually or collectively) greater
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than $20,000,000 was created or is governed; or any Indebtedness owing by the
Transferor, WorldCom or any Subsidiary of the Transferor or WorldCom
(individually or collectively) greater than $20,000,000 shall be declared to be
due and payable or required to be prepaid (other than by a regularly scheduled
payment) prior to the stated maturity thereof, unless and so long as such
default (described in the previous clause) is being contested by such Person in
good faith by appropriate proceedings and adequate reserves in respect thereof
have been established on the books of such Person to the extent required by
GAAP; or
(e) any Event of Bankruptcy shall occur with respect to the
Transferor, WorldCom or any Subsidiary of either the Transferor or WorldCom; or
(f) the Agent, on behalf of the Company and/or the Bank
Investors and Sheffield, shall, for any reason, fail or cease to have a valid
and perfected first priority ownership or security interest in the Affected
Assets free and clear of any Adverse Claims; or
(g) a Collection Agent Default shall have occurred; or
(h) a Termination Event shall have occurred under the
Receivables Purchase Agreement; or
(i) the Transferor shall enter into any transaction or merger
whereby it is not the surviving entity; or
(j) there shall have occurred any material adverse change in
the operations of the Transferor or WorldCom since June 30, 1996 or any other
Material Adverse Effect shall have occurred; or
(k) any Liquidity Provider or Credit Support Provider shall
have given notice that an event of default has occurred and is continuing under
any of its respective agreements with the Company or Sheffield; or
(l) the failure of the Board of Directors of the Transferor to
provide to the Agent and Sheffield, prior to January 15, 1997, evidence (in
form and substance satisfactory to the Agent, Sheffield and their respective
counsel) that the Board of Directors of the Transferor has ratified the
transactions contemplated hereby; or
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(m) (i) the Percentage Factor exceeds the Maximum Percentage
Factor unless the Transferor reduces the Enterprise Net Investment and
Sheffield Net Investment or increases the balance of the Affected Assets on the
next Business Day so as to reduce the Percentage Factor to less than or equal
to 98%; (ii) the Percentage Factor as reported on any Investor Report equals
or exceeds 100%; or (iii) the Enterprise Net Investment plus the Interest
Component of all outstanding Related Commercial Paper issued by the Company
shall exceed the Enterprise Maximum Net Investment; or
(n) the Billing Adjustments Ratio for any consecutive
three-month period during the preceding twelve months exceeds 10%; or
(o) the Loss to Liquidation Ratio for any consecutive
three-month period during the preceding twelve months exceeds 10%; or
(p) the Delinquency Ratio for any consecutive three-month
period during the preceding twelve months exceeds 20%; or
(q) the Default Ratio for any consecutive three-month period
during the preceding twelve months exceeds 17%; or
(r) a default shall have occurred and be continuing under any
instrument or agreement evidencing, securing or providing for the issuance of
Indebtedness of the Transferor; or
(s) the termination of any Permitted Originator Receivables
Purchase Agreement.
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SECTION 7.2. Termination.
(a) Upon the occurrence of any Termination Event, the Agent
may, or at the direction of either the Enterprise Agent or Sheffield shall, by
notice to the Transferor and the Collection Agent declare the "Termination
Date" to have occurred; provided, however, that in the case of any event
described in Section 7.1(e), 7.1(f), 7.1(m)(ii) and 7.1(m)(iii) above, the
Termination Date shall be deemed to have occurred automatically upon the
occurrence of such event. At all times after the declaration or automatic
occurrence of the Termination Date pursuant to Section 7.2(a) (other than a
Termination Event relating to Section 7.1(k)), the Base Rate plus 2.00% shall
be the Enterprise Tranche Rate and Sheffield Tranche Rate applicable to the
Enterprise Net Investment and Sheffield Net Investment for all existing and
future Enterprise Tranches and Sheffield Tranches. If an event or condition
specified in Section 7.1(k) occurs, the Agent shall, upon the direction of the
Enterprise Agent (if such event relates to the Company) or Sheffield (if such
event relates to Sheffield), by notice to the Transferor, declare a Termination
Event to have occurred and declare all outstanding Enterprise Tranche Periods
and Sheffield Tranche Periods, as applicable, to be ended and shall designate
the Base Rate to be applicable to the Enterprise Net Investment and Sheffield
Net Investment, as applicable. In addition, if a Termination Event shall be
declared, the Transferor hereby requests that the Company assign its portion of
the Transferred Interest and all of its rights hereunder (other than its rights
to receive payments in respect of Enterprise Discount accrued to the date of
such assignment and other fees, costs, expenses and indemnities due the Company
hereunder) to the Bank Investors. If an event or condition shall have occurred
which constitutes a Potential Termination Event, the Agent may, and shall if
directed by either Sheffield or the Enterprise Agent, by notice to the
Transferor, declare such event or condition a Potential Termination Event.
(b) In addition, if any Termination Event occurs hereunder (i)
the Agent shall promptly notify the Transferor in writing whether it has
declared a Termination Event or a Potential Termination Event and whether it
will be exercising the remedies specified in this
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Section 7.2, (ii) the Company, Sheffield and the Agent shall have all of the
rights and remedies provided to a secured creditor or a purchaser of accounts
under the UCC by applicable law in respect thereto, (iii) the Enterprise
Maximum Net Investment and the Sheffield Maximum Net Investment shall be
reduced as of each calendar date thereafter equal to the Enterprise Net
Investment and Sheffield Net Investment, respectively, as of such date and (iv)
no Commercial Paper with respect to the Transferor will thereafter be issued.
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ARTICLE VIII
INDEMNIFICATION; EXPENSES; RELATED MATTERS
SECTION 8.1. Indemnities by the Transferor. Without limiting any
other rights which the Agent, the Company, Sheffield or the Bank Investors may
have hereunder or under applicable law, the Transferor hereby agrees to
indemnify the Company, the Bank Investors, Sheffield, the Agent, the Enterprise
Agent, the Administrative Agent, the Collateral Agent, any Liquidity Provider,
any Credit Support Provider,and any successors and permitted assigns and their
respective any officers, directors and employees (collectively, "Indemnified
Parties") from and against any and all damages, losses, claims, liabilities,
costs and expenses, including, without limitation, reasonable attorneys' fees
(which such attorneys may be employees of the an Indemnified Party) and
disbursements (all of the foregoing being collectively referred to as
"Indemnified Amounts") awarded against or incurred by any of them in any action
or proceeding between the Transferor or WorldCom (including, in its capacity as
the Collection Agent) and any of the Indemnified Parties or between any of the
Indemnified Parties and any third party or otherwise arising out of or as a
result of this Agreement, the other Transaction Documents, the ownership or
maintenance, either directly or indirectly, by the Agent, the Company,
Sheffield or any Bank Investor of the Transferred Interest or any of the other
transactions contemplated hereby or thereby, excluding, however, (i)
Indemnified Amounts to the extent resulting from gross negligence or willful
misconduct on the part of an Indemnified Party or (ii) recourse (except as
otherwise specifically provided in this Agreement) for uncollectible
Receivables. Without limiting the generality of the foregoing, the Transferor
shall indemnify each Indemnified Party for Indemnified Amounts relating to or
resulting from:
(i) any representation or warranty made by the
Transferor or WorldCom (including, in its capacity as the Collection
Agent) or any officers of the Transferor or WorldCom (including, in its
capacity as the Collection Agent) under or in connection with this
Agreement, the Receivable Purchase Agreement, any of the other Transaction
Documents,
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any Investor Report or any other information or report delivered by the
Transferor or the Collection Agent pursuant hereto, which shall have been
false or incorrect in any material respect when made or deemed made;
(ii) the failure
by the Transferor, WorldCom (including, in its capacity as the Collection
Agent) or any Permitted Originator to comply with any applicable law, rule
or regulation with respect to any Receivable or the related Contract, or
the nonconformity of any Receivable or the related Contract with any such
applicable law, rule or regulation;
(iii) the failure to vest and maintain vested in the
Company and/or Sheffield and the Bank Investors, an undivided first
priority, perfected percentage ownership interest, to the extent of the
Transferred Interest, in the Affected Assets free and clear of any Adverse
Claim or (y) to create or maintain a valid and perfected first priority
security interest in favor of the Agent, for the benefit of the Company
and/or the Bank Investors and Sheffield, in the Affected Assets as
contemplated pursuant to Section 10.11, free and clear of any Adverse
Claim;
(iv) the failure to file, or any delay in filing,
financing statements, continuation statements, or other similar
instruments or documents under the UCC of any applicable jurisdiction or
other applicable laws with respect to any of the Affected Assets;
(v) any dispute, claim, offset or defense (other than
discharge in bankruptcy) of the Obligor to the payment of any
Receivable (including, without limitation, a defense based on such
Receivable or the related Contract not being legal, valid and binding
obligation of such Obligor enforceable against it in accordance with its
terms), or any other claim resulting from the sale of merchandise or
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services related to such Receivable or the furnishing or failure to
furnish such merchandise or services;
(vi) any failure of the Collection Agent to perform its
duties or obligations in accordance with the provisions hereof; or
(vii) any products liability claim or personal injury
or property damage suit or other similar or related claim or action of
whatever sort arising out of or in connection with merchandise or services
which are the subject of any Receivable;
(viii) the transfer of an ownership interest in any
Receivable other than an Eligible Receivable;
(ix) the failure by the Transferor or WorldCom
(individually or as Collection Agent) to comply with any term, provision
or covenant contained in this Agreement or any of the other Transaction
Documents to which it is a party or to perform any of its respective
duties under the Contracts;
(x) the Percentage Factor exceeding 98% at any time on
or prior to the later of (a) the Enterprise Termination Date or (b) the
Sheffield Termination Date;
(xi) the failure of WorldCom or any Transferring
Subsidiary to pay when due any taxes, including without limitation, sales,
excise or personal property taxes payable in connection with any of the
Receivables;
(xii) any repayment by any Indemnified Party of any
amount previously distributed in reduction of the Net Investment which
such Indemnified Party believes in good faith is required to be made;
(xiii) the commingling by the Transferor, WorldCom, any
Permitted Originator
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or the Collection Agent of Collections of Receivables at any time with
other funds;
(xiv) any investigation, litigation or proceeding
related to this Agreement, any of the other Transaction Documents, the use
of proceeds of Transfers by the Transferor or WorldCom, the ownership of
Transferred Interests, or any Receivable, Related Security or Contract;
(xv) the failure of any Lock-Box Bank to remit any
amounts held in the Lock-Boxes and/or the Lock-Box Accounts pursuant to
the instructions of the Collection Agent, the Transferor, WorldCom or the
Agent (to the extent such Person is entitled to give such instructions in
accordance with the terms hereof and of any applicable Lock-Box Agreement)
whether by reason of the exercise of set-off rights or otherwise;
(xvi) any inability to obtain any judgment in or
utilize the court or other adjudication system of, any state in which an
Obligor may be located as a result of the failure of the Transferor or
WorldCom to qualify to do business or file any notice of business activity
report or any similar report;
(xvii) any failure of the Transferor to give reasonably
equivalent value to WorldCom in consideration of the purchase by the
Transferor from WorldCom of any Receivable, or any attempt by any Person
to void, rescind or set-aside any such transfer under statutory provisions
or common law or equitable action, including, without limitation, any
provision of the Bankruptcy Code; or
(xviii) any action taken by the Transferor, WorldCom, or
the Collection Agent (if the Transferor, WorldCom or any Affiliate or
designee of the Transferor or WorldCom) in the enforcement or collection
of any Receivable;
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provided, however, that if the Company enters into agreements for the purchase
of interests in receivables from one or more Other Transferors, the Company
shall allocate such Indemnified Amounts which are in connection with any
Liquidity Provider Agreement, any Credit Support Agreement or the credit
support furnished by any Credit Support Provider to the Transferor and each
Other Transferor; and provided, further, that if such Indemnified Amounts are
attributable to the Transferor, WorldCom or the Collection Agent and not
attributable to any Other Transferor, the Transferor shall be solely liable for
such Indemnified Amounts or if such Indemnified Amounts are attributable to
Other Transferors and not attributable to the Transferor, WorldCom or the
Collection Agent, such Other Transferors shall be solely liable for such
Indemnified Amounts.
SECTION 8.2. Indemnity for Taxes, Reserves and Expenses. (a) If
after the date hereof, the adoption of any Law or bank regulatory guideline or
any amendment or change in the interpretation of any existing or future Law or
bank regulatory guideline by any Official Body charged with the administration,
interpretation or application thereof, or the compliance with any directive of
any Official Body (in the case of any bank regulatory guideline, whether or not
having the force of Law):
(i) shall subject any Indemnified Party to any tax,
duty or other charge (other than Excluded Taxes) with respect to this
Agreement, the other Transaction Documents, the ownership, maintenance or
financing of the Transferred Interest, the Receivables or payments of
amounts due hereunder, or shall change the basis of taxation of payments
to any Indemnified Party of amounts payable in respect of this Agreement,
the other Transaction Documents, the ownership, maintenance or financing
of the Transferred Interest, the Receivables or payments of amounts due
hereunder or its obligation to advance funds hereunder, under any
Liquidity Provider Agreement or otherwise in respect of this Agreement,
the other Transaction Documents, the ownership, maintenance or financing
of the Transferred Interest or the Receivables (except for changes in the
rate of general corporate, franchise, net income or
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other income tax imposed on such Indemnified Party by the jurisdiction in
which such Indemnified Party's principal executive office is located);
(ii) shall impose, modify or deem applicable any
reserve, special deposit or similar requirement (including, without
limitation, any such requirement imposed by the Board of Governors of the
Federal Reserve System) against assets of, deposits with or for the
account of, or credit extended by, any Indemnified Party or shall impose
on any Indemnified Party or on the United States market for certificates
of deposit or the London interbank market any other condition affecting
this Agreement, the other Transaction Documents, the ownership,
maintenance or financing of the Transferred Interest, the Receivables or
payments of amounts due hereunder or its obligation to advance funds
hereunder under any Liquidity Provider Agreement or the credit support
provided by any Credit Support Provider or otherwise in respect of this
Agreement, the other Transaction Documents, the ownership, maintenance or
financing of the Transferred Interest or the Receivables; or
(iii) imposes upon any Indemnified Party any other
expense (including, without limitation, reasonable attorneys' fees and
expenses, and expenses of litigation or preparation therefor in contesting
any of the foregoing) with respect to this Agreement, the other
Transaction Documents, the ownership, maintenance or financing of the
Transferred Interest, the Receivables or payments of amounts due hereunder
or its obligation to advance funds hereunder under any Liquidity Provider
Agreement or the credit support furnished by any Credit Support Provider
or otherwise in respect of this Agreement, the other Transaction
Documents, the ownership, maintenance or financing of the Transferred
Interests or the Receivables,
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and the result of any of the foregoing is to increase the cost to such
Indemnified Party with respect to this Agreement, the other Transaction
Documents, the ownership, maintenance or financing of the Transferred Interest,
the Receivables, the obligations hereunder, the funding of any purchases
hereunder, any Liquidity Provider Agreement or any Credit Support Agreement ,
by an amount deemed by such Indemnified Party to be material, then, within ten
(10) days after demand by such Indemnified Party through the Agent, the
Transferor or WorldCom shall pay to the Agent, for the benefit of such
Indemnified Party, such additional amount or amounts as will compensate such
Indemnified Party for such increased cost or reduction.
(b) If any Indemnified Party shall have determined that after
the date hereof, the adoption of any applicable Law or bank regulatory
guideline regarding capital adequacy, or any change therein, or any change in
the interpretation thereof by any Official Body, or any directive regarding
capital adequacy (in the case of any bank regulatory guideline, whether or not
having the force of law) of any such Official Body, has or would have the
effect of reducing the rate of return on capital of such Indemnified Party (or
its parent) as a consequence of such Indemnified Party's obligations hereunder
or with respect hereto to a level below that which such Indemnified Party (or
its parent) could have achieved but for such adoption, change, request or
directive (taking into consideration its policies with respect to capital
adequacy) by an amount deemed by such Indemnified Party to be material, then
from time to time, within ten (10) days after demand by such Indemnified Party
through the Agent, the Transferor shall pay to the Agent, for the benefit of
such Indemnified Party, such additional amount or amounts as will compensate
such Indemnified Party (or its parent) for such reduction.
(c) The Agent and Sheffield will promptly notify the Transferor
and WorldCom of any event of which it has knowledge, occurring after the date
hereof, which will entitle an Indemnified Party to compensation pursuant to
this Section 8.2. A notice by the Agent or the applicable Indemnified Party
claiming compensation under this Section 8.2 and setting forth the additional
amount or amounts to be paid to it hereunder shall be conclusive in the absence
of manifest error. In determining such
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amount, the Agent or any applicable Indemnified Party may use any reasonable
averaging and attributing methods.
(d) Anything in this Section 8.2 to the contrary
notwithstanding, if the Company enters into agreements for the acquisition of
interests in receivables from one or more Other Transferors, the Company shall
allocate the liability for any amounts under this Section 8.2 which are in
connection with any Liquidity Provider Agreement, any Credit Support Agreement
or the credit support provided by any Credit Support Provider ("Section 8.2
Costs") to the Transferor and each Other Transferor; provided, however, that if
such Section 8.2 Costs are attributable to the Transferor, WorldCom or the
Collection Agent and not attributable to any Other Transferor, the Transferor
shall be solely liable for such Section 8.2 Costs or if such Section 8.2 Costs
are attributable to Other Transferors and not attributable to the Transferor,
WorldCom or the Collection Agent, such Other Transferors shall be solely liable
for such Section 8.2 Costs.
SECTION 8.3. Taxes. All payments made hereunder by the
Transferor, WorldCom or the Collection Agent (each, a "payor") to the Company,
Sheffield, any Bank Investor or the Agent (each, a "recipient") shall be made
free and clear of and without deduction for any present or future income,
excise, stamp or franchise taxes and any other taxes, fees, duties,
withholdings or other charges of any nature whatsoever imposed by any taxing
authority on any recipient (or any assignee of such parties) (such
non-excluded items being called "Taxes"), but excluding franchise taxes and
taxes imposed on or measured by the recipient's net income or gross receipts
("Excluded Taxes"). In the event that any withholding or deduction from any
payment made by the payor hereunder is required in respect of any Taxes, then
such payor shall:
(a) pay directly to the relevant authority the full amount
required to be so withheld or deducted;
(b) promptly forward to the Agent an official receipt or other
documentation satisfactory to the Agent evidencing such payment to such
authority; and
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(c) pay to the recipient such additional amount or amounts as
is necessary to ensure that the net amount actually received by the recipient
will equal the full amount such recipient would have received had no such
withholding or deduction been required.
Moreover, if any Taxes are directly asserted against any recipient with respect
to any payment received by such recipient hereunder, the recipient may pay such
Taxes and the payor will promptly pay such additional amounts (including any
penalties, interest or expenses) as shall be necessary in order that the net
amount received by the recipient after the payment of such Taxes (including any
Taxes on such additional amount) shall equal the amount such recipient would
have received had such Taxes not been asserted.
If the payor fails to pay any Taxes when due to the appropriate
taxing authority or fails to remit to the recipient the required receipts or
other required documentary evidence, the payor shall indemnify the recipient
for any incremental Taxes, interest, or penalties that may become payable by
any recipient as a result of any such failure.
SECTION 8.4. Other Costs, Expenses and Related Matters. (a) The
Transferor agrees, upon receipt of a written invoice, to pay or cause to be
paid, and to save the Company, the Bank Investors, Sheffield and the Agent
harmless against liability for the payment of, all reasonable out-of-pocket
expenses (including, without limitation, attorneys', accountants' and other
third parties' fees and expenses, any filing fees and expenses incurred by
officers or employees of the Company, the Bank Investors, Sheffield and/or the
Agent) or intangible, documentary or recording taxes incurred by or on behalf
of the Company, Sheffield, any Bank Investor and the Agent (i) in connection
with the negotiation, execution, delivery and preparation of this Agreement,
the other Transaction Documents and any documents or instruments delivered
pursuant hereto and thereto and the transactions contemplated hereby or thereby
(including, without limitation, the perfection or protection of the Transferred
Interest) and (ii) from time to time (a) relating to any amendments, waivers or
consents under this Agreement and the other Transaction Documents, (b) arising
in connection with the Company's, Sheffield's, any Bank Investor's, the
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Agent's or the Collateral Agent's enforcement or preservation of rights
(including, without limitation, the perfection and protection of the
Transferred Interest under this Agreement), or (c) arising in connection with
any audit, dispute, disagreement, litigation or preparation for litigation
involving this Agreement or any of the other Transaction Documents (all of such
amounts, collectively, "Transaction Costs") provided that any of the foregoing
Transaction Costs arising in connection with the closing of the transaction
contemplated hereby shall be payable by WorldCom.
(b) The Transferor shall pay the Agent, for the account of the
Company, Sheffield and the Bank Investors, as applicable, on demand any
Enterprise Early Collection Fee or Sheffield Early Collection Fee due on
account of the reduction of an Enterprise Tranche or Sheffield Tranche,
respectively, on a day prior to the last day of its Enterprise Tranche Period
or Sheffield Tranche Period, as applicable.
SECTION 8.5. Reconveyance Under Certain Circumstances. The
Transferor agrees to accept the reconveyance from the Agent, on behalf of the
Company and/or the Bank Investors and Sheffield, of the Transferred Interest if
the Agent notifies Transferor of a material breach of any representation or
warranty made or deemed made pursuant to Article III of this Agreement and
Transferor shall fail to cure such breach within 15 days (or, in the case of
the representations and warranties in Sections 3.1(d) and 3.1(j), 3 days) of
such notice. The reconveyance price shall be paid by the Transferor to the
Agent, for the account of the Company, Sheffield and the Bank Investors, as
applicable, in immediately available funds on such 15th day (or 3rd day, if
applicable) in an amount equal to the Aggregate Unpaids.
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ARTICLE IX
THE AGENT; THE ENTERPRISE AGENT; BANK COMMITMENT
SECTION 9.1. Authorization and Action. (a) (i) The Company,
Sheffield and each Bank Investor hereby appoints and authorizes the Agent to
take such action as agent on its behalf and to exercise such powers under this
Agreement and the other Transaction Documents as are delegated to the Agent by
the terms hereof and thereof, together with such powers as are reasonably
incidental thereto. In furtherance, and without limiting the generality, of
the foregoing, the Company, Sheffield and each Bank Investor hereby appoints
the Agent as its agent to execute and deliver all further instruments and
documents, and take all further action that the Agent may deem necessary or
appropriate or that the Company, Sheffield or a Bank Investor may reasonably
request in order to perfect, protect or more fully evidence the interests
transferred or to be transferred from time to time by the Transferor hereunder,
or to enable any of them to exercise or enforce any of their respective rights
hereunder, including, without limitation, the execution by the Agent as secured
party/assignee of such financing or continuation statements, or amendments
thereto or assignments thereof, relative to all or any of the Receivables now
existing or hereafter arising, and such other instruments or notices, as may be
necessary or appropriate for the purposes stated hereinabove. The Majority
Investors may direct the Agent to take any such incidental action hereunder.
With respect to other actions which are incidental to the actions specifically
delegated to the Agent hereunder, the Agent shall not be required to take any
such incidental action hereunder, but shall be required to act or to refrain
from acting (and shall be fully protected in acting or refraining from acting)
upon the direction of the Majority Investors; provided, however, that Agent
shall not be required to take any action hereunder if the taking of such
action, in the reasonable determination of the Agent, shall be in violation of
any applicable law, rule or regulation or contrary to any provision of this
Agreement or shall expose the Agent to liability hereunder or otherwise. Upon
the occurrence and during the continuance of any Termination Event or Potential
Termination Event, the Agent shall take no action hereunder (other than
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ministerial actions or such actions as are specifically provided for herein)
without the prior consent of the Majority Investors. The Agent shall not,
without the prior written consent of the Company, Sheffield and all Bank
Investors, agree to (i) amend, modify or waive any provision of this Agreement
in any way which would (A) reduce or impair Collections or the payment of
Enterprise Discount or Sheffield Discount or fees payable hereunder to the
Company, Sheffield or the Bank Investors or delay the scheduled dates for
payment of such amounts, (B) increase the Servicing Fee (other than as
permitted pursuant to Section 6.2(b)), (C) modify any provisions of this
Agreement or the Receivables Purchase Agreement relating to the timing of
payments required to be made by the Transferor or WorldCom or the application
of the proceeds of such payments, (D) the appointment of any Person (other than
the Agent) as successor Collection Agent, or (E) release any property from the
lien provided by this Agreement (other than as expressly contemplated herein).
The Agent shall not agree to any amendment of this Agreement which increases
the dollar amount of either Sheffield's commitment or a Bank Investor's
Commitment without the prior consent of Sheffield or such Bank Investor, as
applicable. In addition, the Agent shall not agree to any amendment of this
Agreement not specifically described in the two preceding sentences without the
consent of the related Majority Investors. "Majority Investors" means, at any
time, the Agent, and Sheffield and those Bank Investors which hold Commitments
aggregating in excess of 51% of the Maximum Net Investment as of such date
(determined as if Sheffield had a Commitment equal to the Sheffield Maximum Net
Investment). In the event the Agent requests the Company's, Sheffield's or a
Bank Investor's consent pursuant to the foregoing provisions and the Agent does
not receive a consent (either positive or negative) from the Company, Sheffield
or such Bank Investor within 10 Business Days of the Company's, Sheffield's or
Bank Investor's receipt of such request, then the Company, Sheffield or such
Bank Investor (and its percentage interest hereunder) shall be disregarded in
determining whether the Agent shall have obtained sufficient consent hereunder.
(ii) The Company and each Bank Investor hereby appoints and
authorizes the Enterprise Agent to take such action as agent on its behalf and
to exercise such powers under this Agreement and the other Transaction
Documents
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as are delegated to the Enterprise Agent by the terms hereof and thereof,
together with such powers as are reasonably incidental thereto. In
furtherance, and without limiting the generality, of the foregoing, the Company
and each Bank Investor hereby appoints the Enterprise Agent as its agent to
execute and deliver all further instruments and documents, and take all further
action that the Enterprise Agent may deem necessary or appropriate or that the
Company or a Bank Investor may reasonably request in order to perfect, protect
or more fully evidence the interests transferred or to be transferred from time
to time by the Transferor hereunder, or to enable any of them to exercise or
enforce any of their respective rights hereunder, including, without
limitation, the execution by the Enterprise Agent of such instruments or
notices, as may be necessary or appropriate for the purposes stated
hereinabove. The Company and the Majority Enterprise Investors may direct the
Enterprise Agent to take any such incidental action hereunder. With respect to
other actions which are incidental to the actions specifically delegated to the
Enterprise Agent hereunder, the Enterprise Agent shall not be required to take
any such incidental action hereunder, but shall be required to act or to
refrain from acting (and shall be fully protected in acting or refraining from
acting) upon the direction of the Majority Enterprise Investors; provided,
however, that the Enterprise Agent shall not be required to take any action
hereunder if the taking of such action, in the reasonable determination of the
Enterprise Agent, shall be in violation of any applicable law, rule or
regulation or contrary to any provision of this Agreement or shall expose the
Enterprise Agent to liability hereunder or otherwise. Upon the occurrence and
during the continuance of any Termination Event or Potential Termination Event,
the Enterprise Agent shall take no action hereunder (other than ministerial
actions or such actions as are specifically provided for herein) without the
prior consent of the Majority Enterprise Investors. The Enterprise Agent shall
not agree to any amendment of this Agreement which increases the dollar amount
of a Bank Investor's Commitment without the prior consent of such Bank
Investor, as applicable. In addition, the Enterprise Agent shall not agree to
any amendment of this Agreement not specifically described in the preceding
sentence without the consent of the related Majority Enterprise Investors.
"Majority Enterprise Investors" means, at any time, the Agent, and those Bank
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Investors which hold Commitments aggregating in excess of 51% of the Maximum
Enterprise Net Investment as of such date. In the event the Enterprise Agent
requests the Company's or a Bank Investor's consent pursuant to the foregoing
provisions and the Enterprise Agent does not receive a consent (either positive
or negative) from the Company or such Bank Investor within 10 Business Days of
the Company's or Bank Investor's receipt of such request, then the Company or
such Bank Investor (and its percentage interest hereunder) shall be disregarded
in determining whether the Enterprise Agent shall have obtained sufficient
consent hereunder.
(b) (i) The Agent shall exercise such rights and powers vested
in it by this Agreement and the other Transaction Documents, and use the same
degree of care and skill in their exercise, as a prudent person would exercise
or use under the circumstances in the conduct of such person's own affairs.
(ii) The Enterprise Agent shall exercise such rights and powers
vested in it by this Agreement and the other Transaction Documents, and use the
same degree of care and skill in their exercise, as a prudent person would
exercise or use under the circumstances in the conduct of such person's own
affairs.
SECTION 9.2. Agent's Reliance, Etc. Neither the Agent, the
Enterprise Agent nor any of their respective directors, officers, agents or
employees shall be liable for any action taken or omitted to be taken by it or
them as Agent or Enterprise Agent under or in connection with this Agreement or
any of the other Transaction Documents, except for its or their own gross
negligence or willful misconduct. Without limiting the foregoing, the Agent
and the Enterprise Agent: (i) may consult with legal counsel (including
counsel for the Transferor or WorldCom), independent public accountants and
other experts selected by it and shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of such
counsel, accountants or experts; (ii) makes no warranty or representation to
the Company, Sheffield or any Bank Investor and shall not be responsible to the
Company, Sheffield or any Bank Investor for any statements, warranties or
representations made in or in connection with this Agreement; (iii) shall not
have any duty to ascertain or to inquire
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as to the performance or observance of any of the terms, covenants or
conditions of this Agreement or any of the other Transaction Documents on the
part of the Transferor, the Collection Agent or WorldCom or to inspect the
property (including the books and records) of the Transferor, the Collection
Agent or WorldCom; (iv) shall not be responsible to the Company, Sheffield or
any Bank Investor for the due execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Agreement, any of the other
Transaction Documents or any other instrument or document furnished pursuant
hereto or thereto; and (v) shall incur no liability under or in respect of this
Agreement or any of the other Transaction Documents by acting upon any notice
(including notice by telephone), consent, certificate or other instrument or
writing (which may be by telex) believed by it to be genuine and signed or sent
by the proper party or parties.
SECTION 9.3. Credit Decision. The Company, Sheffield and each Bank
Investor acknowledges that it has, independently and without reliance upon the
Agent or the Enterprise Agent, any of the Agent's or the Enterprise Agent's
Affiliates, any other Bank Investor, Sheffield or the Company (in the case of
any Bank Investor) and based upon such documents and information as it has
deemed appropriate, made its own evaluation and decision to enter into this
Agreement and the other Transaction Documents to which it is a party and, if it
so determines, to accept the transfer of any undivided ownership interest in
the Affected Assets hereunder. The Company, Sheffield and each Bank Investor
also acknowledges that it will, independently and without reliance upon the
Agent and the Enterprise Agent, any of the Agent's or the Enterprise Agent's
Affiliates, any other Bank Investor, Sheffield or the Company (in the case of
any Bank Investor) and based on such documents and information as it shall deem
appropriate at the time, continue to make its own decisions in taking or not
taking action under this Agreement and the other Transaction Documents to which
it is a party.
SECTION 9.4. Indemnification of the Enterprise Agent. The Bank
Investors agree to indemnify the Enterprise Agent (to the extent not reimbursed
by the Transferor), ratably in accordance with their Pro Rata Shares, from and
against any and all liabilities, obligations,
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losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever which may be imposed on,
incurred by, or asserted against the Enterprise Agent in any way relating to or
arising out of this Agreement or any action taken or omitted by the Enterprise
Agent, any of the other Transaction Documents hereunder or thereunder, provided
that the Bank Investors shall not be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from the Enterprise Agent's
gross negligence or willful misconduct. Without limitation of the foregoing,
the Bank Investors agree to reimburse the Enterprise Agent, ratably in
accordance with their Pro Rata Shares, promptly upon demand for any
out-of-pocket expenses (including counsel fees) incurred by the Enterprise
Agent in connection with the administration, modification, amendment or
enforcement (whether through negotiations, legal proceedings or otherwise) of,
or legal advice in respect of rights or responsibilities under, this Agreement
and the other Transaction Documents, to the extent that such expenses are
incurred in the interests of or otherwise in respect of the Bank Investors
hereunder and/or thereunder and to the extent that the Enterprise Agent is not
reimbursed for such expenses by the Transferor.
SECTION 9.5. Successor Agent and Enterprise Agent. (a) The Agent
may resign at any time by giving written notice thereof to each Bank Investor,
Sheffield, the Company and the Transferor and may be removed at any time with
cause by the Majority Investors. Upon any such resignation or removal, the
Majority Investors shall appoint a successor Agent. The Company, Sheffield and
each Bank Investor agrees that it shall not unreasonably withhold or delay its
approval of the appointment of a successor Agent. If no such successor Agent
shall have been so appointed, and shall have accepted such appointment, within
30 days after the retiring Agent's giving of notice of resignation or the
Majority Investors' removal of the retiring Agent, then the retiring Agent may,
on behalf of the Company, Sheffield and the Bank Investors, appoint a successor
Agent which successor Agent shall be either (i) a commercial bank organized
under the laws of the United States or of any state thereof and have a combined
capital and surplus of at least $50,000,000 or (ii) an Affiliate of such a
bank. Upon the acceptance of
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any appointment as Agent hereunder by a successor Agent, such successor Agent
shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations under this Agreement. After any
retiring Agent's resignation or removal hereunder as Agent, the provisions of
this Article IX shall continue to inure to its benefit as to any actions taken
or omitted to be taken by it while it was Agent under this Agreement.
(b) The Enterprise Agent may resign at any time by giving written notice
thereof to each Bank Investor, the Company and the Transferor and may be
removed at any time with cause by the Majority Enterprise Investors. Upon any
such resignation or removal, the Company and the Majority Enterprise Investors
shall appoint a successor Enterprise Agent. The Company and each Bank Investor
agrees that it shall not unreasonably withhold or delay its approval of the
appointment of a successor Enterprise Agent. If no such successor Enterprise
Agent shall have been so appointed, and shall have accepted such appointment,
within 30 days after the retiring Enterprise Agent's giving of notice of
resignation or the Majority Enterprise Investors' removal of the retiring
Enterprise Agent, then the retiring Enterprise Agent may, on behalf of the
Company and the Bank Investors, appoint a successor Enterprise Agent which
successor Enterprise Agent shall be either (i) a commercial bank organized
under the laws of the United States or of any state thereof and have a combined
capital and surplus of at least $50,000,000 or (ii) an Affiliate of such a
bank. Upon the acceptance of any appointment as Enterprise Agent hereunder by
a successor Enterprise Agent, such successor Enterprise Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Enterprise Agent, and the retiring Enterprise Agent shall be
discharged from its duties and obligations under this Agreement. After any
retiring Enterprise Agent's resignation or removal hereunder as Enterprise
Agent, the provisions of this Article IX shall continue to inure to its benefit
as to any actions taken or omitted to be taken by it while it was Enterprise
Agent under this Agreement.
SECTION 9.6. Payments by the Agent and Enterprise Agent. Unless
specifically allocated to the
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Company, a Bank Investor or Sheffield pursuant to the terms of this Agreement,
all amounts received by the Agent on behalf of the Company, the Bank Investors
or Sheffield shall be paid by the Agent to the Company, the Bank Investors (at
their respective accounts specified in their respective Assignment and
Assumption Agreements) in accordance with their respective related pro rata
interests in the Enterprise Net Investment or Sheffield on the Business Day
received by the Agent, unless such amounts are received after 12:00 noon (New
York time) on such Business Day, in which case the Agent shall use its
reasonable efforts to pay such amounts to the Company, the Bank Investors and
Sheffield on such Business Day, but, in any event, shall pay such amounts to
the Company, Sheffield and the Bank Investors in accordance with the Bank
Investors' respective related pro rata interests in the Enterprise Net
Investment not later than the following Business Day.
SECTION 9.7. Bank Commitment; Assignment to Bank Investors.
(a) Bank Commitment. At any time on or prior to the Commitment
Termination Date, in the event that the Company does not effect an Incremental
Transfer as requested under Section 2.2(a), then at any time, the Transferor
shall have the right to require the Company to assign its interest in the
Enterprise Net Investment in whole to the Bank Investors pursuant to this
Section 9.7. In addition, at any time on or prior to the Commitment
Termination Date (i) upon the occurrence of a Termination Event or (ii) the
Company elects to give notice to the Transferor of a Reinvestment Termination
Date, the Transferor hereby requests and directs that the Company assign its
interest in the Enterprise Net Investment in whole to the Bank Investors
pursuant to this Section 9.7 and the Transferor hereby agrees to pay the
amounts described in Section 9.7(d) hereof. Provided that (i) the Net Asset
Test is satisfied and (ii) the Transferor shall have paid to the Company all
amounts due as described in Section 9.7(d) hereof, upon any such election by
the Company or any such request by the Transferor, the Company shall make such
assignment and the Bank Investors shall accept such assignment and shall assume
all of the Company's obligations hereunder. In connection with any assignment
from the Company to the Bank Investors pursuant to this Section 9.7, each Bank
Investor shall, on the date of
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such assignment, pay to the Company an amount equal to its Assignment Amount.
In addition, at any time on or prior to the Commitment Termination Date the
Transferor shall have the right to request funding under this Agreement
directly from the Bank Investors provided that at such time all conditions
precedent set forth herein for an Incremental Transfer shall be satisfied and
provided further that in connection with such funding by the Bank Investors,
the Bank Investors accept the assignment of all of the Company's interest in
the Enterprise Net Investment and assume all of the Company's obligations
hereunder concurrently with or prior to any such Incremental Transfer. Upon
any assignment by the Company to the Bank Investors contemplated hereunder, the
Company shall cease to make any additional Incremental Transfers hereunder.
(b) Assignment. No Bank Investor may assign all or a portion
of its interests in the Enterprise Net Investment, the Receivables, and
Collections, Related Property and Proceeds with respect thereto and its rights
and obligations hereunder to any Person unless approved in writing by the
Enterprise Agent. In the case of an assignment by the Company to the Bank
Investors or by a Bank Investor to another Person, the assignor shall deliver
to the assignee(s) an Assignment and Assumption Agreement in substantially the
form of Exhibit G attached hereto, duly executed, assigning to the assignee a
pro rata interest in the Enterprise Net Investment, the Receivables, and
Collections, Related Property and Proceeds with respect thereto and the
assignor's rights and obligations hereunder and the assignor shall promptly
execute and deliver all further instruments and documents, and take all further
action, that the assignee may reasonably request, in order to protect, or more
fully evidence the assignee's right, title and interest in and to such interest
and to enable the Agent, on behalf of such assignee, to exercise or enforce any
rights hereunder and under the other Transaction Documents to which such
assignor is or, immediately prior to such assignment, was a party. Upon any
such assignment, (i) the assignee shall have all of the rights and obligations
of the assignor hereunder and under the other Transaction Documents to which
such assignor is or, immediately prior to such assignment, was a party with
respect to such interest for all purposes of this Agreement and under the other
Transaction Documents to which such assignor is or,
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immediately prior to such assignment, was a party (it being understood that the
Bank Investors, as assignees, shall (x) be obligated to effect Incremental
Transfers under Section 2.2(a) in accordance with the terms thereof,
notwithstanding that the Company was not so obligated and (y) not have the
right to elect the commencement of the amortization of the Enterprise Net
Investment pursuant to the definition of "Reinvestment Termination Date",
notwithstanding that the Company had such right) and (ii) the assignor shall
relinquish its rights with respect to such interest for all purposes of this
Agreement and under the other Transaction Documents to which such assignor is
or, immediately prior to such assignment, was a party. No such assignment
shall be effective unless a fully executed copy of the related Assignment and
Assumption Agreement shall be delivered to the Enterprise Agent and the
Transferor. All out-of-pocket and legal expenses of the Enterprise Agent and
the assignor incurred in connection with any preparation and filing of any
assignment hereunder shall be borne by the Transferor and not by the assignor
or any such assignee. No Bank Investor shall assign any portion of its
Commitment hereunder without also simultaneously assigning an equal portion of
its interest in Enterprise's Liquidity Provider Agreement.
(c) Effects of Assignment. By executing and delivering an
Assignment and Assumption Agreement, the assignor and assignee thereunder
confirm to and agree with each other and the other parties hereto as follows:
(i) other than as provided in such Assignment and Assumption Agreement, the
assignor makes no representation or warranty and assumes no responsibility with
respect to any statements, warranties or representations made in or in
connection with this Agreement, the other Transaction Documents or any other
instrument or document furnished pursuant hereto or thereto or the execution,
legality, validity, enforceability, genuineness, sufficiency or value or this
Agreement, the other Transaction Documents or any such other instrument or
document; (ii) the assignor makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Transferor,
WorldCom or the Collection Agent or the performance or observance by the
Transferor, WorldCom or the Collection Agent of any of their respective
obligations under this Agreement, the Receivables Purchase Agreement, the other
Transaction Documents or any other instrument or document furnished pursuant
hereto; (iii)
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such assignee confirms that it has received a copy of this Agreement, the
Receivables Purchase Agreement and such other instruments, documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Assumption Agreement and to purchase
such interest; (iv) such assignee will, independently and without reliance upon
the Agent, or any of its Affiliates, or the assignor and based on such
agreements, documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement and the other Transaction Documents; (v) such assignee appoints
and authorizes the Agent to take such action as agent on its behalf and to
exercise such powers under this Agreement, the other Transaction Documents and
any other instrument or document furnished pursuant hereto or thereto as are
delegated to the Agent by the terms hereof or thereof, together with such
powers as are reasonably incidental thereto and to enforce its respective
rights and interests in and under this Agreement, the other Transaction
Documents, the Receivables, the Contracts and the Related Security; (vi) such
assignee agrees that it will perform in accordance with their terms all of the
obligations which by the terms of this Agreement and the other Transaction
Documents are required to be performed by it as the assignee of the assignor;
and (vii) such assignee agrees that it will not institute against the Company
any proceeding of the type referred to in Section 10.9 prior to the date which
is one year and one day after the payment in full of all Commercial Paper
issued by the Company.
(d) Transferor's Obligation to Pay Certain Amounts; Additional
Assignment Amount. The Transferor shall pay to the Agent, for the account of
the Company, in connection with any assignment by the Company to the Bank
Investors pursuant to this Section 9.7, an aggregate amount equal to all
Enterprise Discount to accrue through the end of each outstanding Enterprise
Tranche Period plus all other Aggregate Unpaids (other than the Enterprise Net
Investment) due the Company. To the extent that such Enterprise Discount
relates to interest or discount on Commercial Paper issued by the Company to
fund the Enterprise Net Investment, if the Transferor fails to make payment of
such amounts at or prior to the time of assignment by the Company to the Bank
Investors, such amount shall be paid by the Bank
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Investors (in accordance with their respective Pro Rata Shares) to the Company
as additional consideration for the interests assigned to the Bank Investors
and the amount of the "Enterprise Net Investment" hereunder held by the Bank
Investors shall be increased by an amount equal to the additional amount so
paid by the Bank Investors.
(e) Administration of Agreement After Assignment; Discount.
After any assignment by the Company to the Bank Investors pursuant to this
Section 9.7 (and the payment of all amounts owing to the Company in connection
therewith), all rights of the Administrative Agent and the Collateral Agent set
forth herein shall be deemed to be afforded to the Agent on behalf of the Bank
Investors instead of either such party.
(f) Payments. After any assignment by the Company to the Bank
Investors pursuant to this Section 9.7, all payments to be made hereunder by
the Transferor or the Collection Agent to the Bank Investors shall be made to
the Agent's account as such account shall have been notified to the Transferor
and the Collection Agent.
(g) Downgrade of Bank Investor. If at any time prior to any
assignment by the Company to the Bank Investors as contemplated pursuant to
this Section 9.7, the short term debt rating of any Bank Investor shall be
"A-2" or "P-2" from Standard & Poor's or Moody's, respectively, with negative
credit implications, such Bank Investor, upon request of the Agent, shall,
within 30 days of such request, assign its rights and obligations hereunder to
another financial institution (which institution's short term debt shall be
rated at least "A-2" and "P-2" from Standard & Poor's and Moody's,
respectively, and which shall not be so rated with negative credit
implications). If the short term debt rating of a Bank Investor shall be "A-3"
or "P-3", or lower, from Standard & Poor's or Moody's, respectively (or such
rating shall have been withdrawn by Standard & Poor's or Moody's), such Bank
Investor, upon request of the Enterprise Agent, shall, within five (5) Business
Days of such request, assign its rights and obligations hereunder to another
financial institution (which institution's short term debt shall be rated at
least "A-2" and "P-2" from Standard & Poor's and Moody's, respectively, and
which shall not be so rated with negative credit implications).
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In either such case, if any such Bank Investor shall not have assigned its
rights and obligations under this Agreement within the applicable time period
described above, the Company shall have the right to require such Bank Investor
to accept the assignment of such Bank Investor's Pro Rata Share of the
Enterprise Net Investment; such assignment shall occur in accordance with the
applicable provisions of this Section 9.7. Such Bank Investor shall be
obligated to pay to the Company, in connection with such assignment, in
addition to the Pro Rata Share of the Enterprise Net Investment, an amount
equal to the interest component of the outstanding Commercial Paper issued by
the Company to fund the portion of the Enterprise Net Investment being assigned
to such Bank Investor, as reasonably determined by the Enterprise Agent.
Notwithstanding anything contained herein to the contrary, upon any such
assignment to a downgraded Bank Investor as contemplated pursuant to the
immediately preceding sentence, the aggregate available amount of the Maximum
Enterprise Net Investment, solely as it relates to new Incremental Transfers by
the Company, shall be reduced by the amount of unused Commitment of such
downgraded Bank Investor; it being understood and agreed, that nothing in this
sentence or the two preceding sentences shall affect or diminish in any way any
such downgraded Bank Investor's Commitment to the Transferor or such downgraded
Bank Investor's other obligations and liabilities hereunder and under the other
Transaction Documents.
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ARTICLE X
MISCELLANEOUS
SECTION 10.1. Term of Agreement. This Agreement shall terminate on
the date following the Enterprise Termination Date and the Sheffield
Termination Date upon which the Net Investment has been reduced to zero, all
accrued Enterprise Discount and Sheffield Discount and Servicing Fees have been
paid in full and all other Aggregate Unpaids have been paid in full, in each
case, in cash; provided, however, that (i) the rights and remedies of the
Agent, the Enterprise Agent, the Company, Sheffield, the Bank Investors and the
Administrative Agent with respect to any representation and warranty made or
deemed to be made by the Transferor pursuant to this Agreement, (ii) the
indemnification and payment provisions of Article VIII, and (iii) the agreement
set forth in Section 10.9 hereof, shall be continuing and shall survive any
termination of this Agreement.
SECTION 10.2. Waivers; Amendments. No failure or delay on the part
of the Agent, the Enterprise Agent, the Company, Sheffield, the Administrative
Agent or any Bank Investor in exercising any power, right or remedy under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or remedy preclude any other further exercise
thereof or the exercise of any other power, right or remedy. The rights and
remedies herein provided shall be cumulative and nonexclusive of any rights or
remedies provided by law. Any provision of this Agreement may be waived,
amended, supplemented or otherwise modified, if, but only if, such waiver,
amendment, supplement or other modification is in writing and is signed by the
Transferor, the Company, Sheffield, the Agent and the Majority Enterprise
Investors, provided, however, that to the extent the Agent determines that
there have been no other material changes to the Credit Agreement since the
date upon which the financial covenants set forth in Section 5.3 hereof and the
definitions relating thereto in Exhibit O have last been amended, supplemented
or otherwise modified hereunder, the Agent, the Transferor and WorldCom may,
without the consent of any of the Bank Investors, the Company or Sheffield,
amend, supplement or otherwise modify the financial covenants set forth in
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Section 5.3 hereof and the definitions relating thereto in Exhibit O in any
manner (including, without limitation adding, deleting or modifying any of the
financial covenants hereunder) to make the financial covenants in Section 5.3
and the definitions relating thereto in Exhibit O substantively identical to
the financial covenants set forth in the Credit Agreement.
SECTION 10.3. Notices. Except as provided below, all communications
and notices provided for hereunder shall be in writing (including telecopy or
electronic facsimile transmission or similar writing) and shall be given to the
other party at its address or telecopy number set forth below or at such other
address or telecopy number as such party may hereafter specify for the purposes
of notice to such party. Each such notice or other communication shall be
effective (i) if given by telecopy, when such telecopy is transmitted to the
telecopy number specified in this Section 10.3 and confirmation is received,
(ii) if given by mail 3 Business Days following such posting, postage prepaid,
U.S. certified or registered, (iii) if given by overnight courier, one (1)
Business Day after deposit thereof with a national overnight courier service,
or (iv) if given by any other means, when received at the address specified in
this Section 10.3. However, anything in this Section to the contrary
notwithstanding, the Transferor hereby authorizes the Company to effect
Transfers, Tranche Period and Tranche Rate selections based on telephonic
notices made by any Person which the Company in good faith believes to be
acting on behalf of the Transferor. The Transferor agrees to deliver promptly
to the Company a written confirmation of each telephonic notice signed by an
authorized officer of Transferor. However, the absence of such confirmation
shall not affect the validity of such notice. If the written confirmation
differs in any material respect from the action taken by the Company or
Sheffield, the records of the Company or Sheffield shall govern absent manifest
error.
If to the Company:
Enterprise Funding Corporation
c/o Merrill Lynch Money Markets Inc.
World Financial Center--South Tower
225 Liberty Street
New York, New York 10080
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<PAGE> 129
Telephone: (212) 236-7200
Telecopy: (212) 236-7584
(with a copy to the Administrative Agent)
If to Sheffield:
SHEFFIELD RECEIVABLES CORPORATION
c/o Barclays Bank PLC, New York Branch
222 Broadway, 8th Floor
New York, New York 10038
Attention: Andrew Shuster
Telephone: (212) 412-7554
Telecopy: (212) 412-6846
Payment Information:
Barclays Bank PLC
ABA 026002574
Account 050786393
Reference Sheffield 3A Funding Account
If to the Transferor:
WORLDCOM FUNDING CORPORATION
515 East Amite, 6th Floor
Jackson, Mississippi 39201-2002
Attention: Margaret Barry
Telephone: (601) 360-8693
Telecopy: (601) 974-8247
Payment Information:
NationsBank, N.A.
ABA 111000012
Account 3750777826
Reference WorldCom Funding Corporation
If to WorldCom:
WORLDCOM, INC.
515 East Amite, 6th Floor
Jackson, Mississippi 39201-2002
Attention: David F. Myers
Telephone: (601) 360-8760
Telecopy: (601) 360-8190
If to the Collateral Agent:
NATIONSBANK, N.A.
NationsBank Corporate Center
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<PAGE> 130
100 North Tryon Street
NC1-007-10-07
Charlotte, North Carolina 28255
Attention: Michelle M. Heath--
Structured Finance
Telephone: (704) 386-7922
Telecopy: (704) 388-9169
If to the Agent, the Enterprise Agent
or the Administrative Agent:
NATIONSBANK, N.A.
NationsBank Corporate Center
100 North Tryon Street
NC1-007-10-07
Charlotte, North Carolina 28255
Attention: Michelle M. Heath--
Structured Finance
Telephone: (704) 386-7922
Telecopy: (704) 388-9169
Payment Information:
NationsBank, N.A.
ABA 053-000-196
for the account of
NationsBank Charlotte
Account No. 10822016511
Attn.: Camille Zerbinos
If to the Bank Investors, at their respective addresses set forth on
the signature pages hereto or of the Assignment and Assumption Agreement
pursuant to which it became a party hereto.
SECTION 10.4. Governing Law; Submission to Jurisdiction;
Integration.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THE TRANSFEROR HEREBY
SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING
IN THE CITY OF NEW YORK FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY; PROVIDED,
HOWEVER, THAT THE TRANSFEROR HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF
THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF
ANY NEW YORK STATE COURT SITTING IN THE CITY OF NEW YORK FOR
125
<PAGE> 131
PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO SECTION 7.1(U)
HEREOF. The Transferor hereby irrevocably waives, to the fullest extent it may
effectively do so, any objection which it may now or hereafter have to the
laying of the venue of any such proceeding brought in such a court and any
claim that any such proceeding brought in such a court has been brought in an
inconvenient forum. Nothing in this Section 10.4 shall affect the right of the
Company to bring any action or proceeding against the Transferor or its
property in the courts of other jurisdictions.
(b) EACH OF THE PARTIES HERETO HEREBY WAIVES ANY RIGHT TO HAVE
A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT
OR OTHERWISE AMONG ANY OF THEM ARISING OUT OF, CONNECTED WITH, RELATING TO OR
INCIDENTAL TO THE RELATIONSHIP BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT
OR THE OTHER TRANSACTION DOCUMENTS.
(c) This Agreement contains the final and complete integration
of all prior expressions by the parties hereto with respect to the subject
matter hereof and shall constitute the entire Agreement among the parties
hereto with respect to the subject matter hereof superseding all prior oral or
written understandings.
SECTION 10.5. Severability; Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the same
Agreement. Any provisions of this Agreement which are prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 10.6. Successors and Assigns. (a) This Agreement shall be
binding on the parties hereto and their respective successors and assigns;
provided, however, that neither the Transferor nor WorldCom may assign any of
its rights or delegate any of
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<PAGE> 132
its duties hereunder or under the Receivables Purchase Agreement or under any
of the other Transaction Documents to which it is a party without the prior
written consent of the Agent. No provision of this Agreement shall in any
manner restrict the ability of the Company or any Bank Investor to assign,
participate, grant security interests in, or otherwise transfer any portion of
the Transferred Interest.
(b) Each of the Transferor and WorldCom hereby agrees and
consents to the assignment by the Company from time to time of all or any part
of its rights under, interest in and title to this Agreement and the
Transferred Interest to any Liquidity Provider. In addition, each of the
Transferor and WorldCom hereby consents to and acknowledges the assignment by
the Company of all of its rights under, interest in and title to this Agreement
and the Transferred Interest to the Collateral Agent.
SECTION 10.7. Waiver of Confidentiality. Each of the Transferor and
WorldCom hereby consents to the disclosure of any non-public information with
respect to it received by the Company, the Agent, the Enterprise Agent,
Sheffield, any Bank Investor or the Administrative Agent to any of the Company,
the Agent, the Enterprise Agent, any nationally recognized rating agency rating
the Company's Commercial Paper, the Administrative Agent, the Collateral Agent,
any Bank Investor or potential Bank Investor, Sheffield, the Liquidity Provider
or the Credit Support Provider in relation to this Agreement.
SECTION 10.8. Confidentiality Agreement. Each of the Transferor and
WorldCom hereby agrees that it will not disclose the contents of this Agreement
or any other proprietary or confidential information of the Company, the Agent,
the Enterprise Agent, the Administrative Agent, the Collateral Agent, any
Liquidity Provider, Sheffield or any Bank Investor to any other Person except
(i) its auditors and attorneys, employees or financial advisors (other than any
commercial bank) and any nationally recognized rating agency, provided such
auditors, attorneys, employees, financial advisors or rating agencies are
informed of the highly confidential nature of such information or (ii) as
otherwise required by applicable law or order of a court of competent
jurisdiction.
127
<PAGE> 133
SECTION 10.9. No Bankruptcy Petition Against the Company or
Sheffield. Each of the Transferor and WorldCom hereby covenants and agrees
that, prior to the date which is one year and one day after the payment in full
of all outstanding Commercial Paper or other indebtedness of the Company and
Sheffield, it will not institute against, or join any other Person in
instituting against, the Company or Sheffield any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings or other similar proceeding
under the laws of the United States or any state of the United States.
SECTION 10.10. Limited Recourse; Waiver of Setoff.
(a) Notwithstanding anything to the contrary contained herein,
the obligations of the Company and Sheffield under this Agreement are solely
the corporate obligations of the Company and Sheffield, respectively, and shall
be payable at such time as funds are received from the Transferor, WorldCom and
other transferors or from any party to any agreement with the Company or
Sheffield in accordance with the terms thereof in excess of funds necessary to
pay matured and maturing Commercial Paper and, to the extent funds are not
available to pay such obligations, the claims relating thereto shall continue
to accrue. Each party hereto agrees that the payment of any claim (as defined
in Section 101 of Title 11 of the Bankruptcy Code) of any such party against
the Company or Sheffield shall be subordinated to the payment in full of all of
the Company's or Sheffield's Commercial Paper, respectively. No recourse shall
be had for the payment of any amount owing in respect of any obligation of, or
claim against, the Company or Sheffield arising out of or based upon this
Agreement against any stockholder, employee, officer, director or incorporator
of the Company or Sheffield, respectively, or any Affiliate thereof or against
any stockholder, employee, officer, director, incorporator or Affiliate of the
Agent or the Enterprise Agent; provided, however, that the foregoing shall not
relieve any such person or entity from any liability they might otherwise have
as a result of fraudulent actions or omissions taken by them.
(b) Each of the Transferor, the Collection Agent and WorldCom
hereby agrees to waive any right of setoff which it may have or to which it may
be
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<PAGE> 134
entitled against the Company or Sheffield and their respective assets.
SECTION 10.11. Characterization of the Transactions Contemplated by
the Agreement. It is the intention of the parties that the transactions
contemplated hereby constitute the sale of the Transferred Interest, conveying
good title thereto free and clear of any Adverse Claims to the Agent, on behalf
of the Company, Sheffield and the Bank Investors, and that the Transferred
Interest not be part of the Transferor's estate in the event of an insolvency.
If, notwithstanding the foregoing, the transactions contemplated hereby should
be deemed a financing, the parties intend that the Transferor shall be deemed
to have granted to the Agent, on behalf of the Company, Sheffield and the Bank
Investors, and the Transferor hereby grants to the Agent, on behalf of the
Company, Sheffield and the Bank Investors, a first priority perfected and
continuing security interest in all of the Transferor's right, title and
interest in, to and under the Receivables, together with Related Security,
Collections and Proceeds with respect thereto, and together with all of the
Transferor's rights under the Receivables Purchase Agreement with respect to
the Receivables and with respect to any obligations thereunder of WorldCom with
respect to the Receivables, and that this Agreement shall constitute a security
agreement under applicable law. The Transferor hereby assigns to the Agent, on
behalf of the Company, Sheffield and the Bank Investors, all of its rights and
remedies under the Receivables Purchase Agreement with respect to the
Receivables and with respect to any obligations thereunder of WorldCom with
respect to the Receivables. The Transferor agrees that it shall not give any
consent or waiver required or permitted to be given under the Receivables
Purchase Agreement without the prior consent of the Agent.
THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK
129
<PAGE> 135
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Amended and Restated Transfer and Administration Agreement as of the date
first written above.
ENTERPRISE FUNDING CORPORATION,
as Company
By: /s/ STEWART L. CUTLER
------------------------------------------
Name: Stewart L. Cutler
Title:
WORLDCOM FUNDING CORPORATION,
as Transferor
By: /s/ DAVID F. MYERS
------------------------------------------
Name: David F. Myers
Title: Treasurer
WORLDCOM, INC., individually
and as Collection Agent
By: /s/ SCOTT D. SULLIVAN
------------------------------------------
Name: Scott D. Sullivan
Title: Chief Financial Officer
SHEFFIELD RECEIVABLES CORPORA
By Barclays Bank PLC,
as Attorney-in-fact
By: /s/ ANDREW SHUSTER
------------------------------------------
Name: Andrew Shuster
Title: Associate Director
Commitment NATIONSBANK, N.A., as Agent
- ---------- and a Bank Investor
$306,000,000.00
By: /s/ BRIAN C. BLAKELY
------------------------------------------
Name: Brian C. Blakely
Title: Investment Banking Officer
<PAGE> 1
EXHIBIT 10.8
AMENDMENT NUMBER 1 TO
AMENDED AND RESTATED TRANSFER AND ADMINISTRATION AGREEMENT
AMENDMENT NUMBER 1 TO AMENDED AND RESTATED TRANSFER AND
ADMINISTRATION AGREEMENT (this "Amendment"), dated as of January 16, 1997 among
WORLDCOM FUNDING CORPORATION, a Delaware corporation, as transferor (in such
capacity, the "Transferor"), WORLDCOM, INC., a Georgia corporation,
individually, and as collection agent (in such capacity, the "Collection
Agent"), ENTERPRISE FUNDING CORPORATION, a Delaware corporation (the
"Company"), SHEFFIELD RECEIVABLES CORPORATION ("Sheffield") and NATIONSBANK,
N.A., as Agent and Bank Investor, amending that certain Amended and Restated
Transfer and Administration Agreement dated as of December 31, 1996 (the
"Transfer and Administration Agreement").
WHEREAS, the Transferor, the Collection Agent, Sheffield,
NationsBank, N.A. and the Company have agreed to make certain amendments to the
Transfer and Administration Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
SECTION 1. Defined Terms. As used in this Amendment, capitalized
terms shall have the same meanings assigned thereto in the Transfer and
Administration Agreement.
SECTION 2. Termination Events. Section 7.1(o) of the Transfer and
Administration Agreement is hereby amended by changing the percentage stated in
the third line thereof from 10% to 12%.
SECTION 3. Limited Scope. This amendment is specific to the
circumstances described above and does not imply any future amendment or waiver
of rights allocated to the Company, the Transferor, WorldCom, Inc. the
Collection Agent, Sheffield, the Agent or any Bank Investor under the Transfer
and Administration Agreement.
SECTION 4. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
<PAGE> 2
SECTION 5. Severability; Counterparts. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the same
instrument. Any provisions of this Amendment which are prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 6. Ratification. Except as expressly affected by the
provisions hereof, the Transfer and Administration Agreement as amended shall
remain in full force and effect in accordance with its terms and ratified and
confirmed by the parties hereto. On and after the date hereof, each reference
in the Transfer and Administration Agreement to "this Agreement", "hereunder",
"herein" or words of like import shall mean and be a reference to the Transfer
and Administration Agreement as amended by this Amendment.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Amendment Number 1 as of the date first written above.
ENTERPRISE FUNDING CORPORATION,
as Company
By: /s/ STEWART L. CUTLER
----------------------------------------
Name: Stewart L. Cutler
Title: Vice President
WORLDCOM FUNDING CORPORATION
as Transferor
By: /s/ David F. Myers
----------------------------------------
Name: David F. Myers
Title:
WORLDCOM, INC. individually
and as Collection Agent
By: /s/ Scott D. Sullivan
---------------------------
Name: Scott D. Sullivan
Title: CFO and Secretary
SHEFFIELD RECEIVABLES CORPORATION
By Barclays Bank PLC
as Attorney-in-fact
By: /s/ Andrew Shuster
---------------------------------
Name: Andrew Shuster
Title: Associate Director
NATIONSBANK, N.A
as Agent and Bank Investor
By: /s/ Brian C. Blakely
---------------------------
Name: Brian C. Blakely
Title: Investment Banking Officer
<PAGE> 1
EXHIBIT 10.13
WORLDCOM/MFS 1995 DEFERRED STOCK PURCHASE PLAN
(AMENDED AND RESTATED AS OF DECEMBER 31, 1996)
INTRODUCTION AND HISTORY OF PLAN
The Plan originally was adopted by MFS Communications Company, Inc.
("MFS") effective October 1, 1995. Effective December 31, 1996, MFS merged
with and into WorldCom, Inc. ("WorldCom") pursuant to a Merger Agreement. As a
result of the merger, WorldCom assumed sponsorship of the Plan, and the Plan
was amended and restated to redesignate the Plan as sponsored by WorldCom
effective December 31, 1996. Under the terms of the Merger Agreement, rights
to acquire stock of MFS outstanding under the Plan before December 31, 1996
were substituted with rights to acquire stock of WorldCom, as adjusted for the
merger exchange ratio of 2.1 shares of stock of WorldCom for each outstanding
share of MFS stock. Except as adjusted for this exchange ratio, all rights of
Participants and their Beneficiaries under the Plan before December 31, 1996
are preserved hereunder. This amended and restated Plan incorporates changes
in the Plan due to this merger but retains provisions relating to the Original
Effective Date for historical purposes. The amended and restated Plan is
intended to change the Plan as required as a result of the merger but is not
otherwise intended to effect substantive amendments to the Plan beyond those
required by the merger.
1. PURPOSE AND INTENT
The purpose of this Plan is (i) to align employee and stockholder
long-term interests by creating a direct link between compensation and
stockholder return, (ii) to enable employees to develop and maintain a
substantial equity ownership position in the Company and (iii) to provide
incentives to such employees to contribute to the success of the business of
the Company. The provisions of the Plan are intended to satisfy the
requirements of Section 16(b) of the Securities Exchange Act of 1934, as
amended from time to time, and shall be interpreted in a manner consistent with
the requirements thereof, as now or hereafter construed, interpreted and
applied by regulations, rulings and cases.
2. DEFINITIONS
As used in this Plan, the following words and phrases shall have the
meanings indicated:
"Administrator" shall mean the Compensation Committee or its delegate
which administers the Plan in accordance with Article 9.
"Amended Effective Date" shall mean December 31, 1996, the date of
this amended and restated WorldCom/MFS 1995 Deferred Stock Purchase Plan.
"Base Salary" shall mean the base salary payable to a Participant by
the Company or a Subsidiary, plus overtime, shift premium and cost-of-living
adjustments.
"Beneficiary" shall mean that person or persons designated by a
Participant to receive the Stock distributable from the Participant's Deferral
Account and Matching Account in the event of such Participant's death, in
accordance with Article 8. Such designation shall be made on a form provided
by the Administrator. A Participant may from time to time change his
designated Beneficiaries by filing a new designation in writing with the
Administrator. A Participant may designate a Beneficiary, or change a prior
designation, only in accordance with the beneficiary designation procedures
applicable to the WorldCom/MFS Employee Stock Bonus Plan, as amended from time
to time. The Company and the Administrator may rely conclusively upon the
Beneficiary designation last filed in accordance with the terms of the Plan.
If there is no surviving designated Beneficiary, the Beneficiary shall be
deemed to be the Participant's spouse or, if the Participant has no spouse, the
Participant's estate.
<PAGE> 2
"Board" shall mean the Board of Directors of the Company.
"Bonus" shall mean the annual bonus payable to a Participant by the
Company or a Subsidiary under any bonus plan or arrangement maintained by the
Company or a Subsidiary.
"Bonus Deferral Agreement" shall mean an agreement entered into
between the Company (on behalf of itself and, in the case of any Participant
employed by a Subsidiary, on behalf of such Subsidiary) and a Participant to
defer from 1% to 10% (in whole number increments as indicated on such Bonus
Deferral Agreement) of such Participant's Bonus pursuant to Section 5(b).
"Change in Control" shall mean, with respect to the Company, (i) the
acquisition by any person, entity or "group," within the meaning of Section
13(d)(3) or 14(d)(2) of the Exchange Act, other than any Permitted Holder (as
defined below), of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of more than 50% of either (x) the then
outstanding shares of Stock or (y) the combined voting power of the Company's
then outstanding voting securities, (ii) approval by the stockholders of the
Company of a reorganization, merger or consolidation, in each case, with
respect to which persons who were the stockholders of the Company immediately
prior to such reorganization, merger or consolidation, do not, immediately
thereafter, own more than 50% of the combined voting power entitled to vote
generally in the election of directors of the reorganized, merged or
consolidated company's then outstanding voting securities (other than a
transaction approved by shareholders of MFS at its 1995 annual meeting of
shareholders), or a liquidation or dissolution of the Company or the sale of
all or substantially all of the assets of the Company, or (iii) the replacement
of more than 50% of the members of the Board of the Company with persons who
were not nominated or otherwise designated by the remaining members of the
Board. The term "Permitted Holder" shall mean (X) the Company or any of its
affiliates, (Y) Kiewit Diversified Group, Inc. ("KDG") or any of its affiliates
or (Z) any employee benefit plan of the Company, KDG or any of their
affiliates.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Commissions" shall mean commission income payable by the Company or a
Subsidiary to a Participant.
"Commission Deferral Agreement" shall mean an agreement entered into
between the Company (on behalf of itself and, in the case of any Participant
employed by a Subsidiary, on behalf of such Subsidiary) and a Participant to
defer from 1% to 10% (in whole number increments as indicated on such
Commission Deferral Agreement) of such Participant's Commissions pursuant to
Section 5(b).
"Compensation Committee" shall mean the Compensation Committee of the
Board.
"Company" shall mean WorldCom, Inc., a Georgia corporation, or any
successor corporation.
"Constructive Involuntary Termination" shall mean the voluntary
termination of a person's employment with the Company and all of its
Subsidiaries within 90 days following (i) a material reduction in his
compensation (including applicable fringe benefits), without his consent, (ii)
his demotion or the diminution in his position, authority, duties or
responsibilities, without cause and without his consent, or (iii) the
relocation of his principal place of employment, without his consent.
"Deferral Account" shall mean the bookkeeping account established by
the Company for each Participant to reflect Stock Units credited to such
Participant which are attributable to his or her Deferral Contributions.
"Deferral Contribution" shall mean a Participant's deferral of Base
Salary, Bonus or Commissions, which is translated into Stock Units and credited
to a Participant's Deferral Account in accordance with Section 6(a).
-2-
<PAGE> 3
"Disability" means long-term disability as determined by the United
States Social Security Administration.
"Employee" shall mean any common-law employee of the Company or a
Subsidiary who is regularly scheduled to work at least 30 hours per week.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"Fair Market Value" of a share of Stock on any given day shall mean:
(i) the closing price per share of Stock on the national securities exchange on
which such Stock is principally traded, on the next preceding date on which
there was a sale of Stock on such exchange, or (ii) if the Stock is not listed
or admitted to trading on any such exchange, the average of the highest
reported bid and lowest reported asked prices per share of Stock as reported by
the National Association of Securities Dealers Inc. Automated Quotation
("NASDAQ") system on the next preceding date on which such bid and asked prices
were reported, or (iii) if the Stock is not then listed on any securities
exchange or prices therefor are not then quoted in the NASDAQ system, the value
determined by the Compensation Committee in good faith.
"Financial Hardship" means severe financial hardship to the
Participant resulting from a sudden and unexpected illness or accident of the
Participant or a dependent, loss of the Participant's property due to casualty,
or other similar extraordinary and unforeseeable circumstances arising as a
result of events beyond the control of the Participant. The circumstances that
will constitute a Financial Hardship will depend upon the facts of each case
and will be determined by the Administrator in its sole discretion, but
distributions may not be made to the extent that such hardship is or may be
relieved (i) through reimbursement or compensation by insurance or otherwise or
(ii) by liquidation of the Participant's assets, to the extent the liquidation
of such assets would not itself cause severe financial hardship.
"Matching Account" shall mean the bookkeeping account established by
the Company for each Participant to reflect Stock Units credited to each
Participant which are attributable to Matching Contributions.
"Matching Contribution" shall mean Stock Units credited to a
Participant's Matching Account from time to time in accordance with Section
6(b).
"Merger Agreement" shall mean the Amended and Restated Agreement and
Plan of Merger dated as of August 25, 1996 by and between the Company, HIJ
Corp., a wholly-owned subsidiary of the Company ("HIJ"), and MFS, whereby HIJ
merged with and into MFS.
"MFS" shall mean MFS Communications Company, Inc., a Delaware
corporation, which is a Subsidiary of the Company pursuant to a merger with the
Company on December 31, 1996.
"MFS Stock" shall mean the common stock of MFS, par value $0.01 per
share.
"Original Effective Date" shall mean October 1, 1995, which is the
effective date of the former MFS Communications Company, Inc. 1995 Deferred
Stock Purchase Plan.
"Participant" shall mean an Employee who has properly filed with the
Company a Salary Deferral Agreement, a Bonus Deferral Agreement or a Commission
Deferral Agreement pursuant to Article 5.
"Pay Period" shall mean each payroll period of the Company or a
Subsidiary, as the case may be.
"Plan" shall mean this WorldCom/MFS 1995 Deferred Stock Purchase Plan,
as amended from time to time.
-3-
<PAGE> 4
"Purchase Date" shall mean the date on which Base Salary, a Bonus or
Commissions to which any Salary, Bonus or Commission Deferral Agreement relates
otherwise would be paid.
"Quarter" shall mean a calendar quarter during a Year.
"Rule 16b-3" shall mean Rule 16b-3 promulgated under the Exchange Act,
including any successor to such rule.
"Salary Deferral Agreement" shall mean an agreement entered into
between the Company (on behalf of itself and, in the case of any Participant
employed by a Subsidiary, on behalf of such Subsidiary) and a Participant to
defer from 1% to 10% (in whole number increments as indicated on such Salary
Deferral Agreement) of such Participant's Base Salary in accordance with
Section 5(a).
"Section 16 Person" shall mean an Employee who is subject to the
reporting and "short-swing" profit recapture provisions of Section 16 of the
Exchange Act.
"Stock" shall mean the common stock of the Company, par value $0.01
per share.
"Stock Units" shall mean units credited to Deferral Accounts and
Matching Accounts, rounded to the nearest one one-hundredth of a share,
representing a Participant's right to receive one share of Stock for each such
whole unit upon satisfaction of the criteria set forth in the Plan.
"Subsidiary" shall mean any subsidiary of the Company (whether or not
a subsidiary at the date the Plan is adopted) other than a subsidiary which is
designated by the Compensation Committee or Board as not eligible to
participate in the Plan.
"Vesting Date" shall mean, with respect to Stock Units credited to a
Participant's Matching Account, the third anniversary of the last day of the
Quarter in which the Purchase Date relating to such Stock Units occurred.
"Year" shall mean the calendar year.
3. NO SHARES SUBJECT TO THE PLAN
No shares of Stock shall be reserved for, or issued under, the Plan.
To the extent that shares of Stock are delivered to Participants pursuant to
the provisions of this Plan, such shares shall be issued under, and shall be
subject to the applicable terms and conditions of, the WorldCom/MFS 1993 Stock
Plan, as amended from time to time (the "1993 Plan").
4. ELIGIBILITY
(a) On the Original Effective Date. On the Original Effective
Date, eligibility to participate in the Plan shall be limited to those
Employees who (i) have completed a Quarter of continuous employment with the
Company or a Subsidiary prior to October 1, 1995 and (ii) with respect to
Employees hired prior to September 1, 1995, have not elected to waive
participation in MFS's ShareWorks program by September 8, 1995 or, with respect
to such Employees who have so waived, have not been otherwise designated by the
Compensation Committee (not later than the Original Effective Date) to be
eligible for the Plan.
(b) Following the Original Effective Date. Following the Original
Effective Date, Employees not eligible on the Original Effective Date pursuant
to Section 4(a) shall first become eligible to participate in the Plan upon (i)
the completion of a Quarter of continuous employment with the Company or a
Subsidiary and (ii) with respect to those Employees hired prior to September 1,
1995 who elected to waive participation in MFS's
-4-
<PAGE> 5
ShareWorks program by September 8, 1995, (X) six months following the last
grant of stock options to such Employees under the 1993 Plan or (Y) the
designation by the Compensation Committee of their eligibility for the Plan.
5. PARTICIPATION
(a) Base Salary Deferrals. An eligible Employee may participate
in the Plan with respect to deferrals of Base Salary by filing a Salary
Deferral Agreement with the Company. Salary Deferral Agreements may be filed
prior to the time Employee first becomes eligible to participate in the Plan.
Except as provided in clause (i), (ii), (iii) or (iv) below, a Salary Deferral
Agreement shall be effective as of the first Pay Period beginning in the
Quarter following the Quarter in which it is filed with the Company. A Salary
Deferral Agreement shall remain in effect for each remaining Quarter of the
Year for which it is so filed. However, notwithstanding the above:
(i) Except to the extent provided in clause (iv) below, a
Participant may amend or revoke a Salary Deferral Agreement by filing a new
Salary Deferral Agreement with the Company, or a revocation of the current
Salary Deferral Agreement on such form as shall be acceptable to the
Administrator, in either case to take effect in the first Pay Period of the
Quarter following the Quarter in which such document is filed with the Company.
A Participant who amends a Salary Deferral Agreement may subsequently further
amend such amended Salary Deferral Agreement in accordance with the preceding
sentence. A Participant who revokes a Salary Deferral Agreement may
subsequently file a new Salary Deferral Agreement with the Company, to take
effect in the first Pay Period of the Quarter following the Quarter in which
such new Salary Deferral Agreement is filed with the Company.
(ii) Notwithstanding clause (iv) below, an Employee who is
eligible to participate in the Plan on the Original Effective Date may file a
Salary Deferral Agreement with the Company no later than September 8, 1995,
such Salary Deferral Agreement to take effect for the first Pay Period
beginning on or after the Original Effective Date.
(iii) Notwithstanding clause (iv) below, an Employee who
first becomes eligible to participate in the Plan following the Original
Effective Date may file a Salary Deferral Agreement with the Company no later
than 30 days following such initial eligibility, such Salary Deferral Agreement
to take effect for the first Pay Period beginning as soon as practicable after
being so filed, but only with respect to Base Salary earned during and
following such Pay Period.
(iv) A Salary Deferral Agreement, an amendment to a Salary
Deferral Agreement or a revocation of a Salary Deferral Agreement must be filed
with the Company no later than 30 days prior to the end of the Quarter
preceding the Quarter in which it is first effective. Any such document filed
later than that time, but otherwise in accordance with this Section 5(a), shall
take effect in the first Pay Period of the second Quarter following the date of
filing.
(b) Bonus/Commission Deferrals. An eligible Employee may
participate in the Plan with respect to deferrals of Bonus and/or Commissions
by filing a Bonus Deferral Agreement and/or a Commission Deferral Agreement
with the Company. Bonus Deferral Agreements and Commission Deferral Agreements
may be filed prior to the time an Employee first becomes eligible to
participate in the Plan. A Bonus Deferral Agreement and a Commission Deferral
Agreement shall be effective as to any Bonus or Commission, as applicable,
payable during the Year following the Year in which it is so filed, and is
irrevocable. However, notwithstanding the above:
(i) An Employee who first becomes eligible to participate
in the Plan on the Original Effective Date may file an irrevocable Bonus
Deferral Agreement and/or Commission Deferral Agreement with the Company with
respect to Bonuses and Commissions attributable to the Year 1995 no later than
September 8, 1995, such Agreements to take effect as of October 1, 1995.
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<PAGE> 6
(ii) An Employee who first becomes eligible to participate
in the Plan following the Original Effective Date may file an irrevocable Bonus
Deferral Agreement and/or Commission Deferral Agreement with the Company with
respect to Bonuses and Commissions attributable to the Year of such initial
eligibility no later than 30 days following such initial eligibility, such
Agreements to take effect as soon as practicable after being so filed.
(iii) The Administrator reserves the right to reject any
such Bonus and/or Commission Deferral Agreement to the extent it determines
that the amount of the Bonus or Commission to which such Agreement relates is
earned or determinable at the time such Agreement otherwise would become
effective. Further, any such Bonus and/or Commission Deferral Agreement shall
be effective only with respect to Commissions or Bonuses paid following the
time such Agreement becomes effective, and in the Year following the time such
Agreement is filed with the Company.
(c) Special Provisions Applicable to Section 16 Persons. Any
Salary Deferral Agreement, Bonus Deferral Agreement or Commission Deferral
Agreement entered into by a Section 16 Person (or any subsequent amendment or
revocation thereof in the case of a Salary Deferral Agreement) shall become
effective at least six months after the date such Agreement (or amendment or
revocation, in the case of a Salary Deferral Agreement) is filed with the
Company; provided that the foregoing shall not apply to any such election which
otherwise would take effect prior to April 1, 1996. Instead, with respect to
the participation in the Plan of any Section 16 Person prior to April 1, 1996:
(i) If such Section 16 Person ceases participation in the
Plan, he or she may not participate again for at least six months following
such cessation.
(ii) Any Stock distributed to the Section 16 Person from
the Plan may not be sold by such Section 16 Person until the later of (i) six
months following the effective date of the deferral to which such distributed
Stock relates or (ii) six months following the date of distribution; provided
that clause (ii) shall not apply in the event of (X) extraordinary
distributions of all of the Stock attributable to Stock Units credited to all
Participants' accounts under the Plan or (Y) distributions in connection with
death, retirement, disability, termination of employment, or a qualified
domestic relations order, as defined in the Code or Title I of the Employee
Retirement Income Security Act of 1974, as amended, or the rules thereunder.
This Section 5(c) shall be interpreted in a manner intended to
cause transactions under the Plan with respect to Section 16 Persons to comply
with Rule 16b-3 under the Exchange Act, and consequently to be exempt from the
"short-swing" profit recapture rules of Section 16(b) of the Exchange Act. In
the case of any amendment to such Rule 16b-3 following the Original Effective
Date, or the receipt by the Company of an applicable No-Action Letter from the
Securities and Exchange Commission, this Section 5(c) shall be deemed amended
to the extent necessary to obtain such exemption, or comply with the conditions
of such No-Action Letter, with as little disruption as possible to the normal
operation of the Plan.
The above provisions of this Section 5(c) shall not apply to
any Section 16 Person who gives the Company written notice that he or she does
not wish them to so apply, which notice shall (i) acknowledge that some or all
of the Section 16 Person's transactions under the Plan will not be exempt under
Rule 16b-3 and (ii) be delivered prior to any action by such Section 16 Person
which contravenes the above provisions of this Section 5(c).
(d) Cessation of Participation. A Participant ceases to be a
Participant on the date on which Stock attributable to all Stock Units credited
to his or her Deferral Account and Matching Account have been completely paid
out or forfeited in accordance with Article 8. Notwithstanding any provision
of the Plan to the contrary, in the case of a Participant who ceases to be an
Employee, but continues to be a common-law employee of the Company or any
affiliate, for so long as he or she is not an Employee (i) such person shall
not have the right to elect to make deferrals of Salary, Bonus and/or
Commissions under the Plan, and (ii) any Salary, Bonus and/or
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<PAGE> 7
Commission Deferral Agreement in effect at the time such person ceases to be an
Employee shall become null and void and of no effect.
6. CREDITING TO ACCOUNTS
(a) Deferral Accounts. On each Purchase Date, the Company shall
credit each Participant's Deferral Account with a number of Stock Units equal
to (i) the amount of such Participant's deferral attributable to such Purchase
Date pursuant to his or her Salary, Bonus or Commission Deferral Agreement, as
applicable, divided by (ii) the Fair Market Value of a share of Stock as of
such Purchase Date.
(b) Matching Accounts. On each Purchase Date, the Company shall
credit each Participant's Matching Account with that number of Stock Units
credited on such Purchase Date to the Participant's Deferral Account.
(c) Dividends. No adjustment shall be made to Stock Units
credited to Deferral Accounts or Matching Accounts on account of cash dividends
paid on Stock.
(d) Effect of Payments. The amount of Stock Units credited to a
Participant's Deferral Account and Matching Account shall be reduced by the
number of shares of Stock distributed to the Participant or his Beneficiary
(including any Stock Units cancelled by the Company in accordance with Section
8(g)) or, in the case of a Matching Account, forfeited in accordance with
Section 8(d).
(e) Effect of Certain Changes. In the event of any extraordinary
dividend, share dividend, recapitalization, merger, consolidation, share split,
warrant or rights issuance, or combination or exchange of the Stock, or other
similar transactions, the number of Stock Units credited to each Participant's
Deferral Account and Matching Account shall be equitably adjusted by the
Administrator (which for this purpose shall be the Compensation Committee), in
its discretion, to reflect such event and such administrator may make such
other adjustments to the terms of outstanding Stock Units as it may deem
equitable under the circumstances.
7. VESTING
(a) Deferral Accounts. A Participant shall at all times be fully
vested in the Stock Units credited to his or her Deferral Account.
(b) Matching Accounts. Except as specifically noted below in this
Section 7(b), a Participant shall vest in any particular Stock Units credited
to his or her Matching Account on the Vesting Date applicable to such Stock
Units.
In addition, notwithstanding the general vesting provisions
stated above, a Participant shall become fully vested in all Stock Units
credited to his or her Matching Account upon the occurrence of any of the
following:
(i) the death or Disability of a Participant while still
employed with the Company or a Subsidiary;
(ii) the termination of a Participant's employment with
the Company or a Subsidiary after attaining age 62;
(iii) the termination of a Participant's employment with
the Company or a Subsidiary after attaining age 55, if the Participant's age
plus complete years of employment with the Company and all Subsidiaries totals
at least 62;
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<PAGE> 8
(iv) the termination of a Participant's employment by the
Company or a Subsidiary, without cause, within two years following a Change in
Control; or
(v) a Participant's Constructive Involuntary Termination
within two years following a Change in Control.
For purposes of the above conditions (i) through (v), the term
"Subsidiary" shall include subsidiaries of the Company which do not participate
in the Plan.
8. PAYMENT OF ACCOUNTS; FORFEITURES
(a) Matching Account Payments. On, or as soon as practicable
after, any Stock Units credited to a Participant's Matching Account become
vested in accordance with Section 7(b), the Company shall issue to the
Participant or his or her Beneficiary, as applicable, that number of shares of
Stock equal to the whole Stock Units which become so vested.
(b) Deferral Account Payments. At the same time as shares of
Stock attributable to a Participant's Matching Account are issued to the
Participant or his or her Beneficiary, as applicable, in accordance with
Section 8(a), the Company shall issue to such person that number of shares of
Stock equal to the whole Stock Units credited to the Participant's Deferral
Account having the same Purchase Dates as the Stock Units to which the Matching
Account distribution relates. Additionally, at the time, or as soon as
practicable after, Stock Units credited to a Participant's Matching Account are
forfeited in accordance with Section 8(d), the Company shall issue to the
Participant that number of shares of Stock equal to the whole Stock Units then
credited to the Participant's Deferral Account.
(c) Fractional Stock Units. No distributions shall be made with
respect to fractional Stock Units credited to any Deferral Account or Matching
Account. Following the distribution of Stock to a Participant representing all
whole Stock Units then credited to his or her Deferral Account and Matching
Account, any remaining fractional Stock Units shall be cancelled for all
purposes under the Plan.
(d) Forfeitures of Matching Account Stock Units. If a
Participant's employment with the Company and all Subsidiaries (including, for
this purpose, subsidiaries of the Company which do not participate in the Plan)
terminates in a manner which does not result in accelerated vesting of the
Stock Units credited to the Participant's Matching Account in accordance with
the last sentence of Section 7(b), any unvested whole and fractional Stock
Units in such Matching Account shall be forfeited.
(e) Hardship Withdrawals. Notwithstanding anything herein to the
contrary, a Participant may request and receive a hardship distribution of
Stock attributable to all or any portion of the Stock Units in the
Participant's Deferral Account, provided the Participant is able to
demonstrate, to the satisfaction of the Administrator, that he has suffered a
Financial Hardship. A hardship distribution request must be made on the form
provided by the Administrator and is subject to the rules established by the
Administrator governing hardship distributions. The amount distributed cannot
exceed the lesser of (a) that number of shares of Stock equal to the Stock
Units in the Participant's Deferral Account, or (b) that number of Shares
having a value equal to the amount necessary (after all applicable withholding)
to satisfy the Participant's Financial Hardship. No distribution may be made
prior to the time the Administrator approves the distribution.
(f) Effect of Denial of Tax Treatment. Employee deferrals and
Company matches under the Plan are intended to be taxable to Participants no
earlier than the time that Stock attributable to such deferrals and matches is
distributed. If, in the sole determination of the Administrator (which for
this purpose shall be the Compensation Committee), taxation of any such amount
to Participants is accelerated to any earlier time, the Compensation
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<PAGE> 9
Committee shall cause that number of shares of Stock to be distributed to
Participants equal in value to the accelerated income.
(g) Withholding. Stock distributed pursuant to the Plan shall be
subject to all applicable Federal, state and local income taxes and
withholding. Such withholding generally shall be satisfied by the cancellation
of Stock Units, rounded up to the nearest whole Stock Unit. However, the
Administrator may, in its discretion, allow Participants to instead satisfy any
withholding obligation by remitting to the Company the amount of any required
withholding in cash; provided that Section 16 Persons shall be allowed to elect
to satisfy withholding obligations in cash only to the extent that such
election is made in a manner which complies with Rule 16b-3 under the Exchange
Act.
(h) Discharge of Obligations. Any payment made to a Participant
or his Beneficiary pursuant to the Plan (including any cancellation of Stock
Units pursuant to Section 8(g)) shall constitute a complete discharge of the
obligations of the Company and the Subsidiaries with respect thereto.
9. ADMINISTRATION
The Plan shall be administered by the Administrator. The
Administrator shall have the authority in its discretion, subject to and not
inconsistent with the express provisions of the Plan, to administer the Plan
and to exercise all the powers and authorities either specifically granted to
it under the Plan or necessary or advisable in the administration of the Plan,
including, without limitation, to interpret the Plan; to prescribe, amend and
rescind rules and regulations relating to the Plan; to determine the terms and
provisions of the Salary, Bonus and Commission Deferral Agreements; and to make
all other determinations deemed necessary or advisable for the administration
of the Plan. All decisions, determinations and interpretations of the
Administrator shall be final and binding on all persons, including the Company,
the Participants (and any person claiming any rights under the Plan from or
through any Participant) and any stockholder. No member of the Board or
Compensation Committee or other Administrator shall be liable for any action
taken or determination made in good faith with respect to the Plan or any grant
hereunder. The Company shall indemnify and save harmless the Administrator and
the members thereof (if a committee) and its officers, employees and directors
against all expenses and liabilities arising out of any of their actions in
administering the Plan.
10. AMENDMENT AND TERMINATION OF THE PLAN
The Board, the Executive Committee of the Board or the Compensation
Committee at any time and from time to time may amend, suspend or terminate the
Plan without the approval of the Participants, the Company's shareholders or
any other person or entity; provided that no such action will, without
shareholder approval, (a) materially increase the total number of shares of
Stock which may be granted under the Plan, (b) materially expand the class of
persons eligible for participation in the Plan or (c) materially increase the
benefits accruing under the Plan to Section 16 Persons. Notwithstanding the
above, no action taken shall adversely affect the rights of any Participant (or
any person claiming any rights under the Plan from or through any Participant)
with respect to payment of amounts attributable to Stock Units credited to such
Participant's Deferral Account and Matching Account at the time such action is
taken, unless the Participant (or such other person) otherwise consents
thereto. The Plan has no fixed termination date.
10. GENERAL PROVISIONS
(a) No Rights as a Stockholder. Neither a Participant (nor any
person claiming any rights under the Plan from or through any Participant)
shall have any rights as a stockholder with respect to any shares of Stock
until the date of the issuance of a share certificate to him or her for such
shares.
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<PAGE> 10
(b) No Rights to Employment. Nothing in the Plan or in any
Salary, Bonus or Commission Deferral Agreement shall confer upon any
Participant the right to continue in the employ of the Company or any
Subsidiary or affiliate, or to be entitled to any remuneration or benefits not
set forth in the Plan or to interfere with, or limit in any way, the right of
the Company or any Subsidiary or affiliate to terminate such Participant's
employment.
(c) Governing Law. The Plan and the rights of all persons
claiming hereunder shall be construed and determined in accordance with the
laws of the state of Delaware without giving effect to the choice of law
principles thereof.
(d) Restrictions. A Participant's rights under the Plan may not
be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of
(except by will or the applicable laws of descent and distribution) prior to
the distribution of Stock to the Participant or his or her Beneficiary. Any
attempt to dispose of any such rights in contravention of such restrictions
shall be null and void and without effect.
(e) Unfunded Status of the Plan. The undertaking to pay any
benefits hereunder shall be an unfunded obligation payable solely from the
general assets of the Company and subject to the claims of the Company's
creditors. The Stock Units and Deferral and Matching Accounts shall be
maintained as a book reserve account solely for accounting purposes. The
Administrator reserves the right to take any and all reasonable steps to
provide for the payment of all or part of the benefits payable under this Plan
to the greatest extent possible without compromising the unfunded status of the
Plan, including, without limitation, the delivery of shares of Stock to a
grantor trust (within the meaning of Section 671 of the Code) to facilitate the
delivery of such shares to Participants in satisfaction of the Company's
obligations under this Plan.
(f) Payments to Minors or Incompetents. If the Administrator
determines that any person to whom a payment is due hereunder is a minor or
incompetent by reason of physical or mental disability, the Administrator shall
have the power to cause the payments then due to such person to be made to
another for the benefit of the minor or incompetent, without responsibility of
the Company or the Administrator to see to the application of such payment,
unless claim prior to such payment is made therefor by a duly appointed legal
representative. Payments made pursuant to such power shall operate as a
complete discharge of the Company and the Administrator.
(g) Right of Offset. The Company shall have the right to retain
or to use any amounts payable under the Plan to satisfy or otherwise offset
amounts the Participant owes to the Company or any Subsidiary (including for
this purpose any subsidiary of the Company which does not participate in the
Plan).
(h) Effect of Shareholder Approval. The Plan is adopted
contingent upon receiving approval of the shareholders of MFS at the 1995
annual meeting of shareholders. If such approval is not obtained, the Plan
shall become null and void and any deferrals effective prior to such time shall
be returned to Participants, without interest.
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As adopted by the Executive Committee of the Board of Directors of MFS
on July 24, 1995 and amended and restated on August 28, 1995, September 19,
1995 and December 31, 1996.
By:
---------------------------------------
General Counsel
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EXHIBIT 10.14
WORLDCOM/MFS
EMPLOYEE STOCK BONUS PLAN
ORIGINALLY EFFECTIVE JANUARY 2, 1995
AS AMENDED AND RESTATED DECEMBER 31, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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ARTICLE I DEFINITIONS AND CONSTRUCTION . . . . . . . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Word Usage . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.3 Calculation of Time . . . . . . . . . . . . . . . . . . . . 6
1.4 Construction . . . . . . . . . . . . . . . . . . . . . . . . 6
1.5 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE II ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . 6
2.1 Powers and Responsibilities of the Company . . . . . . . . . 6
2.2 Designation of Administrative Authority . . . . . . . . . . 6
2.3 Allocation Delegation of Responsibilities . . . . . . . . . 7
2.4 Powers and Duties of the Administrator . . . . . . . . . . . 7
2.5 Records and Reports . . . . . . . . . . . . . . . . . . . . 7
2.6 Appointment of Advisers . . . . . . . . . . . . . . . . . . 7
2.7 Information from Employer . . . . . . . . . . . . . . . . . 7
2.8 Payment of Expenses . . . . . . . . . . . . . . . . . . . . 8
2.9 Majority Actions . . . . . . . . . . . . . . . . . . . . . . 8
2.10 Claims Procedure . . . . . . . . . . . . . . . . . . . . . . 8
2.11 Claims Review Procedure . . . . . . . . . . . . . . . . . . 8
ARTICLE III PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . 8
3.1 Conditions for Eligibility . . . . . . . . . . . . . . . . . 8
3.2 Effective Date of Participation . . . . . . . . . . . . . . 9
3.3 Determination of Eligibility . . . . . . . . . . . . . . . . 9
3.4 Termination of Eligibility . . . . . . . . . . . . . . . . . 9
3.5 Omission of Employees . . . . . . . . . . . . . . . . . . . 9
3.6 Inclusion of Ineligible Employee . . . . . . . . . . . . . . 10
3.7 Uniformed Services Employment and Reemployment Rights Act
of 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE IV CONTRIBUTION AND ALLOCATION . . . . . . . . . . . . . . . . 10
4.1 Employer's Contributions . . . . . . . . . . . . . . . . . . 10
4.2 Time of Payment of Employer's Contribution . . . . . . . . . 10
4.3 Allocation of Contribution . . . . . . . . . . . . . . . . . 10
4.4 Forfeitures . . . . . . . . . . . . . . . . . . . . . . . . 11
4.5 Limitation on Annual Additions . . . . . . . . . . . . . . . 11
4.6 Order of Reduction . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE V INVESTMENTS; VALUATIONS . . . . . . . . . . . . . . . . . . 12
5.1 Investment of Participant Accounts . . . . . . . . . . . . . 12
5.2 Valuation of the Trust Fund . . . . . . . . . . . . . . . . 13
ARTICLE VI VESTING . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.1 Vesting . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.2 Definitions . . . . . . . . . . . . . . . . . . . . . . . . 13
6.3 Change in Vesting Schedule . . . . . . . . . . . . . . . . . 13
</TABLE>
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<TABLE>
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ARTICLE VII DETERMINATION AND DISTRIBUTION OF BENEFITS . . . . . . . . . 14
7.1 Distributions Upon Termination of Employment or Disability . 14
7.2 Determination of Benefits Upon Death . . . . . . . . . . . . 14
7.3 Minimum Required Distributions . . . . . . . . . . . . . . . 15
7.4 Time of Distribution . . . . . . . . . . . . . . . . . . . . 16
7.5 Distribution for Minor Beneficiary . . . . . . . . . . . . . 16
7.6 Location of Participant or Beneficiary Unknown . . . . . . . 16
7.7 Advance Distribution for Hardship . . . . . . . . . . . . . 16
7.8 Qualified Domestic Relations Order Distribution . . . . . . 17
7.9 Direct Rollover . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE VIII AMENDMENT, TERMINATION AND MERGERS . . . . . . . . . . . . . 18
8.1 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.2 Termination . . . . . . . . . . . . . . . . . . . . . . . . 18
8.3 Merger or Consolidation . . . . . . . . . . . . . . . . . . 19
ARTICLE IX MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . 19
9.1 Participant's Rights . . . . . . . . . . . . . . . . . . . . 19
9.2 Alienation . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.3 Construction of Plan . . . . . . . . . . . . . . . . . . . . 19
9.4 Legal Action . . . . . . . . . . . . . . . . . . . . . . . . 19
9.5 Prohibition Against Diversion of Funds . . . . . . . . . . . 19
9.6 Bonding . . . . . . . . . . . . . . . . . . . . . . . . . . 20
9.7 Receipt and Release for Payments . . . . . . . . . . . . . . 20
9.8 Action By the Employer . . . . . . . . . . . . . . . . . . . 20
9.9 Named Fiduciaries and Allocation of Responsibility . . . . . 20
9.10 Approval By Internal Revenue Service . . . . . . . . . . . . 21
9.11 Uniformity . . . . . . . . . . . . . . . . . . . . . . . . . 21
9.12 Voting and Tender Rights . . . . . . . . . . . . . . . . . . 21
9.13 Put Option . . . . . . . . . . . . . . . . . . . . . . . . . 21
9.14 Exercise of Put Option . . . . . . . . . . . . . . . . . . . 22
9.15 Changes to Company Stock . . . . . . . . . . . . . . . . . . 22
ARTICLE X PARTICIPATING EMPLOYERS . . . . . . . . . . . . . . . . . . 22
10.1 Employee Transfer . . . . . . . . . . . . . . . . . . . . . 22
10.2 Participating Employer's Contribution . . . . . . . . . . . 22
10.3 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . 22
10.4 Discontinuance of Participation . . . . . . . . . . . . . . 22
10.5 Administrator's Authority . . . . . . . . . . . . . . . . . 23
ARTICLE XI TOP HEAVY PLANS . . . . . . . . . . . . . . . . . . . . . . 23
11.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . 23
11.2 Minimum Contributions . . . . . . . . . . . . . . . . . . . 25
11.3 Coordination With Other Plans . . . . . . . . . . . . . . . 25
11.4 Maximum Benefits . . . . . . . . . . . . . . . . . . . . . . 25
11.5 Aggregation of Affiliated Employers . . . . . . . . . . . . 25
</TABLE>
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<PAGE> 4
WORLDCOM/MFS INC.
EMPLOYEE STOCK BONUS PLAN
(AMENDED AND RESTATED AS OF DECEMBER 31, 1996)
INTRODUCTION AND HISTORY OF PLAN
Effective December 31, 1996, MFS Communications Company, Inc. ("MFS")
merged with and into WorldCom, Inc. ("WorldCom") pursuant to a Merger
Agreement. As a result of the merger, WorldCom assumed sponsorship of the
Plan, and the Plan was amended and restated to redesignate the Plan as
sponsored by WorldCom effective December 31, 1996. Under the terms of the
Merger Agreement, stock of WorldCom outstanding under the Plan before December
31, 1996 was substituted for stock of MFS, as adjusted for the merger exchange
ratio of 2.1 shares of stock of WorldCom for each outstanding share of MFS
stock. Except as adjusted for this exchange ratio, all rights of Participants
under the Plan before December 31, 1996 are preserved hereunder. The amended
and restated Plan is intended to change the Plan as required as a result of the
merger but is not otherwise intended to effect substantive amendments to the
Plan beyond those required by the merger or to significantly change coverage
under the Plan.
THE ESTABLISHMENT AND ADOPTION OF THE MFS COMMUNICATIONS EMPLOYEE STOCK
BONUS PLAN (the "Plan"), was effective January 2, 1995, by MFS Communications,
Inc., a Delaware Corporation (the "MFS"). This amendment and restatement is
effective December 31, 1996 and the Plan is now known as the WorldCom/MFS
Employee Stock Bonus Plan.
W I T N E S S E T H:
WHEREAS, the Board of Directors of the MFS determined that it was
desirable to adopt a stock bonus plan for the benefit of certain eligible
employees of MFS.
NOW, THEREFORE, effective January 2, 1995, MFS established and adopted
the Plan for the benefit of certain eligible employees of MFS, and the Plan now
reads in its entirety as follows:
ARTICLE I
DEFINITIONS AND CONSTRUCTION
1.1 DEFINITIONS. The following words and phrases shall have the
meanings set forth below, unless the context clearly indicates otherwise:
"Act" means the Employee Retirement Income Security Act of 1974, as
amended.
"Account" means, with respect to each Participant, the individual
account maintained on behalf of such Participant, to which shall be allocated,
in accordance with the provisions of Section 4.3, a portion of the Employer
Contribution made with respect to any one or more Plan Years.
"Administrator" means the Employee Stock Bonus Plan Committee appointed
by the Board to administer the Plan on behalf of the Company.
"Affiliated Employer" means any corporation which is a member of a
controlled group of corporations (as defined in Section 414(b of the Code))
which includes the Company; any trade or business (whether or not incorporated)
which is under common control (as defined in Section 414(c) of the Code) with
the Company; any organization (whether or not incorporated) which is a member
of an affiliated service group (as defined in Section 414(m) of the Code) which
includes the Company; and any other entity required to be aggregated with the
Company pursuant to Regulations under Section 414(o) of the Code.
<PAGE> 5
"Anniversary Date" means December 31st; provided, however, if the
Anniversary Date would otherwise fall on a Saturday, Sunday, holiday or other
non-business day, the Anniversary Date shall be the first business day
preceding December 31st.
"Beneficiary" means, with respect to any deceased Participant, the
person, determined pursuant to the provisions of Section 7.2, to whom all or a
portion of such deceased Participant's total Vested Account is payable.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended. All
references to a provision of the Code shall include a reference to any
successor provision.
"Company" means WorldCom, Inc., a Georgia Corporation, or any successor
thereto.
"Compensation" means, with respect to any Participant and for any Plan
Year, the sum of: such Participant's base gross salary for the calendar year
that ends with or within such Plan Year, performance-based bonuses or
commissions, overtime, shift premiums and cost-of living adjustments actually
paid to such Participant by the Employer for the calendar year that ends with
or within such Plan Year; and any amounts which are contributed by the Employee
pursuant to a salary reduction agreement and which are not includible in the
gross income of the Participant under Sections 125, 402(e)(3), 402(h)(1)(B),
and employee contributions described in Section 414(h)(2) of the Code that are
treated as Employer Contributions.
For the Plan Year in which a person first becomes a Participant,
Compensation shall include amounts otherwise so paid or contributed, as the
case may be, for the calendar year that ends with or within such Plan Year but
prior to the date that such person first so becomes a Participant. With the
exception of contributions described in Subsection (iii), Compensation shall
exclude any amounts contributed on behalf of such Participant to this Plan or
to any other employee benefit plan for which a deduction by the Employer is
permitted under the Code.
Notwithstanding the foregoing, Compensation shall be deemed not to
exceed $150,000, subject to any adjustment to reflect increases in the cost-of-
living in accordance with Section 401(a)(17)(B) of the Code and, with respect
to Plan Years beginning prior to January 1, 1997, after applying the family
aggregation rules of Section 414(q)(6) of the Code in accordance with Section
401(a)(17)(A) of the Code.
"Effective Date" means January 2, 1995.
"Employee" means any person who is employed by the Company or a
Participating Employer, other than: an independent contractor, a Leased
Employee,a person whose employment is governed by the terms of a collective
bargaining agreement between employee representatives (within the meaning of
Section 7701(a)(46) of the Code) and the Employer under which retirement
benefits were the subject of good faith bargaining between the parties, unless
such agreement expressly provides for coverage in this Plan, and a person
who is a nonresident alien (within the meaning of Section 7701(b)(1)(B) of the
Code) and who receives no earned income (within the meaning of Section
911(d)(2) of the Code) from the Employer which constitutes income from sources
within the United States (within the meaning of Section 861(a)(3) of the Code).
"Employer" means the Company and all Participating Employers.
"Employer Contribution" means that contribution described in Section
4.1.
"Fair Market Value" of a share of Stock on any given day means: (i) the
closing price per share of Stock on the national securities exchange on which
such Stock is principally traded, on the next preceding date on which there was
a sale of Stock on such exchange, or (ii) if the Stock is not listed or
admitted to trading on any such exchange, the average of the highest reported
bid and lowest reported asked prices per share of Stock as reported by the
National Association of Securities Dealers Inc. Automated Quotation ("NASDAQ")
system on the next
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<PAGE> 6
preceding date on which such bid and asked prices were reported, or (iii) if
the Stock is not then listed on any securities exchange or prices therefore are
not then quoted in the NASDAQ system, the value determined by the Board in good
faith.
"Fiduciary" means any person who (a) exercises any discretionary
authority or discretionary control respecting management of the Plan or
exercises any authority or control respecting management or disposition of its
assets, (b) renders investment advice for a fee or other compensation, direct
or indirect, with respect to any monies or other property of the Plan or has
any authority or responsibility to do so, or (c) has any discretionary
authority or discretionary responsibility in the administration of the Plan,
including, but not limited to, the Trustee, the Employer and its representative
body, and the Administrator.
"Five Percent Owner" shall mean: with respect to the Company or any
Affiliated Employer which is a corporation, any person who owns, of is
considered as owning, within the meaning of Section 318 of the Code, as
modified by Section 416 thereof, more than five percent (5%) of the outstanding
stock of the Company or the Affiliated Employer or more than five percent (5%)
of the total combined voting power of all of the stock of the Company or the
Affiliated Employer; or with respect to any Affiliated Employer which is not a
corporation, any person who owns, or is considered as owning, within the
meaning of Section 416 of the Code, more than five percent (5%) of the capital
or profits interest in the Affiliated Employer
"Former Participant" means a person who has been a Participant, but who
has ceased to be a Participant for any reason.
"Highly Compensated Employee" means an Employee described in Section
414(q) of the Code and the Regulations.
"Hour of Service" means (1) each hour for which an Employee is directly
or indirectly compensated or entitled to compensation by the Employer for the
performance of duties during the applicable computation period; (2) each hour
for which an Employee is directly or indirectly compensated or entitled to
compensation by the Employer (irrespective of whether the employment
relationship has terminated) for reasons other than performance of duties (such
as vacation, holidays, sickness, jury duty, disability, lay-off, military duty
or leave of absence) during the applicable computation period; (3) each hour
for which back pay is awarded or agreed to by the Employer without regard to
mitigation of damages. These hours will be credited to the Employee for the
computation period or periods to which the award or agreement pertains rather
than the computation period in which the award, agreement or payment is made.
The same Hours of Service shall not be credited both under (1) or (2), as the
case may be, and under (3).
Notwithstanding the above, (i) no more than 501 Hours of Service are
required to be credited to an Employee on account of any single continuous
period during which the Employee performs no duties (whether or not such period
occurs in a single computation period); (ii) an hour for which an Employee is
directly or indirectly paid, or entitled to payment, on account of a period
during which no duties are performed is not required to be credited to the
Employee if such payment is made or due under a plan maintained solely for the
purpose of complying with applicable worker's compensation, or unemployment
compensation or disability insurance laws; and (iii) Hours of Service are not
required to be credited for a payment which solely reimburses an Employee for
medical or medically related expenses incurred by the Employee.
For purposes of this Section, a payment shall be deemed to be made by or
due from the Employer regardless of whether such payment is made by or due from
the Employer directly, or indirectly through, among others, a trust fund, or
insurer, to which the Employer contributes or pays premiums and regardless of
whether contributions made or due to the trust fund, insurer, or other entity
are for the benefit of particular Employees or are on behalf of a group of
Employees in the aggregate.
An Hour of Service must be counted for the purpose of determining a Year
of Service, a year of participation for purposes of accrued benefits, a 1-Year
Break in Service, and employment commencement date (or
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<PAGE> 7
reemployment commencement date). In addition, Hours of Service will be
credited for employment with other Affiliated Employers. The provisions of
Department of Labor regulations 2530.200b-2(b) and (c) are incorporated herein
by reference.
"Hourly Employee" means any individual employed by the Employer, who is
paid other than on a regular salaried basis.
"Leased Employee" means those individuals described in Section 414(n)(2)
of the Code employed by the Employer, provided, however, if such individuals
constitute 20% of less of such non-highly compensated workforce, then the term
"Leased Employees" means only those individuals who are not covered by a plan
described in Section 414(n)(5) of the Code.
"Limitation Year" means the calendar year.
"Normal Retirement Age" means the Participant's 62nd birthday.
"Officer" shall mean an individual who is an executive in the regular
and continued service of the Company or an Affiliated Employer.
Notwithstanding the preceding, the number of Officers shall not exceed: three
(3), if the number of Employees of the Company and its Affiliated Employer does
not exceed thirty (30); ten percent (10%) of the number of Employees of the
Company and its Affiliated Employer, if the number of Employees is more than
thirty (30) but less than five hundred (500); and fifty (50), if the number of
Employees of the Company and its Affiliated Employer is five hundred (500) or
more.
If the number of Officers exceeds the limits set forth in this
Subsection (y), then the Officers having the highest annual compensation among
all Officers during the applicable period shall be considered Officers for
purposes of this Plan.
"1-Year Break in Service" means the applicable computation period during
which an Employee has not completed more than 500 Hours of Service with the
Employer. Further, solely for the purpose of determining whether a Participant
has incurred a 1-Year Break in Service, Hours of Service shall be recognized
for "authorized leaves of absence" and "maternity and paternity leaves of
absence." Years of Service and 1-Year Breaks in Service shall be measured on
the same computation period.
"Authorized leave of absence" means an unpaid, temporary cessation from
active employment with the Employer pursuant to an established
nondiscriminatory policy, whether occasioned by illness, military service, or
any other reason.
A "maternity or paternity leave of absence" means an absence from work
for any period by reason of the Employee's pregnancy, birth of the Employee's
child, placement of a child with the Employee in connection with the adoption
of such child, or any absence for the purpose of caring for such child for a
period immediately following such birth or placement. For this purpose, Hours
of Service shall be credited for the computation period in which the absence
from work begins, only if credit therefor is necessary to prevent the Employee
from incurring a 1-Year Break in Service, or, in any other case, in the
immediately following computation period. The Hours of Service credited for a
"maternity or paternity leave of absence" shall be those which would normally
have been credited but for such absence, or, in any case in which the
Administrator is unable to determine such hours normally credited, eight
(8)Hours of Service per day. The total Hours of Service required to be
credited for a "maternity or paternity leave of absence" shall not exceed 501.
"Participant" means any Employee who becomes a participant in the Plan
as provided in Section 3.1, and has not for any reason become ineligible to
participate further in the Plan.
"Participating Employer" means each Affiliated Employer which is a
domestic corporation.
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<PAGE> 8
"Plan" means the WorldCom/MFS Employee Stock Bonus Plan or any successor
thereto.
"Plan Year" means: (i) the twelve (12) month period commencing on the
Effective Date and ending on January 1, 1996, (ii) the period commencing on
January 2, 1996 and ending on December 31, 1996, and (iii) beginning on January
1, 1997 and thereafter, the twelve (12) month period commencing each January
1st of each year and ending the following December 31st.
"Qualified Domestic Relations Order" shall mean a domestic relations
order which meets the requirements of Section 414(p) of the Code.
"Regulation" means the Income Tax Regulations as promulgated by the
Secretary of the Treasury or his delegate, and as amended from time to time.
"Retired Participant" means a person who has been a Participant, but who
has become entitled to retirement benefits under the Plan.
"Stock" means the common shares of the Company, par value $0.01 per
share.
"ShareWorks Program" means the program sponsored by MFS and consisting
of the Plan and the MFS Communications Company, Inc. 1995 Deferred Stock
Purchase Plan.
"Terminated Participant" means a person who has been a Participant, but
whose employment has been terminated other than by death, Total and Permanent
Disability or retirement.
"Termination of Employment" means, with respect to any person, the
separation from employment, other than on account of death, with the Company
and all Affiliated Employers.
"Total and Permanent Disability" means a physical or mental condition of
a Participant resulting from bodily injury, disease, or mental disorder which
renders him incapable of continuing his usual and customary employment with the
Employer. The disability of a Participant shall be determined by a licensed
physician chosen by the Administrator. The determination shall be applied
uniformly to all Participants.
"Trustee" means the person or entity named as trustee herein or in any
separate trust forming a part of this Plan, and any successors.
"Trust Fund" means the assets of the Plan and Trust as the same shall
exist from time to time.
"Valuation Date" shall mean the last day of March, June, September and
December as the case may be; provided, however, if the Valuation Date would
otherwise fall on a Saturday, Sunday, holiday or other non-business day, the
Valuation Date shall be the first business day preceding the last day of March,
June, September or December, as the case may be.
"Vested" means, with respect to any Participant, a nonforfeitable right,
determined in accordance with the provisions of Article VI, to receive an
eventual distribution of the number of shares of Stock credited to such
person's Account.
"Year of Service" means each calendar year ending with or within the
Plan Year during which an Employee has at least 1000 Hours of Service. For
purposes of determining whether an Employee, other than an Hourly Employee, has
completed at least 1,000 Hours of Service during any completed calendar year,
rather than determining the actual number of Hours of Service which such person
has otherwise completed during any week, such Employee shall be credited with
45 Hours of Service for each week for which such Employee is otherwise required
to be credited with at least one Hour of Service. For purposes of determining
whether an Hourly
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<PAGE> 9
Employee has completed at least 1,000 Hours of Service during any period, such
Hourly Employee shall be credited based solely on the actual number of Hours of
Service which such Hourly Employee otherwise completes.
Years of Service with any Affiliated Employer shall be recognized.
Notwithstanding anything in this Plan to the contrary, Years of Service that
ended prior to the Effective Date shall be disregarded in determining whether a
Participant is Vested in the shares of Stock credited to his Account.
1.2 WORD USAGE. Except where otherwise indicated by the context, any
masculine terminology used herein also includes the feminine and neuter, and
vice versa, and the definition of any term herein in the singular shall also
include the plural, and vice versa. The words "hereof," "herein", "hereunder,"
and other similar compounds of the word "here" shall mean and refer to the
entire Plan and not to any particular provision or section. All references to
Articles and Sections shall mean and refer to Articles and Sections contained
in this Plan, unless otherwise indicated.
1.3 CALCULATION OF TIME. Except with respect to any acts in respect
of the Anniversary Date or any Valuation Date, in determining time periods
within which an event or action is to take place for purposes of the Plan, no
fraction of a day shall be considered and any act, the performance of which
would fall on a Saturday, Sunday, holiday or other non-business day, may be
performed on the next following business day.
1.4 CONSTRUCTION. It is the intention of the Company that the Plan
be a profit sharing plan for purposes of Section 401(a)(27) of the Codes and a
stock bonus plan meeting the requirements of Section 401(a)(23) of the Code,
which qualifies and is exempt from Federal income taxation under the provisions
of Sections 401(a) and 501(a) of the Code and satisfies the applicable
provisions of ERISA, and all provisions of this Plan shall be construed and
interpreted in light of that intention.
1.5 HEADINGS. The titles and headings of Articles and Sections are
intended for convenience of reference only and are not to be considered in
construction of the provisions hereof.
ARTICLE II
ADMINISTRATION
2.1 POWERS AND RESPONSIBILITIES OF THE COMPANY.
(a) The Company shall be empowered to appoint and remove the
Trustee and the Administrator from time to time as it deems necessary for the
proper administration of the Plan to assure that the Plan is being operated for
the exclusive benefit of the Participants and their Beneficiaries in accordance
with the terms of the Plan, the Code, and the Act.
(b) The Company shall periodically review the performance of
any Fiduciary or other person to whom duties have been delegated or allocated
by it under the provisions of this Plan or pursuant to procedures established
hereunder. This requirement may be satisfied by formal periodic review by the
Company or by a qualified person specifically designated by the Company,
through day-to-day conduct and evaluation, or through other appropriate ways.
2.2 DESIGNATION OF ADMINISTRATIVE AUTHORITY.
The Company shall appoint one or more Administrators. Any
person, including, but not limited to, the Employees of the Employer, shall be
eligible to serve as an Administrator. Any person so appointed shall signify
his acceptance by filing written acceptance with the Employer. An
Administrator may resign by delivering his written resignation to the Employer
or be removed by the Employer by delivery of written notice of removal, to take
effect at a date specified therein, or upon delivery to the Administrator if no
date is specified.
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The Employer, upon the resignation or removal of an
Administrator, shall promptly designate in writing a successor to this
position. If the Employer does not appoint an Administrator, the Employer will
function as the Administrator.
2.3 ALLOCATION DELEGATION OF RESPONSIBILITIES.
If more than one person is appointed as Administrator, the
responsibilities of each Administrator may be specified by the Employer and
accepted in writing by each Administrator. In the event that no such
delegation is made by the Employer, the Administrators may allocate the
responsibilities among themselves, in which event the Administrators shall
notify the Employer and the Trustee in writing of such action and specify the
responsibilities of each Administrator. The Trustee thereafter shall accept
and rely upon any documents executed by the appropriate Administrator until
such time as the Employer or the Administrators file with the Trustee a written
revocation of such designation.
2.4 POWERS AND DUTIES OF THE ADMINISTRATOR.
The primary responsibility of the Administrator is to administer
the Plan for the exclusive benefit of the Participants and their Beneficiaries,
subject to the specific terms of the Plan. The Administrator shall administer
the Plan in accordance with its terms and shall have the power and discretion
to construe the terms of the Plan and to determine all questions arising in
connection with the administration, interpretation, and application of the
Plan. Any such determination by the Administrator shall be conclusive and
binding upon all persons. The Administrator may establish procedures, correct
any defect, supply any information, or reconcile any inconsistency in such
manner and to such extent as shall be deemed necessary or advisable to carry
out the purpose of the Plan; provided, however, that any procedure,
discretionary act, interpretation or construction shall be done in a
nondiscriminatory manner based upon uniform principles consistently applied and
shall be consistent with the intent that the Plan shall continue to be deemed a
qualified plan under the terms of Section 401(a) of the Code, and shall comply
with the terms of the Act and all regulations issued pursuant thereto. The
Administrator shall have all powers necessary or appropriate to accomplish his
duties under this Plan.
The Administrator shall be charged with the duties of the general
administration of the Plan, including, but not limited to, the following: a)
the discretion to determine all questions relating to the eligibility of
Employees to participate or remain a Participant hereunder and to receive
benefits under the Plan; (ii) to compute, certify, and direct the Trustee with
respect to the amount and the kind of benefits to which any Participant shall
be entitled hereunder; (iii) to authorize and direct the Trustee with respect
to all nondiscretionary or otherwise directed disbursements from the Trust;
(iv) to maintain all necessary records for the administration of the Plan; (v)
to interpret the provisions of the Plan and to make and publish such rules for
regulation of the Plan as are consistent with the terms hereof; and (vi) to
assist any Participant regarding his rights, benefits or elections available
under the Plan.
2.5 RECORDS AND REPORTS. The Administrator shall keep a record of
all actions taken and shall keep all other books of account, records, and other
data that may be necessary for proper administration of the Plan and shall be
responsible for supplying all information and reports to the Internal Revenue
Service, Department of Labor, Participants, Beneficiaries and others as
required by law.
2.6 APPOINTMENT OF ADVISERS. The Administrator, or the Trustee with
the consent of the Administrator, may appoint counsel, specialists, advisers,
and other persons as the Administrator or the Trustee deems necessary or
desirable in connection with the administration of this Plan.
2.7 INFORMATION FROM EMPLOYER. To enable the Administrator to
perform his functions, the Employer shall supply full and timely information to
the Administrator on all matters relating to the Compensation of all
Participants, their Hours of Service, their Years of Service, their retirement,
death, disability, or termination of employment, and such other pertinent facts
as the Administrator may require; and the Administrator shall advise the
Trustee of such of the foregoing facts as may be pertinent to the Trustee's
duties under the Plan. The
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<PAGE> 11
Administrator may rely upon such information as is supplied by the Employer and
shall have no duty or responsibility to verify such information.
2.8 PAYMENT OF EXPENSES. All expenses of administration may be paid
out of the Trust Fund unless paid by the Company. Such expenses shall include
any expense incident to the functioning of the Administrator, including, but
not limited to, fees of accountants, counsel, and other specialists and their
agents, and other costs of administering the Plan. Until paid, the expenses
shall constitute a liability of the Trust Fund. However, the Employer may
reimburse the Trust Fund for any administration expense incurred.
2.9 MAJORITY ACTIONS. Except where there has been an allocation and
delegation of administrative authority pursuant to Section 2.3, if there shall
be more than one Administrator, they shall act by a majority of their number,
but may authorize one more of them to sign all papers on their behalf.
2.10 CLAIMS PROCEDURE. Claims for benefits under the Plan may be
filed in writing with the Administrator. Written notice of the disposition of
a claim shall be furnished to the claimant within 90 days after the application
is filed. In the event the claim is denied, the reasons for the denial shall
be specifically set forth in the notice in language calculated to be understood
by the claimant, pertinent provisions of the Plan shall be cited, and, where
appropriate, an explanation as to how the claimant can perfect the claim will
be provided. In addition, the claimant shall be furnished with an explanation
of the Plan's claims review procedure.
2.11 CLAIMS REVIEW PROCEDURE. Any Employee, former Employee, or
Beneficiary of either, who has been denied a benefit by a decision of the
Administrator pursuant to Section 2.10 shall be entitled to request the
Administrator to give further consideration to his claim by filing with the
Administrator (on a form which may be obtained from the Administrator) a
request for a hearing. Such request, together with a written statement of the
reasons why the claimant believes his claim should be allowed, shall be filed
with the Administrator no later than 60 days after receipt of the written
notification provided for in Section 2.10. The Administrator shall then
conduct a hearing within the next 60 days after receipt of the written
notification provided for in Section 2.10. The Administrator shall then
conduct a hearing within the next 60 days, at which the claimant may be
represented by an attorney or any other representative of his choosing and at
which the claimant shall have an opportunity to submit written and oral
evidence and arguments in support of his claim. At the hearing (or prior
thereto upon 5 business days' written notice to the Administrator) the claimant
or his representative shall have an opportunity to review all documents in the
possession of the Administrator which are pertinent to the claim at issue and
its disallowance. Either the claimant or the Administrator may cause a court
reporter to attend the hearing and record the proceedings. In such event, a
complete written transcript of the proceedings shall be furnished to both
parties by the court reporter. The full expense of any such court reporter and
such transcripts shall be borne by the party causing the court reporter to
attend the hearing. A final decision as to the allowance of the claim shall be
made by the Administrator within 60 days of receipt of the appeal (unless there
has been an extension of 60 days due to special circumstances, provided the
delay and the special circumstances occasioning it are communicated to the
claimant within the 60 day period). Such communication shall be written in a
manner calculated to be understood by the claimant and shall include specific
reasons for the decision and specific references to the pertinent Plan
provisions on which the decision is based.
ARTICLE III
PARTICIPATION
3.1 CONDITIONS FOR ELIGIBILITY.
(a) A person who is otherwise an Employee shall become a
Participant on such date as is determined pursuant to this Section 3.1. For
purposes of this Section 3.1, a "Target Option Recipient" shall mean each
person who (i) was first hired by the Company or an Affiliated Employer on or
before September 1, 1995 and (ii) had target options remaining to be granted on
September 1, 1995 under the MFS Communications Company, Inc. 1993 Stock Plan.
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<PAGE> 12
(b) Each Employee who is a Target Option Recipient and who did
not elect to waive participation in the ShareWorks program no later than
September 8, 1995 shall become a Participant on the later of: (i) January 2,
1995, or (ii) the date on which such person attains age 21; provided that such
person remains an Employee on that date.
Each Employee who is a Target Option Recipient and who elected to
waive participation in the ShareWorks program by September 8, 1995 shall become
a Participant on the later of: (i) six months following the date of the last
grant of stock options to such person under the MFS Communications Company,
Inc. 1993 Stock Plan, or (ii) the date on which such person attains age 21;
provided, that such person remains an Employee on such operative date.
Notwithstanding the foregoing sentence, a Target Option Recipient
who has otherwise attained age 21 shall become a Participant as of such earlier
date, if any, as is determined by the Administrator.
(c) Each Employee who is not a Target Option Recipient
(regardless of such person's initial hire date) shall become a Participant on
the later of: (i) such person's initial date of employment with an Employer,
(ii) the date on which such person attains age 21, provided that such person
remains an Employee on such date, or (iii) January 2, 1995, provided such
person remains an Employee on such date.
3.2 EFFECTIVE DATE OF PARTICIPATION. An Eligible Employee shall
become a Participant effective as of the date on which such Employee met the
requirements of Sections 3.1, provided said Employee was still employed as of
such date (or if not employed on such date, as of the date of rehire if a 1-
Year Break in Service has not occurred).
In the event an Employee who is not a member of an eligible class
of Employees becomes a member of an eligible class, such Employee will
participate immediately if such Employee has satisfied the minimum age
requirement and would have otherwise previously become a participant.
3.3 DETERMINATION OF ELIGIBILITY. The Administrator shall determine
the eligibility of each Employee for participation in the Plan based upon
information furnished by the Employer. Such determination shall be conclusive
and binding upon all persons, as long as the same is made pursuant to the Plan
and the Act. Such determination shall be subject to review per Section 2.11.
3.4 TERMINATION OF ELIGIBILITY.
(a) In the event a Participant shall go from a classification
of a an eligible Employee to an ineligible Employee, such Former Participant
shall continue to vest in his interest in the Plan for each Year of Service
completed while a noneligible Employee, until such time as his Participant's
Account shall be forfeited or distributed pursuant to the terms of the Plan.
Additionally, his interest in the Plan shall continue to share in the earnings
of the Trust Fund.
(b) In the event a Participant is no longer a member of an
eligible class of Employees and becomes ineligible to participate but has not
incurred a 1-Year Break in Service, such Employee will participate immediately
upon returning to an eligible class of Employees. If such Participant incurs a
1-Year Break in Service, eligibility will be determined under the break in
service rules of the Plan.
3.5 OMISSION OF EMPLOYEES. If, in any Plan Year, any Employee who
should be included as a Participant in the Plan is erroneously omitted and
discovery of such omission is not made until after a contribution by his
Employer for the year has been made, the Employer shall make a subsequent
contribution with respect to the omitted Employee in the amount which the said
Employer would have contributed with respect to him had he not been omitted.
Such contribution shall be made regardless of whether or not it is deductible
in whole or in part in any taxable year under applicable provisions of the
Code.
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3.6 INCLUSION OF INELIGIBLE EMPLOYEE. If, in any Plan Year, any
person who should not have been included as a Participant in the Plan is
erroneously included and discovery of such incorrect inclusion is not made
until after a contribution for the year has been made, the Employer shall not
be entitled to recover the contribution made with respect to the ineligible
person regardless of whether or not a deduction is allowable with respect to
such contribution. In such event, the amount contributed with respect to the
ineligible person shall constitute a forfeiture for the Plan Year in which the
discovery is made.
3.7 UNIFORMED SERVICES EMPLOYMENT AND REEMPLOYMENT RIGHTS ACT OF
1994. Notwithstanding any provision of this Plan to the contrary,
contributions, benefits and service credits with respect to qualified military
service will be provided in accordance with Section 414(u) of the Code.
ARTICLE IV
CONTRIBUTION AND ALLOCATION
4.1 EMPLOYER'S CONTRIBUTIONS.
(a) For each Plan Year beginning on or after the Effective
Date, the Employer shall contribute such amounts, if any, to the Plan as shall
be determined by the Board in its sole discretion. Such contribution for any
such Plan Year may be in: (i) shares of Stock, (ii) cash, or a combination of
the two, as shall similarly be determined by the Board in its sole discretion.
(b) To the extent such contribution for any Plan Year is made
in cash, the cash portion of such contribution shall be used by the Trustee, as
soon as practicable following receipt by the Trustee, to purchase shares of
Stock.
(c) Notwithstanding the foregoing, the Employer's
contributions for any Plan Year shall not exceed the maximum amount allowable
as a deduction to the Employer under the provisions of Section 404 of the Code.
4.2 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION. The Employer
Contribution for any Plan Year shall be made not later than the last date
prescribed by law, including extensions of time, for the filing of the
Company's Federal corporate income tax return for such Plan Year.
4.3 ALLOCATION OF CONTRIBUTION.
(a) A person shall be eligible to have a portion of the
Employer Contribution for any given Plan Year allocated to such person's
Account under the Plan only if such person: (i) is a Participant on December
31st of such Plan Year; (ii) is an Employee on December 31st of such Plan Year;
and (iii) is credited with at least 1,000 Hours of Service during the calendar
year that ends with or within such Plan Year; provided, however, for the Plan
Year ending December 31, 1996, a Participant need only complete 997 Hours of
Service in order to receive an allocation.
(b) The portion of the total Employer Contribution for any
Plan Year allocated to the Account of each such person described in the
foregoing clause (a) for such Plan Year (for purposes of this Section 4.3, "an
Eligible Participant") shall be determined by multiplying the total Employer
Contribution for such Plan Year by a fraction, where (A) the numerator of such
fraction is such Eligible Participant's Compensation for the calendar year
ending with or within such Plan Year and (B) the denominator of such fraction
is the total Compensation for the calendar year ending with or within such Plan
Year of all persons who are Eligible Participants for such Plan Year.
(c) The foregoing allocation of the Employer Contribution for
any Plan Year shall not be done until after any shares of Stock have first been
purchased with such cash, pursuant to Section 4.1(b).
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4.4 FORFEITURES. If a Participant terminates his employment before
his Account is vested, the Participant's Account shall be forfeited as of the
last day of the Plan Year during which his termination of employment occurred,
and shall be used to reduce any Employer contributions made pursuant to Section
4.1. If such a Participant again becomes a Participant in the Plan before he
incurs five (5) consecutive Breaks in Service, the Employer shall make an
additional contribution to the Plan on his behalf, which is equal to the dollar
amount of his Account which was forfeited. Such additional contribution shall
be allocated to the Participant's Account and his vested right to his Account
shall thereafter be determined in accordance with Section 6.1.
4.5 LIMITATION ON ANNUAL ADDITIONS.
(a) General. Notwithstanding any other provision of the Plan,
the Annual Addition to a Participant's Accounts for any Limitation Year may not
exceed an amount equal to the lesser of: (i) $30,000; or (ii) Twenty-five
percent (25%) of the Participant's compensation for the Limitation Year.
(b) Coordination with Defined Benefit Plan. In the event that
an Employee is a participant in both a defined benefit plan (whether or not
terminated) and a defined contribution plan maintained by the Employer (or a
Related Employer), the sum of the Defined Benefit Plan Fraction plus the
Defined Contribution Plan Fraction may not exceed 1.0 with respect to any Plan
Year beginning prior to January 1, 2000.
(c) Defined Benefit Plan Fraction Defined. For purposes of
this Section 4.5, the term "Defined Benefit Plan Fraction" shall mean, for any
Limitation Year, a fraction: (i) the numerator of which is the Participant's
projected annual benefit under such defined benefit pension plan maintained by
the Employer or any Related Employer (determined as of the close of such year);
and (ii) the denominator of which is the lesser o (A) the product of 1.25 times
$90,000, as adjusted in accordance with Section 415(d) of the Code; or (B) the
product of 1.4 times 100% of the Participant's average compensation for the
three (3) consecutive years of participation in such defined benefit pension
plan during which he received the greatest aggregate compensation from the
Employer.
(d) Defined Contribution Plan Fraction - Defined. For
purposes of this Section 4.5, the term "Defined Contribution Plan Fraction"
shall mean, for any Limitation Year, a fraction: (i) the numerator of which is
the sum of the Annual Additions credited to the Participant's Account under
this Plan and all other defined contribution plans maintained by the Employer
or any Related Employer in such Limitation Year and for all prior Limitation
Years; and (ii)the denominator of which is the sum of the lesser of the
following amounts determined for such Limitation Year and for each prior
Limitation Year: (A) the product of 1.25 times the dollar limitation as was in
effect under Section 415(c)(1)(A) of the Code and the Regulations, for years
before this Plan was in effect, or (B) the product of 1.4 times 25% of the
Participant's compensation for such year.
(e) Annual Additions Defined. For purposes of this Section
4.5, the term "Annual Addition" shall mean, for each Limitation Year the sum
of: (i) the portion of the contribution made by the Employer (or a Related
Employer) for such Limitation Year under this Plan and any other defined
contribution plan maintained by the Employer or Related Employer; plus (ii) the
amount of any forfeitures, if any, allocated to the Participant's Account for
such Limitation Year under this Plan or any other such defined contribution
plans maintained by the Employer or Related Employer; plus (iii) the amount, if
any, of the Participant's after-tax contributions made under any defined
contribution plan maintained by the Employer or a Related Employer for such
Limitation Year; plus (iv) amounts described in Sections 415(1)(1) and
419(d)(2) of the Code.
(f) Compensation - Defined. For purposes of this Section 4.5,
the term "compensation" shall mean a Participant's wages, salary, fees for
professional services and other amounts received for personal services actually
rendered in the course of employment with the Employer or a Related Employer
(including, but not limited to, compensation for services on the basis of
percentage of profits, commissions on insurance premiums, tips and bonuses);
provided, however, that the term "compensation" shall not include contributions
made by the Employer or a Related Employer to this or any other plan of
deferred compensation, to the extent that, before the application of the
limitations of Section 415 of the Code, such contributions are not includible
in the gross income of the Participant for the taxable year in which
contributed, nor contributions made by the Employer or a Related
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Employer to a Simplified Employee Pension described in Section 408(k) of the
Code, to the extent such contributions are deductible by the Participant under
Section 219 of the Code, nor any amounts realized on the exercise of non-
qualified or incentive stock option, or when restricted stock (or property)
held by a Participant either becomes freely transferable or is no longer
subject to substantial risk of forfeiture, nor any amounts realized from the
sale, exchange or other disposition of stock acquired under an incentive stock
option, nor any amounts which receive special tax benefits, such as premiums
for group term life insurance, to the extent not includible in the gross income
of the Participant for Federal income tax purposes.
(g) Other Plans. For purposes of applying the limitations of
this Section 4.5, all defined benefit plans maintained by the Employer or a
Related Employer (whether or not terminated) are to be treated as one defined
benefit plan, and all defined contribution plans maintained by the Employer or
a Related Employer (whether or not terminated) are to be treated as one defined
contribution plan. Any contributions made by the Employee to any defined
benefit plan maintained by the Employer or Related Employer shall be deemed to
be made under a separate defined contribution plan.
(h) Related Employer - Defined. For purposes of this Section
4.5, the term "Related Employer" shall mean any other corporation that is,
along with the Company, a member of a controlled group of corporations (as
defined in Section 414(b) of the Code, as modified by Section 415(h) thereof)
or any other trade or business (whether or not incorporated) which, along with
the Company, is under common control (as defined in Section 414(c) of the Code,
as modified by Section 415(h) thereof) or any other Employer which is a member
of an "affiliated service group" (as such term is defined in Section 414(m) of
the Code or in the Regulations under Section 414(o) of the Code) of which the
Company is a member.
4.6 ORDER OF REDUCTION. After reducing the annual additions to a
Participant's account in any other defined contribution plan maintained by the
Company or an Affiliated Employer, if the amounts which would otherwise be
allocated to a Participant's Account must be reduced by reason of the
limitations of Section 4.5, such reduction shall be made in the following order
of priority, but only to the extent necessary:
(a) Participating Employer contributions allocable to such
Account in respect of such Limitation Year and Shares allocable in proportion
thereto (without regard to Section 4.5) shall be allocated to the Accounts of
other eligible Participants at the end of the current Limitation Year in the
manner provided under Section 4.3, and, to the extent such allocation cannot be
made under Section 4.5, then, to the extent permitted by the Regulations,
reallocated at the end of the succeeding Limitation Years in such manner and as
provided in Section 4.6(b).
(b) Any amount to be allocated under Section 4.6(a) at the end
of a succeeding Limitation Year shall be allocated to a suspense account until
such time as any amount in the suspense account can be allocated to
Participants' Accounts without having to be reallocated under Section 4.6(a);
provided that, to the extent required by the Regulations, no contribution shall
be made in such a succeeding Limitation Year which would restrict such
reallocation.
Participants are neither permitted nor required to contribute any amounts to
the Plan.
ARTICLE V
INVESTMENTS; VALUATIONS
5.1 INVESTMENT OF PARTICIPANT ACCOUNTS. The Account under the Plan
of each Participant shall be invested exclusively in shares of Stock, and cash
in lieu of any fractional shares. All cash dividends on shares of Stock
credited to a Participant's Account shall be used by the Trustee, as soon as
practicable, to purchase (on the open market) additional shares of Stock to be
credited exclusively to such Participant's Account. The number of shares of
Stock credited to any Participant's Account shall be appropriately adjusted by
the Trustee to reflect any Stock splits, dividends paid in the form of
additional shares of Stock and similar transactions.
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5.2 VALUATION OF THE TRUST FUND. The Administrator shall direct the
Trustee, as of each Anniversary Date, and at such other date or dates deemed
necessary by the Administrator, to determine the net worth of the assets
comprising the Trust Fund as it exists on such date. In determining such net
worth, the Trustee shall determine the Fair Market Value of the shares of Stock
comprising the Trust Fund as of such date.
ARTICLE VI
VESTING
6.1 VESTING. Participant shall be 100% Vested in the number of
Shares of Stock credited to such person's Account: (i) after three (3) Years
of Service; provided, however, that those Years of Service that ended prior to
the Effective Date shall be disregarded for this purpose; (ii) upon the
Participant's death prior to Termination of Employment; (iii) upon the
Participant's Total and Permanent Disability; (iv) upon the Participant's
attainment of Normal Retirement Age prior to Termination of Employment; (v)
upon the Participant's actual involuntary Termination of Employment, without
cause, after a "Change of Control" (as defined in Section 6.2);(vi) upon the
Participant's "Constructive Involuntary Termination of Employment" (as defined
in Section 6.2) after a "Change of Control"; or (vii) upon the Participant's
meeting the "Rule of 62" prior to Termination of Employment. A Participant
meets the Rule of 62 if (A) such person is at least age 55 and (B) the sum of
such person's age and Years of Service (provided, however, that Years of
Service that ended prior to the Effective Date shall be disregarded for this
purpose) equal at least 62.
Prior to the occurrence of one of the aforementioned events, a
Participant shall be 0% Vested in the number of Shares credited to such
person's Account.
6.2 DEFINITIONS. The following terms shall, solely for purposes of
this Article VI, have following meanings:
(a) "Change of Control" means, with respect to the Company,
(i) the acquisition by any person, entity or "group," within the meaning of
Section 13(d)(3) or 14(d)(2) of the Exchange Act, other than the Company or any
of its affiliates, or any employee benefit plan of the Company or any of its
affiliates, of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of more than 50% of either (x) the then
outstanding shares of Stock or (y) the combined voting power of the Company's
then outstanding voting securities, (ii) approval by the stockholders of the
Company of a reorganization, merger or consolidation, in each case, with
respect to which persons who were the stockholders of the Company immediately
prior to such reorganization, merger or consolidation, do not, immediately
thereafter, own more than 50% of the combined voting power entitled to vote
generally in the election of directors of the reorganized, merged or
consolidated company's then outstanding voting securities, or a liquidation or
dissolution of the Company or the sale of all or substantially all of the
assets of the Company.
(b) "Constructive Involuntary Termination of Employment"
means, with respect to any Participant, such person's voluntary Termination of
Employment within 90 days following (A) a material reduction in such person's
compensation (including applicable fringe benefits), without such person's
consent; (B) such person's demotion or the diminution in such person's
position, authority, duties or responsibilities, without cause and without such
person's consent; or (C) the relocation of such person's principal place of
employment, without such person's consent.
6.3 CHANGE IN VESTING SCHEDULE. The computation of a Participant's
Vested interest in the Plan shall not be reduced as the result of any direct or
indirect amendment to this Plan. In the event that the Plan is amended to
change or modify any vesting schedule otherwise set forth under Section 6.1, a
Participant with at least three (3) Years of Service as of the expiration date
of the election period may elect to have his nonforfeitable percentage computed
under the Plan without regard to such amendment. If a Participant fails to
make such election, then such Participant shall be subject to the new vesting
schedule. The Participant's election period shall commence on the adoption
date of the amendment and shall end 60 days after the latest of: (i) the
adoption date of the amendment,
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(ii) the effective date of the amendment, or (iii) the date the Participant
receives written notice of the amendment from the Employer or Administrator.
ARTICLE VII
DETERMINATION AND DISTRIBUTION OF BENEFITS
7.1 DISTRIBUTIONS UPON TERMINATION OF EMPLOYMENT OR DISABILITY.
(a) If, upon a Participant's Termination of Employment, such
person is Vested in his Account under the Plan, the Trustee shall distribute
the value of such Participant's Account in accordance with the provisions of
this Section 7.1. If, upon a Participant's Termination of Employment, such
person is not Vested in his Account under the Plan, he shall not be entitled to
receive any distribution from his Account under the Plan, and the value of such
Account shall be forfeited in accordance with the provisions of Section 4.4.
(b) In the event of a Participant's Total and Permanent
Disability prior to his Termination of Employment, (i) all amounts credited to
such Participant's Account shall become fully Vested; and (ii) the Trustee
shall distribute the value of such Participant's Account in accordance with the
provisions of this Section 7.1.
(c) If, as of the date of the event described in whichever of
the foregoing subsections shall apply, the value of the Participant's Vested
Account does not exceed $3,500, and has never exceeded $3,500 at the time of
any prior distribution, the Administrator shall direct the Trustee to
distribute such benefit, without such Participant's consent, as soon as
practicable following the occurrence of such event.
(d) If, as of the date of the event described in whichever of
the foregoing subsections (a) or (b) shall apply, the value of the
Participant's Vested Account exceeds $3,500, or exceeded $3,500 at the time of
any prior distribution, the distribution from such Participant's Account may
not, except as provided in the following sentence, be paid without such
Participant's written consent. Subject to Section 7.3, unless the Participant
elects otherwise, the distribution of his Account shall commence no later than
one year after the close of the Plan Year: (i) in which the Participant
separates from service by reason of attainment of Normal Retirement Age, the
occurrence of such Total and Permanent Disability or death, or (ii) which is
the fifth anniversary following the close of the Plan Year in which the
Participant otherwise separates from service, except that this clause shall not
apply if the Participant is reemployed by the Employer before such date.
(e) Subject to Section 7.3, and unless the Participant elects
otherwise to receive his distribution in the form of a single lump sum,
distribution of a Participant's Vested Account balance shall be made in
substantially equal periodic payments (not less frequently than annually under
rules adopted by the Administrator and uniformly applicable to all
Participants) over a period equal to the greater of (a) five years, or (b) in
the case of a Participant with an Account which has a value in excess of
$500,000 (as adjusted pursuant to Section 409(o)(2) of the Code) on the
Valuation Date coincident with or immediately preceding the date distributions
are scheduled to commence, five years plus one additional year (but not more
than five additional years) for each $100,000 (as adjusted pursuant to Section
409(o)(2) of the Code) or fraction thereof by which the value of such Account
exceeds $500,000 (as adjusted pursuant to Section 409(o)(2) of the Code).
(f) All distributions pursuant to this Section 7.1 shall
consist entirely of the number of whole shares of Stock credited to such
Participant's Account as of the business day as of which such distribution is
processed, together with cash in lieu of fractional shares.
7.2 DETERMINATION OF BENEFITS UPON DEATH.
(a) Upon the death of a Participant before his Termination of
Employment, all amounts credited to such Participant's Account shall become
fully Vested. The Administrator shall direct the Trustee to
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<PAGE> 18
distribute the value (as of the business day as of which such distribution is
processed) of the deceased Participant's Account to the Participant's
Beneficiary as soon as practicable after the date of the Participant's death,
but in all events no later than December 31st of the Plan Year following the
Plan Year in which the Participant dies.
(b) Upon the death of a Former Participant after such person's
Termination of Employment, if (i) such Former Participant was otherwise Vested
in the value of his Account; and (ii) had not otherwise received a distribution
following his Termination of Employment, the Administrator shall direct the
Trustee to distribute the value (as of the business day as of which such
distribution is processed) of the deceased Former Participant's Account to the
Former Participant's Beneficiary in accordance with the provisions of Section
7.1, as soon as practicable after the date of the Former Participant's death,
but in all events no later than December 31st of the Plan Year following the
Plan Year in which the Former Participant dies.
(c) Any distribution pursuant to either subsection (a) or
subsection (b) of this Section 7.2 shall consist entirely of the number of
whole shares of Stock credited to such Participant's Account as of the business
day as of which such distribution is processed, together with cash in lieu of
fractional shares.
(d) The Administrator may require such proper proof of death
and such evidence of the right of any person to receive payment of the value of
the Account of a deceased Participant or Former Participant as the
Administrator may deem desirable. The Administrator's determination of death
and of the right of any person to receive payment shall be conclusive.
(e) If a Participant or a Former Participant has a spouse, his
spouse shall be his Beneficiary of the distribution provided under Section 7.2
unless the Participant or Former Participant designates someone other than his
spouse as his Beneficiary (other than as a contingent Beneficiary) and the
spouse consents to such designation. If the Participant or Former Participant
does not have a spouse, or if the spouse consents, the Participant or Former
Participant shall have the right to designate any person (including, but not
limited to individuals, trusts or his estate) as Beneficiary, to receive the
amount, if any, payable pursuant to this Plan upon his death and may from time
to time change any such designation in accordance with procedures established
by the Trustees. Each such designation shall be in a written instrument filed
with the Administrator, and shall be in such form as may be required by the
Administrator. In the event that a Participant or Former Participant
designates someone other than his spouse as his Beneficiary (other than as a
contingent Beneficiary), such Beneficiary designation shall not be effective
unless (i) the spouse consents to such Beneficiary designation in writing, on a
form acceptable to the Administrator, and such consent is witnessed by a Plan
representative or a notary public or (ii) the Participant or Former Participant
provides the Administrator with sufficient evidence to show that the
Participant or Former Participant is not married or that his spouse cannot be
located. The Trustees shall decide which Beneficiary, if any, shall have been
validly designated. If no Beneficiary has been validly designated or if the
designated Beneficiary predeceases the Participant or Former Participant, then
the amount payable upon a Participant's death, if any, shall be paid to the
Participant's or Former Participant's estate.
7.3 MINIMUM REQUIRED DISTRIBUTIONS.
(a) Notwithstanding any provision of this Plan to the
contrary, (i) with respect to Plan Years commencing prior to January 1, 1997,
the payment of benefits to each Participant or Former Participant shall
commence no later than the April 1st following the taxable year in which the
Participant attains age 70-1/2; and (ii) with respect to Plan Years commencing
on or after January 1, 1997, the payment of benefit to each Participant or
Former Participant shall commence no later than the April 1 following the later
of the taxable year in which the Participant attains age 70-1/2 or the taxable
year in which the Participant retires; provided, however, with respect to Plan
Years commencing on or after January 1, 1997, the payment of benefits to a
Participant or Former Participant who is a Five Percent Owner in any Plan Years
ending with the year in which he attained age 70-1/2 must commence no later
than the April 1st following the taxable year in which the Participant attains
age 70-1/2. Payment of such benefit shall be made on or before such required
date as provided in Section 7.1(e), but in no event to exceed a period that is
equal to the Participant's life expectancy. Any distribution that is made
pursuant to this
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Section 7.3 shall satisfy the requirements of Regulation Section 1.401(a)(9)-2,
which is incorporated herein by reference.
(b) The payment of benefits hereunder to a Participant or
Former Participant shall commence not later than the sixtieth (60th) day after
the close of the Plan Year in which the later of the following events
occurs:(i) the attainment by him of the Normal Retirement Age;(ii) the tenth
(10th) anniversary of the year in which the Participant began to participate in
the Plan; or (iii) the termination of the Participant's service with the
Company.
7.4 TIME OF DISTRIBUTION. To the extent that Participant consent is
otherwise required for any distribution pursuant to Section 7.1 or Section 7.7,
such distribution may be made less than 30 days after the notice required under
Section 1.411(a)-11(c)(2)(ii) of the Regulations is given only if (i) the
Administrator clearly informs the Participant that the Participant has a right
to consider, for such 30 day period, the decision of whether or not to elect a
distribution (and, if applicable, a particular distribution option), and (ii)
the Participant, after receiving the notice, affirmatively elects to waive such
30 day waiting period.
7.5 DISTRIBUTION FOR MINOR BENEFICIARY. In the event a distribution
is to be made to a minor, then the Administrator may direct that such
distribution be paid to the legal guardian, or if none, to a parent of such
Beneficiary or a responsible adult with whom the Beneficiary maintains his
residence, or to the custodian for such Beneficiary under the Uniform Gift to
Minors Act or Gift to Minors Act, if such is permitted by the laws of the state
in which said Beneficiary resides. Such a payment to the legal guardian,
custodian or parent of a minor Beneficiary shall fully discharge the Trustee,
Employer, and Plan from further liability on account thereof.
7.6 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN. In the event
that the distribution payable to a Participant or his Beneficiary hereunder
shall, at the Participant's attainment of his Normal Retirement Age, remain
unpaid solely by reason of the inability of the Administrator, after sending a
registered letter, return receipt requested, to the last known address, and
after further diligent effort, to ascertain the whereabouts of such Participant
or his Beneficiary, the amount so distributable shall be treated as a
forfeiture pursuant to the Plan. In the event a Participant or Beneficiary is
located subsequent to his benefit being reallocated, such benefit shall be
restored.
7.7 ADVANCE DISTRIBUTION FOR HARDSHIP.
(a) The Administrator, at the election of a Participant, other
than a Terminated Participant, shall direct the Trustee to distribute to any
Participant up to the lesser of 100% of his Participant's Vested Account valued
as of the date as of which such distribution is processed or such number of
shares of Stock (and cash in lieu of fractional shares) with a Fair Market
Value equal to the amount of the immediate and heavy financial need of the
Participant. The number of shares of Stock credited to the Account of a
Participant who has received a hardship withdrawal under this Section 7.7 shall
be reduced accordingly. Each distribution pursuant to this Section shall be in
a lump-sum only, consisting entirely of shares of Stock, with cash in lieu of
fractional shares. A need shall not be disqualified because it was reasonably
foreseeable or voluntarily incurred. A withdrawal under this Section shall be
authorized only if, based on all relevant facts and circumstances, including
Federal, state and local taxes and penalties, the distribution is on account
of:
(i) Expenses for medical care described in Section
213(d) of the Code previously incurred by the Participant, his spouse, or any
of his dependents (as defined in Section 152 of the Code)or necessary for these
persons to obtain medical care;
(ii) The costs directly related to the purchase of a
principal residence for the Participant (excluding mortgage payments);
(iii) Funeral expenses for a member of the Participant's
family;
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(iv) Payment of tuition and related educational fees for
the next twelve (12) months of post-secondary education for the Participant,
his spouse, children, or dependents; or
(v) Payments necessary to prevent the eviction of the
Participant from his principal residence or foreclosure on the mortgage of the
Participant's principal residence.
(b) No distribution shall be made pursuant to this Section
unless the Administrator determines, based upon all relevant facts and
circumstances, that the amount to be distributed is not in excess of the amount
required to relieve the financial need and that such need cannot be satisfied
from other resources reasonably available to the Participant. For this
purpose, the Participant's resources shall be deemed to include those assets of
his spouse and minor children that are reasonably available to the Participant.
A distribution may be treated as necessary to satisfy a financial need if the
Administrator relies upon the Participant's representation that the need cannot
be relieved:
(i) Through reimbursement or compensation by insurance
or otherwise;
(ii) By reasonable liquidation of the Participant's
assets, to the extent such liquidation would not itself increase the amount of
the need;
(iii) By cessation of elective deferrals under the MFS
401(k) Plan; or
(iv) By other distributions or loans from the Plan or
any other qualified and nonqualified plans of deferred compensation, or by
borrowing from commercial sources on reasonable commercial terms, to the extent
such amounts would not themselves increase the amount of the need.
(c) Notwithstanding the above, distributions from the
Participant's Vested Account pursuant to this Section shall be limited, as of
the date of distribution, to the Participant's Vested Account, reduced by the
amount of any previous distributions pursuant to this Section.
7.8 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION. All rights and
benefits, including elections, provided to a Participant in this Plan shall be
subject to the rights afforded to any "alternate payee" under a Qualified
Domestic Relations Order. Furthermore, a distribution to an "alternate payee"
shall be permitted if such distribution is authorized by a Qualified Domestic
Relations Order, even if the affected Participant has not separated from
service and has not reached the "earliest retirement age" under the Plan. For
the purposes of this Section, "alternate payee," and "earliest retirement age"
shall have the meaning set forth under Section 414(p) of the Code.
7.9 DIRECT ROLLOVER.
(a) Notwithstanding any provision of the Plan to the contrary
that would otherwise limit a Distributee's election under this Section, a
Distributee may elect, at the time and in the manner prescribed by the
Administrator, to have any portion of an Eligible Rollover Distribution paid
directly to an Eligible Retirement Plan specified by the Distributee in a
Direct Rollover.
(b) For purposes of this Section the following definitions
shall apply:
(i) An "Eligible Rollover Distribution" is any
distribution of all or any portion of the balance to the credit of the
Distributee, except that an Eligible Rollover Distribution does not include:
any distribution that is one of a series of substantially equal periodic
payments (not less frequently than annually) made for the life (or life
expectancy) of the Distributee or the joint lives (or joint life expectancies)
of the Distributee and the Distributee's designated beneficiary, or for a
specified period of ten years or more; any distribution to the extent such
distribution is required under Section 401(a)(9) of the Code; and the portion
of any distribution that is not includible in gross income (determined without
regard to the exclusion for net unrealized appreciation with respect to
employer securities).
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(ii) An "Eligible Retirement Plan" is an individual
retirement account described in Section 408(a) of the Code, an individual
retirement annuity described in Section 408(b) of the Code, an annuity plan
described in Section 403(a) of the Code, or a qualified trust described in
Section 401(a) of the Code, that accepts the Distributee's Eligible Rollover
Distribution. However, in the case of an Eligible Rollover Distribution to the
surviving spouse, an Eligible Retirement Plan is an individual retirement
account or individual retirement annuity.
(iii) A "Distributee" includes an Employee or former
Employee. In addition, the Employee's or former Employee's surviving spouse
and the Employee's or former Employee's spouse or former spouse who is the
alternate payee under a Qualified Domestic Relations Order, are Distributees
with regard to the interest of the spouse or former spouse.
(iv) A "Direct Rollover" is a payment by the Plan to the
Eligible Retirement Plan specified by the Distributee.
ARTICLE VIII
AMENDMENT, TERMINATION AND MERGERS
8.1 AMENDMENT.
(a) The Company shall have the right at any time to amend the
Plan, subject to the limitations of this Section. Any such amendment shall be
adopted by formal action of the Board and executed by an officer authorized to
act on behalf of the Company. However, any amendment which affects the rights,
duties or responsibilities of the Trustee and Administrator may only be made
with the Trustee's and Administrator's written consent. Any such amendment
shall become effective as provided therein upon its execution. The Trustee
shall not be required to execute any such amendment unless the Trust provisions
contained herein are a part of the Plan and the amendment affects the duties of
the Trustee hereunder.
(b) No amendment to the Plan shall be effective if it
authorizes or permits any part of the Trust Fund (other than such part as is
required to pay taxes and administration expenses) to be used for or diverted
to any purpose other than for the exclusive benefit of the Participants or
their Beneficiaries or estates; or causes any reduction in the amount credited
to the account of any Participant; or causes or permits any portion of the
Trust Fund to revert to or become property of the Employer.
(c) Except as permitted by Regulations, no Plan amendment or
transaction having the effect of a Plan amendment (such as a merger, plan
transfer or similar transaction) shall be effective to the extent it eliminates
or reduces any "Section 411(d)(6) protected benefit" or adds or modifies
conditions relating to "Section 411(d)(6) protected benefits" the result of
which is a further restriction on such benefit unless such protected benefits
are preserved with respect to benefits accrued as of the later of the adoption
date or effective date of the amendment. "Section 411(d)(6) protected
benefits" are benefits described in Section 411(d)(6)(A) of the Code, early
retirement benefits and retirement-type subsidies, and optional forms of
benefit.
(d) Notwithstanding anything in this section 8.1 to the
contrary, the provisions of the Plan relating to the allocation of
contributions made by the Employer pursuant to section 4.1 shall not be amended
more than once every six months, other than to comport with changes in the
Code, the Act or the rules thereunder.
8.2 TERMINATION.
(a) The Company shall have the right at any time to terminate
the Plan by delivering to the Trustee and Administrator written notice of such
termination. Upon any full or partial termination, all amounts credited to the
affected Participants' Accounts shall become 100% Vested and shall not
thereafter be subject to
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forfeiture, and all unallocated amounts shall be allocated to the accounts of
all Participants in accordance with the provisions hereof.
(b) Upon the full termination of the Plan, the Company shall
direct the distribution of the assets of the Trust Fund to Participants as
provided in Section 7.1. Distributions to a Participant pursuant to this
Section shall be made in shares of Stock. Except as permitted by Regulations,
the termination of the Plan shall not result in the reduction of "Section
411(d)(6) protected benefits" in accordance with Section 8.1(c).
8.3 MERGER OR CONSOLIDATION. The Plan may be merged or consolidated
with, or its assets and/or liabilities may be transferred to any other plan and
trust only if the benefits would be received by a Participant of this Plan, in
the event of a termination of the Plan immediately after such transfer, merger
or consolidation, are at least equal to the benefits the Participant would have
received if the Plan had terminated immediately before the transfer, merger or
consolidation, and such transfer, merger or consolidation does not otherwise
result in the elimination or reduction of any "Section 411(d)(6) protected
benefits" in accordance with Section 8.1(c).
ARTICLE IX
MISCELLANEOUS
9.1 PARTICIPANT'S RIGHTS. This Plan shall not be deemed to
constitute a contract between the Employer and any Participant or to be a
consideration or an inducement for the employment of any Participant or
Employee. Nothing contained in this Plan shall be deemed to give any
Participant or Employee the right to be retained in the service of the Employer
or to interfere with the right of the Employer to discharge any Participant or
Employee at any time regardless of the effect which such discharge shall have
upon him as a Participant of this Plan.
9.2 ALIENATION. Subject to the exceptions below, no benefit which
shall be payable out of the Trust Fund to any person (including a Participant
or his Beneficiary) shall be subject in any manner to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to
anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge the
same shall be void; and no such benefit shall in any manner be liable for, or
subject to, the debts, contracts, liabilities, engagements, or torts of any
such person, nor shall it be subject to attachment or legal process for or
against such person, and the same shall not be recognized by the Trustee,
except to such extent as may be required by law. This provision shall not
apply to a Qualified Domestic Relations Order and those other domestic
relations orders permitted to be so treated by the Administrator under the
provisions of the Act. The Administrator shall establish a written procedure
to determine the qualified status of domestic relations orders and to
administer distributions under such qualified orders. Further, to the extent
provided under a Qualified Domestic Relations Order, a former spouse of a
Participant shall be treated as the spouse or surviving spouse for all purposes
under the Plan.
9.3 CONSTRUCTION OF PLAN. This Plan shall be construed and enforced
according to the Act and the laws of the State of Nebraska, other than its laws
respecting choice of law, to the extent not preempted by the Act.
9.4 LEGAL ACTION. In the event any claim, suit, or proceeding is
brought regarding the Trust and/or Plan established hereunder to which the
Trustee or the Administrator may be a party, and such claim, suit, or
proceeding is resolved in favor of the Trustee or Administrator, they shall be
entitled to be reimbursed from the Trust Fund for any and all costs, attorney's
fees, and other expenses pertaining thereto incurred by them for which they
shall have become liable.
9.5 PROHIBITION AGAINST DIVERSION OF FUNDS.
(a) Except as provided below and otherwise specifically
permitted by law, it shall be impossible by operation of the Plan or of the
Trust, by termination of either, by power of revocation or amendment, by the
happening of any contingency, by collateral arrangement or by any other means,
for any part of the corpus
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or income of any trust fund maintained pursuant to the Plan or any funds
contributed thereto to be used for, or diverted to, purposes other than the
exclusive benefit of Participants, Retired Participants, or their
Beneficiaries.
(b) In the event the Employer shall make an excessive
contribution under a mistake of fact pursuant to Section 403(c)(2)(A) of the
Act, the Employer may demand repayment of such excessive contribution at any
time within one (1) year following the time of payment and the Trustees shall
return such amount to the Employer within the one (1) year period. Earnings of
the Plan attributable to the excess contributions may not be returned to the
Employer but any losses attributable thereto must reduce the amount so
returned.
9.6 BONDING. Every Fiduciary, except a bank or an insurance company,
unless exempted by the Act and regulations thereunder, shall be bonded in an
amount not less than 10% of the amount of the funds such Fiduciary handles;
provided, however, that the minimum bond shall be $1,000 and the maximum bond,
$500,000. The amount of funds handled shall be determined at the beginning of
each Plan Year by the amount of funds handled by such person, group, or class
to be covered and their predecessors, if any, during the preceding Plan Year,
or if there is no preceding Plan Year, then by the amount of the funds to be
handled during the then current year. The bond shall provide protection to the
Plan against any loss by reason of acts of fraud or dishonesty by the Fiduciary
alone or in connivance with others. The surety shall be a corporate surety
company (as such term is used in Section 412(a)(2) of the Act), and the bond
shall be in a form approved by the Secretary of Labor. Notwithstanding
anything in the Plan to the contrary, the cost of such bonds shall be an
expense of and may, at the election of the Administrator, be paid from the
Trust Fund or by the Employer.
9.7 RECEIPT AND RELEASE FOR PAYMENTS. Any payment to any
Participant, his legal representative, Beneficiary, or to any guardian or
committee appointed for such Participant or Beneficiary in accordance with the
provisions of the Plan, shall, to the extent thereof, be in full satisfaction
of all claims hereunder against the Trustee and the Employer, either of whom
may require such Participant, legal representative, Beneficiary, guardian or
committee, as a condition precedent to such payment, to execute a receipt and
release thereof in such form as shall be determined by the Trustee or Employer.
9.8 ACTION BY THE EMPLOYER. Whenever the Employer under the terms of
the Plan is permitted or required to do or perform any act or matter or thing,
it shall be done and performed by a person duly authorized by its legally
constituted authority.
9.9 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY. The "named
Fiduciaries" of this Plan are (1) the Employer, (2) the Administrator and (3)
the Trustee. The named Fiduciaries shall have only those specific powers,
duties, responsibilities, and obligations as are specifically given them under
the Plan. In general, the Employer shall have the sole responsibility for
making the contributions provided for under Section 4.1; and shall have the
sole authority to appoint and remove the Trustee and Administrator; to
formulate the Plan's "funding policy and method"; and to amend or terminate, in
whole or in part, the Plan. The Administrator shall have the sole
responsibility for the administration of the Plan, which responsibility is
specifically described in the Plan. The Trustee shall have the sole
responsibility of management of the assets held under the Trust, all as
specifically provided in the Plan. Each named Fiduciary warrants that any
directions given, information furnished, or action taken by it shall be in
accordance with the provisions of the Plan, authorizing or providing for such
direction, information or action. Furthermore, each named Fiduciary may rely
upon any such direction, information or action of another named Fiduciary as
being proper under the Plan, and is not required under the Plan to inquire into
the propriety of any such direction, information or action. It is intended
under the Plan that each named Fiduciary shall be responsible for the proper
exercise of its own powers, duties, responsibilities and obligations under the
Plan. No named Fiduciary shall guarantee the Trust Fund in any manner against
investment loss or depreciation in asset value. Any person or group may serve
in more than one Fiduciary capacity. In the furtherance of their
responsibilities hereunder, the "named Fiduciaries" shall be empowered to
interpret the Plan and Trust and to resolve ambiguities, inconsistencies and
omissions, which findings shall be binding, final and conclusive.
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9.10 APPROVAL BY INTERNAL REVENUE SERVICE.
(a) Notwithstanding anything herein to the contrary,
contributions to this Plan are conditioned upon the initial qualification of
the Plan under Section 401 of the Code. If the Plan receives an adverse
determination with respect to its initial qualification, then the Plan may
return such contributions to the Employer within one year after such
determination, provided the application for the determination is made by the
time prescribed by law for filing the Employer's return for the taxable year in
which the Plan was adopted, or such later date as the Secretary of the Treasury
may prescribe.
(b) Notwithstanding any provisions to the contrary, any
contribution by the Employer to the Trust Fund is conditioned upon the
deductibility of the contribution by the Employer under the Code and, to the
extent any such deduction is disallowed, the Employer may, within one (1) year
following the disallowance of the deduction, demand repayment of such
disallowed contribution and the Trustee shall return such contribution within
one (1) year following the disallowance. Earnings of the Plan attributable to
the excess contribution may not be returned to the Employer, but any losses
attributable thereto must reduce the amount so returned.
9.11 UNIFORMITY. All provisions of this Plan shall be interpreted and
applied in a uniform, nondiscriminatory manner.
9.12 VOTING AND TENDER RIGHTS. All voting, tender and other similar
rights with respect to the Stock allocated to the Participant's Accounts shall
be exercised exclusively by the Administrator.
9.13 PUT OPTION. If at the time of distribution, Stock distributed
from the Trust Fund are not treated as "readily tradable on an established
market" within the meaning of Section 409(h) of the Code and the Regulations,
such Stock shall be subject to a put option in the hands of a Qualified Holder
(as defined in Section 9.13(a) by which such Qualified Holder may sell all or
any part of the Stock distributed to him by the Trust to the Company; provided,
however, that the Company may in its discretion grant the Trust an option to
assume the Company's rights and obligations pursuant to this Section 9.13 with
respect to any distributed Stock. Should the Company grant the Trust such an
option with respect to any distributed Stock but the Trust declines to purchase
all or any part of such Stock, the Company shall purchase those Stock that the
Trust declines to purchase. The put option shall be subject to the following
conditions:
(a) The term "Qualified Holder" shall mean the Participant or
Beneficiary receiving the distribution of such Stock, any other party to whom
the Stock are transferred by gift or by reason of death, and also any trustee
of an individual retirement account (as defined under Section 408 of the Code)
to which all or any portion of the distributed Stock is transferred pursuant to
a tax-free "rollover" transaction satisfying the requirements of Sections 402
and 408 of the Code.
(b) During the 60-day period following any distribution of
such Stock, a Qualified Holder shall have the right to require the Company to
purchase all or a portion of the distributed Stock held by the Qualified
Holder. The purchase price to be paid for any such Stock shall be their fair
market value determined (1) as of the Valuation Date coinciding with or next
preceding the exercise of the put option under this Section 9.13(b) or, (2) in
the case of a transaction between the Plan and a "disqualified person" within
the meaning of Section 4975(e)(2) of the Code, as of the date of the
transaction.
(c) If a Qualified Holder shall fail to exercise his put
option right under Section 9.13(b), the option right shall temporarily lapse
upon the expiration of the 60-day period. As soon as practicable following the
last day of the Plan Year in which the 60-day option period expires, the
Company shall notify the non-electing Qualified Holder (if he is then a
shareholder of record) of the valuation of the Stock as of that date. During
the 60-day period following receipt of such valuation notice, the Qualified
Holder shall again have the right to require the Company to purchase all or any
portion of the distributed Stock. The purchase price to be paid therefor shall
be based on the valuation of the Stock (1) as of the Valuation Date coinciding
with or next preceding the exercise
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of the option under this Section 9.13(c) or, (2) in the case of a transaction
between the Plan and a "disqualified person" within the meaning of Section
4975(3)(2) of the Code, as of the date of the transaction.
(d) The foregoing put options under Section 9.13(b) and (c)
hereof shall be effective solely against the Company and shall not obligate the
Plan or Trust in any manner.
(e) Except as otherwise required or permitted by the Code, the
put options under Section 9.13 shall satisfy the requirements of Section
54.4975-7(b) of the Regulations to the extent, if any, that such requirements
apply to such put options.
9.14 EXERCISE OF PUT OPTION.
If a Qualified Holder exercises his put option under Section
9.13, payment for the Stock repurchased shall be made, in the case of a
distribution of a Participant's entire Account within one taxable year, in
substantially equal annual payments over a period beginning not later than 30
days after the exercise of the put option and exceeding five years (provided
that adequate security and reasonable interest are provided with respect to
unpaid amounts) or, in the case of other distributions, not later than 30 days
after such exercise.
9.15 CHANGES TO COMPANY STOCK. If any change is made to the shares of
Company Stock by reason of any merger, consolidation, reorganization,
recapitalization, stock dividend, split up, combination of shares, exchange of
shares, change in corporate structure, or otherwise, appropriate adjustments
shall be made by the Administrator to the kind and maximum number of shares
subject to the Plan (including the maximum number of shares issuable to any one
person) and the kind and number of shares and price per share of stock subject
to distribution. No fractional shares of Stock shall be issued under the Plan
on account of any such adjustment, and rights to Stock shall always be limited
after such an adjustment to the lower full share.
ARTICLE X
PARTICIPATING EMPLOYERS
10.1 EMPLOYEE TRANSFER. It is anticipated that an Employee may be
transferred between Participating Employers, and in the event of any such
transfer, the Employee involved shall carry with him his accumulated service
and eligibility. No such transfer shall effect a termination of employment
hereunder, and the Participating Employer to which the Employee is transferred
shall thereupon become obligated hereunder with respect to such Employee in the
same manner as was the Participating Employer from whom the Employee was
transferred.
10.2 PARTICIPATING EMPLOYER'S CONTRIBUTION. All contributions made by
a Participating Employer, as provided for in this Plan, shall be determined
separately by each Participating Employer, and shall be allocated only among
the Participants eligible to share of the Company or Participating Employer
making the contribution. On the basis of the information furnished by the
Administrator, the Trustee shall keep separate books and records concerning the
affairs of each Participating Employer hereunder and as to the accounts and
credits of the Employees of each Participating Employer.
10.3 AMENDMENT. Amendment of this Plan by the Company at any time
when there shall be a Participating Employer hereunder shall only be by the
written action of each and every Participating Employer and with the consent of
the Trustee where such consent is necessary in accordance with the terms of
this Plan.
10.4 DISCONTINUANCE OF PARTICIPATION. Any Participating Employer
shall be permitted to discontinue or revoke its participation in the Plan. At
the time of any such discontinuance or revocation, satisfactory evidence
thereof and of any applicable conditions imposed shall be delivered to the
Trustee. The Trustee shall thereafter transfer, deliver and assign Trust Fund
assets allocable to the Participants of such Participating Employer to such new
Trustee as shall have been designated by such Participating Employer, in the
event that it has established a separate pension plan for its Employees,
provided however, that no such transfer shall be made if the result is the
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elimination or reduction of any "Section 411(d)(6) protected benefits" in
accordance with Section 8.1(c). If no successor is designated, the Trustee
shall retain such assets for the Employees of said Participating Employer
pursuant to the provisions of the Trust. In no such event shall any part of
the corpus or income of the Trust as it relates to such Participating Employer
be used for or diverted to purposes other than for the exclusive benefit of the
Employees of such Participating Employer.
10.5 ADMINISTRATOR'S AUTHORITY. The Administrator shall have
authority to make any and all necessary rules or regulations, binding upon all
Participating Employers and all Participants, to effectuate the purpose of this
Article.
ARTICLE XI
TOP HEAVY PLANS
11.1 DEFINITIONS. For purposes of this Article XI, the following
definitions shall apply unless the context clearly indicates otherwise:
(a) "Aggregation Group" shall mean a group of plans consisting
of all plans maintained by the Company or an Affiliated Employer in which one
or more Key Employees are participants whether or not such plans are terminated
and whether or not such plans are sponsored by a corporation; all other plans
maintained by the Company or an Affiliated Employer that enable any plan in
which a Key Employee is participating to comply with the coverage and
nondiscrimination requirements of Sections 401(a)(4) and 410(b) of the Code;
and all plans of the Company or an Affiliated Employer which the Company
designates as part of the Aggregation Group, provided the resulting Aggregation
Group meets the coverage and non-discrimination requirements of Sections
401(a)(4) and 410(b) of the Code.
(b) "Determination Date" shall mean the last day of the
preceding Plan Year.
(c) "Five Percent Owner" shall have the meaning set forth in
Section 1.1(q) except that for purposes of this subsection (c) the Company and
its Affiliated Employers shall not be treated as a single employer and a
person's ownership interest in the Company or such Affiliated Employers shall
not be aggregated.
(d) "Key Employee" shall mean any individual who is, or was,
an Employee of the Employer or an Affiliated Employer and is or was, at any
time during the Plan Year ending with the Determination Date or any of the four
(4) preceding Plan Years:
(i) An Officer, but only if the Employee's Total
Compensation exceeds fifty percent (50%) of the dollar limit set forth in
Section 415(b)(1)(A) of the Code, as adjusted for increases in the cost of
living.
(ii) A Top Ten Owner, but only if the Employee's Total
Compensation exceeds the dollar limit set forth in Section 415(b)(1)(A) of the
Code, as adjusted for increases in the cost-of-living.
(iii) A Five Percent Owner; or
(iv) A One Percent Owner whose Total Compensation
exceeds $150,000. The term "Key Employee" shall also include the Beneficiary
of an individual described in clauses (i) through (iv) of this Subsection (d).
(e) "Non-Key Employee" shall mean each Employee who is not a
Key Employee.
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(f) "One Percent Owner" shall have the same meaning as Five
Percent Owner, except that "one percent (1%)" shall be substituted for "five
percent (5%)," wherever the latter term appears in Subsection (c) of this
Section 1.1(q).
(g) "Super Top-Heavy Plan" shall have the same meaning as
"Top-Heavy Plan" except that, the phrase "ninety percent (90%)" shall be
substituted for the phrase "sixty percent (60%)" wherever the latter phrase
appears in Section 11.1(h).
(h) "Top-Heavy Plan" The Plan shall be considered a Top-Heavy
Plan if, as of the Determination Date:(i) the Plan is not part of an
Aggregation Group and the Account balances of Key Employees participating in
the Plan exceeds sixty percent (60%) of the Account balances of all
Participants in the Plan; or (ii)The Plan is part of an Aggregation Group and
the Account balances and present value of the accrued benefits of Key Employees
participating in the Aggregation Group exceed sixty percent (60%) of the
Account balances and present value of the cumulative accrued benefits of all
participating employees in the Aggregation Group, as computed in each case in
accordance with Section 416 of the Code. For purposes of this Subsection (h),
a Participant's Account balance or accrued benefit shall not include any tax
free rollover (as described in Section 402(c) or Section 408(d)(3) of the Code)
or plan-to-plan transfer which (A) is made from the Plan (or, if applicable,
plans which are part of the Aggregation Group) and the plan to which the tax
free rollover or plan-to-plan transfer is made is an employee benefit plan
which is maintained by the Company or an Affiliated Employer and the tax free
rollover or plan-to-plan transfer is not initiated by the Employee or (B) is
made to the Plan (or, if applicable, plans which are part of the Aggregation
Group) if the plan from which the tax free rollover or plan-to-plan transfer is
made is an employee benefit plan which is not maintained by the Company or an
Affiliated Employer and the tax free rollover or plan-to-plan transfer is
initiated by the Employee. The Account balances or accrued benefit of any
Participant or Former Participant shall also include any distributions from the
Plan (or, if applicable, from any plan in the Aggregation Group) made to the
Participant or Former Participant or his Beneficiary during the Plan Year
ending with the Determination Date and any of the four (4) preceding Plan
Years. Solely for purposes of determining if the Plan, or any other plan
included in a required Aggregation Group of which this Plan is a part, is Top-
Heavy, the accrued benefit of a Non-Key Employee shall be determined under the
method, if any, that uniformly applies for accrual purposes under all plans
maintained by Affiliated Employers, or if there is no such method, as if such
benefit accrued not more rapidly than the shortest accrual rate permitted under
the fractional accrual rate of Section 411(b)(1)(C) of the Code. For purposes
of this Section 11.1(h) the accrued benefit of an individual, who has not
performed any service for the employer maintaining the plan at any time during
the five (5) year period ending on the Determination Date, will be excluded
from the calculation to determine whether a plan is Top-Heavy.
(i) "Top Ten Owner" shall mean one of the ten (10) Employees
owning, or considered as owning, within the meaning of Section 318 of the Code,
the largest interest in the Company or an Affiliated Employer. For purposes of
this Subsection (i), if two Employees have the same ownership interest in the
Company or an Affiliated Employer, the Employee with the greater Compensation
shall be considered as owning the larger interest in the Company or an
Affiliated Employer.
(j) "Total Compensation" shall mean the Employee's
compensation as defined in Section 4.5(f) of the Plan. Notwithstanding the
preceding, the term "Total Compensation" shall not include any amounts in
excess of $150,000 as adjusted in accordance with Section 401(a)(17)(B) and the
Regulations. In determining the Total Compensation of a Participant for
purposes of this limitation, with respect to Plan Years beginning prior to
January 1, 1997, the aggregation rules of Section 414(q)(6) of the Code shall
apply to any Participant who is a member of a family of a Five Percent Owner or
a Highly Compensated Employee in the group consisting of the ten (10) employees
paid the highest Total Compensation. However, in applying these rules the term
"family" shall include only the spouse of the Participant and any living
descendants of the Participant who have not attained age nineteen (19) before
the close of the Plan Year. If as a result of the application of the "family"
rules the adjusted $150,000 limitation is exceeded, then the limitation shall
be prorated among the affected individuals in proportion
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to each such individual's Total Compensation as determined under this
Subsection prior to the application of this limitation.
11.2 MINIMUM CONTRIBUTIONS. For each Plan Year during which the Plan
is a Top-Heavy Plan, the amount of the Employer's contributions allocated to
the Account of each Non-Key Employee who has satisfied the eligibility
requirements of Article III hereof, shall be an amount at least equal to the
lesser of: (i)three percent (3%) of the Non-Key Employee's Total Compensation
for the calendar year ending with or within the Plan Year; or (ii) a percentage
which is equal to the highest percentage of Total Compensation contributed by
the Company on behalf of any Key Employee.
The amount the Company is required to contribute on behalf of
each Non-Key Employee pursuant to this Section 11.2 shall be reduced by the
amount of any Employer contributions made on behalf of such Non-Key Employee
pursuant to Section 4.1 of the Plan or pursuant to another defined contribution
plan maintained by the Company or an Affiliated Employer.
11.3 COORDINATION WITH OTHER PLANS. Notwithstanding any other
provisions of this Article XI to the contrary, the contributions to this Plan
made on behalf of a Non-Key Employee by the Employer solely because of the
provisions of this Article XI, shall be reduced by the amount of any
contributions made by the Company or an Affiliated Employer on behalf of such
Non-Key Employee to any other defined contribution plan which meets the
requirements of Section 401(a) of the Code, other than employer contributions
made pursuant to a cash or deferral arrangement which meets the requirements of
Section 401(k) of the Code.
11.4 MAXIMUM BENEFITS. If, in any Limitation Year in which the Plan
is a Top-Heavy Plan, a Participant also participates in one or more defined
benefit plans maintained by the Company or an Affiliated Employer, then for
purposes of Sections 4.5(c) and (d) respectively, the phrase "1.0" shall be
substituted for the phrase "1.25" wherever the latter phrase appears.
Notwithstanding the preceding, the provisions of this Section 11.4 shall not
apply if the Plan is not a Super Top Heavy Plan and the Company or Affiliated
Employer contributes, on behalf of each Non-Key Employee who is entitled to
receive a benefit under Section 11.3, an amount at least equal to one percent
(1%) of the Participant's Total Compensation for the calendar year ending with
or within the Plan Year. The amount contributed on behalf of each Non-Key
Employee under this Section 11.4 shall be in addition to any contribution made
on his behalf pursuant to Section 11.2, but shall be reduced by the amount by
which (i) any Company or Affiliated Employer contributions made on behalf of
such Non-Key Employee under the Plan or any other defined contribution plan
maintained by the Company or an Affiliated Employer exceed (ii) the
contributions made on his behalf under Section 11.2 hereof.
11.5 AGGREGATION OF AFFILIATED EMPLOYERS. Except as provided in
Section 11.1(c), for purposes of this Article XI, Affiliated Employers shall be
treated as if they were the Employer.
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EXHIBIT 10.15
WORLDCOM/MFS 1992 STOCK PLAN
(AMENDED AND RESTATED AS OF DECEMBER 31, 1996)
INTRODUCTION AND HISTORY OF PLAN
The Plan originally was adopted by MFS Communications Company, Inc.
("MFS") effective November 23, 1992. Effective December 31, 1996, MFS merged
with and into WorldCom, Inc. ("WorldCom") pursuant to a Merger Agreement. As a
result of the merger, WorldCom assumed sponsorship of the Plan, and the Plan
was amended and restated to redesignate the Plan as sponsored by WorldCom
effective December 31, 1996. Under the terms of the Merger Agreement, rights
to acquire stock of MFS outstanding under the Plan before December 31, 1996
were substituted with rights to acquire stock of WorldCom, as adjusted for the
merger exchange ratio of 2.1 shares of stock of WorldCom for each outstanding
share of MFS stock. Except as adjusted for this exchange ratio, all rights of
Participants under the Plan before December 31, 1996 are preserved hereunder.
The amended and restated Plan is intended to change the Plan as required as a
result of the merger but is not otherwise intended to effect substantive
amendments to the Plan beyond those required by the merger.
ARTICLE I
NAME AND PURPOSE
For purposes of Article I, each such term as used in this Article shall
be defined in Article II.
1.1 NAME. The name of the Plan shall be the WorldCom/MFS 1992 Stock
Plan.
1.2 PURPOSE. The purpose of the Plan is to enable Employees and
Outside Consultants to share in the growth and prosperity of the Company by
encouraging stock ownership by Employees and Outside Consultants and to assist
the Company to obtain and retain skilled personnel and consultants. Incentive
Stock Options, Nonqualified Stock Options, Restricted Shares, bargain stock,
Stock Appreciation Rights, bonuses of Company stock and other types of stock
awards and cash may be granted under this Plan.
ARTICLE II
DEFINITIONS
2.1 "BOARD" means the Board of Directors of the Company.
2.2 "CODE" means the Internal Revenue Code of 1986, as amended.
2.3 "COMMITTEE" shall mean the Compensation Committee of the Board.
2.4 "COMPANY" means WorldCom, Inc., a Georgia corporation, or any
successor corporation.
2.5 "COMPANY STOCK" means shares of common stock issued by the
Company, par value $0.01 per share.
2.6 "DIRECTOR" means any person who is a member of the Board.
2.7 "EMPLOYEE" means any person employed on a full-time basis by the
Employer or a Subsidiary.
2.8 "EMPLOYER" means the Company.
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2.9 "INCENTIVE STOCK OPTION" means any option granted to a
Participant under the Plan, which the Committee intends at the time it is
granted, to be an incentive stock option within the meaning of Section 422 of
the Code.
2.10 "MERGER AGREEMENT" means the Amended and Restated Agreement and
Plan of Merger dated as of August 25, 1996 by and between the Company, HIJ
Corp., a wholly-owned subsidiary of the Company ("HIJ"), and MFS, whereby HIJ
merged with and into MFS.
2.11 "MFS" means MFS Communications Company, Inc., a Delaware
corporation.
2.12 "NONQUALIFIED STOCK OPTION" means any stock option granted under
the Plan which is not an Incentive Stock Option.
2.13 "OPTIONEE" is any Employee or Outside Consultant who is granted
options under the Plan.
2.14 "OUTSIDE CONSULTANT" is an individual who is not an Employee, but
provides services to the Company. Outside Consultant does not include
Directors.
2.15 "PARTICIPANT" shall mean any Employee or Outside Consultant who
meets the requirements for participation in the Plan as described in Article
III.
2.16 "QUALIFYING STOCK" means Company Stock which has been owned by
the Employee or the Outside Consultant for at least six months prior to the
date of exercise of an option granted pursuant to this Plan and has not been
used in a stock-for-stock swap transaction within the preceding six months.
2.17 "SUBSIDIARY" means a corporation which is a "subsidiary
corporation" as defined in Section 424 of the Code.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 ELIGIBILITY. Every Employee hired prior to July 1, 1992, and
Outside Consultants shall be eligible to become a Participant in the Plan;
provided that no Employee who holds any Rights under the Metropolitan Fiber
Systems, Inc. (MFS Telecom, Inc.) Incentive Compensation Rights Plan adopted
July 26, 1989 shall be eligible.
3.2 PARTICIPATION. The Employees and Outside Consultants who
shall participate in the Plan and thereby be eligible to receive awards shall
be such Employees and Outside Consultants as the Committee shall select from
time to time. The Committee shall determine the number of and the combination
of stock options, Restricted Shares, Stock Appreciation Rights (as such terms
are defined herein) and other stock awards granted to Employees and Outside
Consultants.
3.3 DIRECTOR PARTICIPATION. As of the effective date set forth in
Section 12.3, non-Employee Directors who provide service to the Company, other
than Director services, shall be granted a Nonqualified Stock Option for 50,000
shares of Company Stock. Non-Employee Directors who are on the Committee are
not eligible to receive any other Benefits under this Plan.
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ARTICLE IV
TYPE OF BENEFITS
Benefits under the Plan ("Benefits") may be granted in any one or any
combination of (a) Incentive Stock Options; (b) Nonqualified Stock Options; (c)
Stock Appreciation Rights; (d) restricted stock awards; (e) bargain purchase of
Company Stock; (f) bonuses of Company Stock; (g) any other form of stock
benefit; or (h) cash. However, Incentive Stock Options may not be granted to
Outside Consultants.
Without limiting the Committee's authority, the Committee may: (a) make
the grant of Benefits conditional upon an election by a Participant to defer
payment of a portion of his salary; (b) give a Participant a choice between two
Benefits or combination of Benefits; (c) award Benefits in the alternative so
that acceptance of or exercise of one Benefit cancels the right of a
Participant to another; (d) award Benefits in any combination or combinations
and subject to any condition or conditions consistent with the terms of the
Plan that the Committee in its sole discretion may determine; and (e) provide
any vesting schedule (including immediate vesting) as the Committee deems
appropriate.
ARTICLE V
SHARES SUBJECT TO PLAN
The total number of shares for which options and other Company Stock
awards may be granted under this Plan shall not exceed in the aggregate
12,600,000 shares of Company Stock. This number shall be appropriately
adjusted if the number of issued shares of Company Stock shall be increased or
reduced by a change in par value, combination, split-up, reclassification,
distribution of a dividend payable in stock, or the like. The shares issued
under the Plan may be authorized and unissued shares or treasury shares.
In the event that any outstanding option or other Benefit (except
Restricted Shares) issued pursuant to the Plan shall expire or terminate, the
shares allocable to the unexercised or forfeited portion of such Benefit may
again be subject to an award under the Plan.
ARTICLE VI
OPTIONS
The Committee from time to time may grant Incentive Stock Options and
Nonqualified Stock Options, provided, however, that only Employees may be
entitled to receive Incentive Stock Options.
Each option agreement between the Company and a Participant shall be in
such form and shall contain such provisions as the Committee from time to time
shall deem appropriate. Option agreements need not be identical. The option
agreements shall specify whether or not an option is an Incentive Stock Option.
The terms of Incentive Stock Options granted shall include the
following:
(a) The option price shall be fixed by the Committee in good faith,
but in no event be less than 100% of the fair market value of the shares
subject to the option on the date the option is granted.
(b) The Committee shall fix the term or duration of all Incentive
Stock Options issued under this Plan provided that such term shall not exceed
ten years after the date on which the option was granted and shall not
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extend beyond the Optionee's employment with the Company. The Committee shall
also set the date or dates on, or after which, each option may be exercised.
(c) The aggregate fair market value, determined as of the time the
Incentive Stock Option is granted, of the stock which may become exercisable
for the first time by any Employee during any calendar year shall not exceed
$100,000.
(d) Each Incentive Stock Option agreement (and amendments) shall
contain such terms and provisions, consistent with the requirements of this
Plan, as the Committee in its discretion shall determine, including without
limitation such terms and provisions as shall be requisite to cause the options
to qualify as Incentive Stock Options.
Notwithstanding any other provisions of the Plan, no Incentive Stock
Option shall be granted to an Employee who, at the time the option is granted,
owns stock representing more than 10% of the total combined voting power of all
classes of stock of the Company. This stock ownership limitation will not
apply if the option price is at least 110% of the fair market value (at the
time the option is granted) of the stock subject to the option, and the option
by its terms is not exercisable more than five years from the date it is
granted.
Options and similar Benefits (including Stock Appreciation Rights) shall
not be transferrable otherwise than by will or the laws of descent and
distribution, and during the Participant's lifetime, such a Benefit shall be
exercisable only by the Participant.
The Committee may grant a replacement option (a "Replacement Option") to
any Participant who exercises all or part of an option granted under this Plan
using Qualifying Stock as payment for the purchase price. A Replacement Option
shall grant to the Participant the right to purchase, at the fair market value
as of the date of said exercise and grant, the number of shares of stock equal
to the sum of the number of whole shares (a) used by the Participant in payment
of the purchase price for the option which was exercised and (b) used by the
Participant in connection with applicable withholding taxes on such
transaction. A Replacement Option may not be exercised for six months
following the date of grant, and shall expire on the same date as the option
which it replaces.
ARTICLE VII
RESTRICTED SHARES
The Committee from time to time may award restricted shares ("Restricted
Shares") to any Participant in the Plan. Each Participant who is awarded
Restricted Shares shall enter into an agreement with the Company in a form
specified by the Committee agreeing to the terms and conditions of the award
and such other matters consistent with the Plan as the Committee in its sole
discretion shall determine.
Restricted Shares awarded to Participants may not be sold, transferred,
pledged or otherwise encumbered during the restricted period commencing on the
date of the award and ending at such later date as the Committee may designate
at the time of the award. The Participant shall have the entire beneficial
ownership and all rights and privileges of a shareholder with respect to
Restricted Shares awarded to him, including the right to receive dividends and
the right to vote such Restricted Shares.
The Committee may provide any other terms or conditions with regard to
Restricted Shares that it deems appropriate. Restricted Shares and agreements
related thereto need not be identical.
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ARTICLE VIII
STOCK APPRECIATION RIGHTS
The Committee from time to time may grant stock appreciation rights
("Stock Appreciation Rights") to any Participant in the Plan. A Stock
Appreciation Right shall be evidenced by a Stock Appreciation Right agreement
between the Company and the Participant, which shall contain such terms and
conditions consistent with the Plan as the Committee from time to time shall
deem appropriate.
A Stock Appreciation Right may be satisfied by the Company in cash or in
shares of Company Stock, as determined by the Committee. The agreement may
limit the maximum amount of appreciation taken into account under a Stock
Appreciation Right.
A Stock Appreciation Right may be granted in conjunction with an
Incentive Stock Option, a Nonqualified Stock Option, Restricted Shares or any
other award hereunder. At the discretion of the Committee, a Stock
Appreciation Right may be exercisable only to the extent that a related award
is exercisable and only upon surrender of a related award. In the event of the
exercise of a Stock Appreciation Right, the exercise of which is conditioned
upon surrender of a related award, the number of shares that may be issued
under this Plan shall be reduced by the number of shares covered by the award
or portion thereof surrendered.
The Committee may provide any other terms or conditions with regard to
Stock Appreciation Rights that it deems appropriate. Stock Appreciation Rights
and agreements related thereto need not be identical.
ARTICLE IX
OTHER AWARDS
The Committee may grant any other cash, stock or stock-related awards to
a Participant under this Plan that the Committee deems appropriate, including,
but not limited to, the bargain purchase of Company Stock and stock bonuses.
Any such benefits and any related agreements shall contain such terms and
conditions as the Committee deems appropriate. Such awards and agreements need
not be identical. With respect to any Benefit under which shares of Company
Stock are or may in the future be issued (other than shares issued from the
Company's treasury) for consideration other than prior services, the amount of
such consideration shall be equal to the amount (such as the par value of such
shares) required to be received by the Company in order to comply with
applicable state law.
ARTICLE X
ADMINISTRATION
The Plan shall be administered by the Committee. A majority vote of the
Committee at which a quorum is present, or acts reduced to or approved in
writing by a majority of the members of the Committee, shall be the valid acts
of the Committee for the purposes of the Plan.
The Committee shall have plenary authority in its discretion, but
subject to the express provisions of the Plan, to determine the terms of all
Benefits granted under the Plan including, without limitation, the purchase
price, if any, the Employees and Outside Consultants to whom, and the time or
times at which Benefits shall be granted, when an option can be exercised, or
Restricted Shares, Stock Appreciation Rights and other Benefits become
forfeitable, and whether in whole or in installments, and the number of shares
covered by a Benefit, and to interpret the plan and to make all other
determinations deemed advisable for the administration of the Plan. The
Committee
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may designate Employees of the Company to assist the Committee in the
administration of the Plan and may grant authority to such persons to execute
option agreements or other documents on behalf of the Committee.
Payment in full for the number of shares purchased under any Benefit,
including an option, shall be made to the Company at the time of such exercise.
The Committee, in its discretion, may provide that any Benefit by its terms may
permit a Participant to elect, subject to Committee approval, any of the
following alternative settlement methods: (a) cash equal to the excess of the
value of one share over the option or purchase price times the number of shares
as to which the award is exercised; (b) the number of full shares having an
aggregate value not greater than the cash amount calculated under alternative
(a); or (c) any combination of cash and stock having an aggregate value not
greater than the cash amount calculated under alternative (a). For purposes of
determining an alternative settlement, the value per share shall be determined
under the same method as used to determine the option price in the case of
stock options.
Payment for such shares shall be made in cash, or with the consent of
the Committee, in shares of Qualifying Stock, or a combination thereof.
The Committee may make such rules and regulations and establish such
procedures as it deems appropriate for the administration of the Plan. In the
event of a disagreement as to the interpretation of the Plan or any amendment
hereto or any rule, regulation or procedure thereunder or as to any right or
obligation arising from or related to the Plan, the decision of the Committee
shall be final and binding. No member of the Committee shall be liable for any
action or determination made in good faith with respect to the Plan or any
Benefit granted under it.
ARTICLE XI
ADJUSTMENT UPON CHANGES OF STOCK
If any change is made to the shares of Company Stock by reason of any
merger, consolidation, reorganization, recapitalization, stock dividend, split
up, combination of shares, exchange of shares, change in corporate structure,
or otherwise, appropriate adjustments shall be made by the Committee to the
kind and maximum number of shares subject to the Plan and the kind and number
of shares and price per share of stock subject to each outstanding Benefit. No
fractional shares of stock shall be issued under the Plan on account of any
such adjustment, and rights to shares always shall be limited after such an
adjustment to the lower full share.
ARTICLE XII
MISCELLANEOUS
12.1 CONTINUATION OF EMPLOYMENT. Neither this Plan nor any Benefit
granted hereunder shall confer upon any Employee or any Outside Consultant any
right to continue in the employment of the Company or limit in any respect the
right of the Company to terminate an Employee's or an Outside Consultant's
employment at any time.
12.2 WITHHOLDING. With respect to any payments made to Participants
under the Plan, the Company shall have the right to withhold any taxes required
by law to be withheld because of such payments. With respect to any such
withholding:
(a) Each Participant shall take whatever action that the
Committee deems appropriate to comply with the law regarding withholding of
federal, state and local taxes.
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(b) When a Participant is obligated to pay to the Company an
amount required to be withheld under applicable income tax laws in connection
with a Benefit, the Committee may, in its discretion and subject to such rules
as it may adopt, permit the Participant to satisfy this obligation, in whole or
in part, either (i) by having the Company withhold from the shares to be issued
upon the exercise of an option or a Stock Appreciation Right or upon the
receipt of a Benefit, shares having a fair market value that would satisfy the
withholding amount due or (ii) by delivering to the Company already-owned
shares to satisfy the withholding amount.
12.3 EFFECTIVE DATE. This Plan is effective on November 23, 1992.
Benefits hereunder may be granted at any time subject to the limitations
contained within the Plan.
ARTICLE XIII
AMENDMENT AND TERMINATION
13.1 AMENDMENT. The Board may amend the Plan from time to time as it
deems desirable and shall make any amendments which may be required so that
options intended to be Incentive Stock Options shall at all times continue to
be Incentive Stock Options for the purposes of the Code; provided, however, the
Plan may not be amended to change the number of shares subject to the Plan or
decrease the price at which Incentive Stock Options may be granted.
13.2 TERMINATION OF PLAN. The Board may in its discretion terminate
the Plan at any time, but no such termination shall deprive Participants of
their rights under outstanding Benefits. Notwithstanding the preceding
sentence, no Incentive Stock Options may be granted pursuant to the Plan later
than ten years after the date the Plan is adopted or the date the Plan is
approved by the shareholders of MFS, whichever is earlier.
WORLDCOM, INC.,
a Georgia corporation
By:
-----------------------
Name:
Title:
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EXHIBIT 10.16
WORLDCOM/MFS 1993 STOCK PLAN
(AMENDED AND RESTATED AS OF DECEMBER 31, 1996)
INTRODUCTION AND HISTORY OF PLAN
Effective December 31, 1996, MFS Communications Company, Inc. ("MFS")
merged with and into WorldCom, Inc. ("WorldCom") pursuant to a Merger
Agreement. As a result of the merger, WorldCom assumed sponsorship of the
Plan, and the Plan was amended and restated to redesignate the Plan as
sponsored by WorldCom effective December 31, 1996. Under the terms of the
Merger Agreement, rights to acquire stock of MFS outstanding under the Plan
before December 31, 1996 were substituted with rights to acquire stock of
WorldCom, as adjusted for the merger exchange ratio of 2.1 shares of stock of
WorldCom for each outstanding share of MFS stock. Except as adjusted for this
exchange ratio, all rights of Participants under the Plan before December 31,
1996 are preserved hereunder. The amended and restated Plan is intended to
change the Plan as required as a result of the merger but is not otherwise
intended to effect substantive amendments to the Plan beyond those required by
the merger.
ARTICLE I
NAME AND PURPOSE
For purposes of Article I, each such term as used in this Article shall
be defined in Article II.
1.1 Name. The name of the Plan shall be the WorldCom/MFS 1993 Stock
Plan.
1.2 Purpose. The purpose of the Plan is to enable Employees, Outside
Consultants and Non-Employee Directors to share in the growth and prosperity of
the Company by encouraging stock ownership by them and to assist the Company to
obtain and retain skilled personnel, consultants and directors. Incentive
Stock Options, Nonqualified Stock Options, Outperformance Options, Restricted
Shares (as defined in Article VIII), bargain stock, Stock Appreciation Rights
(as defined in Article IX), bonuses of Company Stock, and other types of stock
awards and cash may be granted under this Plan, with respect to a maximum of
42,000,000 shares of Company Stock. The shares of Company Stock authorized for
issuance under this Plan shall also be available to satisfy obligations to
deliver shares of Company Stock (whether or not restricted) under other
compensation and benefit plans heretofore or hereafter established by the
Company, including but not limited to the Bonus Plan, the Deferred Stock Plan
and the Qualified Stock Plan.
ARTICLE II
DEFINITION
2.1 "Board" means the Board of Directors of the Company.
2.2 "Bonus Plan" means the MFS Communications Company, Inc. 1996
Bonus Plan, as amended from time to time.
2.3 "Code" means the Internal Revenue Code of 1986, as amended.
2.4 "Committee" means a committee or subcommittee of the Board, which
shall be comprised solely of two or more persons who are both "outside
directors" within the meaning of Section 162(m) of the Code, and "Non-Employee
Directors" within the meaning of Rule 16b-3 promulgated under the Exchange Act.
2.5 "Company" means WorldCom, Inc., a Georgia corporation, or any
successor corporation.
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2.6 "Company Stock" means shares of common stock of the Company, par
value $0.01 per share.
2.7 "Deferred Stock Plan" means the WorldCom/MFS 1995 Deferred Stock
Purchase Plan, as amended from time to time, or any successor thereto.
2.8 "Director" means any person who is a member of the Board.
2.9 "Employee" means any person employed on a full-time basis by the
Employer or a Subsidiary.
2.10 "Employer" means the Company.
2.11 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
2.12 "Incentive Stock Option" means any option granted to a
Participant under the Plan, which the Committee intends at the time it is
granted to be an incentive stock option within the meaning of Section 422 of
the Code.
2.13 "Merger Agreement" shall mean the Amended and Restated Agreement
and Plan of Merger dated as of August 25, 1996 by and between the Company, HIJ
Corp., a wholly-owned subsidiary of the Company ("HIJ"), and MFS, whereby HIJ
merged with and into MFS.
2.14 "Non-Employee Director" means a Director who is not also an
Employee.
2.15 "Nonqualified Stock Option" means any stock option granted under
the Plan (including but not limited to an Outperformance Option) which is not
an Incentive Stock Option.
2.16 "MFS" means MFS Communications Company, Inc., a Delaware
corporation, which is a Subsidiary of the Company pursuant to a merger with the
Company on December 31, 1996.
2.17 "Optionee" is an Employee or Outside Consultant who is granted
options under the Plan.
2.18 "Outperformance Option" shall mean a Nonqualified Stock Option
described in Article VIII.
2.19 "Outside Consultant" is an individual who is not an Employee but
provides services to the Company. Outside Consultant does not include
Directors.
2.20 "Participant" shall mean any Employee or Outside Consultant who
meets the requirements for participation in the Plan as described in Article
III.
2.21 "Qualified Stock Plan" means the WorldCom/MFS Employee Stock
Bonus Plan, as amended from time to time, or any successor thereto.
2.22 "Qualifying Stock" means Company Stock which has been owned by
the Employee or the Outside Consultant for at least six months prior to the
date of exercise of an option granted pursuant to this Plan and has not been
used in a stock-for-stock swap transaction within the preceding six months.
2.23 "Subsidiary" means a corporation which is a "subsidiary
corporation" of the Company as defined in Section 424 of the Code.
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ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 Eligibility. Every Employee, Outside Consultant and Non-Employee
Director during the term of this Plan shall be eligible to become a Participant
in the Plan.
3.2 Participation. The Employees and Outside Consultants who shall
participate in the Plan and thereby be eligible to receive awards shall be such
Employees and Outside Consultants as the Committee shall select from time to
time. The Committee shall determine the number of and the combination of stock
options (including Outperformance Options), Restricted Shares, Stock
Appreciation Rights and other stock awards granted to Employees and Outside
Consultants, subject to any limitations set forth in the Plan. Non-Employee
Directors shall receive automatic grants of shares of Company Stock annually
pursuant to Article VI herein. In addition, any current or former Employee who
is a participant in the Bonus Plan (and who is eligible to receive shares of
Company stock thereunder), the Qualified Stock Plan or the Deferred Stock Plan
shall, to the extent necessary to satisfy obligations under such plans, be
deemed a Participant hereunder.
ARTICLE IV
TYPE OF BENEFITS
Benefits under the Plan ("Benefits") may be granted in any one or any
combination of (a) Incentive Stock Options; (b) Nonqualified Stock Options; (c)
Outperformance Options; (d) Stock Appreciation Rights; (e) restricted stock
awards; (f) bargain purchases of Company Stock; (g) bonuses of Company Stock;
(h) any other form of stock benefit, including but not limited to stock
benefits under the Bonus Plan, Deferred Stock Plan and Qualified Stock Plan
Deferred Stock Plan; or (i) cash. However, Incentive Stock Options may not be
granted to anyone who is not an Employee.
Without limiting the Committee's authority, the Committee may: (a) make
the grant of Benefits conditional upon an election by a Participant to defer
payment of a portion of his salary; (b) give a Participant a choice between two
Benefits or combination of Benefits; (c) award Benefits in the alternative so
that acceptance of or exercise of one Benefit cancels the right of a
Participant to another; (d) award Benefits in any combination or combinations
and subject to any condition or conditions consistent with the terms of the
Plan that the Committee in its sole discretion may determine; and (e) provide
any vesting schedule (including immediate vesting) as the Committee deems
appropriate.
ARTICLE V
SHARES SUBJECT TO PLAN
The total number of shares which may be issued pursuant to this Plan
(including any Benefits payable in cash but denominated as shares of Company
Stock) shall not exceed in the aggregate 42,000,000 shares of Company Stock.
The total number of shares for which options (other than Outperformance
Options) may be granted under this Plan to any one individual during any
calendar year shall not exceed in the aggregate 2,000,000 shares of Company
Stock. The foregoing amounts shall be appropriately adjusted if the number of
issued shares of Company Stock shall be increased or reduced by a change in par
value, combination, split-up, reclassification, distribution of a dividend
payable in stock, or the like. The shares issued under the Plan may be
authorized and unissued shares or treasury shares.
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In the event that any outstanding option or other benefit issued
pursuant to the Plan shall expire, terminate or be forfeited, the shares
allocable to the unexercised or forfeited portion of such Benefit may again be
subject to an award under the Plan.
ARTICLE VI
NON-EMPLOYEE DIRECTOR FORMULA GRANT
On the date of the Company's annual meeting of shareholders each year,
without any action by the Committee or the Board, each Non-Employee Director
shall be granted a number of shares of Company Stock (the "Director Retainer
Grant"). On the date of the Company's annual meeting of shareholders each
year, without any action by the Committee or the Board, each Non-Employee
Director who is also the chairperson of a committee of the Board shall be
granted a number of shares of Company Stock (the "Committee Chair Retainer
Grant"). In addition, on a date no later than five business days following the
close of the three month period ending on March 31, June 30, September 30 and
December 31 of each year, without any action by the Committee or the Board,
each Non-Employee Director shall be paid meeting fees due to such member of the
Board for attending meetings of the Board during such prior three-month period
in shares of Company Stock (the "Board Meeting Grant"). In addition, on a date
no later than five business days following the close of the three month period
ending on March 31, June 30, September 30 and December 31 of each year, without
any action by the Committee or the Board, each Non-Employee Director serving on
any committee of the Board shall be paid meeting fees due to such member of the
Board for attending meetings of such committee of the Board during such prior
three-month period in shares of Company Stock (the "Committee Meeting Grant").
The number of shares of Company Stock granted pursuant to a Director Retainer
Grant, a Committee Chair Retainer Grant, a Board Meeting Grant or a Committee
Meeting Grant shall be equal to the value of the Non-Employee Director's annual
retainer fee, annual committee chair retainer fee, and each Non-Employee
Director's previous three-month period Board meeting fees and committee meeting
fees, if any, divided by the fair market value of one share of Company Stock
either on the trading day just prior to the date of the Company's annual
meeting of shareholders with respect to a Director Retainer Grant or a
Committee Chair Retainer Grant, or the trading day just prior to the last
trading day of a calendar quarter ending March 31, June 30, September 30 or
December 31 of each year with respect to a Board Meeting Grant or a Committee
Meeting Grant. In addition, as of the date of the Company's 1996 annual
meeting of shareholders, without any action by the Committee or the Board, each
Non-Employee Director shall be granted 2,000 shares of Company Stock.
Thereafter, on the date that any person first becomes a Non-Employee Director,
without any action by the Committee or the Board, such person shall be
automatically granted 2,000 shares of Company Stock. For the purpose of this
Article VI, the fair market value of the Company Stock on any date shall be (i)
the average closing price per share of Company Stock on the national securities
exchange on which such stock is principally traded over the ten trading days
immediately preceding such date, or (ii) if the Company Stock is not listed or
admitted to trading on any such exchange, the average of the highest reported
bid and lowest reported asked prices per share of Stock as reported by the
National Association of Securities Dealers Inc. Automated Quotation ("NASDAQ")
system over the ten trading days immediately preceding such date, or (iii) if
the Company Stock is not then listed on any securities exchange or prices
therefor are not then quoted in the NASDAQ system, the value determined by the
Committee in good faith.
ARTICLE VII
OPTIONS
The Committee may from time to time at its discretion subject to the
provisions of the Plan, determine when options shall be granted and at the time
of each grant determine those eligible employees to whom options shall be
granted, the number of shares subject to such options, the date or dates on
which the options become exercisable, either wholly or in part, and the
expiration date of the options. Each such option shall be evidenced
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by a written agreement containing terms and conditions established by the
Committee consistent with the provisions of the Plan. Option agreements need
not be identical.
The terms of Incentive Stock Options granted shall include the
following:
(a) The option price shall be fixed by the Committee in good faith,
but in no event be less than 100% of the fair market value of the shares
subject to the option on the date the option is granted.
(b) The Committee shall fix the term or duration of all Incentive
Stock Options issued under this Plan, provided that such term shall not exceed
10 years after the date on which the option was granted. The Committee shall
also set the date or dates on or after which each option may be exercised.
(c) The aggregate fair market value, determined as of the time the
Incentive Stock Option is granted, of the stock which may become exercisable
for the first time by any Employee during any calendar year shall not exceed
$100,000.
(d) Each Incentive Stock Option agreement (and amendments) shall
contain such terms and provisions, consistent with the requirements of this
Plan, as the Committee in its discretion shall determine, including without
limitation such terms and provisions as shall be requisite to cause the options
to qualify as Incentive Stock Options.
Notwithstanding any other provisions of the Plan, no Incentive Stock
Option shall be granted to an Employee who, at the time the option is granted,
owns stock representing more than 10% of the total combined voting power of all
classes of stock of the Company. This stock ownership limitation will not
apply if the option price is at least 110% of the fair market value (at the
time the option is granted) of the stock subject to the option, and the option
by its terms is not exercisable more than five years from the date it is
granted.
Options and similar Benefits (including Stock Appreciation Rights and
Outperformance Options) shall not be transferable otherwise than by will or the
laws of descent and distribution, and during the Participant's lifetime, such a
Benefit shall be exercisable only by the Participant; provided, however, that
the Committee may, in its sole discretion, allow for the transfer of Options
(other than Incentive Stock Options but including Outperformance Options) to
other persons or entities, subject to such conditions or limitations as it may
establish to ensure that transactions with respect to such Options intended to
be exempt from Section 16(b) of the Exchange Act pursuant to Rule 16b-3
thereunder do not fail to maintain such exemption as a result of the Committee
causing such Options to be transferable or for other purposes.
The Committee may, in its sole discretion, at any time during the term
of the Plan, grant new options to an Optionee under the Plan who is also a
holder of one or more unexercised outstanding options previously granted under
the Plan or any other stock option plan of the Company on the condition that
such Optionee shall surrender for cancellation one or more outstanding options
which represent the right to purchase (after giving effect to any previous
partial exercise thereof) a number of shares, in relation to the number of
shares to be covered by the new conditional grant hereunder, determined by the
Committee. If the Committee shall have so determined to grant such new options
on such a conditional basis ("New Conditional Options"), no such New
Conditional Options shall become exercisable in the absence of such Optionee's
consent to the condition and surrender and cancellation as appropriate. New
Conditional Options shall be treated in all respects under the Plan as newly
granted options. Options may be granted under the Plan from time to time in
substitution for similar rights held by employees of other corporations who are
about to become Employees of the Company or a Subsidiary as a result of a
merger or consolidation of the employing corporation with the Company or a
Subsidiary, or the acquisition by the Company or a Subsidiary of the assets of
the employing corporation, or the acquisition by the Company or a Subsidiary of
stock of the employing corporation as the result of which it becomes a
Subsidiary.
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<PAGE> 6
ARTICLE VIII
OUTPERFORMANCE OPTIONS
The Committee may from time to time at its discretion, subject to the
provisions of the Plan, determine when Outperformance Options shall be granted
and those eligible Employees to whom Outperformance Options shall be granted.
At the time of each grant, the Committee shall determine the number of shares
subject to such Outperformance Options and, subject to the provisions of the
Plan, any other terms or conditions affecting the Outperformance Options,
provided, however, that the total number of shares subject to Outperformance
Options which may be granted to any one individual during any one calendar year
shall not exceed in the aggregate 2,000,000 shares of Company Stock, subject to
adjustment as provided in Article V hereof. With respect to the proviso in the
preceding sentence, such number shall be determined prior to application of the
Multiplier referred to in Section 8(i) hereof. Each such Outperformance Option
shall be evidenced by a written agreement containing terms and conditions
established by the Committee not inconsistent with the provisions of the Plan.
Such agreements need not be identical with respect to Participants.
The terms of Outperformance Options granted pursuant to this Plan shall
include the following:
(a) Each Outperformance Option shall relate to a number of shares of
Company Stock.
(b) The initial per-share option price of an Outperformance Option
(the "Initial Price") shall be equal to 100% of the per share closing price of
Company Stock on the trading day immediately preceding the date the option is
granted.
(c) The Initial Price shall be adjusted upward or downward as of the
date of exercise of such Outperformance Option (the "Adjusted Price") by a
percentage equal to the annualized percentage increase or decrease in the
Standard and Poor's 500 Index (the "Annualized Percentage S&P Performance")
over the period (the "S&P Period") beginning on the date of grant and ending on
the trading day immediately preceding the date of exercise; provided, however,
that the Adjusted Price may never be less than the Initial Price unless the
closing price of Company Stock on the trading day immediately preceding the
date of exercise is no less than the Initial Price. For purposes of
determining the Annualized Percentage S&P Performance with respect to any S&P
Period, the Standard and Poor's 500 Index as of the last day of the S&P Period
shall be deemed to equal the average closing value of such index over the ten-
consecutive-trading day period ending on the last day such S&P Period.
(d) The term of each Outperformance Option shall be ten (10) years
from the date of grant of such option or such shorter period as determined by
the Committee.
(e) Subject to paragraph (f) below, each Outperformance Option shall
become vested and exercisable in accordance with the terms and conditions
established by the Committee and reflected in the written award agreement.
(f) Unless otherwise determined by the Committee, all Outperformance
Options shall be cancelled as of the fifteenth day preceding a Change in
Control (as defined in Section 13.3 hereof).
(g) There shall form a part of each Outperformance Option a number of
units ("Units") equal to, as of any given date, the product of (i) the number
of shares relating to such Outperformance Option and (ii) the Multiplier (as
hereinafter defined) that would be applicable to such Outperformance Option if
exercised on such given date. Each Unit shall entitle the holder to an amount
of cash determined pursuant to the terms and conditions set forth in Section
13.2(iii) hereof. All Units corresponding to an Outperformance Option shall be
cancelled upon the exercise or cancellation of such corresponding
Outperformance Option (other than a cancellation under paragraph (f) above).
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<PAGE> 7
(h) Upon receipt by the Committee of an Optionee's Notice of intent
to exercise an Outperformance Option, the Committee will deliver to the
Participant with respect to and in cancellation of the portion of the
Outperformance Option being exercised (i) a number of whole shares of Company
Stock with a fair market value equal to the product of (A) the closing price of
a share of Company Stock on the trading day immediately preceding the date of
exercise, less the Adjusted Price, multiplied by (B) the "Multiplier" (as
defined in paragraph (i) below) plus (ii) cash in lieu of fractional shares,
unless the Committee determines, in its discretion, to elect any one or more of
the following methods of payment with respect to and in cancellation of the
Outperformance Option: (1) the Committee may, upon the receipt from the
Participant of an amount with respect to the portion of the Outperformance
Option being exercised equal to the Adjusted Price multiplied by the
Multiplier, deliver to such Participant a number of shares of Company Stock
equal to the product of the number of shares relating to the Outperformance
Option being exercised and the Multiplier; or (2) the Committee may provide
to a Participant any other form of benefit or arrangement (including, without
limitation, shares of Common Stock, cash or a combination thereof) which, in
the Committee's judgment after considering all relevant factors, provides
substantially equivalent economic benefit to such Participant.
(i) The Multiplier shall be determined on the date of exercise based
on the extent to which the annualized percentage change (expressed as a whole
percentage point followed by two decimal places) in the fair market value per
share of Company Stock (the "Annualized Percentage Company Stock Price Change")
over the period (the "Company Period") beginning on the date of grant and
ending on the trading day immediately preceding the date of purported exercise
exceeds the annualized percentage change (expressed as a whole percentage point
followed by two decimal places) in the Standard and Poor's 500 Index (the
"Annualized Percentage S&P Change") over the corresponding S&P Period
(determined in a manner consistent with the determination of the Annualized
Percentage S&P Performance under paragraph (c) above), as follows:
<TABLE>
<S> <C>
If Annualized Percentage
Company Stock Price
Change Over the Company
Period Exceeds Annualized
Percentage S&P Change By: The Multiplier will equal:
------------------------- --------------------------
0% or less 0
More than 0% but less than 2.5 plus .5 times the difference between annualized
11% Percentage Company Stock Price Change and Annualized
Percentage S&P Change
11% or more 8.0
For purposes of determining the Annualized Percentage
Company Stock Price Change with respect to any Company
Period, the fair market value of a share of Company Stock
as of the last day of any Company Period shall be deemed
to equal the average of the closing prices of such share
of stock over the ten-consecutive-trading-day period
ending on the last day of such Company Period.
</TABLE>
(j) The terms and conditions relating to Outperformance Options are
designed so that such Outperformance Options qualify as performance-based
compensation within the meaning of Section 162(m) of the Code, and the
provisions of this Article VIII shall be construed accordingly.
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<PAGE> 8
ARTICLE IX
RESTRICTED SHARES
The Committee from time to time may award restricted shares ("Restricted
Shares") to any Participant in the Plan. Each Participant who is awarded
Restricted Shares shall enter into an agreement with the Company in a form
specified by the Committee agreeing to the terms and conditions of the award
and such other matters consistent with the Plan as the Committee in its sole
discretion shall determine.
Restricted Shares awarded to Participants may not be sold, transferred,
pledged or otherwise encumbered during the restricted period commencing on the
date of the award and ending at such later date as the Committee may designate
at the time of the award. The Participant shall have the entire beneficial
ownership and all rights and privileges of a stockholder with respect to
Restricted Shares awarded to him, including the right to receive dividends and
the right to vote such Restricted Shares.
The Committee may provide any other terms or conditions with regard to
Restricted Shares that it deems appropriate. Restricted Shares and agreements
related thereto need not be identical.
ARTICLE X
STOCK APPRECIATION RIGHTS
The Committee from time to time may grant stock appreciation rights
("Stock Appreciation Rights") to any Participant in the Plan. Stock
Appreciation Right shall be evidenced by a Stock Appreciation Right agreement
between the Company and the Participant, which shall contain such terms and
conditions consistent with the Plan as the Committee from time to time shall
deem appropriate.
A Stock Appreciation Right may be satisfied by the Company in cash or in
shares of Company Stock, as determined by the Committee. The agreement may
limit the maximum amount of appreciation taken into account under a Stock
Appreciation Right.
A Stock Appreciation Right may be granted in conjunction with an
Incentive Stock Option, a Nonqualified Stock Option, Restricted Shares or any
other award hereunder. At the discretion of the Committee, a Stock
Appreciation Right may be exercisable only to the extent that a related award
is exercisable and only upon surrender of a related award. In the event of the
exercise of a Stock Appreciation Right the exercise of which is conditioned
upon surrender of a related award, the number of shares that may be issued
under this Plan shall be reduced by the number of shares covered by the award
or portion thereof surrendered.
The Committee may provide any other terms or conditions with regard to
Stock Appreciation Rights that it deems appropriate. Stock Appreciation Rights
and agreements related thereto need not be identical.
ARTICLE XI
OTHER AWARDS
The Committee may grant any other cash, stock or stock related awards to
a Participant under this Plan that the Committee deems appropriate, including,
but not limited to, the bargain purchase of Company Stock and stock bonuses.
Any such benefits and any related agreements shall contain such terms and
conditions as the Committee deems appropriate. Such awards and agreements need
not be identical. With respect to any Benefit under which shares of Company
Stock are or may in the future be issued (other than shares issued from the
Company's treasury) for consideration other than prior services, the amount of
such consideration shall not be less
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<PAGE> 9
than the amount (such as the par value of such shares) required to be received
by the Company in order to comply with applicable state law.
As indicated in Article I, shares of Company Stock may also be used to
satisfy obligations of the Company to deliver shares of Company Stock (whether
or not restricted) under other compensation and benefit plans heretofore or
hereafter established by the Company, including but not limited to the Bonus
Plan, the Deferred Stock Plan and the Qualified Stock Plan.
ARTICLE XII
ADMINISTRATION
The Plan shall be administered by the Committee. A majority vote of the
Committee at which a quorum is present, or acts reduced to or approved in
writing by a majority of the members of the Committee, shall be the valid acts
of the Committee for the purposes of the Plan.
The Committee shall have plenary authority in its discretion, but
subject to the express provisions of the Plan, to determine the terms of all
Benefits granted under the Plan including, without limitation, the purchase
price, if any, the Employees and Outside Consultants to whom, and the time or
times at which Benefits shall be granted, when an option can be exercised, or
Restricted Shares, Stock Appreciation Rights and other Benefits become
forfeitable, and whether in whole or in installments, and the number of shares
covered by a Benefit, and to interpret the Plan and to make all other
determinations deemed advisable for the administration of the Plan. The
Committee may designate Employees of the Company to assist the Committee in the
administration of the Plan and may grant authority to such persons to execute
option agreements or other documents on behalf of the Committee.
Payment in full for the number of shares purchased under any Benefit,
including an option, shall be made to the Company at the time of such exercise.
An Optionee to whom an option is granted shall not be deemed the holder of any
shares subject to the option until the shares are fully paid and issued to him
upon exercise of such option. The Committee, in its discretion, may provide
that any Benefit by its terms may permit a Participant to elect, subject to
Committee approval, any of the following alternative settlement methods: (a)
cash equal to the excess of the value of one share over the option or purchase
price times the number of shares as to which the award is exercised; (b) the
number of full shares having an aggregate value not greater than the cash
amount calculated under alternative (a); or (c) any combination of cash and
stock having an aggregate value not greater than the cash amount calculated
under alternative (a). For purposes of determining an alternative settlement,
the value per share shall be determined under the same method as used to
determine the option price in the case of stock options.
The exercise price for shares purchased shall be paid in full at the
time of exercise and no shares shall be issued until full payment therefor is
made. Such payment may be made either (1) in cash, (2) by delivering shares of
Qualifying Stock or a combination of cash and Qualifying Stock, or (3) by
delivery of a copy of irrevocable instructions to a stockbroker to deliver
promptly to the Company an amount of sale or loan proceeds equal to the
exercise price. Qualifying Stock shall be valued at its fair market value
determined as of the date of exercise of the option.
The Committee may make such rules and regulations and establish such
procedures as it deems appropriate for the administration of the Plan. In the
event of a disagreement as to the interpretation of the Plan or any amendment
hereto or any rule, regulation or procedure thereunder or as to any right or
obligation arising from or related to the Plan, the decision of the Committee
shall be final and binding. No member of the Committee shall be liable for any
action or determination made in good faith with respect to the Plan or any
Benefit granted under it.
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<PAGE> 10
ARTICLE XIII
CHANGES TO COMPANY STOCK; CHANGE IN CONTROL
OF THE COMPANY
13.1 Changes to Company Stock. If any change is made to the shares of
Company Stock by reason of any merger, consolidation, reorganization,
recapitalization, stock dividend, split up, combination of shares, exchange of
shares, change in corporate structure, or otherwise, appropriate adjustments
shall be made by the Committee to the kind and maximum number of shares subject
to the Plan (including the maximum number of shares issuable to any one person)
and the kind and number of shares and price per share of stock subject to each
outstanding Benefit. No fractional shares of stock shall be issued under the
Plan on account of any such adjustment, and rights to shares always shall be
limited after such an adjustment to the lower full share.
13.2 Change in Control of the Company. Except to the extent stated
otherwise in an award agreement, upon the occurrence of a "Change in Control"
(as defined below):
(a) following which a grantee of Options (other than
Outperformance Options) or freestanding Stock Appreciation Rights that are
outstanding at the time of such Change in Control ("Outstanding Awards"),
within two years of such Change in Control, is terminated without "cause" (as
determined by the Committee) or incurs a "Constructive Involuntary Termination"
(as defined below), such grantee's Outstanding Awards shall become immediately
exercisable in full;
(b) following which a grantee of Restricted Shares outstanding
at the time of such Change in Control, within two years of such Change in
Control, is terminated without "cause" (as determined by the Committee) or
incurs a "Constructive Involuntary Termination" (as defined below), all
restrictions with respect to such grantee's Restricted Shares shall lapse, and
such shares shall become fully vested and nonforfeitable;
(c) (i) the number of Units corresponding to each
Outperformance Option which is then outstanding (including for this purpose an
Outperformance Option which is cancelled pursuant to Section 8(f) hereof) shall
be deemed to equal the product of the Multiplier and the number of shares
relating to such Outperformance Option had such Outperformance Option been
exercised in full on the date of the Change in Control, whether or not such
Outperformance Option otherwise would be vested or exercisable and without
regard to the provisions of Section 8(f) hereof and (ii) there shall be paid to
the holder of each such Unit, in cancellation of such Unit and of any such
corresponding Outperformance Option which had not previously been cancelled, an
amount equal to the difference between the "Change in Control Price" (as
defined below) and the Adjusted Price (determined as if such Outperformance
Option had been exercised in full on the date of the Change in Control), such
amount to be paid solely in cash no later than twenty (20) days following the
Change in Control; and
(d) the Committee may, in its sole discretion, provide similar
treatment with respect to any other Benefits granted under the Plan.
13.3 Definitions.
(a) A Change in Control shall be deemed to have occurred upon
(i) the acquisition by any person, entity or "group," within the meaning of
Section 13(d)(3) or 14(d)(2) of the Exchange Act, other than the Company or any
of its affiliates, or any employee benefit plan of the Company or any of its
affiliates, of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of more than 50% of either (x) the then
outstanding shares of Company Stock or (y) the combined voting power of the
Company's then outstanding voting securities, or (ii) approval by the
stockholders of the Company of a reorganization, merger or consolidation, in
each case, with respect to which persons who were the stockholders of the
Company immediately prior to such reorganization, merger or consolidation do
not, immediately thereafter, own more than 50% of the
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<PAGE> 11
combined voting power entitled to vote generally in the election of directors
of the reorganized, merged or consolidated company's then outstanding voting
securities, or a liquidation or dissolution of the Company or the sale of all
or substantially all of the assets of the Company.
(b) The "Change in Control Price" shall mean the higher of (i)
the highest price paid per share of Company Stock in the transaction or series
of transactions pursuant to which a Change in Control shall have occurred, or
(ii) the highest closing price per share of Company Stock on NASDAQ (or such
other national securities exchange on which Company Stock is principally
traded) during the sixty (60) day period immediately preceding the date of the
Change in Control.
(c) "Constructive Involuntary Termination" shall mean the
voluntary termination of a person's employment with the Company and all of its
subsidiaries within 90 days following (i) a material reduction in his
compensation (including applicable fringe benefits), without his consent, (ii)
his demotion or the diminution in his position, authority, duties or
responsibilities, without cause and without his consent, or (iii) the
relocation of his principal place of employment, without his consent.
ARTICLE XIV
MISCELLANEOUS
14.1 Continuation of Employment. Neither this Plan nor any Benefit
granted hereunder shall confer upon any Employee or any Outside Consultant any
right to continue in the employment of the Company or limit in any respect the
right of the Company to terminate an Employee's or an Outside Consultant's
employment at any time.
14.2 Withholding. With respect to any payments made to Participants
under the Plan, the Company shall have the right to withhold any taxes required
by law to be withheld because of such payments. With respect to any such
withholding:
(a) Each Participant shall take whatever action that the
Committee deems appropriate to comply with the law regarding withholding of
Federal, state and local taxes.
(b) When a Participant is obligated to pay to the Company an
amount required to be withheld under applicable income tax laws in connection
with a Benefit, the Committee may, in its discretion and subject to such rules
as it may adopt, permit the Participant to satisfy this obligation, in whole or
in part, either (i) by having the Company withhold from the shares to be issued
upon the exercise of an option or a Stock Appreciation Right, or upon the
receipt of a Benefit, shares having a fair market value that would satisfy the
withholding amount due, (ii) by delivering to the Company already-owned shares
to satisfy the withholding amount, or (iii) by delivering to the Company cash
in an amount equal to the withholding amount. Notwithstanding the above,
unless the Committee specifically permits otherwise, withholding with respect
to Outperformance Options shall be made in accordance with clause (i) above.
14.3 Liability. No member of the Board, the Committee or officers or
employees of the Company or its Subsidiaries shall be personally liable for any
action, omission or determination made in good faith in connection with the
Plan.
14.4 Retirement Vesting. Upon the Early Retirement (as defined below)
of a grantee of Options, freestanding Stock Appreciation Rights or Restricted
Shares, all such outstanding Options and freestanding Stock Appreciation Rights
held at the time of such Early Retirement shall immediately become fully vested
and exercisable and the restrictions with respect to such outstanding
Restricted Shares held at the time of such Early Retirement shall immediately
lapse. For the purposes of this Section 14.4, Early Retirement shall mean
termination of a Participant's
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<PAGE> 12
employment with the Company at (i) age 62, (ii) age 61 with one year of service
with the Company, (iii) age 60 with two years of service with the Company, (iv)
age 59 with three years of service with the Company, (v) age 58 with four years
of service with the Company, (vi) age 57 with five years of service with the
Company, (vii) age 56 with six years of service with the Company, or (viii) age
55 with seven years of service with the Company.
ARTICLE XV
AMENDMENT AND TERMINATION
15.1 Amendment. The Board may amend the Plan from time to time as it
deems desirable and shall make any amendments which may be required so that
options intended to be Incentive Stock Options shall at all times continue to
be Incentive Stock Options for the purposes of the Code, provided, however,
that, without the requisite approval of Stockholders, the Plan may not be
amended where such stockholder approval is required in order for the Plan to
continue to comply with Rule 16b-3 promulgated under the Exchange Act.
15.2 Termination of Plan. The Board may in its discretion terminate
the Plan at any time, but no such termination shall deprive Participants of
their rights under outstanding Benefits. Notwithstanding the preceding
sentence, no Incentive Stock Options may be granted pursuant to the Plan later
than 10 years after the date the Plan is adopted or the date the Plan is
approved by the stockholders of MFS, whichever is earlier.
The Plan was amended and restated by
the Executive Committee of the Board
of Directors of MFS Communications
Company, Inc. on July 24, 1995, on
September 19, 1995, as of December
15, 1995, on February 21, 1996, and
as of October 1, 1996 and by the
Executive Committee of the Board of
Directors of WorldCom, Inc. as of
December 31, 1996.
By:__________________________________
General Counsel
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<PAGE> 1
EXHIBIT 10.17
WORLDCOM/MFS/UUNET
1995 PERFORMANCE OPTION PLAN
(AMENDED AND RESTATED AS OF DECEMBER 31, 1996)
INTRODUCTION AND HISTORY OF PLAN
Effective August 12, 1996, MFS Communications Company, Inc. ("MFS")
acquired UUNET Technologies, Inc., a Delaware corporation ("UUNET") through a
merger of a subsidiary of MFS with and into UUNET. As a result of the merger,
MFS assumed sponsorship of this Plan. Effective December 31, 1996, MFS then
merged with and into WorldCom, Inc. ("WorldCom") pursuant to a Merger
Agreement. As a result of the merger, WorldCom assumed sponsorship of the
Plan, and the Plan was amended and restated to redesignate the Plan as
sponsored by WorldCom effective December 31, 1996. Under the terms of the
Merger Agreement, rights to acquire stock of MFS outstanding under the Plan
before December 31, 1996 were substituted with rights to acquire stock of
WorldCom, as adjusted for the merger exchange ratio of 2.1 shares of stock of
WorldCom for each outstanding share of MFS stock. Except as adjusted for this
exchange ratio, all rights of Participants under the Plan before December 31,
1996 are preserved hereunder. This amended and restated Plan incorporates
changes in the Plan due to this merger but retains provisions relating to prior
dates for historical purposes. The amended and restated Plan is intended to
change the Plan as required as a result of the merger but is not otherwise
intended to effect substantive amendments to the Plan beyond those required by
the merger.
1. PURPOSES OF THE PLAN.
The purposes of this Plan are to attract and retain the best available
personnel, to provide additional incentive to the Employees of the Company and
to promote the success of the Company's business. All Options granted
hereunder shall be Nonqualified Stock Options.
2. DEFINITIONS.
As used herein, the following definitions shall apply:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Committee" shall mean the Compensation Committee of the Board.
(d) "Common Stock" shall mean the Common Stock of the Company, par
value $0.01 per share.
(e) "Company" shall mean WorldCom, Inc., a Georgia corporation.
(f) "Continuous Status as an Employee" shall mean the absence of any
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of sick leave,
military leave, or any other leave of absence approved by the Committee;
provided, that such leave is for a period of not more than 90 days or
reemployment upon the expiration of such leave is guaranteed by contract or
statute.
(g) "Employee" shall mean any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient to
constitute "employment"" by the Company.
(h) "Executive Officer" shall have the meaning set forth in Rule 3b-7
(or any successor rule) under the Exchange Act.
<PAGE> 2
(i) "Incentive Stock Option" shall mean an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code.
(j) "Nonqualified Stock Option" shall mean an Option not intended to
qualify as an Incentive Stock Option.
(k) "Option" shall mean a stock option granted pursuant to the Plan.
(l) "Optioned Stock" shall mean the Common Stock subject to an
Option.
(m) "Optionee" shall mean an Employee who receives an Option.
(n) "Parent" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(o) "1995 Performance Goal" shall mean that the Company's 1995 pre-
tax profit shall be at least $1.5 million.
(p) "Plan" shall mean this WorldCom/MFS/UUNET 1995 Performance Option
Plan, as amended from time to time.
(q) "Share" shall mean a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.
(r) "Subsidiary" shall mean a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN.
Subject to the provisions of Section 10 of the Plan, the maximum
aggregate number of shares under the Plan is 338,478 shares of Common Stock.
The Shares may be authorized, but unissued, or reacquired Common Stock. If an
Option should expire or become unexercisable for any reason without having been
exercised in full, then the unpurchased Shares which were subject thereto shall
not become available for future grant or sale under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) Procedure. The Plan shall be administered by the Committee. The
Committee shall continue to serve until otherwise directed by the Board.
Members of the Board who are either eligible for Options or have been granted
Options may not act upon the granting of an Option. Notwithstanding the
foregoing, if and in any event the Company registers any class of any equity
security pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), from the effective date of such registration this
Plan shall be administered in accordance with the disinterested administration
requirements of Rule 16b-3 promulgated by the Securities and Exchange
Commission (such rule, including any successor rule, shall be referred to as
"Rule 16b-3"), or any successor rule thereto. Subject to the foregoing, from
time to time the Board may increase the size of the Committee and appoint
additional members thereof, remove members (with or without cause) and appoint
new members in substitution therefor, and fill vacancies however caused.
(b) Powers of the Committee. Subject to the provisions of the Plan,
the Committee shall have the authority, in its discretion: (i) to grant
Nonqualified Stock Options; (ii) to determine, upon review of relevant
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<PAGE> 3
information and in accordance with Section 7 of the Plan, the fair market value
of the Common Stock; (iii) to determine the exercise price per share of Options
to be granted, which exercise price shall be determined in accordance with
Section 7 of the Plan; (iv) to determine the Employees to whom, and the time or
times at which, Options shall be granted and the number of shares to be
represented by such Options; (iv) to interpret the Plan; (v) to prescribe,
amend and rescind rules and regulations relating to the Plan; (vi) to determine
the terms and provisions of each Option granted and, with the consent of the
holder thereof, modify or amend any provisions (including provisions relating
to exercise price) of any Option; (vii) to accelerate or defer (with the
consent of the Optionee) the exercise date of any Option, consistent with the
provisions of the Plan; (viii) to authorize any person to execute on behalf of
the Company any instrument required to effectuate the grant of an Option
previously granted by the Committee; and (ix) to make all other determinations
deemed necessary or advisable for the administration of the Plan.
(c) Effect of Committee's Decision. All decisions, determinations and
interpretations of the Committee shall be final and binding on all Optionees.
5. ELIGIBILITY.
(a) Options. Options may be granted to all Employees.
(b) Employment Relationship. The Plan shall not confer upon any
Optionee any right with respect to continuation of employment by the Company,
nor shall it interfere in any way with his or her right or the Company's right
to terminate his or her employment or services at any time, with or without
cause.
6. TERM OF PLAN.
The Plan shall become effective upon the earlier to occur of its
adoption by the Board or its approval by vote of the holders of a majority of
the outstanding shares of the Company entitled to vote on the adoption of the
Plan. It shall continue in effect for a term of ten (10) years unless sooner
terminated under Section 12 of the Plan.
7. EXERCISE PRICE AND CONSIDERATION.
(a) The per Share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the Committee.
(b) For purposes of the Plan, the value of Common Stock of the
Company shall be determined as follows:
(i) If the stock of the Company is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market, its fair market value shall be the closing sales price
for such stock or the closing bid if no sales were reported, as quoted on such
system or exchange (or the largest such exchange) for the date the value is to
be determined (or if there are no sales for such date, then for the last
preceding business day on which there were sales), as reported in the Wall
Street Journal or similar publication.
(ii) If the stock of the Company is regularly quoted by a
recognized securities dealer but selling prices are not reported, its fair
market value shall be the mean between the high bid and low asked prices for
the stock on the date the value is to be determined (or if there are no quoted
prices for the date of grant, then for the last preceding business day on which
there were quoted prices).
(iii) In the absence of an established market for the stock, the
fair market value thereof shall be determined in good faith by the Committee,
with reference to the Company's net worth, prospective earning power,
dividend-paying capacity, and other relevant factors, including the goodwill of
the Company, the economic outlook
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in the Company's industry, the Company's position in the industry and its
management, and the values of stock of other corporations in the same or a
similar line of business.
(c) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Committee and may consist entirely of cash, check, promissory note, other
Shares of Common Stock which (i) either have been owned by the Optionee for
more than six (6) months on the date of surrender or were not acquired directly
or indirectly, from the Company, and (ii) have a fair market value on the date
of surrender equal to the aggregate exercise price of the Shares as to which
said Option shall be exercised, or any combination of such methods of payment,
or such other consideration and method of payment for the issuance of Shares to
the extent permitted under applicable law.
8. OPTIONS.
(a) Term of Option. The term of each Option shall be ten (10) years
from the date of grant thereof.
(b) Exercise of Option.
(i) Procedure for Exercise; Rights as a Stockholder. Any
Option granted hereunder shall be exercisable in full for 100 percent of the
Shares subject to such Option outstanding under the Plan on December 31, 2004;
provided, that Options held by any Employee as of December 31, 1995, shall
become exercisable in full on March 31, 1996 if the Committee determines that
the 1995 Performance Goal shall have been met.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Committee, consist of any
consideration and method of payment allowable under Section 7 of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends shall
exist with respect to the Optioned Stock, notwithstanding the exercise of the
Option. The Company shall issue (or cause to be issued) such stock certificate
promptly upon exercise of the Option. No adjustment will be made for a
dividend or other right for which the record date is prior to the date the
stock certificate is issued, except as provided in Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised. An Option may not be exercised for a fraction of a Share.
(ii) Termination of Status as an Employee. In the event of
termination of an Optionee's Continuous Status as an Employee prior to December
31, 1995, the Option held by such Employee shall terminate upon employment
termination. If the 1995 Performance Goal shall have been met and an
Optionee's Continuous Status as an Employee terminates after December 31, 1995,
such Optionee may, but only within three (3) months after the date of such
termination (or such longer period permitted by the Committee, but in no event
later than the date of expiration of the term of such Option as set forth in
the Option Agreement) exercise the Option. If the 1995-Performance Goal shall
not have been met and an Optionee's Continuous Status as an Employee terminates
before December 31, 2004, the Option held by such Optionee shall terminate upon
employment termination. If the 1995 Performance Goal shall not have been met
and an Optionee's Continuous Status as an Employee terminates after December
31, 2004, but before the end of the Option term, such Optionee may exercise
such Option prior to the expiration of the Option term. To the extent that
such Employee or Consultant was not entitled to exercise the Option at the date
of such termination, or if such Employee or Consultant does not exercise such
Option (which such Employee or Consultant was entitled to exercise) within the
time specified herein, the Option shall terminate.
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<PAGE> 5
(iii) Disability of Optionee. Notwithstanding the provisions of
Section 8(b)(ii) above, in the event of termination of an Optionee's Continuous
Status as an Employee as a result of such Employee's total and permanent
disability (as defined in Section 22(e) (3) of the Code), such Employee may,
but only within six (6) months from the date of such termination (or such
longer period permitted by the Committee, but in no event later than the date
of expiration of the term of such Option as set forth in the Option Agreement),
exercise the Option to the extent such Employee was entitled to exercise it at
the date of such termination. To the extent that such Employee was not
entitled to exercise the Option at the date of termination, or if such Employee
does not exercise such Option (which such Employee was entitled to exercise)
within the time specified herein, the Option shall terminate.
(iv) Death of Optionee. In the event of the death of an
Optionee during the term of the Option who is at the time of his or her death
an Employee of the Company and who has been in Continuous Status as an Employee
since the date of grant of the Option, the Option may be exercised, at any time
within six (6) months (but in no event later than the date of expiration of the
term of such Option as set forth in the Option Agreement), by Optionee's estate
or by a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent of the right to exercise that would have
accrued had the Optionee continued living and remained in Continuous Status as
an Employee six (6) months after the date of death.
9. NON-TRANSFERABILITY OF OPTIONS.
The Options may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
Subject to any required action by the stockholders of the Company, the
number of shares of Common Stock covered by each outstanding Option, and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but as to which no Options have yet been granted or which have been
returned to the Plan upon cancellation or expiration of an Option as well as
the price per share of Common Stock covered by each such outstanding Option or
Stock Purchase Right, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock of the Company or the payment of a stock dividend with respect
to the Common Stock or any other increase or decrease in the number of issued
shares of Common Stock effected without receipt of consideration by the
Company; provided, however, that conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration. Such adjustment shall be made by the Committee, whose
determination in that respect shall be final, binding and conclusive. Except
as expressly provided herein, no issuance by the Company of shares of stock of
any class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to an Option.
In the event of the proposed dissolution or liquidation of the Company,
the Option will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Committee. The Committee
may, in the exercise of its sole discretion in such instances, declare that any
Option shall terminate as of a date fixed by the Committee and give each
Optionee the right to exercise his or her Option as to all or any part of the
Optioned Stock, including Shares as to which the Option would not otherwise be
exercisable. In the event of a proposed sale of all or substantially all of
the assets of the Company, or the merger of the Company with or into another
corporation, the Option shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation, or, in the sole discretion of the Committee, the
Committee shall, in lieu of such assumption or substitution, (a) provide for
the Optionee to have the right to exercise the Option as to all of the Optioned
Stock, including Shares as to which the Option would not otherwise be
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<PAGE> 6
exercisable, or (b) provide for the cancellation of such Option. If the
Committee makes an Option fully exercisable in lieu of assumption or
substitution in the event of a merger or sale of assets, the Committee shall
notify the Optionee that the Option shall be fully exercisable for a period of
thirty (30) days from the date of such notice, and the Option will terminate
upon the expiration of such period.
11. TIME OF GRANTING OPTIONS.
The date of grant of an Option shall, for all purposes, be the date on
which the Committee makes the determination granting such Option.
12. AMENDMENT AND TERMINATION OF THE PLAN.
(a) Amendment and Termination. The Committee may amend or terminate
the Plan from time to time in such respects as the Committee may deem
advisable. No amendment, alteration, suspension or discontinuance shall
require stockholder approval unless (i) from and after such time as the Company
registers a class of equity securities under Section 12 of the Exchange Act,
stockholder approval shall be required to meet the exemptions provided by Rule
16b-3, or any successor rule thereto, or (ii) the Committee otherwise concludes
that stockholder approval is advisable.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee
(as the case may be) and the Committee, which agreement must be in writing and
signed by the Optionee (as the case may be) and the Company.
13. CONDITION UPON ISSUANCE OF SHARES.
Shares shall not be issued pursuant to the exercise of an Option unless
the exercise of such Option and the issuance and delivery of such Shares
pursuant thereto shall comply with all relevant provisions of law, including,
without limitation, the Securities Act of 1933, as amended, the Exchange Act,
the rules and regulations promulgated thereunder, and the requirements of any
stock exchange upon which the Shares may then be listed, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
14. RESERVATION OF SHARES.
The Company, during the term of this Plan, will at all times reserve and
keep available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan. The inability of the Company to obtain authority
from any regulatory body having jurisdiction, which authority is deemed by the
Company's counsel to be necessary to the lawful issuance and sale of any Shares
hereunder, shall relieve the Company of any liability in respect of the failure
to issue or sell such Shares as to which such requisite authority shall not
have been obtained.
15. OPTION.
Options shall be evidenced by written option agreements in such form as
the Committee shall approve.
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EXHIBIT 10.18
WORLDCOM/MFS/UUNET
EQUITY INCENTIVE PLAN
INTRODUCTION AND HISTORY OF PLAN
Effective August 12, 1996, MFS Communications Company, Inc. ("MFS")
acquired UUNET Technologies, Inc., a Delaware corporation ("UUNET") through a
merger of a subsidiary of MFS with and into UUNET. As a result of the merger,
MFS assumed sponsorship of this Plan. Effective December 31, 1996, MFS then
merged with and into WorldCom, Inc. ("WorldCom") pursuant to a Merger
Agreement. As a result of the merger, WorldCom assumed sponsorship of the
Plan, and the Plan was amended and restated to redesignate the Plan as
sponsored by WorldCom effective December 31, 1996. Under the terms of the
Merger Agreement, rights to acquire stock of MFS outstanding under the Plan
before December 31, 1996 were substituted with rights to acquire stock of
WorldCom, as adjusted for the merger exchange ratio of 2.1 shares of stock of
WorldCom for each outstanding share of MFS stock. Except as adjusted for this
exchange ratio, all rights of Participants under the Plan before December 31,
1996 are preserved hereunder. The amended and restated Plan is intended to
change the Plan as required as a result of the merger but is not otherwise
intended to effect substantive amendments to the Plan beyond those required by
the merger.
SECTION 1. PURPOSE; DEFINITIONS.
(a) Purpose. The purpose of the Plan is to provide selected
eligible employees of, and consultants to, the Company its subsidiaries and
affiliates an opportunity to participate in the Company's future by offering
them an opportunity to acquire stock in the Company so as to retain, attract
and motivate them.
(b) Definitions. For purposes of the Plan, the following terms
have the following meanings:
(i) "Award" means any award under the Plan, including any
Option, Restricted Stock, Stock Purchase Right or Performance Share Award.
(ii) "Award Agreement" means, with respect to each Award,
the signed written agreement between the Company and the Plan participant
setting forth the terms and conditions of the Award.
(iii) "Board" means the Board of Directors of the Company.
(iv) "Code" means the Internal Revenue Code of 1986, as
amended from time to time, and any successor statute.
(v) "Commission" means the Securities and Exchange
Commission and any successor agency.
(vi) "Committee" means the Committee referred to in
Section 2, or the Board in its capacity as administrator of the Plan in
accordance with Section 2.
(vii) "Company" means Worldcom, Inc., a Georgia
corporation.
(viii) "Disability" means permanent and total disability as
determined by the Committee for purposes of the Plan.
(ix) "Disinterested Person" has the meaning set forth in
Rule 16b-3(c)(2)(i) under the Exchange Act, and any successor definition
adopted by the Commission.
(x) "Exchange Act" means the Securities Exchange Act of
1934, as amended from time to time, and any successor statute.
<PAGE> 2
(xi) "Fair Market Value" means as of any given date (a) if
the Stock is listed on any established stock exchange or a national market
system, the closing sales price for the Stock or the closing bid if no sales
were reported, as quoted on such system or exchange, as reported in the Wall
Street Journal; or (b) in the absence of an established market for the Stock,
the fair market value of the Stock as determined by the Committee in good
faith.
(xii) "Incentive Stock Option" means any Option intended to
be and designated as an "incentive stock option" within the meaning of Section
422 of the Code.
(xiii) "Nonqualified Stock Option" means any Option that is
not an Incentive Stock Option.
(xiv) "Option" means an option granted under Section 5.
(xv) "Performance Period" means the period determined by
the Committee under Section 8(a).
(xvi) "Performance Share" means the equivalent, as of any
time such assessment is made, of the Fair Market Value of one share of Stock.
(xvii) "Performance Share Award" means an Award under
Section 8.
(xviii) "Plan" means this WorldCom/MFS/UUNET Equity Incentive
Plan, as amended from time to time.
(xix) "Restricted Stock" means an Award of Stock subject to
restrictions, as more fully described in Section 6.
(xx) "Restriction Period" means the period determined by
the Committee under Section 6(b).
(xxi) "Rule 16b-3" means Rule 16b-3 under Section 16(b) of
the Exchange Act, as amended from time to time, and any successor rule.
(xxii) "Stock" means the Common Stock of the Company, and
any successor security.
(xxiii) "Stock Purchase Right" means an Award granted under
Section 7.
(xxiv) "Subsidiary" has the meaning set forth in Section 424
of the Code.
(xxv) "Tax Date" means the date defined in Section 9(f).
(xxvi) "Termination" means, for purposes of the Plan, with
respect to a participant, that the participant has ceased to be, for any
reason, employed by, or consulting to, the Company, a subsidiary or an
affiliate; provided, that for purposes of this definition, if so determined by
the President of the Company, in his sole discretion, Termination shall not
include a change in status from an employee of, to a consultant to, the Company
or any subsidiary or affiliate, or vice versa.
SECTION 2. ADMINISTRATION.
(a) Committee. The Plan shall be administered by the Board or,
upon delegation by the Board, by a committee of the Board. In connection with
the administration of the Plan, the Committee shall have the powers possessed
by the Board. The Committee may act only by a majority of its members, except
that the Committee may from time to time select another committee or one or
more other persons to be responsible for any matters for which
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Disinterested Persons are not required pursuant to Rule 16b-3. The Board at
any time may abolish the Committee and revest in the Board the administration
of the Plan.
(b) Authority. The Committee shall grant Awards to eligible
employees and consultants. In particular and without limitation, the
Committee, subject to the terms of the Plan, shall:
(i) select the officers, other key employees and
consultants to whom Awards may be granted;
(ii) determine whether and to what extent Awards are to be
granted under the Plan;
(iii) determine the number of shares to be covered by each
Award granted under the Plan;
(iv) determine the terms and conditions of any Award
granted under the Plan and any related loans to be made by the Company, based
upon factors determined by the Committee; and
(v) determine to what extent and under what circumstances
any Award payments may be deferred by a participant.
(c) Committee Determinations Binding. The Committee may adopt,
alter and repeal administrative rules, guidelines and practices governing the
Plan as it from time to time shall deem advisable, may interpret the terms and
provisions of the Plan, any Award and any Award Agreement and may otherwise
supervise the administration of the Plan. Any determination made by the
Committee pursuant to the provisions of the Plan with respect to any Award
shall be made in its sole discretion at the time of the grant of the Award or,
unless in contravention of any express term of the Plan or Award, at any later
time. All decisions made by the Committee under the Plan shall be binding on
all persons, including the Company and Plan participants.
SECTION 3. STOCK SUBJECT TO PLAN.
(a) Number of Shares. The total number of shares of Stock
reserved and available for issuance pursuant to (i) Awards under this Plan and
(ii) grants under the Company's Stock Incentive Plan shall be 5,605,979 shares.
Such shares may consist, in whole or in part, of authorized and unissued shares
or treasury shares or shares reacquired in private transactions or open market
purchases, but all shares issued under the Plan and the Company's Stock
Incentive Plan, regardless of source shall be counted against the 5,605,979-
share limitation. If any Option terminates or expires without being exercised
in full or if any shares of Stock subject to an Award are forfeited, or if an
Award otherwise terminates without a payment being made to the participant in
the form of Stock, the shares issuable under such Option or Award shall again
be available for issuance in connection with Awards. Any Award under this Plan
shall be governed by the terms of the Plan and any applicable Award Agreement.
(b) Adjustments. In the event of any merger, reorganization,
consolidation, recapitalization, stock dividend, stock split or other change in
corporate structure affecting the Stock, such substitution or adjustments shall
be made in the aggregate number of shares of Stock reserved for issuance under
the Plan, in the number and exercise price of shares subject to outstanding
Options, and in the number of shares subject to other outstanding Awards, as
may be determined to be appropriate by the Committee, in its sole discretion;
provided, however, that the number of shares subject to any Award shall always
be a whole number.
SECTION 4. ELIGIBILITY.
Awards may be granted to officers and other key employees of, and
consultants to, the Company, its subsidiaries and affiliates (excluding members
of the Committee and any person who serves only as a director).
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SECTION 5. STOCK OPTIONS.
(a) Types. Any Option granted under the Plan shall be in such
form as the Committee may from time to time approve. The Committee shall have
the authority to grant to any participant Incentive Stock Options, Nonqualified
Stock Options or both types of Options. Incentive Stock Options may be granted
only to employees of the Company, its parent (within the meaning of Section
424(e) of the Code) or Subsidiaries. Any portion of an Option that is not
designated as, or does not qualify as, an Incentive Stock Option shall
constitute a Nonqualified Stock Option.
(b) Terms and Conditions. Options granted under the Plan shall be
subject to the following terms and conditions:
(i) Option Term. The term of each Option shall be fixed
by the Committee, but no Incentive Stock Option shall be exercisable more than
ten years after the date the Option is granted, and no Nonqualified Stock
Option shall be exercisable more than 15 years after the date the Option is
granted. If, at the time the Company grants an Incentive Stock Option, the
optionee owns directly or by attribution stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company, or any
parent or Subsidiary of the Company, the Incentive Stock Option shall not be
exercisable more than five years after the date of grant.
(ii) Grant Date. The Company may grant Options under the
Plan at any time and from time to time before the Plan terminates. The
Committee shall specify the date of grant or, if it fails to, the date of grant
shall be the date of action taken by the Committee to grant the Option.
However, if an Option is approved in anticipation of employment, the date of
grant shall be the date the intended optionee is first treated as an employee
for payroll purposes.
(iii) Exercise Price. The exercise price per share of
Stock purchasable under an Option shall be equal to at least 85% of the Fair
Market Value on the date of grant, and in the case of Incentive Stock Options
shall be equal to at least the Fair Market Value on the date of grant;
provided, however, that if, at the time the Company grants an Incentive Stock
Option, the optionee owns directly or by attribution stock possessing more than
10% of the total combined voting power of all classes of stock of the Company,
or any parent or Subsidiary of the Company, then the exercise price shall be
not less than 110% of the Fair Market Value on the date the Incentive Stock
Option is granted.
(iv) Exercisability. Subject to the other provisions of
the Plan, an Option shall be exercisable in its entirety at grant or at such
times and in such amounts as are specified in the Award Agreement evidencing
the Option. The Committee, in its absolute discretion, at any time may waive
any limitations respecting the time at which an Option first becomes
exercisable in whole or in part.
(v) Method of Exercise; Payment. To the extent the right
to purchase shares has accrued, Options may be exercised, in whole or in part,
from time to time, by written notice from the optionee to the Company stating
the number of shares being purchased, accompanied by payment of the exercise
price for the shares.
SECTION 6. RESTRICTED STOCK.
(a) Price. The Committee may grant to a participant Restricted
Stock. The grantee shall pay no consideration therefor.
(b) Restrictions. Subject to the provisions of the Plan and the
Award Agreement, during the Restriction Period set by the Committee, commencing
with, and not exceeding ten years from, the date of such Award, the participant
shall not be permitted to sell, assign, transfer, pledge or otherwise encumber
shares of Restricted Stock. Within these limits, the Committee may provide for
the lapse of such restrictions in installments
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and may accelerate or waive such restrictions, in whole or in part, based on
service, performance or such other factors or criteria as the Committee may
determine.
(c) Dividends. Unless otherwise determined by the Committee, with
respect to dividends on shares of Restricted Stock, dividends payable in cash
shall be automatically reinvested in additional Restricted Stock, and dividends
payable in Stock shall be paid in the form of Restricted Stock.
(d) Termination. Except to the extent otherwise provided in the
Award Agreement and pursuant to Section 6(b), in the event of a Termination
during the Restriction Period, all shares still subject to restriction shall be
forfeited by the participant.
SECTION 7. STOCK PURCHASE RIGHTS.
(a) Price. The Committee may grant Stock Purchase Rights which
shall enable the recipients to purchase Stock at a price equal to not less than
85% of its Fair Market Value on the date of grant.
(b) Exercisability. Stock Purchase Rights shall be exercisable
for a period determined by the Committee not exceeding 30 days from the date of
the grant. The Committee, however, may provide that if required under Rule
16b-3 Stock Purchase Rights granted to persons subject to Section 16(b) of the
Exchange Act shall not become exercisable until six months and one day after
the grant date and shall then be exercisable for ten trading days at the
purchase price specified by the Committee in accordance with Section 7(a).
SECTION 8. PERFORMANCE SHARES.
(a) Awards. The Committee shall determine the nature, length and
starting date of the Performance Period for each Performance Share Award, which
period shall be at least one year and not more than six years. The
consideration payable by a participant with respect to a Performance Share
Award shall be an amount determined by the Committee in the exercise of the
Committee's discretion at the time of the Award; provided, that the amount of
consideration may be zero and may in no event exceed 50% of the Fair Market
Value at the time of grant. The Committee shall determine the performance
objectives to be used in awarding Performance Shares and the extent to which
such Performance Shares have been earned. Performance Periods may overlap and
participants may participate simultaneously with respect to Performance Share
Awards that are subject to different Performance Periods and different
performance factors and criteria. At the beginning of each Performance Period,
the Committee shall determine for each Performance Share Award subject to such
Performance Period the number of shares of Stock (which may consist of
Restricted Stock) to be awarded to the participant at the end of the
Performance Period if and to the extent that the relevant measures of
performance for such Performance Share Award are met. Such number of shares of
Stock may be fixed or may vary in accordance with such performance or other
criteria as may be determined by the Committee. The Committee may provide that
(i) amounts equivalent to interest at such rates as the Committee may
determine, or (ii) amounts equivalent to dividends paid by the Company upon
outstanding Stock shall be payable with respect to Performance Share Awards.
(b) Termination. Except as otherwise provided in the Award
Agreement or determined by the Committee, in the event of a Termination during
a Performance Period, the participant shall not be entitled to any payment with
respect to the Performance Shares subject to the Performance Period.
(c) Form of Payment. Payment shall be made in the form of cash or
whole shares of Stock, as the Committee, in its discretion, shall determine.
SECTION 9. GENERAL PROVISIONS.
(a) Award Grants. Any Award may be granted either alone or in
addition to other Awards granted under the Plan. Subject to the terms and
restrictions set forth elsewhere in the Plan, the Committee shall determine
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the consideration, if any, payable by the participant for any Award and, in
addition to those set forth in the Plan, any other terms and conditions of the
Awards. The Committee may condition the grant or payment of any Award upon the
attainment of specified performance goals or such other factors or criteria,
including vesting based on continued employment or consulting, as the Committee
shall determine. Performance objectives may vary from participant to
participant and among groups of participants and shall be based upon such
Company, subsidiary, group or division factors or criteria as the Committee may
deem appropriate, including, but not limited to, earnings per share or return
on equity. The other provisions of Awards also need not be the same with
respect to each recipient. Unless specified otherwise in the Plan or by the
Committee, the date of grant of an Award shall be the date of action by the
Committee to grant the Award. The Committee may also substitute new Options
for previously granted Options, including previously granted Options having
higher exercise prices.
(b) Award Agreement. As soon as practicable after the date of an
Award grant, the Company and the participant shall enter into a written Award
Agreement identifying the date of grant, and specifying the terms and
conditions of the Award. Options are not exercisable until after execution of
the Award agreement by the Company and the Plan participant, but a delay in
execution of the agreement shall not affect the validity of the Option grant.
(c) Certificates. All certificates for shares of Stock or other
securities delivered under the Plan shall be subject to such stock transfer
orders, legends and other restrictions as the Committee may deem advisable
under the rules, regulations and other requirements of the Commission, any
market in which the Stock is then traded and any applicable federal, state or
foreign securities law.
(d) Termination. Unless otherwise provided in the applicable
Award Agreement or by the Committee, in the event of Termination for any reason
other than death, retirement or Disability, Awards held at the date of
Termination (and only to the extent then exercisable or payable, as the case
may be) may be exercised in whole or in part at any time within three months
after the date of Termination, or such lesser period specified in the Award
Agreement (but in no event after the expiration date of the Award), but not
thereafter. If Termination is due to retirement or to death or Disability,
Awards held at the date of Termination (and only to the extent then exercisable
or payable, as the case may be) may be exercised in whole or in part by the
participant in the case of retirement or Disability, by the participant's
guardian or legal representative or by the person to whom the Award is
transferred by will or the laws of descent and distribution, at any time within
two years from the date of Termination or any lesser period specified in the
Award Agreement (but in no event after the expiration of the Award).
(e) Delivery of Purchase Price. If and only to the extent
authorized by the Committee, participants may make all or any portion of any
payment due to the Company
(i) with respect to the consideration payable for an
Award,
(ii) upon exercise of an Award, or
(iii) with respect to federal, state, local or foreign tax
payable in connection with an Award,
by delivery of (x) cash, (y) check, or (z) any property other than cash
(including a promissory note of the participant or shares of Stock or
securities) so long as, if applicable, such property constitutes valid
consideration for the Stock under, and otherwise complies with, applicable law.
No promissory note under the Plan shall have a term (including extensions) of
more than five years or shall be of a principal amount exceeding 90% of the
purchase price paid by the borrower.
(f) Tax Withholding. Unless the Committee permits otherwise, the
participant shall pay to the Company in cash, promptly when the amount of such
obligations becomes determinable (the "Tax Date"), all applicable federal,
state, local and foreign withholding taxes that the Committee in its discretion
determines to result, (i) from the lapse of restrictions imposed upon an Award,
(ii) upon exercise of an Award, or (iii) from a transfer
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<PAGE> 7
or other disposition of shares acquired upon exercise or payment of an Award,
or otherwise related to the Award or the shares acquired in connection with an
Award.
A participant who has received an Award or payment under an
Award may, to the extent, if any, authorized by the Committee in its
discretion, make an election to (x) deliver to the Company a promissory note of
the participant on the terms set forth in Section 9(e), or (y) tender any such
securities to the Company to pay the amount of tax that the Committee in its
discretion determines to be required to be withheld by the Company subject to
the following limitations:
(i) such election shall be irrevocable;
(ii) such election shall be subject to the disapproval of
the Committee;
(iii) in the case of participants subject to Section 16(b)
of the Exchange Act, such tender may not be made within six months of the
acquisition of the securities to be tendered to satisfy the tax withholding
obligation (except that this limitation shall not apply in the event of death
or Disability of such person before the six-month period expires); and
(iv) in the case of participants subject to Section 16(b)
of the Exchange Act, such election must be made in any ten-day period beginning
on the third business day following the date of release for publication of
quarterly or annual summary statements of sales and earnings.
Any shares or other securities so withheld or tendered will be valued by the
Committee as of the date they are withheld or tendered; provided, however, that
Stock shall be valued at Fair Market Value on such date. The value of the
shares withheld or tendered may not exceed the required federal, state, local
and foreign withholding tax obligations as computed by the Company.
(g) No Transferability. No Award shall be assignable or otherwise
transferable by the participant other than by will or by the laws of descent
and distribution. During the life of a participant, an Award shall be
exercisable, and any elections with respect to an Award may be made, only by
the participant or participant's guardian or legal representative.
(h) Adjustment of Awards; Waivers. Subject to Section 5(b)(vi),
the Committee may adjust the performance goals and measurements applicable to
Awards (i) to take into account changes in law and accounting and tax rules,
(ii) to make such adjustments as the Committee deems necessary or appropriate
to reflect the inclusion or exclusion of the impact of extraordinary or unusual
items, events or circumstances in order to avoid windfalls or hardships, and
(iii) to make such adjustments as the Committee deems necessary or appropriate
to reflect any material changes in business conditions. In the event of
hardship or other special circumstances of a participant and otherwise in its
discretion, the Committee may waive in whole or in part any or all
restrictions, conditions, vesting, or forfeiture with respect to any Award
granted to such participant.
(i) Non-Competition. The Committee may condition its
discretionary waiver of a forfeiture, the acceleration of vesting at the time
of Termination of a participant holding any unexercised or unearned Award, the
waiver of restrictions on any Award, or the extension of the expiration period
to a period not longer than that provided by the Plan upon such participant's
agreement (and compliance with such agreement) (i) not to engage in any
business or activity competitive with any business or activity conducted by the
Company and (ii) to be available for consultations at the request of the
Company's management, all on such terms and conditions (including conditions in
addition to (i) and (ii)) as the Committee may determine.
(j) Dividends. The reinvestment of dividends in additional Stock
or Restricted Stock at the time of any dividend payment pursuant to Section
6(c) shall only be permissible if sufficient shares of Stock are available
under Section 3 for such reinvestment (taking into account then outstanding
Awards).
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<PAGE> 8
(k) Regulatory Compliance. Each Award under the Plan shall be
subject to the condition that, if at any time the Committee shall determine
that (i) the listing, registration or qualification of the shares of Stock upon
any securities exchange or for trading in any securities market or under any
state or federal law, (ii) the consent or approval of any government or
regulatory body or (iii) an agreement by the participant with respect thereto,
is necessary or desirable, then such Award shall not be consummated in whole or
in part unless such listing, registration, qualification, consent, approval or
agreement shall have been effected or obtained free of any conditions not
acceptable to the Committee.
(l) Rights as Stockholder. Unless the Plan or the Committee
expressly specifies otherwise, an optionee shall have no rights as a
stockholder with respect to any shares covered by an Award until the stock
certificates representing the shares are actually delivered to the optionee.
Subject to Sections 3(b) and 6(c), no adjustment shall be made for dividends or
other rights for which the record date is prior to the date the certificates
are delivered.
(m) Beneficiary Designation. The Committee, in its discretion,
may establish procedures for a participant to designate a beneficiary to whom
any amounts payable in the event of the participant's death are to be paid.
(n) Additional Plans. Nothing contained in the Plan shall prevent
the Company, a subsidiary or an affiliate from adopting other or additional
compensation arrangements for its employees and consultants.
(o) No Employment Rights. The adoption of the Plan shall not
confer upon any employee any right to continued employment nor shall it
interfere in any way with the right of the Company, a subsidiary or an
affiliate to terminate the employment of any employee at any time.
(p) Rule 16b-3. Notwithstanding any provision of the Plan, the
Plan shall always be administered, and Awards shall always be granted and
exercised, in such a manner as to conform to the provisions of Rule 16b-3.
(q) Governing Law. The Plan and all Awards shall be governed by
and construed in accordance with the laws of the State of Delaware.
(r) Use of Proceeds. All cash proceeds to the Company under the
Plan shall constitute general funds of the Company.
(s) Unfunded Status of Plan. The Plan shall constitute an
"unfunded" plan for incentive and deferred compensation. The Committee may
authorize the creation of trusts or arrangements to meet the obligations
created under the Plan to deliver Stock or make payments; provided, however,
that unless the Committee otherwise determines, the existence of such trusts or
other arrangements shall be consistent with the "unfunded" status of the Plan.
(t) Assumption by Successor. The obligations of the Company under
the Plan and under any outstanding Award may be assumed by any successor
corporation, which for purposes of the Plan shall be included within the
meaning of "Company".
(u) Limitation on Award Grants to Certain Executive Officers. The
Company may not grant Awards under the Plan for more than 500,000 shares to any
executive officer whose compensation is required to be disclosed under Item 402
of Regulation S-K.
SECTION 10. AMENDMENTS AND TERMINATION.
The Board may amend, alter or discontinue the Plan or any Award, but
no amendment, alteration or discontinuance shall be made which would impair the
rights of a participant under an outstanding Award without
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<PAGE> 9
the participant's consent. In addition, to the extent required for the Plan
to comply with Rule 16b-3 or, with respect to provisions solely as they relate
to Incentive Stock Options, to the extent required for the Plan to comply with
Section 422 of the Code, the Board may not amend or alter the Plan without the
approval of a majority of the voting power of the shares of the Company
entitled to vote at a duly held stockholders' meeting or by an action by
written consent and, if at a meeting, a quorum of the voting power of the
Company is represented in person or by proxy, where such amendment or
alteration would:
(a) except as expressly provided in the Plan, increase the total
number of shares reserved for issuance pursuant to Awards under the Plan;
(b) except as expressly provided in the Plan, change the minimum
price terms of Section 5(b)(iii);
(c) change the class of employees and consultants eligible to
participate in the Plan;
(d) extend the maximum Option period under Section 5(b)(i); or
(e) materially increase the benefits accruing to participants
under the Plan.
SECTION 11. EFFECTIVE DATE OF PLAN.
The Plan shall be effective on the date it is adopted by the Board but
all Awards shall be conditioned upon approval of the Plan (a) at a duly held
stockholders' meeting by the affirmative vote of the holders of a majority of
the voting power of the shares of the Company entitled to vote and represented
in person or by proxy at the meeting, or (b) by an action by written consent of
the holders of a majority of the voting power of the shares of the Company
entitled to vote.
SECTION 12. TERM OF PLAN.
No Award shall be granted on or after December 31, 2004, but Awards
granted prior to December 31, 2004 may extend beyond that date.
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<PAGE> 1
EXHIBIT 10.19
WORLDCOM/MFS/UUNET INCENTIVE STOCK PLAN
(AMENDED AND RESTATED AS OF DECEMBER 31, 1996)
INTRODUCTION AND HISTORY OF PLAN
Effective August 12, 1996, MFS Communications Company, Inc. ("MFS")
acquired UUNET Technologies, Inc., a Delaware corporation ("UUNET") through a
merger of a subsidiary of MFS with and into UUNET. As a result of the merger,
MFS assumed sponsorship of this Plan. Effective December 31, 1996, MFS then
merged with and into WorldCom, Inc. ("WorldCom") pursuant to a Merger
Agreement. As a result of the merger, WorldCom assumed sponsorship of the
Plan, and the Plan was amended and restated to redesignate the Plan as
sponsored by WorldCom effective December 31, 1996. Under the terms of the
Merger Agreement, rights to acquire stock of MFS outstanding under the Plan
before December 31, 1996 were substituted with rights to acquire stock of
WorldCom, as adjusted for the merger exchange ratio of 2.1 shares of stock of
WorldCom for each outstanding share of MFS stock. Except as adjusted for this
exchange ratio, all rights of Participants under the Plan before December 31,
1996 are preserved hereunder. The amended and restated Plan is intended to
change the Plan as required as a result of the merger but is not otherwise
intended to effect substantive amendments to the Plan beyond those required by
the merger.
1. PURPOSE OF THE PLAN.
The purposes of this Plan are to attract and retain the best available
personnel, to provide additional incentives to the Employees of the Company and
to promote the success of the Company's business.
Options granted hereunder may be either Incentive Stock Options or
Nonstatutory Stock Options, at the discretion of the Committee and as reflected
in the terms of the written option agreement. The Committee also has the
discretion to grant Stock Purchase Rights.
2. DEFINITIONS.
As used herein, the following definitions shall apply:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Committee" shall mean the Committee appointed by the Board in
accordance with Section 4(a) of the Plan.
(d) "Common Stock" shall mean the Common Stock of the Company, par
value $0.01 per share.
(e) "Company" shall mean WorldCom, Inc., a Georgia corporation, or
any successor thereto.
(f) "Consultant" shall mean any person who is engaged by the
Company or any Parent or Subsidiary to render consulting services and is
compensated for such consulting services, and any director of the Company
whether compensated for such services or not; provided that if an in the event
the Company registers any class of any equity security pursuant to Section 12
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
term Consultant shall thereafter not include directors who are not compensated
for their services or are paid only a director's fee by the Company.
(g) "Continuous Status as an Employee or Consultant" shall mean
the absence of any interruption or termination of service as an Employee or
Consultant, as applicable. Continuous Status as an Employee or Consultant
<PAGE> 2
shall not be considered interrupted in the case of sick leave, military leave,
or any other leave of absence approved by the Committee; provided that such
leave is for a period of not more than 90 days or reemployment upon the
expiration of such leave is guaranteed by contract or statute.
(h) "Employee" shall mean any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient to
constitute "employment "by the Company.
(i) "Executive Officer" shall have the meaning set forth in Rule
3b-7 (or any successor rule) under the Exchange Act.
(j) "Incentive Stock Option" shall mean an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code.
(k) "Merger Agreement" means the Amended and Restated Agreement
and Plan of Merger dated as of August 25, 1996 by and between the Company, HIJ
Corp., a wholly-owned subsidiary of the Company ("HIJ"), and MFS, whereby HIJ
merged with and into MFS.
(k) "Nonstatutory Stock Option" shall mean an Option not intended
to qualify as an Incentive Stock Option.
(l) "Option" shall mean a stock option granted pursuant to the
Plan.
(m) "Optioned Stock" shall mean the Common Stock subject to an
Option.
(n) "Optionee" shall mean an Employee or Consultant who receives
an Option.
(o) "Parent" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e).
(p) "Plan" shall mean this WorldCom/MFS/UUNET Incentive Stock
Plan, as amended from time to time.
(q) "Purchaser" shall mean an Employee or Consultant who exercises
a Stock Purchase Right.
(r) "Share" shall mean a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.
(s) "Stock Purchase Right" shall mean a right to purchase Common
Stock pursuant to the Plan or the right to receive a bonus of Common Stock for
past services.
(t) "Subsidiary" shall mean a "subsidiary corporate," whether now
or hereafter existing, as defined in Section 424 (f) of the Code.
3. STOCK SUBJECT TO THE PLAN.
Subject to the provisions of Section 11 of the Plan, the maximum
aggregate number of shares under the Plan is 7,743,750 shares of Common Stock.
The Shares may be authorized, but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right should expire or become
unexercisable for any reason without having been exercised in full, then the
unpurchased Shares which were subject thereto shall, unless the Plan shall have
been terminated, become available for future grant or sale under the Plan.
Notwithstanding any other provision of the Plan,
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<PAGE> 3
shares issued under the Plan and later repurchased by the Company shall not
become available for future grant or sale under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) Procedure. The Plan shall be administered by a Committee
appointed by the Board consisting of not fewer than two members of the Board
who are "outside" directors within the meaning of Section 162(m) (or any
successor section) of the Code to administer the Plan on behalf of the Board,
subject to such terms and conditions as the Board may prescribe. Once
appointed, the Committee shall continue to serve until otherwise directed by
the Board. Members of the Board who are either eligible for Options and/or
Stock Purchase Rights or have been granted Options and/or Stock Purchase Rights
may vote on any matters affecting the administration of the Plan or the grant
of any Options and/or Stock Purchase Rights pursuant to the Plan, except that
no such member shall act upon the granting of an Option and/or Stock Purchase
Right to such member. Notwithstanding the foregoing, if and in any event the
Company registers any class of any equity security pursuant to Section 12 of
the Exchange Act, from the effective date of such registration this Plan shall
be administered in accordance with the disinterested administration
requirements of Rule 16b-3 promulgated by the Securities and Exchange
Commission (such rule, including any successor rule, shall be referred to as
"Rule 16b-3"), or any successor rule thereto. Subject to the foregoing, from
time to time Board may increase the size of the Committee and appoint
additional members thereof, remove members (with or without cause) and appoint
new members in substitution therefore, and fill vacancies however caused.
(b) Powers of the Committee. Subject to the provisions of the
Plan, the Committee shall have the authority, in its discretion: (i) to grant
Incentive Stock Options. Nonstatutory Stock Options or Stock Purchase Rights;
(ii) to determine, upon review of relevant information and in accordance with
Section 7 of the Plan, the fair market value of the Common Stock; (iii) to
determine the exercise price per share of Options or Stock Purchase Rights, to
be granted, which exercise price shall be determined in accordance with Section
7 of the Plan; (iv) to determine the Employees or Consultants to whom, and the
time or times at which, Options or Stock Purchase Rights shall be granted and
the number of shares to be represented by each Option or Stock Purchase Right;
provided, that no Executive Officer of the Company shall be granted Options or
Stock Purchase Rights for more than an aggregate of 1,500,000 shares under the
Plan; (v) to interpret the Plan; (vi) to prescribe, amend and rescind rules and
regulations relating to the Plan; (vii) to determine the terms and provisions
of each Option and Stock Purchase Right granted (which need not be identical)
and, with the consent of the holder thereof, modify or amend any provisions
(including provisions relating to exercise price) of any Option or Stock
Purchase Right; (viii) to accelerate or defer (with the consent of the
Optionee) the exercise date of any Option, consistent with the provisions of
Section 5 of the Plan; (ix) to authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of an Option or Stock
Purchase Right previously granted by the Committee; and (x) to make all other
determinations deemed necessary or advisable for the administration of the
Plan.
(c) Effect of Committee's Decision. All decisions, determinations
and interpretations of the Committee shall be final and binding on all
Optionees, Purchasers and any other holders of any Options or Stock Purchase
Rights granted under the Plan.
5. ELIGIBILITY.
(a) Options and Stock Purchase Rights. Options and Stock Purchase
Rights may be granted to Employees and Consultants, provided that Incentive
Stock Options may only be granted to Employees. An Employee or Consultant who
has been granted an Option or Stock Purchase Right may, if such Employee or
Consultant is otherwise eligible, be granted additional Option(s) or Stock
Purchase Rights(s).
(b) Incentive Stock Option or Nonstatutory Stock Option. Each
Option shall be designated in the written option agreement as either an
Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate fair market
value of the Shares with respect to which Options designated
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<PAGE> 4
as Incentive Stock Options are exercisable for the first time by any Optionee
during any calendar year (under all plans for the Company) exceeds $100,000,
such Options shall be treated as Nonstatutory Stock Options.
(c) Section 5 (b). For purposes of Section 5(b), Options shall
be taken into account in the order in which they were granted, and the fair
market value of the Shares shall be determined as of the time the Option with
respect to such Shares is granted.
(d) Employment Relationship. The Plan shall not confer upon any
Optionee or holder of a Stock Purchase Right any right with respect to
continuation of employment by or the rendition of consulting services to the
Company, no shall it interfere in any way with his or her right or the
Company's right to terminate his or her employment or services at any time,
with or without cause.
6. TERM OF PLAN.
The Plan shall become effective upon the earlier to occur of its
adoption by the Board or its approval by vote of the holders of the majority of
the outstanding shares of the Company entitled to vote on the adoption of the
Plan. It shall continue to effect for a term of ten (10) years unless sooner
terminated under Section 13 of the Plan.
7. EXERCISE PRICE AND CONSIDERATION.
(a) The per Share exercise price for the Shares to be issued
pursuant to exercise of an Option or Stock Purchase Right shall be such price
as is determined by the Committee, but shall be subject to the following:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, at the time of
the grant of such Incentive Stock Option, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be no less than 110%
of the fair market value per Share on the date of grant.
(B) granted to any Employee, the per Share
exercise price shall be no less than 100% of the fair market value per Share on
the date of grant.
(ii) In the case of a Nonstatutory Stock Option or a Stock
Purchase Right:
(A) granted to a person who, at the time of the
grant of such Option, owns stock representing more than ten (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
per Share exercise price shall be no less than 110% of the fair market value
per Share on the date of the grant.
(B) granted to any person, the per Share
exercise price shall be no less than 85% of the fair market value per Share on
the date of grant; provided, that if granted to an Executive Officer, the
exercise price shall be no less than 100% of the fair market value per Share on
the date of grant.
(b) For purposes of the Plan, the value of Common Stock of the
Company shall be determined as follows:
(1) If the stock of the Company is listed on any
established stock exchange or a national market system, including without
limitation of the National Market System of the National Association of
Securities Dealers, Inc. Automated Quotation System, its fair market value
shall be the closing sales price for such stock or the closing bid if no sales
were reported, as quoted on such system or exchange (or the largest such
exchange) for the date the
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<PAGE> 5
value is to be determined (or if there are no sales for such date, then for the
last preceding business day on which there were sales), as reported in the Wall
Street Journal or similar publication.
(ii) If the stock of the Company is regularly quoted by a
recognized securities dealer but selling prices are not reported, its fair
market value shall be the mean between the high bid and low asked prices for
the stock on the date value is to be determined (or if there are no quoted
prices for the date of grant, then for the last preceding business day on which
there were quoted prices).
(iii) In the absence of an established market for the
stock, the fair market value thereof shall be determined in good faith by the
Committee, with reference to the Company's net worth, prospective earning
power, dividend-paying capacity, and other relevant factors, including the
goodwill of the Company, the economic outlook in the Company's industry, the
Company's position in the industry and its management, and the values of stock
of other corporations in the same or a similar line of business.
(c) The consideration to be paid for the Shares to be issued upon
exercise of an Option or Stock Purchase Right, including the method of payment,
shall be determined by the Committee and may consist entirely of cash, check,
promissory note, other Shares of Common Stock which (i) either have been owned
by the Optionee for more than six (6) months on the date of surrender or were
not acquired directly or indirectly, from the Company, and (ii) have a fair
market value on the date of surrender equal to the aggregate exercise price of
the Shares as to which said Option shall be exercised, or any combination of
such methods of payment, or such other consideration and method of payment for
the issuance of Shares to the extent permitted under applicable law.
8. OPTIONS.
(a) Term of Option. The term of each Option shall be ten (10)
years from the date of grant thereof or such shorter term as may be provided in
the Incentive Stock Option Agreement. However, in the case of an Option
granted to an Optionee who, at the time the Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Option shall
be five (5) years from the date of grant thereof or such shorter time as may be
provided in the Stock Option Agreement.
(b) Exercise of Option.
(i) Procedure for Exercise; Rights as a Stockholder. Any
option granted hereunder shall be exercisable at such times and under such
conditions as determined by the Committee, including performance criteria with
respect to the Company and/or the Optionee, and as shall be permissible under
the terms of the Plan.
(A) An Option may not be exercised for a fraction
of a Share.
(B) An Option shall be deemed to be exercised
when written notice of such exercise has been given to the Company in
accordance with the terms of the Option by the person entitled to exercise the
Option and full payment for the Shares with respect to which the Option is
exercised has been received by the Company. Full payment may, as authorized by
the Committee, consist of any consideration and method of payment allowable
under Section 7 of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the
Option. The Company shall issue (or cause to be issued) such stock certificate
promptly upon exercise of the Option. In the event that the exercise of an
Option is treated in part as the exercise of an Incentive Stock Option and in
part as the exercise of a Nonstatutory Stock Option pursuant to Section 5(b),
the Company shall issue a separate stock certificate evidencing the Shares
treated as acquired upon exercise of an Incentive Stock Option and a separate
stock certificate evidencing the Shares treated as acquired upon exercise of a
Nonstatutory Stock Option and shall identify each such certificate accordingly
in its stock transfer records. No adjustment will be made for a dividend
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<PAGE> 6
or other right for which the record date is prior to the date the stock
certificate is issued, except as provided in Section 11 of the Plan.
(C) Exercise of an Option in any manner shall
result in a decrease in the number of Shares which thereafter may be available,
both for purposes of the Plan and for sale under the Option, by the number of
Shares as to which the Option is exercised.
(ii) Termination of Status as an Employee or Consultant.
In the event of termination of an Optionee's Continuous Status as an Employee
or Consultant (as the case may be), such Optionee may, but only within thirty
(30) days (or such other period of time not exceeding three (3) months in the
case of an Incentive Stock Option of six (6) months in the case of a
Nonstatutory Stock Option, as is determined by the Committee, with such
determination in the case of an Incentive Stock Option being made at the time
of grant of the Option) after the date of such termination (but in no event
later than the date of expiration of the term of such Option as set forth in
the Option Agreement) exercise the Option to the extent that such Employee or
Consultant was entitled to exercise it at the date of such termination. To the
extent that such Employee or Consultant was not entitled to exercise the Option
at the date of such termination, or if such Employee or Consultant does not
exercise such Option (which such Employee or Consultant was entitled to
exercise) within the time specified herein, the Option shall terminate.
(iii) Disability of Optionee. Notwithstanding the
provisions of Section 8(b) (ii) above, in the event of termination of an
Optionee's Continuous Status as an Employee or Consultant as a result of such
Employee's or Consultant's total and permanent disability (as defined in
Section 22(e)(3) of the Code), such Employee or Consultant may, but only within
six (6) months (or such other period of time not exceeding twelve (12) months
as is determined by the Committee, with such determination in the case of an
Incentive Stock Option being made at the time of grant of the Option) from the
date of such termination (but in no event later than the date of expiration of
the term of such Option as set forth in the Option Agreement), exercise the
Option to the extent such Employee or Consultant was entitled to exercise it at
the date of such termination. To the extent that such Employee or Consultant
was not entitled to exercise the Option at the date of termination, or if such
Employee or Consultant does not exercise such Option (which such Employee or
Consultant was entitled to exercise) within the time specified herein, the
Option shall terminate.
(iv) Death of Optionee. In the event of the death of an
Optionee:
(A) during the term of the Option who is at the
time of his or her death an Employee or Consultant of the Company and who shall
have been in Continuous Status as an Employee or Consultant since the date of
grant of the Option, the Option may be exercised, at any time within six (6)
months (but in no event later than the date o of expiration of the term of
such Option as set forth in the Option Agreement), by Optionee's estate or by a
person who acquired the right to exercise the Option by bequest or inheritance,
but only to the extent of the right to exercise that would have accrued had
the Optionee continued living and remained in Continuous Status as an Employee
or Consultant six (6) months (or such other period of time as is determined by
the Committee at the time of grant of the Option) after the date of death; or
(B) within thirty (30) days (or such other period
of time not exceeding three (3) months as is determined by the Committee, with
such determination in the case of an Incentive Stock Option being made at the
time of grant of the Option) after the termination of Continuous Status as an
Employee or Consultant, the Option may be exercised, at any time within six (6)
months (or such other period of time as is determined by the Committee at the
time of grant of the Option) following the date of death (but in no event later
than the date of expiration of the term of such Option as set forth in the
Option Agreement), by the Optionee's estate or by a person who acquired the
right to exercise the Option by bequest or inheritance, but only to the extent
of the right to exercise that had accrued at the date of termination.
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<PAGE> 7
9. STOCK PURCHASE RIGHTS.
(a) Rights to Purchase. After the Committee determines that it
will offer an Employee or Consultant a Stock Purchase Right, it shall deliver
to the offeree a stock purchase agreement or stock bonus agreement, as the case
may be, setting forth the terms, conditions and restrictions relating to the
offer, including the number of Shares which such person shall be entitled to
purchase, and the time within which such person must accept such offer, which
shall in no event exceed six (6) months from the date upon which the Committee
made the determination to grant the Stock Purchase Right. The offer shall be
accepted by execution of a stock purchase agreement or stock bonus agreement in
the form determined by the Committee.
(b) Issuance of Shares. Forthwith after payment therefor, the
Shares purchased shall be duly issued; provided, however, that the Committee
may require that the Purchaser make adequate provision for any Federal and
State withholding obligations of the Company as a condition to the Purchaser
purchasing such Shares.
(c) Repurchase Option. Unless the Committee determines otherwise,
the stock purchase agreement or stock bonus agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the Purchaser's employment with the Company for any reason (including death or
disability). If the Committee so determines, the purchase price for shares
repurchased may be paid by cancellation of any indebtedness of the Purchaser to
the Company. The repurchase option shall lapse at such rate as the Committee
may determine.
(d) Other Provisions. The stock purchase agreement or stock bonus
agreement shall contain such other terms, provisions and conditions not
inconsistent with the Plan as may be determined by the Committee.
10. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS.
The Options and Stock Purchase Rights may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manor other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee or Purchaser, only by the Optionee or Purchaser.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
Subject to any required action by the stockholders of the Company, the
number of shares of Common Stock covered by each outstanding Option and Stock
Purchase Right, and the number of shares of Common Stock which have been
authorized for issuance under the Plan but as to which no Options or Stock
Purchase Rights have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option or Stock Purchase Right, or
repurchase of Shares from a Purchaser upon termination of employment, as well
as the price per share of Common Stock covered by each such outstanding Option
or Stock Purchase Right, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock of the Company or the payment of a stock dividend with respect
to the Common Stock or any other increase or decrease in the number of issued
shares of Common Stock effected without receipt of consideration by the
Company; provided, however, that conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Committee, whose
determination in that respect shall be final, binding and conclusive. Except
as expressly provided herein, no issuance by the Company of shares of stock of
any class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to an Option or Stock
Purchase Right.
In the event of the proposed dissolution or liquidation of the
Company, the Option will terminate immediately prior to the consummation of
such proposed action, unless otherwise provided by the Committee. The
Committee may, in the exercise of its sole discretion in such instances,
declare that any Option shall terminate as of a date fixed by the Committee
and give each Optionee the right to exercise his or her Option as to all or any
part of the Optioned Stock,
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<PAGE> 8
including Shares as to which the Option would not otherwise be exercisable. In
the event of a proposed sale of all or substantially all of the assets of the
Company, or the merger of the Company with or into another corporation, the
Option shall be assumed or an equivalent option shall be substituted by such
successor corporation or a parent or subsidiary of such successor corporation,
or, in the sole discretion of the Committee, the Committee shall, in lieu of
such assumption or substitution, provide for the Optionee to have the right to
exercise the Option as to all of the Optioned Stock, including Shares as to
which the Option would not otherwise be exercisable. If the Committee makes an
Option fully exercisable in lieu of assumption or substitution in the event of
a merger or sale of assets, the Committee shall notify the Optionee that the
Option shall be fully exercisable for a period of thirty (30) days from the
date of such notice, and the Option will terminate upon the expiration of such
period.
12. TIME OF GRANTING OPTIONS.
The date of grant of an Option or Stock Purchase Right shall, for all
purposes, be the date on which the Committee makes the determination granting
such Option or Stock Purchase Right. Notice of the determination shall be
given to each Employee or Consultant to whom an Option or Stock Purchase Right
is so granted within a reasonable time after the date of such grant.
13. AMENDMENT AND TERMINATION OF THE PLAN.
(a) Amendment and Termination. The Committee may amend or
terminate the Plan from time to time in such respects as the Committee may deem
advisable. No amendment, alteration, suspension or discontinuance shall
require stockholder approval unless (i) stockholder approval is required to
preserve incentive stock option treatment for federal income tax purposes, (ii)
from and after such time as the Company registers a class or equity securities
under Section 12 of the Exchange Act, stockholder approval shall be required to
meet the exemptions provided by Rule 16b-3, or any successor rule thereto, or
(iii) the Committee otherwise concludes that stockholder approval is advisable.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options or Stock Purchase Rights
already granted and such Options or Stock Purchase Rights shall remain in full
force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Optionee or Purchaser (as the case may
be) and the Committee, which agreement must be in writing and signed by the
Optionee or Purchaser (as the case may be) and the Company.
14. CONDITIONS UPON ISSUANCE OF SHARES.
Shares shall not be issued pursuant to the exercise of an Option or
Stock Purchase Rights unless the exercise of such Option or Stock Purchase
Rights and the issuance and delivery of such Shares pursuant thereto shall
comply with all relevant provisions of law, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the Shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option or Stock Purchase Rights,
the Company may require the person exercising such Option or Stock Purchase
Rights to represent and warrant at the time of any such exercise that the
Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
relevant provisions of law.
15. RESERVATION OF SHARES.
The Company, during the term of this Plan, will at all times reserve
and keep available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan.
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<PAGE> 9
The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
16. OPTION, STOCK PURCHASE AND STOCK BONUS AGREEMENT.
Options shall be evidenced by written option agreements in such form
as the Committee shall approve. Upon the exercise of Stock Purchase Rights,
the Purchaser shall sign and stock purchase agreement or stock bonus agreement
in such form as the Committee shall approve.
17. INFORMATION TO OPTIONEES AND PURCHASERS.
The Company shall make available to each Optionee and Purchaser,
during the period for which such Optionee or Purchaser has one or more Options
or Stock Purchase Rights outstanding, copies of all annual reports and other
information which are provided to all stockholders of the Company. The Company
shall be required to provide such information if the issuance of Options or
Stock Purchase Rights under the Plan is limited to key employees whose duties
in connection with the Company assure their access to equivalent information.
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<PAGE> 1
EXHIBIT 10.20
WORLDCOM/MFS/UUNET
EMPLOYEE STOCK PURCHASE PLAN
INTRODUCTION AND HISTORY OF PLAN
Effective August 12, 1996, MFS Communications Company, Inc. ("MFS")
acquired UUNET Technologies, Inc., a Delaware corporation ("UUNET") through a
merger of a subsidiary of MFS with and into UUNET. As a result of the merger,
MFS assumed sponsorship of this Plan. Effective December 31, 1996, MFS then
merged with and into WorldCom, Inc. ("WorldCom") pursuant to a Merger
Agreement. As a result of the merger, WorldCom assumed sponsorship of the
Plan, and the Plan was amended and restated to redesignate the Plan as
sponsored by WorldCom effective December 31, 1996. Under the terms of the
Merger Agreement, rights to acquire stock of MFS outstanding under the Plan
before December 31, 1996 were substituted with rights to acquire stock of
WorldCom, as adjusted for the merger exchange ratio of 2.1 shares of stock of
WorldCom for each outstanding share of MFS stock. Except as adjusted for this
exchange ratio, all rights of Participants under the Plan before December 31,
1996 are preserved hereunder. The amended and restated Plan is intended to
change the Plan as required as a result of the merger but is not otherwise
intended to effect substantive amendments to the Plan beyond those required by
the merger.
1. Purpose
This, the WorldCom/MFS/UUNET Employee Stock Purchase Plan (the
"Plan"), is designed to encourage and assist employees of WorldCom, a Georgia
corporation (the "Company") to acquire an equity interest in the Company
through the purchase of shares of Company common stock (the "Common Stock").
2. Administration
The Plan shall be administered by the Board of Directors of the
Company (or a committee of "disinterested" directors no fewer in number than
required by Rule 16b-3 of the Securities and Exchange Commission ("Rule 16b-3")
as in effect with respect to the Company from time to time, which in either
case is referred to as the "Board") in accordance with Rule 16b-3. The Board
may from time to time select a committee or persons (the "Administrator"), to
be responsible for any matters for which a "disinterested administrator" is not
required by Rule 16b-3. Subject to the express provisions of the Plan, to the
overall supervision of the Board, and to the limitations of Section 423 of the
Internal Revenue Code of 1986, as amended (the "Code"), the Administrator may
administer and interpret the Plan in any manner it believes to be desirable,
and any such interpretation shall be conclusive and binding on the Company and
all participants.
3. Number of Shares
(a) The total number of shares of Common Stock reserved and
available for issuance pursuant to this Plan shall be 525,000. Such shares may
consist, in whole or in part, of authorized and unissued shares or treasury
shares reacquired in private transactions or open market purchases, but all
shares issued under this Plan shall be counted against the 250,000-share
limitation.
(b) In the event of any reorganization, recapitalization, stock
split, reverse stock split, stock dividend, combination of shares, merger,
consolidation, offering of rights, or other similar change in the capital
structure of the Company, the Board may make such adjustment, if any, as it
deems appropriate in the number, kind, and purchase price of the shares
available for purchase under the Plan and in the maximum number of shares
subject to any option under the Plan.
<PAGE> 2
4. Eligibility Requirements
(a) Each employee of the Company, except those described in the
next paragraph, shall become eligible to participate in the Plan in accordance
with Section 5 on the first Enrollment Date on or following commencement of his
or her employment by the Company or following such period of employment as is
designated by the Board from time to time. Participation in the Plan is
entirely voluntary.
(b) The following employees are not eligible to participate in the
Plan:
(i) employees who would, immediately upon enrollment in
the Plan, own directly or indirectly (including options or rights to acquire
stock possessing) five percent or more of the total combined voting power or
value of all classes of stock of the Company or any subsidiary of the Company;
and
(ii) employees who are customarily employed by the Company
less than 20 hours per week or less than five months in any calendar year.
(iii) "Employee" shall mean any individual who is an
employee of the Company or a Participating Subsidiary within the meaning of
Section 3401(c) of the Code and the Treasury Regulations thereunder.
"Subsidiary" shall mean any corporation described in Section 424(e) or (f) of
the Code. "Participating Subsidiary" shall mean a subsidiary which has been
designated by the Administrator as covered by the Plan.
5. Enrollment
Any eligible employee may enroll or re-enroll in the Plan each year as
of the first trading day of (i) January (ii) the sixth month following such
month, and (iii) each yearly anniversary of such months (e.g. any January and
July) or such other days as may be established by the Board from time to time
(the "Enrollment Dates"); provided, that the first Enrollment Date shall in no
event be earlier than January 1, 1996. In order to enroll, an eligible employee
must complete, sign, and submit to the Company an enrollment form. Any
enrollment form received by the Company by the 15th day of the month preceding
an Enrollment Date (or by the Enrollment Date in the case of employees hired
after such 15th day), or such other date established by the Administrator from
time to time, will be effective on that Enrollment Date. For purposes of the
Plan, a "trading day" is any day on which regular trading occurs on any
established stock exchange or market system on which the Common Stock is
traded.
6. Grant of Option on Enrollment
(a) Enrollment or re-enrollment by a participant in the Plan on an
Enrollment Date will constitute the grant by the Company to the participant of
an option to purchase fully vested shares of Common Stock from the Company
under the Plan. Any participant whose option expires and who has not withdrawn
from the Plan will automatically be re-enrolled in the Plan and granted a new
option on the Enrollment Date immediately following the date on which the
option expires.
(b) Except as provided in Section 9, each option granted under the
Plan shall have the following terms:
(i) each option granted under the Plan will have a term
of not more than 24 months or such shorter option period as may be established
by the Board from time to time; notwithstanding the foregoing, however, whether
or not all shares have been purchased thereunder, the option will expire on the
earlier to occur of (A) the completion of the purchase of shares on the last
Purchase Date occurring within 24 months after the Enrollment Date for such
option, or such shorter option period as may be established by the Board before
an Enrollment Date for all options to be granted on such date or (B) the date
on which the employee's participation in the Plan terminates for any reason;
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<PAGE> 3
(ii) payment for shares purchased under the option will be
made only through payroll withholding in accordance with Section 7;
(iii) purchase of shares upon exercise of the option will
be effected only on the Purchase Dates established in accordance with Section
8;
(iv) the price per share under the option will be
determined as provided in Section 8;
(v) the number of shares available for purchase under an
option will, unless otherwise established by the Board before an Enrollment
Date for all options to be granted on such date, be determined by dividing
$25,000 by the fair market value of a share of Common Stock on the Enrollment
Date and by multiplying the result by the number of calendar years included in
whole or in part in the period from grant to expiration of the option;
(vi) the option (taken together with all other options
then outstanding under this and all other similar stock purchase plans of the
Company and any subsidiary of the Company, collectively "Options") will in no
event give the participant the right to purchase shares at a rate per calendar
year which accrues in excess of $25,000 of fair market value of such shares, as
determined at the applicable Enrollment Date; and
(vii) the option will in all respects be subject to the
terms and conditions of the Plan, as interpreted by the Administrator from time
to time.
7. Payroll and Tax Withholding: Use by Company
(a) Each participant shall elect to have amounts withheld from his
or her compensation paid by the Company during the option period, at a rate
equal to any whole percentage up to a maximum of 10 percent, or such lesser
percentage as the Board may establish from time to time before an Enrollment
Date. Compensation includes regular salary payments, annual and quarterly
performance bonuses, hire-on bonuses, cash recognition awards, commissions,
overtime pay, shift premiums, and elective contributions by the participant to
qualified employee benefit plans, but excludes all other payments including,
without limitation, long-term disability or workers compensation payments, car
allowances, employee referral bonuses, relocation payments, expense
reimbursements (including but not limited to travel, entertainment, and moving
expenses), salary gross-up payments, and non-cash recognition awards. The
participant shall designate a rate of withholding in his or her enrollment form
and may elect to increase or decrease the rate of contribution effective as of
any Enrollment Date, by delivery to the Company, not later than 15 days before
such Enrollment Date, of a written notice indicating the revised withholding
rate.
(b) Payroll withholdings shall be credited to an account
maintained for purposes of the Plan on behalf of each participant, as soon as
administratively feasible after the withholding occurs. The Company shall be
entitled to use the withholdings for any corporate purpose, shall have no
obligation to pay interest on withholdings to any participant, and shall not be
obligated to segregate withholdings.
(c) Upon disposition of shares acquired by exercise of an option,
the participant shall pay, or make provision adequate to the Company for
payment of, all federal, state, and other tax (and similar) withholdings that
the Company determines, in its discretion, are required due to the disposition,
including any such withholding that the Company determines in its discretion is
necessary to allow the Company to claim tax deductions or other benefits in
connection with the disposition. A participant shall make such similar
provisions for payment that the Company determines, in its discretion, are
required due to the exercise of an option, including such provisions as are
necessary to allow the Company to claim tax deductions or other benefits in
connection with the exercise of the option.
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<PAGE> 4
8. Purchase of Shares
(a) On the last trading day of each month immediately preceding a
month containing an Enrollment Date, or on such other days as may be
established by the Board from time to time, prior to an Enrollment Date for all
options to be granted on an Enrollment Date (each a "Purchase Date"), the
Company shall apply the funds then credited to each participant's payroll
withholdings account to the purchase of whole shares of Common Stock. The cost
to the participant for the shares purchased under any option shall be not less
than 85 percent of the lower of:
(i) the fair market value of the Common Stock on the
Enrollment Date for such option; or
(ii) the fair market value of the Common Stock on that
Purchase Date.
The "fair market value" of the Common Stock on a date shall be the closing
price of the Common Stock on such date on any established stock exchange or
market system if the Common Stock is traded on such an exchange or market
system (and the largest such exchange or market system if the Common Stock is
traded on more than one), if the Common Stock is not so traded then the mean
between the bid and asked prices for Common Stock on such date as quoted on
NASDAQ Stock Market or reported in The Wall Street Journal or similar
publication if such prices are so quoted or reported, or the fair market value
on such date as determined by the Administrator if shares of Common Stock are
not so traded, quoted, or reported.
(b) Any funds in an amount less than the cost of one share of
Common Stock left in a participant's payroll withholdings account on a Purchase
Date shall be carried forward in such account for application on the next
Purchase Date, and any additional amount shall be distributed to the
participant.
(c) If at any Purchase Date, the shares available under the Plan
are less than the number all participants would otherwise be entitled to
purchase on such date, purchases shall be reduced proportionately to eliminate
the deficit. Any funds that cannot be applied to the purchase of shares due to
such a reduction shall be refunded to participants as soon as administratively
feasible.
9. Withdrawal from the Plan
A participant may withdraw from the Plan in full (but not in part) at
any time, effective after written notice thereof is received by the Company.
All funds credited to a participant's payroll withholdings account shall be
distributed to him or her without interest within 60 days after notice of
withdrawal is received by the Company. Any eligible employee who has withdrawn
from the Plan may enroll in the Plan again on any subsequent Enrollment Date in
accordance with the provisions of Section 5.
10. Termination of Employment
Participation in the Plan terminates immediately when a participant
ceases to be employed by the Company for any reason whatsoever (including death
or disability) or otherwise becomes ineligible to participate in the Plan. As
soon as administratively feasible after termination, the Company shall pay to
the participant or his or her beneficiary or legal representative, all amounts
credited to the participant's payroll withholdings account; provided, however,
that if a participant ceases to be employed by the Company because of the
commencement of employment with a Subsidiary of the Company that is not a
Participating Subsidiary, funds then credited to such participant's payroll
withholdings account shall be applied to the purchase of .whole shares of
Common Stock at the next Purchase Date, and any funds remaining after such
purchase shall be paid to the participant.
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<PAGE> 5
11. Designation of Beneficiary
(a) Each participant may designate one or more beneficiaries in
the event of death and may, in his or her sole discretion, change such
designation at any time. Any such designation shall be effective upon receipt
in written form by the Company and shall control over any disposition by will
or otherwise.
(b) As soon as administratively feasible after the death of a
participant, amounts credited to his or her account shall be paid in cash to
the designated beneficiaries or, in the absence of a designation, to the
executor, administrator, or other legal representative of the participant's
estate. Such payment shall relieve the Company of further liability with
respect to the Plan on account of the deceased participant. If more than one
beneficiary is designated, each beneficiary shall receive an equal portion of
the account unless the participant has given express contrary written
instructions.
12. Assignment
(a) The rights of a participant under the Plan shall not be
assignable by such participant, by operation of law or otherwise. No
participant may create a lien on any funds, securities, rights, or other
property held by the Company for the account of the participant under the Plan,
except to the extent that there has been a designation of beneficiaries in
accordance with the Plan, and except to the extent permitted by the laws of
descent and distribution if beneficiaries have not been designated.
(b) A participant's right to purchase shares under the Plan shall
be exercisable only during the participant's lifetime and only by him or her,
except that a participant may direct the Company in the enrollment form to
issue share certificates to the participant and his or her spouse in community
property, to the participant jointly with one or more other persons with right
of survivorship, or to certain forms of trusts approved by the Administrator.
13. Administrative Assistance
If the Administrator in its discretion so elects, it may retain a
brokerage firm, bank, or other financial institution to assist in the purchase
of shares, delivery of reports, or other administrative aspects of the Plan. If
the Administrator so elects, each participant shall be deemed upon enrollment
in the Plan to have authorized the establishment of an account on his or her
behalf at such institution. Shares purchased by a participant under the Plan
shall be held in the account in the name in which the share certificate would
otherwise be issued pursuant to Section 13(b).
14. Costs
All costs and expenses incurred in administering the Plan shall be
paid by the Company, except that any stamp duties or transfer taxes applicable
to participation in the Plan may be charged to the account of such participant
by the Company. Any brokerage fees for the purchase of shares by a participant
shall be paid by the Company, but brokerage fees for the resale of shares by a
participant shall be borne by the participant.
15. Equal Rights and Privileges
All eligible employees shall have equal rights and privileges with
respect to the Plan so that the Plan qualifies as an "employee stock purchase
plan" within the meaning of Section 423 of the Code and the related Treasury
Regulations. Any provision of the Plan which is inconsistent with Section 423
of the Code shall without further act or amendment by the Company or the Board
be reformed to comply with the requirements of Section 423. This Section 16
shall take precedence over all other provisions of the Plan.
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<PAGE> 6
16. Applicable Law
The Plan shall be governed by the substantive laws (excluding the
conflict of laws rules) of the State of Delaware.
17. Modification and Termination
(a) The Board may amend, alter, or terminate the Plan at any time,
including amendments to outstanding options. No amendment shall be effective
unless within 12 months after it is adopted by the Board, it is approved by the
holders of a majority of the votes cast at a duly held stockholders' meeting at
which a quorum of the voting power of the Company is represented in person or
by proxy, if such amendment would:
(i) increase the number of shares reserved for purchase
under the Plan; or
(ii) require stockholder approval in order to comply with SEC Rule 16b-3.
(b) In the event the Plan is terminated, the Board may elect to
terminate all outstanding options either immediately or upon completion of the
purchase of shares on the next Purchase Date, or may elect to permit options to
expire in accordance with their terms (and participation to continue through
such expiration dates). If the options are terminated prior to expiration, all
funds contributed to the Plan that have not been used to purchase shares shall
be returned to the participants as soon as administratively feasible.
(c) In the event of the sale of all or substantially all of the
assets of the Company or the Company, or the merger of the Company or the
Company with or into another corporation, or the dissolution or liquidation of
the Company, a Purchase Date shall occur on the trading day immediately
preceding the date of such event, unless otherwise provided by the Board in its
sole discretion, including provision for the assumption or substitution of each
option under the Plan by the successor or surviving corporation, or a parent or
subsidiary thereof.
18. Rights as an Employee
Nothing in the Plan shall be construed to give any person the right to
remain in the employ of the Company or to affect the Company's right to
terminate the employment of any person at any time with or without cause.
19. Rights as a Stockholder; Delivery of Certificates
Unless otherwise determined by the Board, certificates evidencing
shares purchased on any Purchase Date shall be delivered to participants as
soon as administratively feasible. Participants shall be treated as the owners
of their shares effective as of the Purchase Date.
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<PAGE> 1
EXHIBIT 10.22
MEMORANDUM
DATE: February 11, 1997
TO: Bernie Ebbers
FROM: Jim Crowe
SUBJECT: ONGOING RELATIONSHIP
I believe the following summarizes the agreement we reached on February 11,
1997.
1. I will continue to be an employee of the Company, reporting to you,
however I will not have line responsibility.
2. My employment by the Company will continue until November 23, 1997.
After November 23, 1997, my employment will be by mutual agreement.
3. My stock options which would have vested in November 1997, Shareworks
grants and matching contributions will vest immediately. I agree not to
exercise these options until November 24, 1997. WorldCom absolutely
agrees that after November 24, 1997, I will have the right to exercise
any options outstanding at that time. WorldCom agrees it will not
prevent or attempt to prevent exercise of such options after November
24, 1997, under any circumstances including any breach or contention of
breach of this agreement.
4. I will remain on the Board of Directors and remain as Chairman for the
term of my employment subject to nomination and stockholder vote.
5. I will have one year from the date of termination of my employment to
exercise any outstanding options.
6. My salary will be $120,000 per year. In return, I will devote one day
per month to such business as you direct, subject to mutual agreement
as to the nature of the task. If you do not specify a task for a
particular month, there will no carry over to the next month. We both
agree to be flexible with respect to rescheduling my tasks to
accommodate any other activities I may wish to pursue.
7. Should you wish to assign other tasks to me, you will compensate me at
the rate of $10,000 per day for each day or fraction of a day spent on
such tasks. My undertaking of such tasks will be subject to prior
mutual agreement.
8. You agree that I may pursue such other activities as I choose,
including, but not limited to, pursuing other business interests. I
understand that during the term of my employment and directorship, such
activities must be consistent with my fiduciary duties.
<PAGE> 2
Page Two
February 11, 1997
Memo to Bernie Ebbers
9. We agreed that I will have a budget of $75,000 for community donations,
charitable donations, sponsorships, etc., to allocate at my discretion.
I believe my participation in these good works is a benefit to the
Company, especially given the concentration of stock ownership in Omaha.
10. I would propose that Dinah Sink continue as my secretary as long as I
am employed. I will, of course, ensure Dinah is properly utilized.
11. I would like to continue to use my office in Omaha when needed.
In addition to considering my own situation, I believe we agreed as follows.
12. Doug Bradbury and Terry Ferguson's employment with the Company will be
terminated on February 28, 1997. Terry and Doug's stock options (which
would have vested in November 1997), Shareworks grants and matching
contributions will vest immediately. Doug and Terry will have one year
from the date of their termination to exercise any outstanding options.
13. In any event, given Terry and Doug's contribution to the Company, I
think a severance payment is appropriate. Any such severance will be
at your discretion.
JQC/dms
/s/ James Crowe /s/ Bernard J. Ebbers
- ----------------------- ---------------------------
James Q. Crowe Bernie Ebbers
<PAGE> 1
Exhibit 11.1
WORLDCOM, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the Twelve Months Ended December 31,
-----------------------------------------
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Primary:
Weighted average shares outstanding 397,890 346,666 315,610
Common stock equivalents -- 9,824 --
Common stock equivalents issuable upon conversion of:
Series 1 preferred stock -- 28,178 --
Series 2 preferred stock -- 2,230 --
5% convertible notes -- -- --
----------- ----------- -----------
397,890 386,898 315,610
=========== =========== ===========
Net income (loss) applicable to common shareholders
before extraordinary items $(2,189,804) $ 233,080 $ (151,779)
Extraordinary items (24,434) -- --
Add back:
Dividend paid on series 1 preferred stock conversions -- 15,312 --
Dividend paid on series 2 preferred stock conversions -- 858 --
Interest paid on 5% convertible notes conversions, net of taxes -- -- --
----------- ----------- -----------
Net income (loss) applicable to common shareholders $(2,214,238) $ 249,250 $ (151,779)
One-time dividend payment on Series 1 preferred stock conversion -- 15,000 --
----------- ----------- -----------
Net income (loss) applicable to common shareholders before
one-time dividend $(2,214,238) $ 264,250 $ (151,779)
=========== =========== ===========
Primary earnings (loss) per share:
Before one-time dividend payment to Series 1 preferred shareholder $ (5.56) $ 0.68 $ (0.48)
=========== =========== ===========
Applicable to common shareholders before extraordinary items $ (5.50) $ 0.64 $ (0.48)
=========== =========== ===========
Extraordinary items $ (0.06) $ -- $ --
=========== =========== ===========
Applicable to common shareholders $ (5.56) $ 0.64 $ (0.48)
=========== =========== ===========
Fully diluted:
Weighted average shares outstanding 397,890 346,666 315,610
Common stock equivalents -- 10,380 --
Common stock issuable upon conversion of:
5% convertible notes -- 10,270 --
Series 1 preferred stock -- 28,178 --
Series 2 preferred stock -- 7,496 --
----------- ----------- -----------
397,890 402,990 315,610
=========== =========== ===========
Fully diluted earnings (loss) per share:
Net income (loss) applicable to common shareholders
before extraordinary items $(2,189,804) $ 233,080 $ (151,779)
Extraordinary items (24,434) -- --
Add back:
Interest on 5% convertible notes, net of taxes -- 5,963 --
Series 1 preferred dividend requirement -- 15,312 --
Series 2 preferred dividend requirement -- 2,879 --
----------- ----------- -----------
Net income (loss) applicable to common shareholders $(2,214,238) $ 257,234 $ (151,779)
One-time dividend payment on Series 1 preferred stock conversion -- 15,000 --
----------- ----------- -----------
Net income (loss) applicable to common shareholders before
one-time dividend $(2,214,238) $ 272,234 $ (151,779)
=========== =========== ===========
Fully diluted earnings (loss) per share:
Before one-time dividend payment to Series 1 preferred shareholder $ (5.56) $ 0.68 $ (0.48)
=========== =========== ===========
Applicable to common shareholders before extraordinary items $ (5.50) $ 0.64 $ (0.48)
=========== =========== ===========
Extraordinary items $ (0.06) $ -- $ --
=========== =========== ===========
Applicable to common shareholders $ (5.56) $ 0.64 $ (0.48)
=========== =========== ===========
</TABLE>
<PAGE> 1
Exhibit 12.1
WORLDCOM, INC. AND SUBSIDIARIES
Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------
Historical Pro Forma
-------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1995 1996
-------- --------- --------- ---------- ------------ ---------- ------------
Earnings:
<S> <C> <C> <C> <C> <C> <C> <C>
Pretax income (loss) from continuing operations $ 20,401 $ 198,237 $ (78,463) $ 404,538 $ (2,060,276) $ (193,089) $ (2,762,906)
Fixed charges, net of capitalized interest 38,720 58,999 87,455 300,248 242,257 364,742 390,008
-------- --------- --------- ---------- ------------ ---------- ------------
Earnings $ 59,121 $ 257,236 $ 8,992 $ 704,786 $ (1,818,019) $ 171,653 $ (2,372,898)
======== ========= ========= ========== ============ ========== ============
Fixed charges:
Interest cost $ 33,815 $ 38,657 $ 49,203 $ 254,099 $ 229,376 $ 312,155 $ 353,085
Amortization of financing costs 1,464 1,792 2,086 2,811 1,742 2,811 -
Interest factor of rent expense 4,833 9,967 10,300 15,030 17,854 25,200 28,024
Preferred dividend requirements 2,112 11,683 27,766 33,191 860 48,255 30,289
-------- --------- --------- ---------- ------------ ---------- ------------
Fixed charges $ 42,224 $ 62,099 $ 89,355 $ 305,131 $ 249,832 $ 388,421 $ 411,398
======== ========= ========= ========== ============ ========== ============
Deficiency of earnings to combined fixed charges
and preferred stock dividends $ - $ - $ (80,363) $ - $ (2,067,851) $ (216,768) $ (2,784,296)
======== ========= ========= ========== ============ ========== ============
Ratio of earnings to combined fixed charges and
preferred stock dividends 1.40:1 4.14:1 0.10:1 2.31:1 N/A 0.44:1 N/A
======== ========= ========= ========== ============ ========== ============
</TABLE>
See Notes to Computation of Earnings to Combined Fixed Charges and Preferred
Stock Dividends
<PAGE> 2
NOTES TO COMPUTATION OF RATIO OF EARNINGS TO
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(1) On December 31, 1996, WorldCom completed the MFS Merger. The MFS
Merger is being accounted for as a purchase; accordingly, the
operating results for MFS are not reflected in the historical amounts
above and will be included from the date of acquisition.
(2) Results for 1996 include a $2.14 billion charge for in-process
research and development related to the MFS Merger. The charge is
based upon a valuation analysis of the technologies of MFS' worldwide
information system, the Internet network expansion system of UUNET, and
certain other identified research and development projects purchased in
the Merger. The expense includes $1.6 billion associated with UUNET
and $0.54 billion related to MFS.
Additionally, 1996 results include other after-tax charges of $121
million for employee severance, employee compensation charges,
alignment charges, and costs to exit unfavorable telecommunications
contracts and $344 million after-tax write-down of operating assets
within its non-core businesses. On a pre-tax basis, these charges
totaled $600.1 million.
(3) In 1995, Metromedia converted its Series 1 Preferred Stock into Common
Stock, exercised warrants to acquire Common Stock and immediately sold
its position of 61,699,096 shares of Common Stock in a public
offering. In connection with the preferred stock conversion, WorldCom
made a non-recurring payment of $15.0 million to Metromedia,
representing a discount to the minimum nominal dividends that would
have been payable on the Series 1 Preferred Stock prior to the
September 15, 1996 optional call date of approximately $26.6 million
(which amount includes an annual dividend requirement of $24.5 million
plus accrued dividends to such call date).
(4) As a result of the IDB Merger and the ATC Merger, the Company
initiated plans to reorganize and restructure its management and
operational organization and facilities to eliminate duplicate
personnel, physical facilities and service capacity, to abandon
certain products and marketing activities, and to take further
advantage of the synergies available to the combined entities. Also,
during the fourth quarter of 1993, plans were approved to reduce IDB's
cost structure and to improve productivity. Accordingly, in 1994,
1993 and 1992, the Company charged to operations the estimated costs
of such reorganization and restructuring activities, including
employee severance, physical facility abandonment and duplicate
service capacity. These costs totaled $43.7 million in 1994, $5.9
million in 1993 and $79.8 million in 1992.
Also, during 1994 and 1992, the Company incurred direct merger costs
of $15.0 million and $7.3 million, respectively, related to the IDB
Merger (in 1994) and the ATC Merger (in 1992). These costs include
professional fees, proxy solicitation costs, travel and related
expenses and certain other direct costs attributable to these mergers.
(5) In connection with certain debt refinancing, the Company recognized in
1996, 1993 and 1992 extraordinary items of approximately $4.2 million,
$7.9 million and $5.8 million, respectively, net of income taxes,
consisting of unamortized debt discount, unamortized issuance cost and
prepayment fees. Additionally, in 1996 the Company recorded an
extraordinary item of $20.2 million, net of income taxes, related to a
write-off of deferred international costs.
<PAGE> 1
EXHIBIT 21.1
COMPANY AND SUBSIDIARIES AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
JURISDICTION JURISDICTIONS
NAME OF COMPANY(1) OF INCORPORATION WHERE QUALIFIED
--------------- ---------------- ---------------
<S> <C> <C>
WorldCom, Inc. Georgia Alabama, Arizona, Arkansas,
California, Colorado,
Connecticut, Delaware,
District of Columbia,
Florida, Hawaii, Idaho,
Illinois, Indiana, Iowa,
Kansas, Kentucky,
Louisiana, Maine, Maryland,
Massachusetts, Michigan,
Minnesota, Mississippi,
Missouri, Montana,
Nebraska, Nevada, New
Hampshire, New Jersey, New
Mexico, New York, North
Carolina, North Dakota,
Ohio, Oklahoma, Oregon,
Pennsylvania, Rhode Island,
South Carolina, South
Dakota, Tennessee, Texas,
Utah, Vermont, Virginia,
Washington, West Virginia,
Wisconsin, Wyoming
Biz-Tel Corporation Florida None
Com Systems, Inc. California Arizona, Colorado, Montana,
Nevada, New Mexico, Utah,
Washington
Healan Communications, Inc. Georgia Florida, Georgia,
Louisiana, Mississippi,
North Carolina, Oklahoma,
South Carolina, Virginia
International Computer Systems, Inc. Virginia None
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
JURISDICTION JURISDICTIONS
NAME OF COMPANY(1) OF INCORPORATION WHERE QUALIFIED
--------------- ---------------- ---------------
<S> <C> <C>
ITC Tele-Services, Inc. Washington Arizona, California,
Connecticut, Colorado,
District of Columbia,
Florida, Georgia, Idaho,
Illinois, Indiana, Kansas,
Kentucky, Louisiana, Maine,
Maryland, Massachusetts,
Michigan, Minnesota,
Mississippi, Missouri,
Nebraska, Nevada, New
Hampshire, New Jersey, New
York, North Carolina, North
Dakota, Ohio, Oklahoma,
Oregon, Pennsylvania, South
Carolina, South Dakota,
Tennessee, Texas, Utah,
Virginia, Washington, West
Virginia, Wisconsin,
Wyoming
LDDS Corporation Delaware None
Military Communications Center, Inc. Delaware Alabama, Arizona,
California, Colorado,
Florida, Georgia, Illinois,
Kansas, Kentucky, Maryland,
Minnesota, Nevada, North
Carolina, Tennessee, Texas,
Virginia, Washington,
Hawaii
Touch 1 Long Distance, Inc. Alabama Arizona, Arkansas,
Colorado, Florida, Georgia,
Idaho, Illinois, Iowa,
Indiana, Kansas, Kentucky,
Louisiana, Massachusetts,
Michigan, Minnesota,
Mississippi, Missouri, New
Mexico, North Carolina,
North Dakota, Ohio,
Oklahoma, Oregon, Rhode
Island, South Carolina,
Tennessee, Texas, Utah,
Washington, Wisconsin
</TABLE>
2
<PAGE> 3
<TABLE>
<CAPTION>
JURISDICTION JURISDICTIONS
NAME OF COMPANY(1) OF INCORPORATION WHERE QUALIFIED
--------------- ---------------- ---------------
<S> <C> <C>
TransCall America, Inc. Georgia Alabama, Florida,
Louisiana, Oklahoma
Digital Communications of America, Inc. Oklahoma None
WorldCom Network Services, Inc. f/k/a Delaware All 50 states, excluding
WilTel, Inc. Hawaii but including The
District of Columbia
Virginia WorldCom, Inc. f/k/a WilTel of Virginia None
Virginia, Inc.
IDB WorldCom, Inc. Delaware California, Maryland, New
York, Texas, Wyoming
WorldCom Federal Systems, Inc. Delaware California, New York,
Texas, Virginia
IDB Media Group, Inc. Delaware California, Florida, New
York
IDB WorldCom Services, Inc. a/k/a Delaware Arkansas, Arizona,
TRT/FTC Communications California, Colorado,
Connecticut, D.C., Florida,
Georgia, Hawaii, Illinois,
Indiana, Iowa, Kansas,
Kentucky, Louisiana,
Maryland, Massachusetts,
Michigan, Minnesota,
Mississippi, Missouri,
Nebraska, Nevada, New
Hampshire, New Jersey, New
Mexico, New York, North
Carolina, Ohio, Oklahoma,
Oregon, Pennsylvania, Rhode
Island, South Carolina,
South Dakota, Tennessee,
Utah, Vermont, Virginia,
West Virginia, Wisconsin,
Washington
TC WorldCom AG Switzerland None
</TABLE>
3
<PAGE> 4
<TABLE>
<CAPTION>
JURISDICTION JURISDICTIONS
NAME OF COMPANY(1) OF INCORPORATION WHERE QUALIFIED
--------------- ---------------- ---------------
<S> <C> <C>
WorldCom Caribbean, Inc. New York Puerto Rico, Virgin Islands
WorldCom International, Inc. Delaware United Kingdom
WorldCom Telecommunications Services, Germany None
GmbH
GridNet, L.L.C. Oklahoma Georgia
WorldCom Telecommunications Services, France France
France S.A.
IDB Communications Group Limited N/A United Kingdom
Choice Communications, Inc. Arizona Utah
TTI National, Inc. Delaware Alabama, Arizona, Arkansas,
California, Connecticut,
Florida, Georgia, Idaho,
Illinois, Indiana, Iowa,
Kansas, Kentucky,
Louisiana, Maine, Maryland,
Massachusetts, Minnesota,
Mississippi, Missouri,
Montana, Nebraska, Nevada,
New Hampshire, New Jersey,
New Mexico, New York, North
Carolina, North Dakota,
Ohio, Oklahoma, Oregon,
Pennsylvania, Rhode Island,
South Carolina, South
Dakota, Tennessee, Texas,
Vermont, Utah, Virginia,
Washington, West Virginia,
Wisconsin, Wyoming
WorldCom Funding Corporation Delaware Mississippi
(Receivables Subsidiary)
</TABLE>
4
<PAGE> 5
<TABLE>
<CAPTION>
JURISDICTION JURISDICTIONS
NAME OF COMPANY(1) OF INCORPORATION WHERE QUALIFIED
--------------- ---------------- ---------------
<S> <C> <C>
BLT Technologies, Inc. Washington Alabama, Alaska, Arizona,
Arkansas, California,
Colorado, Connecticut,
Delaware, District of
Columbia, Florida, Georgia,
Hawaii, Idaho, Illinois,
Indiana, Iowa, Kansas,
Kentucky, Louisiana, Maine,
Maryland, Massachusetts,
Michigan, Minnesota,
Mississippi, Missouri,
Montana, Nebraska, Nevada,
New Hampshire, New Jersey,
New Mexico, New York, North
Carolina, North Dakota,
Ohio, Oklahoma, Oregon,
Pennsylvania, Rhode Island,
South Carolina, South
Dakota, Tennessee, Texas,
Utah, Vermont, Virginia,
Washington, West Virginia,
Wisconsin, Wyoming
</TABLE>
<TABLE>
<CAPTION>
JURISDICTION JURISDICTIONS
NAME OF INACTIVE SUBSIDIARY OF INCORPORATION WHERE QUALIFIED
--------------------------- ---------------- ---------------
<S> <C> <C>
CS Network Services, Inc. California None
TMC Communications, Inc. California None
Western Business Network, Inc. California None
HIJ Corp. Delaware None
</TABLE>
<TABLE>
<CAPTION>
NAME OF INACTIVE JURISDICTION OF JURISDICTIONS
SUBSIDIARY PARTNERSHIPS ORGANIZATION WHERE QUALIFIED
----------------------- ------------ ---------------
<S> <C> <C>
TMC Communications, L.P. California None
TRT/FTC Communications, Ltd. United Kingdom None
</TABLE>
5
<PAGE> 6
<TABLE>
<CAPTION>
NAME OF JURISDICTION OF JURISDICTIONS
UNRESTRICTED SUBSIDIARY INCORPORATION WHERE QUALIFIED
----------------------- ------------- ---------------
<S> <C> <C>
MFS Communications Company, Inc. Delaware Illinois
Maryland
Nebraska
MFS Network Technologies, Inc. Delaware Alabama, Alaska,
Arizona, British
Columbia, California,
Colorado, Connecticut,
District of Columbia,
Florida, Georgia,
Hawaii, Illinois,
Indiana, Iowa, Kansas,
Kentucky, Louisiana,
Maine, Maryland,
Massachusetts,
Michigan, Minnesota,
Missouri, Nebraska,
Nevada, New Hampshire,
New Jersey, New Mexico,
New York, Ohio,
Oklahoma, Ontario
Canada, Oregon,
Pennsylvania,
Tennessee, Texas, Utah,
Virginia, Washington,
Wisconsin
Centex Telemanagement, Inc. Delaware California
Centex Telemanagement of California, Inc. Delaware None
MFS Domestic Personnel, Inc. Delaware All 50 states plus the
District of Columbia
(except Delaware)
MFS Foreign Personnel, Inc. California None
MFS Global Network Services, Inc. Delaware All 50 states plus the
District of Columbia
(except Delaware)
MFS Network Technologies of the District of District of Columbia None
Columbia, Inc.
MFS Transportation Systems, Inc. Delaware None
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
NAME OF JURISDICTION OF JURISDICTIONS
UNRESTRICTED SUBSIDIARY INCORPORATION WHERE QUALIFIED
----------------------- ------------- ---------------
<S> <C> <C>
MFS TransTech, Inc. Delaware California
Florida
Massachusetts
New Jersey
New York
Pennsylvania
South Carolina
Virginia
MFS Telecom, Inc. Delaware Colorado
Illinois
Chicago Fiber Optic Corporation Illinois None
Fibernet, Inc. Delaware New York
FiberNet Rochester, Inc. Delaware New York
Institutional Communications Company - Virginia None
Virginia
Northeast Networks, Inc. Delaware Connecticut
New York
MFS Telephone, Inc. Delaware Georgia
Illinois
Maryland
Massachusetts
New York
Pennsylvania
MFS Telephone of Missouri, Inc. Missouri None
MFS Telephone of New Hampshire, Inc. New Hampshire None
MFS Telephone of Virginia, Inc. Virginia None
MFS No. 1, Inc. Delaware Virginia
MFSA Holding, Inc. Delaware None
Metrex Corporation Georgia None
Metropolitan Fiber Systems/McCourt, Inc. Delaware Massachusetts
Metropolitan Fiber Systems of Alabama, Inc. Delaware Alabama
Metropolitan Fiber Systems of Arizona, Inc. Delaware Arizona
</TABLE>
7
<PAGE> 8
<TABLE>
<CAPTION>
NAME OF JURISDICTION OF JURISDICTIONS
UNRESTRICTED SUBSIDIARY INCORPORATION WHERE QUALIFIED
----------------------- ------------- ---------------
<S> <C> <C>
Metropolitan Fiber Systems of Baltimore, Inc. Delaware Maryland
Metropolitan Fiber Systems of California, Inc. Delaware California
Metropolitan Fiber Systems of Columbus, Inc. Delaware Ohio
Metropolitan Fiber Systems of Connecticut, Inc. Delaware Connecticut
Metropolitan Fiber Systems of Dallas, Inc. Delaware Texas
Metropolitan Fiber Systems of Delaware, Inc. Delaware None
Metropolitan Fiber Systems of Denver, Inc. Delaware Colorado
Jones Lightwave of Denver, Inc. Colorado None
Metropolitan Fiber Systems of Detroit, Inc. Delaware Michigan
Metropolitan Fiber Systems of Florida, Inc. Delaware Florida
Metropolitan Fiber Systems of Hawaii, Inc. Delaware Hawaii
Metropolitan Fiber Systems of Houston, Inc. Delaware Texas
Metropolitan Fiber Systems of Indianapolis, Delaware Colorado
Inc. Indiana
Metropolitan Fiber Systems of Iowa, Inc. Delaware Iowa
Metropolitan Fiber Systems of Kansas, Inc. Delaware Kansas
Metropolitan Fiber Systems of Kentucky, Inc. Delaware Kentucky
Metropolitan Fiber Systems of Massachusetts, Delaware Massachusetts
Inc.
Metropolitan Fiber Systems of Minneapolis/St. Delaware Minnesota
Paul, Inc.
Metropolitan Fiber Systems of Kansas City, Missouri None
Missouri, Inc.
Metropolitan Fiber Systems of Nebraska, Inc. Delaware Nebraska
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION>
NAME OF JURISDICTION OF JURISDICTIONS
UNRESTRICTED SUBSIDIARY INCORPORATION WHERE QUALIFIED
----------------------- ------------- ---------------
<S> <C> <C>
Metropolitan Fiber Systems of Nevada, Inc. Delaware Nevada
Metropolitan Fiber Systems of New Hampshire, New Hampshire None
Inc.
Metropolitan Fiber Systems of New Jersey, Inc. Delaware New Jersey
New York
Metropolitan Fiber Systems of New Orleans, Inc. Delaware Louisiana
Metropolitan Fiber Systems of New York, Inc. Delaware New York
Metropolitan Fiber Systems of North Carolina, Delaware Missouri
Inc. North Carolina
Metropolitan Fiber Systems of Ohio, Inc. Delaware Ohio
Metropolitan Fiber Systems of Oklahoma, Inc. Delaware Oklahoma
Metropolitan Fiber Systems of Oregon, Inc. Delaware Oregon
Metropolitan Fiber Systems of Philadelphia, Delaware Pennsylvania
Inc.
Metropolitan Fiber Systems of Pittsburgh, Inc. Delaware Pennsylvania
Metropolitan Fiber Systems of Rhode Island, Delaware Rhode Island
Inc.
Metropolitan Fiber Systems of Seattle, Inc. Delaware Washington
Metropolitan Fiber Systems of St. Louis, Inc. Missouri None
Metropolitan Fiber Systems of Tennessee, Inc. Delaware Tennessee
Metropolitan Fiber Systems of Virginia, Inc. Delaware Virginia
Virginia Metrotel, Inc. Virginia None
Metropolitan Fiber Systems of Wisconsin, Inc. Delaware Wisconsin
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
NAME OF JURISDICTION OF JURISDICTIONS
UNRESTRICTED SUBSIDIARY INCORPORATION WHERE QUALIFIED
----------------------- ------------- ---------------
<S> <C> <C>
MFS Intelenet, Inc. Delaware California, Colorado,
Connecticut, Florida,
Georgia, Illinois,
Maryland,
Massachusetts,
Michigan, Missouri,
Nebraska, New Jersey,
New York, North
Carolina, Pennsylvania,
Texas, Virginia,
Washington, West
Virginia
MFS Intelenet East, Inc. Delaware Connecticut, Illinois,
Maryland,
Massachusetts,
Michigan, New Jersey,
New York, Pennsylvania,
Texas
SNAP Communications, Inc. California None
MFS Intelenet of Alabama, Inc. Delaware Alabama
MFS Intelenet of Alaska, Inc. Delaware Alaska
MFS Intelenet of Arizona, Inc. Delaware Arizona
MFS Intelenet of Arkansas, Inc. Delaware Arkansas
MFS Intelenet of California, Inc. Delaware California
MFS Intelenet of Colorado, Inc. Delaware Colorado
MFS Intelenet of Connecticut, Inc. Delaware Connecticut
MFS Intelenet of Delaware, Inc. Delaware None
MFS Intelenet of Florida, Inc. Delaware Florida
MFS Intelenet of Georgia, Inc. Delaware Georgia
MFS Intelenet of Hawaii, Inc. Delaware Hawaii
MFS Intelenet of Idaho, Inc. Delaware Idaho
MFS Intelenet of Illinois, Inc. Delaware Illinois
MFS Intelenet of Indiana, Inc. Delaware Indiana
MFS Intelenet of Iowa, Inc. Delaware Iowa
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
NAME OF JURISDICTION OF JURISDICTIONS
UNRESTRICTED SUBSIDIARY INCORPORATION WHERE QUALIFIED
----------------------- ------------- ---------------
<S> <C> <C>
MFS Intelenet of Kansas, Inc. Delaware Kansas
MFS Intelenet of Kentucky, Inc. Delaware Kentucky
MFS Intelenet of Louisiana, Inc. Delaware Louisiana
MFS Intelenet of Maine, Inc. Delaware Maine
MFS Intelenet of Maryland, Inc. Delaware Maryland
MFS Intelenet of Massachusetts, Inc. Delaware Massachusetts
MFS Intelenet of Michigan, Inc. Delaware Michigan
MFS Intelenet of Minnesota, Inc. Delaware Minnesota
MFS Intelenet of Mississippi, Inc. Delaware Mississippi
MFS Intelenet of Missouri, Inc. Delaware Missouri
MFS Intelenet of Montana, Inc. Delaware Montana
MFS Intelenet of Nebraska, Inc. Delaware Nebraska
MFS Intelenet of Nevada, Inc. Delaware Nevada
MFS Intelenet of New Hampshire, Inc. Delaware New Hampshire
MFS Intelenet of New Jersey, Inc. Delaware New Jersey
MFS Intelenet of New Mexico, Inc. Delaware New Mexico
MFS Intelenet of New York, Inc. Delaware New York, New Jersey
MFS Intelenet of North Carolina, Inc. Delaware North Carolina
MFS Intelenet of North Dakota, Inc. Delaware North Dakota
MFS Intelenet of Ohio, Inc. Delaware Ohio
MFS Intelenet of Oklahoma, Inc. Delaware Oklahoma
MFS Intelenet of Oregon, Inc. Delaware Oregon
MFS Intelenet of Pennsylvania, Inc. Delaware Pennsylvania
MFS Intelenet of Rhode Island, Inc. Delaware Rhode Island
MFS Intelenet of South Carolina, Inc. Delaware South Carolina
MFS Intelenet of South Dakota, Inc. Delaware South Dakota
MFS Intelenet of Tennessee, Inc. Delaware Tennessee
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
NAME OF JURISDICTION OF JURISDICTIONS
UNRESTRICTED SUBSIDIARY INCORPORATION WHERE QUALIFIED
----------------------- ------------- ---------------
<S> <C> <C>
MFS Intelenet of Texas, Inc. Delaware Texas
MFS Intelenet of Utah, Inc. Delaware Utah
MFS Intelenet of Vermont, Inc. Delaware Vermont
MFS Intelenet of Virginia, Inc. Virginia None
MFS Intelenet of Washington, Inc. Delaware Washington
MFS Intelenet of Washington, D.C., Inc. Delaware District of Columbia
MFS Intelenet of West Virginia, Inc. Delaware West Virginia
MFS Intelenet of Wisconsin, Inc. Delaware Wisconsin
MFS Intelenet of Wyoming, Inc. Delaware Wyoming
MFS Datanet, Inc. Delaware Arizona, California,
Connecticut, District
of Columbia, Florida,
Georgia, Illinois,
Maryland,
Massachusetts,
Minnesota, Missouri,
Nebraska, New Jersey,
New York, Oklahoma,
Pennsylvania,
Tennessee, Texas,
Virginia
Cylix Communications Corporation Tennessee California, Colorado,
Connecticut, Florida,
Georgia, Illinois,
Massachusetts,
Missouri, New Jersey,
New York, South
Carolina, Texas,
Wisconsin
Eagle Uplink Corporation Tennessee None
MFS International, Inc. Delaware Illinois
Virginia
MFS Globenet, Inc. Delaware Illinois
Virginia
MFS CableCo U.S., Inc. Delaware New Jersey
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
NAME OF JURISDICTION OF JURISDICTIONS
UNRESTRICTED SUBSIDIARY INCORPORATION WHERE QUALIFIED
----------------------- ------------- ---------------
<S> <C> <C>
MFS CableCo (Bermuda) Ltd. Bermuda None
Gemini Submarine Cable System Limited Bermuda None
MFS Communications Limited England & Wales None
MK International Limited England & Wales None
McCourt Cable and Communications Limited England & Wales None
MFS Far East Corporation Limited Cayman Islands Hong Kong
MFS Communications S.A. Belgium None
MFS Communications of Canada, Inc. Canada None
MFS Communications A/S, Denmark Denmark None
MFS Communications S.A. France None
MFS Deutschland GmbH Germany None
MFS Communications GmbH Germany None
MKI Konstruktionsgesellschaft fur Germany None
Telecommunikationsanlagen mbH
MFS Communications Holland B.V. The Netherlands None
MFS Communications Italia S.p.A. Italy None
MFS Communications Japan K.K. Japan None
MFS/MexCo, Inc. Delaware None
MFS Communications, S.A. Spain None
MFS Communications Aktiebolag Sweden None
MFS Communications AG Switzerland None
MFS/C-TEC (New Jersey Partnership) Delaware New Jersey
UUNET Technologies, Inc. Delaware North Carolina
Virginia
EUnet Deutschland GmbH Germany None
UUNET Holdings Corp. Delaware None
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
NAME OF JURISDICTION OF JURISDICTIONS
UNRESTRICTED SUBSIDIARY INCORPORATION WHERE QUALIFIED
----------------------- ------------- ---------------
<S> <C> <C>
UUNET International, Ltd. Delaware None
UUNET Hong Kong Limited Hong Kong None
UUNET Australia, Ltd. Delaware None
UUNET Japan, Ltd. Delaware None
UUNET Canada, Inc. Ontario, Canada None
Metrix Interlink Corp. Ontario, Canada None
UUNET Pipex B.V. Netherlands None
UUNET Holdings GmbH Germany None
Unipalm Group plc United Kingdom None
Computer College Ltd. United Kingdom None
XTech Limited United Kingdom None
Unipalm Pipex Limited United Kingdom None
Leaf Distribution Limited United Kingdom None
Unipalm Limited United Kingdom None
The Public IP Exchange Limited United Kingdom None
Pipex International Limited United Kingdom None
UUNET PIPEX BELGIUM, N.V. Belgium None
INnet International Belgium None
WorldCom ICC, Inc. Delaware District of Columbia
</TABLE>
- ---------------
(1) Certain of the subsidiaries of the Company conduct business under portions
of their full name or acronyms of their full name.
14
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in the Form 10-K, into the Company's previously filed
Registration Statements on Form S-8 (File Nos. 33-52168, 33-69322, 33-71450,
33-89072, 333-02115, 333-10349, 333-16015 and 333-16531) and Form S-3 (File
Nos. 33-63810, 33-87514, 33-77964, 33-87516, 33-58719, 333-10455, 333-10459 and
333-20911).
ARTHUR ANDERSEN LLP
Jackson, Mississippi
March 14, 1997.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF WORLDCOM, INC. AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
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0
128
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