<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 26, 1997
REGISTRATION NO. 333-36901
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
WORLDCOM, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
GEORGIA 4813 58-1521612
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
---------------------
<TABLE>
<S> <C>
BERNARD J. EBBERS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
515 EAST AMITE STREET WORLDCOM, INC.
JACKSON, MISSISSIPPI 39201-2702 515 EAST AMITE STREET
(601) 360-8600 JACKSON, MISSISSIPPI 39201-2702
(Address, including zip code, and telephone number, (601)360-8600
including area code, of registrant's principal executive (Name, address, including zip code, and telephone number,
offices) including area code, of agent for service)
</TABLE>
---------------------
Copies To:
<TABLE>
<S> <C> <C>
P. BRUCE BORGHARDT, ESQ. DON G. LENTS, ESQ. ALLEN FINKELSON, ESQ.
GENERAL COUNSEL -- R. RANDALL WANG, ESQ. ROBERT A. KINDLER, ESQ.
CORPORATE DEVELOPMENT BRYAN CAVE LLP CRAVATH, SWAINE & MOORE
WORLDCOM, INC. 211 NORTH BROADWAY, SUITE 3600 WORLDWIDE PLAZA
10777 SUNSET OFFICE DRIVE, STE. 330 ST. LOUIS, MO 63102 825 EIGHTH AVENUE
ST. LOUIS, MO 63127 (314) 259-2000 NEW YORK, NY 10019
(314) 909-4100 (212) 474-1000
MICHAEL H. SALSBURY, ESQ. RICHARD I. BEATTIE, ESQ.
EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL PHILIP T. RUEGGER III, ESQ.
MCI COMMUNICATIONS CORPORATION SIMPSON THACHER & BARTLETT
1801 PENNSYLVANIA AVENUE, NW 425 LEXINGTON AVENUE
WASHINGTON, DC 20006 NEW YORK, NY 10017
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement is declared effective. If the
securities being registered on this form are being offered in connection with
the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ ]
---------------------
CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
========================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER UNIT PRICE(2) FEE(2)(3)
- ------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01, and
associated Preferred Stock Purchase
Rights(4)............................. 1,164,659,623 N/A $28,332,534,114 $8,585,617
========================================================================================================================
</TABLE>
(1) Represents the maximum amount of common stock, par value $.01 per share,
(the "WorldCom Common Stock") of WorldCom, Inc. ("WorldCom") issuable upon
the consummation of the Merger (the "Merger") of MCI Communications
Corporation ("MCI") with and into TC Investments Corp., a wholly owned
subsidiary of WorldCom, based on the number of shares of common stock of MCI
("MCI Common Stock") outstanding at October 31, 1997 (565,301,683) plus the
number of rights or options to purchase shares of MCI Common Stock
outstanding at October 31, 1997 (96,963,541), and excluding any shares of
Class A common stock of MCI ("MCI Class A Common Stock"), which will be
converted into the right to receive $51 in cash in the Merger. Based on the
foregoing, the maximum number of shares of MCI Common Stock to be received
by WorldCom in the Merger would be 662,265,224. The actual maximum number of
shares of MCI Common Stock to be received, and of WorldCom Common Stock to
be issued, in the Merger will depend on the facts as they exist on the
effective date of the Merger.
(2) Pursuant to Rules 457(f)(1) and 457(c) under the Securities Act of 1933, the
registration fee was calculated on the basis of $42.78125 per share, the
average of the high and low prices of MCI Common Stock as reported on the
Nasdaq National Market on November 19, 1997.
(3) Pursuant to Rule 457(b) under the Securities Act of 1933, $6,970,098 of the
registration fee was paid on October 1, 1997 in connection with the original
filing of the Registration Statement. Such fee was calculated based upon an
MCI Common Stock price of $29.47 and an assumed receipt by WorldCom of
780,532,639 shares of MCI Common Stock (which amount included the shares of
MCI Class A Common Stock on an as-converted basis.) $1,615,519.13 being paid
with this filing.
(4) Preferred Stock Purchase Rights are attached to and trade with the WorldCom
Common Stock.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
Subject to Completion, Dated November 26, 1997
<TABLE>
<S> <C>
WorldCom, Inc.
515 East Amite Street
Wcom Logo Jackson, Mississippi 39201-2702
Telephone: (601) 360-8600
</TABLE>
, 1998
Dear Shareholder:
The Board of Directors cordially invites you to attend a special meeting of
shareholders of WorldCom, Inc. to be held at 10:00 a.m., local time, on
[ ], 1998, at [515 East Amite Street, Jackson, Mississippi].
At this important meeting, you will be asked to consider two proposals. The
first is a proposal to approve the issuance of shares of common stock of
WorldCom pursuant to an Agreement and Plan of Merger, dated as of November 9,
1997, by and among WorldCom, TC Investments Corp., a wholly owned subsidiary of
WorldCom, and MCI Communications Corporation, and the transactions contemplated
thereby. Pursuant to the MCI/WorldCom Merger Agreement, MCI will merge with and
into Merger Sub. As a result of the MCI/WorldCom merger, each share of common
stock of MCI will be converted into the right to receive that number of shares
of WorldCom common stock equal to the Exchange Ratio (as described below) and
each share of MCI Class A common stock will be converted into the right to
receive $51.00 in cash, without interest thereon. The Exchange Ratio will be
determined by dividing $51.00 by the average of the high and low sales prices
for WorldCom Common Stock for a specified twenty trading-day period prior to the
closing, but will not be less than 1.2439 shares (if WorldCom's average stock
price exceeds $41.00) or more than 1.7586 shares (if WorldCom's average stock
price is less than $29.00).
Management of WorldCom believes that the proposed MCI/WorldCom merger will
create a fully integrated communications company well positioned to take
advantage of growth opportunities in global telecommunications by providing a
complete range of local, long distance, Internet and international
communications services. The combined company will be led by the industry's most
experienced, skilled and respected management team of top executives from
WorldCom and MCI.
The second proposal is to approve an amendment to WorldCom's Second Amended
and Restated Articles of Incorporation to change the name of WorldCom to "MCI
WorldCom, Inc."
THE DIRECTORS OF WORLDCOM HAVE UNANIMOUSLY APPROVED THE TERMS OF THE
MCI/WORLDCOM MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND
UNANIMOUSLY RECOMMEND THAT THE SHAREHOLDERS OF WORLDCOM VOTE "FOR" THE ISSUANCE
OF SHARES OF WORLDCOM COMMON STOCK IN THE MERGER AND "FOR" THE CHARTER
AMENDMENT.
Approval by WorldCom shareholders of the issuance of shares of WorldCom
common stock in the merger is a condition to the consummation of the
MCI/WorldCom merger. Accordingly, it is important that your shares be
represented at the WorldCom special meeting, whether or not you plan to attend
the WorldCom special meeting in person. Please complete, sign and date the
enclosed proxy card and return it in the accompanying prepaid envelope to ensure
that your shares will be represented at the WorldCom special meeting.
Should you require assistance in completing your proxy card or if you have
questions about the voting procedure described in the accompanying Joint Proxy
Statement/Prospectus, please feel free to contact MacKenzie Partners, Inc., 156
Fifth Avenue, New York, New York 10010, (212) 929-5500 (collect), (800) 322-2085
(toll-free).
Thank you for your continued support.
Bernard J. Ebbers
President and Chief Executive
Officer
- --------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
regulator has approved the securities to be issued under this Joint Proxy
Statement/Prospectus or determined if this Joint Proxy Statement/Prospectus is
accurate or adequate. Any representation to the contrary is a criminal offense.
This Joint Proxy Statement/Prospectus dated was
first mailed to shareholders on or about .
SEE "RISK FACTORS" BEGINNING ON PAGE FOR CERTAIN MATTERS YOU SHOULD CONSIDER
<PAGE> 3
SUBJECT TO COMPLETION, DATED NOVEMBER 26, 1997
WORLDCOM LOGO
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD
[ ], 1998
TO THE SHAREHOLDERS OF WORLDCOM, INC.:
Notice is hereby given that a special meeting of shareholders of WorldCom,
Inc. will be held at [515 East Amite Street, Jackson, Mississippi] on
[ ] at 10:00 a.m., local time, for the following purposes:
(1) To consider and vote upon a proposal to approve the issuance of
WorldCom common stock, par value $0.01 per share, pursuant to an Agreement
and Plan of Merger dated as of November 9, 1997, by and among WorldCom, TC
Investments Corp., a wholly owned subsidiary of WorldCom, and MCI
Communications Corporation, and the transactions contemplated thereby.
Pursuant to the MCI/WorldCom merger agreement, MCI will merge with and into
TC Investments Corp. As a result of the MCI/WorldCom merger, (i) each share
of common stock, par value $.10 per share, of MCI will be converted into
the right to receive that number of shares of WorldCom common stock equal
to the quotient of $51.00 divided by the average of the high and low sales
prices of WorldCom common stock as reported on The Nasdaq National Market
on each of the twenty consecutive trading days ending with the third
trading day immediately preceding the effective time of the MCI/WorldCom
merger (the "Exchange Ratio"); provided, that the Exchange Ratio will not
be less than 1.2439 nor greater than 1.7586; and (ii) each share of Class A
common stock, par value $.10 per share, of MCI will be converted into the
right to receive $51.00 in cash, without interest thereon;
(2) To consider and vote upon a proposal to amend WorldCom's Second
Amended and Restated Articles of Incorporation to change WorldCom's name to
"MCI WorldCom, Inc."; and
(3) To transact such other business as may properly come before the
WorldCom special meeting and any adjournment thereof.
The Board of Directors has fixed the close of business on [ ]
as the record date for determining the shareholders entitled to receive notice
of, and to vote at, the WorldCom special meeting or any adjournment or
postponement thereof. Each share of WorldCom common stock and WorldCom Series B
preferred stock will entitle the holder to one vote at the WorldCom special
meeting. Each WorldCom depositary share will entitle the holder to 1/10 of a
vote, which the holder may exercise by so directing The Bank of New York.
The accompanying Joint Proxy Statement/Prospectus sets forth, or
incorporates by reference, information, including financial data, relating to
WorldCom and MCI and describes the terms and conditions of the proposed
MCI/WorldCom merger. Please carefully review these materials before completing
the enclosed proxy card. The Joint Proxy Statement/Prospectus forms a part of
this Notice.
WHETHER OR NOT YOU EXPECT TO ATTEND THE WORLDCOM SPECIAL MEETING, PLEASE
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE
ACCOMPANYING POSTAGE-PAID ENVELOPE. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR
TO THE VOTE AT THE WORLDCOM SPECIAL MEETING BY FOLLOWING THE PROCEDURES SET
FORTH IN THE JOINT PROXY STATEMENT/PROSPECTUS.
BY ORDER OF THE BOARD OF DIRECTORS
Bernard J. Ebbers
President and Chief Executive
Officer
Jackson, Mississippi
[ ], 1998
<PAGE> 4
SUBJECT TO COMPLETION, DATED NOVEMBER 26, 1997
[MCI LOGO]
--, 1998
Dear Stockholders:
I cordially invite you to attend a special meeting of our stockholders at
- --, on --, 1998, at --, local time.
At the meeting, you will vote on a proposal to approve the merger agreement
between WorldCom, Inc. and MCI. As a result of the proposed merger, you and the
shareholders of WorldCom will become the owners of a combined company called MCI
WorldCom. I will be Chairman of MCI WorldCom, and the directors and management
will come from both companies.
In the merger, each outstanding share of MCI common stock will be converted
into shares of WorldCom common stock with a market value equivalent to $51.00
(subject to certain adjustments described in the accompanying Joint Proxy
Statement/Prospectus which may result in a market value greater or less than
$51.00) and each outstanding share of MCI Class A common stock, all of which are
owned by British Telecommunications plc, will be converted into $51.00 in cash,
without interest. WorldCom shareholders will continue to own their existing
shares in WorldCom although WorldCom intends to change its name to MCI WorldCom
in connection with the merger. MCI stockholders are expected to own between
approximately % and % of MCI WorldCom after the merger depending on
the actual exchange ratio, which will be set shortly before the merger is
effected.
MCI's Board of Directors has determined that the merger agreement and the
merger are in the best interests of MCI and its stockholders. Accordingly, the
Board has approved the merger agreement and recommends that you vote in favor of
the merger agreement at the special meeting.
Your participation in the meeting, in person or by proxy, is especially
important because the merger proposal to be voted on is very important to MCI
and its stockholders. Whether or not you plan to attend the meeting, on behalf
of MCI and your fellow stockholders, I urge you to complete, date, sign and
promptly return the enclosed proxy card in the enclosed prepaid envelope to
ensure that your shares will be represented at the meeting.
We look forward to the successful combination of MCI and WorldCom and to
your continued support as a stockholder of MCI WorldCom.
Bert C. Roberts, Jr.
Chairman of the Board of Directors
The Securities and Exchange Commission and state securities regulators have not
approved the merger described in this Joint Proxy Statement/Prospectus or the
shares of WorldCom common stock to be issued in the merger, and they have not
determined if this Joint Proxy Statement/Prospectus is truthful or complete.
Furthermore, the Securities and Exchange Commission has not determined the
fairness or merits of the merger. Any representation to the contrary is a
criminal offense.
SEE "RISK FACTORS" BEGINNING ON PAGE FOR CERTAIN MATTERS YOU SHOULD CONSIDER.
This Joint Proxy Statement/Prospectus is dated -- , 1998 and is first
being mailed to stockholders on , 1998.
<PAGE> 5
SUBJECT TO COMPLETION, DATED NOVEMBER 26, 1997
[MCI LOGO]
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
A Special Meeting of Stockholders (the "MCI Special Meeting") of MCI
Communications Corporation, a Delaware corporation ("MCI"), will be held at --,
on --, 1998, at --, local time, to consider and vote upon the following:
(1) adoption of the Agreement and Plan of Merger, dated as of November
9, 1997 (the "MCI/WorldCom Merger Agreement"), among WorldCom, Inc., a
Georgia corporation ("WorldCom"), MCI and TC Investments Corp., a Delaware
corporation and a wholly owned subsidiary of WorldCom ("Merger Sub"),
pursuant to which, among other things, (i) MCI will be merged with and into
Merger Sub (the "MCI/WorldCom Merger"), (ii) each outstanding share of
common stock, par value $.10 per share, of MCI ("MCI Common Stock") (other
than MCI Common Stock owned by MCI, WorldCom and Merger Sub) will be
converted into the right to receive that number of shares of common stock,
par value $.01 per share, of WorldCom ("WorldCom Common Stock") equal to
the quotient of $51.00 divided by the average of the high and low sales
prices of WorldCom Common Stock as reported on The Nasdaq National Market
on each of the 20 consecutive trading days ending with the third trading
day immediately preceding the effective time of the MCI/WorldCom Merger
(the "Exchange Ratio"); provided, that the Exchange Ratio will not be less
than 1.2439 nor greater than 1.7586; and (iii) each outstanding share of
Class A Common Stock, par value $.10 per share, of MCI will be converted
into the right to receive $51.00 in cash, without interest thereon;
(2) transaction of such other business as may properly come before the
MCI Special Meeting and any adjournment thereof.
The MCI/WorldCom Merger Agreement is attached as Annex I to the
accompanying Joint Proxy Statement/Prospectus. The Joint Proxy
Statement/Prospectus and the Annexes thereto form a part of this Notice.
Only stockholders of record at the close of business of --, 1998, are
entitled to notice of and to vote at the MCI Special Meeting or any adjournment
or postponement thereof. A complete list of stockholders entitled to vote will
be available for inspection at --, for a period of ten days prior to the MCI
Special Meeting.
By Order of the Board of Directors,
C. Bolton-Smith, Jr.
Secretary
Dated: --, 1998
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE
MCI/WORLDCOM MERGER................. 1
JOINT PROXY STATEMENT/PROSPECTUS
SUMMARY............................. 4
The Companies....................... 4
The WorldCom Special Meeting........ 4
The MCI Special Meeting............. 4
The Record Date for Voting.......... 4
Voting.............................. 5
What You Will Receive in the MCI/
WorldCom Merger.................. 5
Background of the Merger............ 5
Board Recommendations............... 6
Fairness Opinions................... 6
Interests of Certain Persons in the
MCI/ WorldCom Merger............. 6
Forward-Looking Statements May Prove
Inaccurate....................... 6
Certain Possible Disadvantages of
the MCI/WorldCom Merger.......... 7
Directors and Management of MCI
WorldCom Following the
MCI/WorldCom Merger.............. 7
Conditions to the MCI/WorldCom
Merger........................... 7
Termination of the MCI/WorldCom
Merger Agreement................. 7
Fees and Expenses................... 8
Regulatory Approvals................ 8
Recent WorldCom Developments........ 9
BT Agreement........................ 9
Source and Amount of Funds and Other
Consideration.................... 9
Market Prices and Dividends......... 10
Comparative Per Share Data.......... 11
Selected Historical Financial
Data............................. 12
Selected Unaudited Pro Forma
Financial Data................... 14
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS.......... 15
RISK FACTORS.......................... 16
Risks Related to the MCI/WorldCom
Merger........................... 16
Risks Relating to the Business and
Operations of MCI WorldCom....... 18
THE WORLDCOM SPECIAL MEETING.......... 25
General............................. 25
<CAPTION>
PAGE
<S> <C>
Date, Time and Place................ 25
Record Date; Vote Required.......... 25
Voting and Revocation of Proxies.... 26
Solicitation of Proxies............. 27
THE MCI SPECIAL MEETING............... 28
Date, Time and Place................ 28
Purpose of the MCI Special
Meeting.......................... 28
Record Date; Quorum................. 28
Required Vote....................... 28
Voting of Proxies................... 28
Revocability of Proxy............... 29
Solicitation of Proxies............. 29
THE MCI/WORLDCOM MERGER............... 30
General............................. 30
Background of the Merger............ 31
WorldCom's Reasons for the
MCI/WorldCom Merger;
Recommendation of the WorldCom
Board............................ 36
Estimates of Achievable Cost
Synergies........................ 37
Opinion of WorldCom's Financial
Advisor.......................... 38
MCI's Reasons for the MCI/WorldCom
Merger; Recommendation of the MCI
Board............................ 45
Opinions of MCI's Financial
Advisors......................... 46
Interests of Certain Persons in the
Transaction...................... 55
Certain Federal Income Tax
Consequences..................... 60
Accounting Treatment................ 61
Percentage Ownership Interest of MCI
Stockholders After the
MCI/WorldCom Merger.............. 61
Appraisal Rights.................... 62
NASDAQ Listing...................... 62
Delisting and Deregistration of MCI
Common Stock..................... 62
Conduct of the Business of MCI and
WorldCom if the MCI/WorldCom
Merger is not Consummated........ 62
Resales of WorldCom Common Stock.... 62
OTHER TERMS OF THE MCI/WORLDCOM MERGER
AGREEMENT........................... 63
Conversion of Shares in the
MCI/WorldCom Merger.............. 63
Exchange Agent; Procedures for
Exchange of Certificates......... 64
No Fractional Shares................ 65
</TABLE>
i
<PAGE> 7
<TABLE>
<CAPTION>
PAGE
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Representations and Warranties...... 65
Conduct of Business Pending the
MCI/WorldCom Merger.............. 66
Acquisition Proposals............... 71
Conditions Precedent to the
MCI/WorldCom Merger.............. 71
Stock Options and Other Stock
Plans............................ 73
Indemnification; Directors and
Officers' Insurance.............. 73
Termination......................... 74
Fees and Expenses................... 75
Termination Fees.................... 76
Amendment........................... 76
Waiver.............................. 76
THE BT AGREEMENT...................... 77
Termination of the BT/MCI Merger
Agreement; Payment of Fees....... 77
Voting Agreement.................... 77
Modifications to Concert Joint
Venture Agreement................ 78
Litigation.......................... 78
Merger Consideration................ 78
Amendments to MCI/WorldCom Merger
Agreement........................ 79
CERTAIN REGULATORY FILINGS AND
APPROVALS........................... 79
PRO FORMA FINANCIAL INFORMATION....... 81
ADDITIONAL PRO FORMA PRESENTATION..... 87
DIRECTORS AND MANAGEMENT OF MCI
WORLDCOM FOLLOWING THE MERGER....... 90
Compensation of Directors........... 91
Executive Officers.................. 91
Compensation of Executive
Officers......................... 92
CERTAIN RELATED TRANSACTIONS.......... 93
MCI Rights Agreement................ 93
Other............................... 93
DESCRIPTION OF WORLDCOM CAPITAL
STOCK............................... 94
Common Stock........................ 94
Preferred Stock..................... 94
Series A Preferred Stock............ 94
Series B Preferred Stock............ 96
Depository Shares................... 98
WorldCom Series 3 Preferred Stock... 99
Preferred Stock Purchase Rights..... 99
Certain Charter and Bylaws
Provisions....................... 100
COMPARATIVE RIGHTS OF SHAREHOLDERS.... 101
PAGE
Election of Directors............... 101
Removal of Directors................ 102
Vacancies on the Board of
Directors........................ 102
Action by Written Consent........... 102
Amendments to Charter............... 103
Amendments to Bylaws................ 103
Special Meetings of Shareholders.... 103
Vote on Extraordinary Corporate
Transactions..................... 104
Rights of Inspection................ 104
Dividends........................... 105
Appraisal Rights of Dissenting
Shareholders..................... 105
Indemnification and Limitation of
Liability of Directors and
Officers; Directors' and
Officers' Insurance.............. 106
Preemptive Rights................... 108
Special Redemption Provisions....... 108
Preferred Stock Purchase Rights..... 109
Stockholder Suits................... 109
Business Combination Restrictions... 109
Disclosure of Interests............. 112
MARKET PRICES AND DIVIDENDS........... 112
INFORMATION REGARDING MCI............. 113
INFORMATION REGARDING WORLDCOM........ 113
Business of WorldCom................ 113
The CompuServe Merger............... 114
The AOL Transaction................. 115
The BFP Merger...................... 116
Management and Principal
Shareholders..................... 118
PROPOSED AMENDMENT OF THE WORLDCOM
ARTICLES............................ 120
OWNERSHIP OF MCI CAPITAL STOCK........ 121
CERTAIN LITIGATION.................... 123
LEGAL MATTERS......................... 125
EXPERTS............................... 125
SHAREHOLDER PROPOSALS................. 125
WHERE YOU CAN FIND MORE INFORMATION... 126
ANNEXES TO THE JOINT PROXY
STATEMENT/PROSPECTUS
Annex I Agreement and Plan of
Merger
Annex II BT Agreement
Annex III Opinion of Salomon
Brothers Inc
Annex IV Opinion of Lazard Freres &
Co. LLC
Annex V Opinion of Lehman Brothers
Inc.
</TABLE>
ii
<PAGE> 8
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERMS PAGE
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<S> <C>
Acquisition Proposal......................................................... 68
ADSs......................................................................... 31
Ameritech.................................................................... 20
ANS.......................................................................... 15
AOL.......................................................................... 15
AOL Agreement................................................................ 15
AOL Transaction.............................................................. 15
Assumed Exchange Ratio....................................................... 51
Assumed Synergy Value........................................................ 43
AT&T......................................................................... 22
Bell Atlantic................................................................ 52
BellSouth.................................................................... 21
Benefits Termination Date.................................................... 58
BFP.......................................................................... 15
BFP Exchange Ratio........................................................... 116
BFP Merger................................................................... 15
BFP Merger Agreement......................................................... 116
BFP Options.................................................................. 17
BFP Warrants................................................................. 17
Block Group.................................................................. 114
Block Shares................................................................. 114
BOCs......................................................................... 20
BT........................................................................... 23
BT Agreement................................................................. 28
BT Investment Agreement...................................................... 47
BT/MCI Merger Agreement...................................................... 31
BT Sub....................................................................... 31
BTH.......................................................................... 78
Business Days................................................................ 75
Call Price................................................................... 95
Certificate.................................................................. 63
Certificate of Merger........................................................ 30
Charter Amendment............................................................ 25
Class A Directors............................................................ 101
CLEC......................................................................... 117
Closing Date................................................................. 30
Code......................................................................... 57
COLS......................................................................... 115
Common Equivalent Rate....................................................... 95
Communications Act........................................................... 30
Comparable Companies......................................................... 52
Compensation Committee....................................................... 92
CompuServe................................................................... 15
CompuServe Exchange Ratio.................................................... 114
CompServe Merger Agreement................................................... 114
</TABLE>
iii
<PAGE> 9
<TABLE>
<CAPTION>
TERMS PAGE
- ----------------------------------------------------------------------------- -----------
<S> <C>
CompuServe Merger............................................................ 115
Confidentiality Agreement.................................................... 70
Concert...................................................................... 31
Covered Executives........................................................... 58
Current Applicable Law....................................................... 60
Deposit Agreement............................................................ 98
Depositary Receipts.......................................................... 98
Depositary................................................................... 25
DGCL......................................................................... 30
Disqualified Holder.......................................................... 108
DOJ.......................................................................... 31
EBITDA....................................................................... 41
Effective Time............................................................... 30
Eighth Circuit............................................................... 20
Employment Agreements........................................................ 56
Engagement Letter............................................................ 43
EPS.......................................................................... 52
ESOP......................................................................... 123
ESP.......................................................................... 59
European Commission.......................................................... 16
Exchange Act................................................................. 62
Exchange Agent............................................................... 64
Exchange Fund................................................................ 64
Exchange Ratio............................................................... 30
Executives................................................................... 56
Executive Retention Program.................................................. 59
Extraordinary Cash Dividend.................................................. 97
Factual Representation....................................................... 60
FCC.......................................................................... 16
Fidelity..................................................................... 118
Financial Advisors........................................................... 50
First Tier Long Distance Comparable Companies................................ 41
Form S-4..................................................................... 69
Frontier..................................................................... 41
FTC.......................................................................... 80
GBCC......................................................................... 62
Governmental Entity.......................................................... 67
GTE.......................................................................... 23
GTE Proposal................................................................. 32
H&R Block.................................................................... 114
Historical Exchange Ratio.................................................... 40
HSR Act...................................................................... 16
ILECs........................................................................ 20
Initial Redemption Rate...................................................... 95
Investment Agreement......................................................... 31
IRS.......................................................................... 60
ISP Exemption................................................................ 21
ISPs......................................................................... 21
</TABLE>
iv
<PAGE> 10
<TABLE>
<CAPTION>
TERMS PAGE
- ----------------------------------------------------------------------------- -----------
<S> <C>
ISU's........................................................................ 56
IT Comparable Companies...................................................... 42
IXCs......................................................................... 117
Joint Proxy Statement/Prospectus............................................. 16
Joint Venture Agreement...................................................... 78
LATA......................................................................... 20
Lazard Freres................................................................ 31
Lazard Opinion............................................................... 46
LCI.......................................................................... 41
Lehman Brothers.............................................................. 32
Lehman Opinion............................................................... 48
Local Comparable Companies................................................... 48
LQA.......................................................................... 48
LTM.......................................................................... 41
Mandatory Conversion Date.................................................... 95
Material Adverse Effect...................................................... 72
MCI.......................................................................... 15
MCI Board.................................................................... 18
MCI Bylaws................................................................... 59
MCI Capital Stock............................................................ 28
MCI Class A Common Stock Merger Consideration................................ 30
MCI Cellular Resale.......................................................... 40
MCI Class A Common Stock..................................................... 28
MCI Common Stock Merger Consideration........................................ 30
MCI Communications Corporation............................................... 30
MCI Common Stock............................................................. 17
MCI Comparable Companies..................................................... 52
MCI IT Services.............................................................. 40
MCI Local.................................................................... 40
MCI Long Distance............................................................ 40
MCI Record Date.............................................................. 28
MCI Restated Certificated of Incorporation................................... 59
MCI Restricted Shares........................................................ 56
MCI Rights................................................................... 93
MCI Rights Agreement......................................................... 93
MCI Special Meeting.......................................................... 28
MCI Stock Options............................................................ 56
MCI WorldCom................................................................. 17
MCI/WorldCom Merger.......................................................... 15
MCI/WorldCom Merger Agreement................................................ 16
Measurement Period........................................................... 30
Merger Consideration......................................................... 30
Merger Control Regulation.................................................... 16
Merger Sub................................................................... 15
MFS.......................................................................... 42
MFS Merger................................................................... 42
MPI.......................................................................... 27
NASD......................................................................... 25
</TABLE>
v
<PAGE> 11
<TABLE>
<CAPTION>
TERMS PAGE
- ----------------------------------------------------------------------------- -----------
<S> <C>
NASDAQ....................................................................... 25
Original BT/MCI Merger Agreement............................................. 31
Original WorldCom Offer...................................................... 31
P/E.......................................................................... 44
Pending WorldCom Transactions................................................ 47
Precedent IT Transactions.................................................... 43
Precedent Local Transactions................................................. 42
Precedent Long Distance Transactions......................................... 41
Projected Synergies.......................................................... 49
PSLRA........................................................................ 15
Public Stockholders.......................................................... 48
PUC.......................................................................... 16
Purchase Date................................................................ 78
Redemption Price............................................................. 97
Regulatory Law............................................................... 70
Reimbursement Amount......................................................... 75
Resurgens.................................................................... 41
Revised Synergy Estimates.................................................... 40
Rights Agent................................................................. 24
Salomon...................................................................... 35
SBC.......................................................................... 20
SEC.......................................................................... 15
Second Tier Long Distance Comparable Companies............................... 41
Securities Act............................................................... 63
Selected Acquisition Collar Transactions..................................... 51
Selected Distance-Closing Collar Transactions................................ 51
Selected High-Volatility Collar Transactions................................. 51
Shareholders................................................................. 78
Share Issuance............................................................... 25
Sprint....................................................................... 22
Sprynet...................................................................... 115
State Applications........................................................... 79
Stock Acquisition Date....................................................... 99
Subdivision.................................................................. 98
Subsidiary................................................................... 66
Superior Proposal............................................................ 68
Surviving Corporation........................................................ 30
Telecom Act.................................................................. 20
Telecommunications Transactions.............................................. 53
Termination Date............................................................. 74
U.S. GAAP.................................................................... 69
U S WEST..................................................................... 52
UUNET........................................................................ 19
UUNET Acquisition............................................................ 87
Ventures..................................................................... 78
VGE.......................................................................... 117
Voting Debt.................................................................. 67
Voting Preferred Stock....................................................... 96
</TABLE>
vi
<PAGE> 12
<TABLE>
<CAPTION>
TERMS PAGE
- ----------------------------------------------------------------------------- -----------
<S> <C>
WACC......................................................................... 40
WorldCom..................................................................... 15
WorldCom Acquiring Person.................................................... 99
WorldCom Alternative Transaction Fee......................................... 75
WorldCom Articles............................................................ 23
WorldCom Average Trading Price............................................... 30
WorldCom Board............................................................... 23
WorldCom Bylaws.............................................................. 24
WorldCom Capital Stock....................................................... 17
WorldCom Certificates........................................................ 64
WorldCom Common Stock........................................................ 17
WorldCom Depositary Shares................................................... 25
WorldCom Distribution Date................................................... 99
WorldCom Growth Comparable Companies......................................... 52
WorldCom Pending Acquistions................................................. 67
WorldCom Projections......................................................... 43
WorldCom Record Date......................................................... 25
WorldCom Right............................................................... 99
WorldCom Rights Agreement.................................................... 24
WorldCom Series A Preferred Stock............................................ 17
WorldCom Series B Preferred Stock............................................ 17
WTO Agreement................................................................ 21
WorldCom Series 3 Preferred Stock............................................ 99
WorldCom Special Meeting..................................................... 25
WorldCom Synergy Estimates................................................... 40
WorldCom Subcommittee........................................................ 35
WorldCom Telecom Comparable Companies........................................ 52
1818 Funds................................................................... 120
</TABLE>
vii
<PAGE> 13
QUESTIONS AND ANSWERS ABOUT THE MCI/WORLDCOM MERGER
Q. WHY ARE THE TWO COMPANIES PROPOSING TO MERGE? HOW WILL I BENEFIT?
A. WorldCom and MCI believe that the MCI/WorldCom merger will create a
fully integrated communications company that will be well positioned to take
advantage of growth opportunities in global telecommunications by providing a
complete range of local, long distance, Internet and international
communications services.
Q. WHAT IS "MCI WORLDCOM"?
A. "MCI WorldCom" is the name that WorldCom and MCI have agreed to use for
the combined company after the MCI/WorldCom merger. The name change is one of
the proposals that WorldCom shareholders will be voting on.
Q. WHAT HAPPENED TO THE MERGER WITH BRITISH TELECOMMUNICATIONS PLC?
A. The merger agreement between BT and MCI has been terminated. BT, which
owns all of the outstanding shares of a special class of MCI stock called MCI
Class A common stock, has agreed to vote those shares in favor of the
MCI/WorldCom merger.
Q. DIDN'T GTE CORPORATION ALSO OFFER TO BUY MCI? WHY DID MCI CHOOSE THE
WORLDCOM OFFER?
A. GTE said it would be willing to offer $40 in cash per share on October
15, 1997. During the course of the weekend when the negotiations between MCI and
WorldCom were completed, GTE indicated it might be willing to offer more than
$45 in cash per share if it was given more time. The MCI Board decided to accept
the WorldCom offer because, among other reasons, WorldCom was offering greater
value, WorldCom was prepared to promptly negotiate and execute a merger
agreement and WorldCom's offer was not subject to obtaining financing and
otherwise offered certainty of closing.
Q. IF I AM NOT GOING TO ATTEND MY SPECIAL MEETING IN PERSON, SHOULD I
RETURN MY PROXY CARD INSTEAD?
A. Yes. After carefully reading and considering the information contained
in this Joint Proxy Statement/Prospectus, please fill out and sign your proxy
card. Then, return the enclosed proxy card in the return envelope as soon as
possible, so that your shares may be represented at your stockholders' meeting.
Q. SHOULD I SEND MY STOCK CERTIFICATES NOW?
A. No. After the MCI/WorldCom merger is completed, the exchange agent
appointed by WorldCom will send MCI stockholders written instructions for
exchanging your stock certificates.
WorldCom shareholders will not have to exchange stock certificates.
Q. PLEASE EXPLAIN WHAT I WILL RECEIVE IN THE MCI/WORLDCOM MERGER.
A. WorldCom Shareholders:
After the MCI/WorldCom merger, each share of WorldCom stock will remain
outstanding and will represent one share of the combined company, which will be
called "MCI WorldCom" if the shareholders of WorldCom approve the name change.
Holders of WorldCom stock will continue to hold their same shares after the
MCI/WorldCom merger.
MCI Stockholders:
In the MCI/WorldCom merger, each share of MCI common stock will be
cancelled. In exchange, you will receive a number of shares of common stock of
WorldCom that will be determined based on the average price of WorldCom common
stock during a specified twenty day period prior to the MCI/WorldCom merger. If
the average price of WorldCom common stock is at least $29 and not more than
$41, then you will receive for each share of MCI common stock the number of
shares of WorldCom common stock determined by dividing $51 by the average
WorldCom stock price during the specified twenty day period. If the average
price of WorldCom common stock is less than $29, you will receive for each share
of MCI common stock 1.7586 shares of WorldCom common stock (which is likely to
have an initial value that is less than $51). If the average price of WorldCom
common stock is more than $41, you will receive for each share of MCI common
stock 1.2439 shares of WorldCom common stock (which is likely to have an initial
value that is more than $51). The average price of WorldCom common stock will be
determined by averaging the high and low sales prices of WorldCom common stock
as reported on The Nasdaq National Market on the 20 trading days ending with the
third trading day prior to the closing of the
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<PAGE> 14
MCI/WorldCom merger. WorldCom will not issue fractional shares of WorldCom
common stock. You will instead be paid cash equal to the market value on the
merger date of any fractional shares of WorldCom common stock you would have
otherwise received.
Shares of MCI Class A common stock (all of which are owned by BT) will not
be converted into the right to receive MCI WorldCom common stock. Instead, each
of those shares will be converted into the right to receive $51 in cash.
Q. WHAT IS THE "EXCHANGE RATIO"?
A. The "Exchange Ratio" is the number of shares of WorldCom common stock
into which each share of MCI common stock will be converted in the MCI/WorldCom
merger. As set forth above, the Exchange Ratio will not be less than 1.2439 or
greater than 1.7586 and will be determined by dividing $51 by the average price
of WorldCom common stock over a period ending three trading days prior to the
merger date.
Q. WHY IS BT GETTING $51 IN CASH FOR ITS SHARES OF MCI CLASS A COMMON STOCK
WHEN OTHER MCI STOCKHOLDERS ARE RECEIVING WORLDCOM COMMON STOCK?
A. BT is the sole owner of the outstanding shares of MCI Class A common
stock, a special class of MCI stock that has certain rights and privileges which
are different from those of the MCI common stock. BT requested that its shares
of MCI Class A common stock be converted into cash in the MCI/WorldCom merger in
exchange for its agreement to waive its special rights and privileges. BT, like
all other MCI stockholders, will receive WorldCom common stock for the other
shares of MCI common stock it owns.
Q. WHAT ARE THE TAX CONSEQUENCES TO STOCKHOLDERS OF THE MCI/WORLDCOM
MERGER?
A. The exchange of shares of MCI common stock for shares of WorldCom common
stock in the MCI/WorldCom merger will be tax-free to MCI stockholders for
federal income tax purposes. However, holders of MCI common stock will have to
pay taxes on any cash received for fractional shares.
The MCI/WorldCom merger will be tax-free to WorldCom shareholders for
federal income tax purposes.
Q. WHAT WILL MCI STOCKHOLDERS' TAX BASIS BE IN THE WORLDCOM COMMON STOCK
THEY RECEIVE IN THE MCI/WORLDCOM MERGER?
A. Your tax basis in the shares of WorldCom common stock will equal your
current tax basis in your MCI common stock reduced by any amount allocable to
fractional share interests for which cash is received.
Example: Assume you had previously purchased 100 shares of MCI common stock
for $30 per share and that the average price of WorldCom common stock for the
applicable period prior to the merger is $35 per share. In the merger, you would
be entitled to receive 145.71 shares of WorldCom common stock. However, no
fractional shares of WorldCom common stock will be issued in the merger, and you
would actually receive 145 shares of WorldCom common stock plus cash of $24.85
in lieu of the .71 share of WorldCom common stock. For federal income tax
purposes, you would be treated as though you received 145.71 shares of WorldCom
common stock and then the .71 fractional share was redeemed by WorldCom. Your
tax basis in your MCI common stock of $3,000 would be divided over the 145.71
shares of WorldCom common stock that you would be deemed to receive, for a tax
basis in each share of WorldCom common stock of $20.59. Your basis in the
fractional share would be $14.62, and you would have gain of $10.23 on the
deemed redemption of such fractional share. Your basis in the 145 shares of
WorldCom common stock would be $2,985.38.
<TABLE>
<C> <S> <C>
Basis Calculation:
1. Basis in MCI common stock... $3,000.00
2. Less basis allocated to
fractional share for which
cash is received
($3000 / 145.71 shares of
WorldCom common
stock = $20.59 (basis in
each share of WorldCom
common stock) X .71
fractional share)........... $ 14.62
---------------------------- ---------
3. Basis in WorldCom common
stock....................... $2,985.38
============================ ========
</TABLE>
2
<PAGE> 15
<TABLE>
<C> <S> <C>
Gain Calculation:
1. Amount received in deemed
redemption of fractional
share ($35 X .71)........... $ 24.85
2. Less basis in .71 fractional
share....................... $ 14.62
---------------------------- ---------
3. Gain recognized............. $ 10.23
============================ ========
</TABLE>
Q. DOES MCI WORLDCOM PLAN TO PAY DIVIDENDS ON ITS COMMON STOCK?
A. WorldCom has historically not paid dividends on its common stock.
However, the board of directors of MCI WorldCom will always be able to evaluate
the merits of a dividend program in the future.
Q. WHAT IS THE "BT AGREEMENT" AND HOW DOES IT AFFECT THE MCI/WORLDCOM
MERGER?
A. The BT Agreement is the agreement among BT, WorldCom and MCI under which
BT and MCI agreed to terminate the BT/MCI merger agreement, BT agreed to support
the MCI/ WorldCom merger and the parties agreed to certain other matters
relating to their on-going relationships.
Q. WHAT REGULATORY APPROVALS ARE NEEDED?
A. The MCI/WorldCom merger must be approved by the Federal Communications
Commission, the U.S. Department of Justice and state public utility commissions.
Additionally, European competition law approvals need to be obtained.
Q. WHEN DO YOU EXPECT THE MCI/WORLDCOM MERGER TO BE COMPLETED?
A. We expect to complete the MCI/WorldCom merger by late spring or early
summer of 1998.
We are working toward completing the MCI/WorldCom merger as quickly as possible.
In addition to approvals from the stockholders of WorldCom and MCI, we must also
obtain a number of regulatory approvals and their timing is uncertain.
WHO CAN HELP ANSWER YOUR QUESTIONS
If you have more questions about the MCI/WorldCom merger you should contact:
WORLDCOM SHAREHOLDERS
WorldCom, Inc.
Investor Relations Department
515 East Amite Street
Jackson, Mississippi 39201-2702
Telephone Number: (800) 780-6378
(601) 360-8600
Internet address: http://www.wcom.com
MCI STOCKHOLDERS
MCI Investor Relations Department
1801 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
Telephone: (800) 765-2115
(202) 887-2028
Fax: (202) 887-2967
E-mail Address: [email protected]
Internet address: http://www.MCI.com/investor
3
<PAGE> 16
JOINT PROXY STATEMENT/PROSPECTUS SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the
MCI/WorldCom merger fully and for a more complete description of the legal terms
of the MCI/WorldCom merger, you should carefully read this entire document and
the documents we have referred you to. See "Where You Can Find More Information"
(page ). The MCI/WorldCom Merger Agreement is attached as Annex I to this
document. We encourage you to read the MCI/WorldCom Merger Agreement. It is the
legal document that governs the MCI/WorldCom merger.
THE COMPANIES (PAGES AND )
WORLDCOM, INC.
515 East Amite Street
Jackson, Mississippi 39201-2702
(601) 360-8600
WorldCom is one of the largest telecommunications companies in the U.S.,
serving local, long distance and Internet customers domestically and
internationally. WorldCom provides telecommunications services to business,
government, telecommunications companies and consumer customers, through its
network of fiber optic cables, digital microwave, and fixed and transportable
satellite earth stations.
WorldCom is one of the first major facilities-based telecommunications
companies with the capability to provide businesses with high quality local,
long distance, Internet, data and international communications services over its
global networks. With service to points throughout the nation and the world,
WorldCom provides telecommunications products and services including: switched
and dedicated long distance and local products, 800 services, calling cards,
domestic and international private lines, broadband data services, debit cards,
conference calling, advanced billing systems, enhanced fax and data connections,
high speed data communications, facilities management, local access to long
distance companies, local access to ATM-based backbone service and
interconnection via Network Access Points to Internet service providers. In
addition, WorldCom's subsidiary, UUNET Technologies, Inc., is an international
Internet service provider.
MCI COMMUNICATIONS CORPORATION
1801 Pennsylvania Avenue, N.W.
Washington D.C. 20006
(202)872-1600
MCI is one of the world's leading providers of communications services and
the second largest carrier of long distance telecommunication services in the
U.S. It is the second largest carrier of international long distance
telecommunication services in the world. MCI provides a broad range of
communications services primarily in the U.S., including long distance, local
and wireless telecommunication services and information technology services.
MCI's core business is long distance telecommunication services. Long distance
telecommunication services comprise a wide spectrum of domestic and
international voice and data services, including long distance telephone
services, data communication services, teleconferencing services and electronic
messaging services.
THE WORLDCOM SPECIAL MEETING
There will be a special meeting of shareholders of WorldCom at 515 East
Amite Street, Jackson, Mississippi on , at 10:00 a.m., local
time. At this meeting, WorldCom shareholders will be asked to approve (i)
issuing WorldCom common stock to stockholders of MCI in the MCI/WorldCom merger
and (ii) changing the name of WorldCom after the MCI/WorldCom merger to "MCI
WorldCom, Inc."
THE MCI SPECIAL MEETING
There will be a special meeting of stockholders of MCI at [
] on [ ], at [ ] a.m. local time. At this
meeting, MCI stockholders will be asked to adopt the MCI/WorldCom Merger
Agreement.
THE RECORD DATE FOR VOTING
WorldCom Shareholders:
The close of business on [ ] was the record date for
determining which holders of WorldCom capital stock are entitled to vote at the
WorldCom special meeting. At the record date, there were [ ] shares of
WorldCom common stock, [ ] shares of WorldCom Se-
4
<PAGE> 17
ries A preferred stock and [ ] shares of
WorldCom Series B preferred stock entitled to vote at the WorldCom special
meeting.
MCI Stockholders:
The close of business on [ ] was the record date for
determining which holders of MCI common stock and MCI Class A common stock are
entitled to vote at the MCI special meeting. At the record date, there were
[ ] shares of MCI common stock and 135,998,932 shares of MCI Class A
common stock (all of which are owned by BT) entitled to vote at the MCI special
meeting. BT has agreed to vote its shares of Class A common stock in favor of
the MCI/WorldCom merger.
VOTING
WorldCom Shareholders:
You will have one vote for each share of WorldCom common stock and WorldCom
Series B preferred stock that you owned on [ ]. You will have
1/10 of a vote for each WorldCom depositary share that you owned on
[ ], which you will be able to vote by giving instructions to
The Bank of New York.
MCI Stockholders:
You will have one vote for each share of MCI common stock and that you
owned on [ ].
Each share of MCI Class A common stock will also have one vote and will
vote together with the MCI common stock.
WHAT YOU WILL RECEIVE IN THE
MCI/WORLDCOM MERGER
WorldCom Shareholders:
After the MCI/WorldCom merger, each share of WorldCom stock will remain
outstanding and will represent one share of the combined company, which will be
called "MCI WorldCom, Inc." if the shareholders of WorldCom approve the name
change.
MCI Stockholders:
In the MCI/WorldCom merger, each share of MCI common stock will be
cancelled. In exchange, you will receive a number of shares of WorldCom common
stock that will be determined based on the average price of WorldCom common
stock during a specified twenty day period prior to the merger. If the average
price of WorldCom common stock is at least $29 and not more than $41, then you
will receive for each share of MCI common stock a number of shares of WorldCom
common stock determined by dividing $51 by the average WorldCom stock price
during the specified twenty day period. If the average price of WorldCom common
stock is less than $29, you will receive for each share of MCI common stock
1.7586 shares of WorldCom common stock (which is likely to have an initial value
that is less than $51). If the average price of WorldCom common stock is more
than $41, you will receive for each share of MCI common stock 1.2439 shares of
WorldCom common stock (which is likely to have an initial value that is more
than $51). The average price of WorldCom common stock will be determined by
averaging the high and low sales prices of WorldCom common stock as reported on
The Nasdaq National Market on the 20 trading days ending with the third trading
day prior to the closing of the MCI/WorldCom merger. WorldCom will not issue
fractional shares of WorldCom common stock. You will instead be paid cash equal
to the market value on the merger date of any fractional shares of WorldCom
common stock you would have otherwise received.
Shares of MCI Class A common stock (all of which are owned by BT) will not
be converted into the right to receive MCI WorldCom common stock. Instead, each
of those shares will be converted into the right to receive $51 in cash without
interest.
BACKGROUND OF THE MERGER (PAGE )
In November 1996, MCI agreed to merge with BT. In August 1997, BT and MCI
signed an amendment to their merger agreement that, among other things, reduced
the consideration that MCI stockholders would receive in the MCI/BT merger. In
October 1997, WorldCom offered to exchange WorldCom common stock with a value of
$41.50, subject to adjustment, for each share of MCI capital stock. This amount
was more than what MCI stockholders would have received in the MCI/BT merger
based on the BT American Depositary
5
<PAGE> 18
Share price at that time. GTE then offered to merge with MCI and acquire each
share of MCI capital stock for $40 per share in cash. The MCI Board considered
the offers it had received, discussed them with both companies, and discussed
with BT the possibility of BT increasing the merger consideration contemplated
by the existing merger agreement. WorldCom increased its offer to $51 of
WorldCom stock, subject to adjustment, and, following negotiations between the
parties and BT, the two companies agreed to merge. In connection with the
foregoing, MCI and BT mutually agreed to terminate their existing merger
agreement.
BOARD RECOMMENDATIONS (PAGES AND )
WorldCom:
The WorldCom Board has unanimously determined that the MCI/WorldCom merger,
the issuance of shares of WorldCom common stock to MCI stockholders in the
merger and the amendment to WorldCom's charter necessary to change the name of
WorldCom to MCI WorldCom, Inc. are in the best interests of WorldCom and its
shareholders and has approved the MCI/WorldCom Merger Agreement. The WorldCom
Board unanimously recommends that shareholders of WorldCom vote in favor of the
share issuance and the charter amendment required to change the corporate name.
MCI:
The MCI Board has unanimously (with the directors nominated by BT not
participating) determined that the MCI/WorldCom Merger Agreement and the
transactions contemplated thereby are fair to, and in the best interests of MCI
and its stockholders and recommends that the stockholders of MCI vote to adopt
the MCI/WorldCom Merger Agreement.
FAIRNESS OPINIONS (PAGES AND )
WorldCom:
In deciding to approve the MCI/WorldCom merger, the WorldCom Board
considered the opinion of Salomon Brothers Inc as to the fairness of the
MCI/WorldCom merger consideration from a financial point of view. The written
opinion of Salomon is attached as Annex III to this document.
In connection with delivering its opinion, Salomon performed a variety of
financial analyses. These analyses included examining the historical trading
prices of WorldCom and MCI common stock, comparing WorldCom and MCI to other
publicly traded companies, reviewing and analyzing prior similar transactions
and valuing the benefits generated by combining the two companies.
MCI:
In deciding to approve the MCI/WorldCom merger, the MCI Board considered
the oral opinions of Lazard Freres & Co. LLC and Lehman Brothers Inc. as to the
fairness of the proposed MCI/WorldCom merger consideration from a financial
point of view. The written opinions of Lazard Freres and Lehman Brothers are
attached as Annexes IV and V to this document and a summary of such opinions and
the presentation made to the MCI Board in connection with the delivery of such
oral opinions is contained in this document.
In connection with delivering their respective opinions, Lazard Freres and
Lehman Brothers performed a variety of financial analyses. These analyses
included examining the historical trading prices of MCI and WorldCom common
stock, comparing MCI and WorldCom to other publicly traded companies and
reviewing and analyzing prior similar transactions.
INTERESTS OF CERTAIN PERSONS IN THE MCI/WORLDCOM MERGER (PAGES AND )
In considering the MCI Board's recommendation that MCI stockholders vote to
adopt the MCI/WorldCom Merger Agreement, you should be aware that a number of
MCI's officers, including some officers who are also directors, have employment
agreements, retention incentives or benefit plans that give them interests in
the MCI/WorldCom merger that are different from yours.
The MCI Board recognized these interests and determined that they neither
supported nor detracted from the fairness of the MCI/WorldCom merger to MCI
stockholders.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE (PAGE )
WorldCom and MCI have made forward-looking statements in this document that
are subject to certain risks and uncertainties. Forward-looking statements
include the information concerning possible or assumed future results of
operations of
6
<PAGE> 19
WorldCom, MCI and MCI WorldCom as well as statements preceded by, followed by or
that include the words "believes", "expects", "anticipates", "intends", or
similar expressions. You should understand that certain important factors, in
addition to those discussed elsewhere in this document and in the documents
which we incorporate by reference, could affect the future results of MCI
WorldCom and could cause those results to differ materially from those expressed
in our forward-looking statements.
CERTAIN POSSIBLE DISADVANTAGES OF THE MCI/
WORLDCOM MERGER
In determining whether to vote for the MCI/WorldCom merger, you should
understand that there may be some disadvantages to the MCI/WorldCom merger as
well as some other factors that you should consider, including:
- the challenges of combining two businesses as big as WorldCom and MCI and
the resulting diversion of management attention for an extended period of
time particularly in light of the other WorldCom acquisitions that are
pending;
- the need to obtain various regulatory approvals for the merger, the time
that will be required to obtain these approvals and the possibility that
regulatory authorities may seek concessions before granting them;
- costs incurred in connection with the MCI/WorldCom merger and potential
difficulties in realizing the benefits expected from the MCI/WorldCom
merger in the amounts or in the time frames expected;
- the potential effect of market fluctuations on the price of the WorldCom
common stock; and
- the indebtedness that will be incurred in connection with the
MCI/WorldCom merger and its possible effect on MCI WorldCom's credit
rating.
DIRECTORS AND MANAGEMENT OF MCI WORLDCOM FOLLOWING THE MCI/WORLDCOM MERGER (PAGE
)
In the MCI/WorldCom Merger Agreement, WorldCom and MCI have agreed that the
Board of Directors of MCI WorldCom will consist of 15 members, eight of whom
will be existing WorldCom directors, five of whom will be existing MCI directors
and two of whom will be named by WorldCom from among the existing directors of
other pending acquisitions of WorldCom.
Bert C. Roberts, Jr., the Chairman of the MCI Board, will be the Chairman
of the MCI WorldCom Board. Bernard J. Ebbers, the President and Chief Executive
Officer of WorldCom, will be the President and Chief Executive Officer of MCI
WorldCom. In addition, Gerald H. Taylor, currently Chief Executive Officer of
MCI, will become Vice Chairman of MCI WorldCom and will be responsible for
international operations and ventures; Timothy F. Price, currently President and
Chief Operating Officer of MCI, will become President and Chief Executive
Officer of MCI WorldCom's U.S. telecommunications operating subsidiary; John W.
Sidgmore will continue as Vice Chairman and Chief Operating Officer of MCI
WorldCom and will continue his current responsibilities including European
operations; and Scott D. Sullivan will continue as Chief Financial Officer of
MCI WorldCom.
CONDITIONS TO THE MCI/WORLDCOM MERGER (PAGE )
WorldCom and MCI will not complete the MCI/WorldCom merger unless a number
of conditions are satisfied or waived by them. These include:
- approval of the merger by the stockholders of MCI;
- approval of the issuance of WorldCom common stock in the merger by
shareholders of WorldCom;
- no injunction prohibiting the merger;
- approval of the merger by the Federal Communications Commission and state
public utility commissions;
- clearance from U.S. and European antitrust agencies; and
- no material adverse change with respect to WorldCom.
TERMINATION OF THE MCI/WORLDCOM MERGER AGREEMENT (PAGE )
WorldCom and MCI can mutually agree to terminate the MCI/WorldCom Merger
Agreement at any time.
7
<PAGE> 20
Either WorldCom or MCI can terminate the MCI/WorldCom Merger Agreement if:
- the merger is not completed by December 31, 1998;
- a governmental authority, such as a court, permanently prohibits the
merger or refuses to grant an approval that is required;
- the WorldCom shareholders fail to approve the issuance of shares of
WorldCom common stock; or
- the MCI stockholders fail to adopt the MCI/WorldCom Merger Agreement.
WorldCom can terminate the MCI/WorldCom Merger Agreement prior to the MCI
special meeting if:
- the MCI Board withdraws its approval or recommendation of the merger; or
- the MCI Board approves an offer from a third party to enter into an
alternative acquisition transaction.
MCI can terminate the MCI/WorldCom Merger Agreement prior to the MCI
special meeting if:
- the MCI Board approves an offer from a third party to enter into an
alternative acquisition transaction.
FEES AND EXPENSES (PAGE )
MCI is required to pay WorldCom an alternative transaction fee of $750
million and to reimburse to WorldCom the $465 million paid by WorldCom to BT
pursuant to the BT Agreement if:
- MCI terminates the MCI/WorldCom Merger Agreement because the MCI Board
has approved an alternative acquisition transaction; or
- the MCI/WorldCom Merger Agreement is terminated because the MCI
stockholders fail to approve the MCI/WorldCom Merger Agreement if at the
time of termination there is an offer from a third party to enter into an
acquisition transaction with MCI and within 12 months of the termination
MCI enters into an agreement with a third party with respect to an
acquisition transaction or is acquired.
WorldCom is required to pay to MCI $1.635 billion (and under an agreement
with BT, to pay to BT $250 million) if the MCI/WorldCom Merger Agreement is
terminated because:
- the merger has not occurred by December 31, 1998, because of an
injunction, the failure to obtain regulatory approvals, the failure to
obtain antitrust clearance or the occurrence of a material adverse change
with respect to WorldCom;
- the merger is enjoined or a required governmental approval is not
obtained;
- the WorldCom shareholders fail to approve the issuance of shares of
WorldCom common stock; or
- WorldCom is otherwise unwilling to complete the merger despite the
satisfaction of the conditions in the Merger Agreement.
REGULATORY APPROVALS (PAGE )
The MCI/WorldCom merger cannot be completed unless the FCC approves the
transfer of control of MCI to WorldCom. On November 21, 1997, MCI and WorldCom
filed a joint amendment to WorldCom's FCC application, seeking jointly the
requisite FCC approvals. The FCC will consider whether WorldCom is qualified to
control MCI's FCC licenses and authorizations and whether the public interest,
convenience and necessity will be served by the transfer of control to WorldCom.
MCI and WorldCom believe that the joint application demonstrates compliance with
these standards.
U.S. antitrust laws prohibit MCI and WorldCom from completing the
MCI/WorldCom merger until after they have furnished certain information and
materials to the Antitrust Division of the Department of Justice and the Federal
Trade Commission and a required waiting period has ended. MCI and WorldCom have
each filed the required notification and report forms with the FTC and the DOJ.
Each of WorldCom and MCI has received a request for additional information from
the DOJ.
MCI and WorldCom each conduct business in countries that are members of the
European Union, and the MCI/WorldCom merger is subject to European regulation.
The MCI/WorldCom merger requires the prior approval of the European Commission.
MCI and WorldCom notified the Euro-
8
<PAGE> 21
pean Commission of the MCI/WorldCom merger
by filing the required documents on November 20, 1997.
MCI and WorldCom each conduct business in certain foreign countries that
are not members of the European Union. The merger may require the review and an
approval of regulatory bodies in certain of these foreign countries.
RECENT WORLDCOM DEVELOPMENTS (PAGE )
On September 7, 1997, WorldCom agreed to acquire CompuServe Corporation.
WorldCom also agreed to transfer certain of the businesses it will acquire from
CompuServe to America Online, Inc. and make a cash payment in exchange for the
outstanding shares of ANS Communications, Inc., a wholly owned subsidiary of
America Online, Inc.
On October 1, 1997, WorldCom agreed to acquire Brooks Fiber Properties.
BT AGREEMENT (PAGE )
On November 9, 1997, WorldCom and MCI signed an agreement with BT. Pursuant
to that agreement, MCI's existing merger agreement with BT was terminated.
WorldCom agreed to pay BT $465 million. WorldCom also agreed to pay BT a
liquidated damages payment of $250 million if the MCI/WorldCom merger is not
completed under certain circumstances. BT agreed to vote its shares of MCI Class
A common stock in favor of the merger and against any competing proposal. The
three companies also agreed that BT would buy MCI's interest in the Concert
joint venture which is currently jointly owned by BT and MCI. BT, MCI and
WorldCom will negotiate the purchase price for this interest.
SOURCE AND AMOUNT OF FUNDS AND OTHER CONSIDERATION (PAGE )
WorldCom expects to pay approximately $7 billion in cash to BT in the
MCI/WorldCom merger. This cash amount will come from available general funds of
WorldCom or from funds to be borrowed by WorldCom. Any funds borrowed by
WorldCom are expected to come from existing or future short-term credit
facilities or longer term debt on terms still to be determined.
9
<PAGE> 22
MARKET PRICES AND DIVIDENDS
WorldCom common stock and MCI common stock are traded on The Nasdaq
National Market under the symbols "WCOM" and "MCIC", respectively. The following
table sets forth the high and low intra-day sales prices per share of such
securities as reported on Nasdaq, based on published financial sources, for the
periods indicated. No dividends have been paid on the WorldCom common stock. MCI
paid cash dividends of $.025 per share of MCI common stock and MCI Class A
common stock in July and December of 1996 and 1997. The per share information
presented below and elsewhere in this Joint Proxy Statement/Prospectus has been
adjusted to reflect all stock splits and stock dividends of WorldCom and MCI.
<TABLE>
<CAPTION>
WORLDCOM MCI
COMMON STOCK COMMON STOCK
---------------- ---------------
HIGH LOW HIGH LOW
------- ------ ------ ------
<S> <C> <C> <C> <C>
1995:
First Quarter............................................... $ 13.13 $ 9.56 $21.25 $17.38
Second Quarter.............................................. 13.69 11.56 23.13 19.11
Third Quarter............................................... 17.06 13.38 27.13 20.88
Fourth Quarter.............................................. 17.94 14.88 27.50 23.75
1996:
First Quarter............................................... 23.31 16.25 31.13 25.63
Second Quarter.............................................. 27.72 21.31 30.38 24.88
Third Quarter............................................... 28.88 18.38 28.13 22.38
Fourth Quarter.............................................. 26.13 21.00 33.88 23.88
1997:
First Quarter............................................... 27.88 21.75 38.75 32.38
Second Quarter.............................................. 32.97 21.25 41.88 35.63
Third Quarter............................................... 37.75 29.88 43.38 27.31
Fourth Quarter (through , 1997)...............
</TABLE>
Set forth below are the last reported sale prices of WorldCom common stock
and MCI common stock on November 7, 1997, the last trading day prior to the
execution of the MCI/WorldCom Merger Agreement, and on , 1998, the
last trading day prior to the date of the Joint Proxy Statement/Prospectus, as
well as the equivalent pro forma sale prices of MCI common stock on such dates,
as determined by dividing $51.00 by the WorldCom common stock price and
multiplying the resulting exchange ratio by the WorldCom common stock price.
<TABLE>
<CAPTION>
WORLDCOM MCI MCI
COMMON STOCK COMMON STOCK EQUIVALENT
------------ ------------ ----------
<S> <C> <C> <C>
November 7, 1997....................................... $33.13 $36.88 $51.00
, 1998.....................................
</TABLE>
The actual number of shares of WorldCom common stock to be issued to the
holders of MCI common stock pursuant to the MCI/WorldCom Merger Agreement will
not be determined until three trading days prior to the merger date.
MCI STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET INFORMATION FOR
WORLDCOM COMMON STOCK AND MCI COMMON STOCK. NO ASSURANCE CAN BE GIVEN AS TO THE
MARKET PRICES OF WORLDCOM COMMON STOCK OR MCI COMMON STOCK AT THE MERGER DATE OR
DURING THE PERIOD DURING WHICH THE EXCHANGE RATIO IS CALCULATED. BECAUSE THE
EXCHANGE RATIO BECOMES FIXED IF THE AVERAGE PRICE OF WORLDCOM COMMON STOCK
DURING THE SPECIFIED PERIOD PRIOR TO THE MERGER DATE IS LESS THAN $29.00 OR
GREATER THAN $41.00, THE INITIAL MARKET VALUE OF THE SHARES OF WORLDCOM COMMON
STOCK THAT HOLDERS OF MCI COMMON STOCK WILL RECEIVE IN THE MCI/WORLDCOM MERGER
MAY BE MORE OR LESS THAN $51.00 PER SHARE. IN ADDITION, DUE TO THE TIME THAT MAY
BE REQUIRED TO OBTAIN REGULATORY APPROVALS OR TO SATISFY OTHER CONDITIONS TO THE
MCI/WORLDCOM MERGER, THERE MAY BE A SIGNIFICANT TIME PERIOD BETWEEN THE DATE OF
THE SPECIAL MEETINGS AND THE MERGER DATE.
You may call (800)- between [ ] and [ ] to be
informed of a hypothetical Exchange Ratio calculated based on the most recent
available WorldCom common stock prices, and, during the two trading days
preceding the merger date, the actual Exchange Ratio.
10
<PAGE> 23
COMPARATIVE PER SHARE DATA
The following table shows actual ("historical") per share information and
information as if the companies had been combined for the periods shown ("pro
forma combined"), calculated assuming an Exchange Ratio of 1.5396 shares of
WorldCom common stock. The actual Exchange Ratio may be different. The
historical data is based on the historical consolidated financial statements and
related notes of each of WorldCom and MCI incorporated by reference in this
document. You should read this together with the historical financial statements
of WorldCom and MCI and related notes thereto. The data presented does not
indicate what MCI/WorldCom's future results of operations will be or the actual
results that would have occurred if the merger date had occurred at the
beginning of the periods indicated. No adjustment has been included for any
anticipated cost savings or other synergies. The Comparative Per Share Data also
does not reflect several pending acquisitions by WorldCom because they are not
material to WorldCom. See "Where You Can Find More Information."
<TABLE>
<CAPTION>
MCI WORLDCOM MCI
WORLDCOM MCI PRO FORMA PRO FORMA
HISTORICAL HISTORICAL COMBINED(1) EQUIVALENT(2)
-------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
Book value per common share:
December 31, 1996.......................... $13.75 $15.56 $24.45 $ 37.64
September 30, 1997......................... 13.44 16.25 24.29 37.40
Cash dividends per common share:
Year ended December 31, 1996............... -- 0.050 -- --
Nine months ended September 30, 1997....... -- 0.025 -- --
Income (loss) per common share from
continuing operations (after preferred
dividend requirement):
Primary:
Year ended December 31, 1996(3)............ (5.50) 1.73 (1.33) (2.05)
Nine months ended September 30, 1997....... 0.25 0.56 0.06 0.09
Fully Diluted:
Year ended December 31, 1996 (3)........... (5.50) 1.72 (1.33) (2.05)
Nine months ended September 30, 1997....... 0.25 0.56 0.06 0.09
</TABLE>
- ---------------
(1) See "Selected Unaudited Pro Forma Financial Information."
(2) The MCI pro forma equivalent represents the MCI WorldCom pro forma combined
book value, dividends and income (loss) per common share multiplied by an
assumed Exchange Ratio of 1.5396. The actual Exchange Ratio may be
different.
(3) In December 1996, WorldCom acquired MFS Communications Company, Inc. in a
transaction accounted for as a purchase. WorldCom's historical results for
1996 include a $2.14 billion charge for in-process research and development
related to the MFS merger. The charge was based upon a valuation analysis of
the technologies of MFS' worldwide information system, the Internet network
expansion system of UUNET Technologies, Inc., and certain other identified
research and development projects purchased in the MFS merger. 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 $343.5 million after-tax
write-down of operating assets within WorldCom's non-core businesses. On a
pre-tax basis, these charges totaled $600 million.
11
<PAGE> 24
SELECTED HISTORICAL FINANCIAL DATA
The summary below sets forth selected historical financial data. You should
read this together with the historical financial statements and notes thereto
contained in the WorldCom 1996 Form 10-K and the MCI 1996 Form 10-K,
incorporated by reference herein. See "Where You Can Find More Information."
Selected Historical Financial Data of WorldCom. The selected historical
financial data of WorldCom set forth below comes from financial statements of
WorldCom as they appeared in WorldCom's Annual Reports on Form 10-K filed with
the Securities and Exchange Commission for each of the five fiscal years in the
period ended December 31, 1996 and WorldCom's Quarterly Reports on Form 10-Q
filed with the SEC for the periods ending September 30, 1997 and September 30,
1996.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED AND AT
YEAR ENDED AND AT DECEMBER 31, SEPTEMBER 30,
------------------------------------------- ----------------
1996 1995 1994 1993 1992 1997 1996
------- ------ ------ ------ ------ ------- ------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues..................................................... $ 4,485 $3,696 $2,246 $1,474 $ 948 $ 5,349 $3,251
Income (loss) from continuing operations (after preferred
dividend requirement):
Total:..................................................... (2,190) 233 (152) 113 6 221 (48)
Per common share:
Primary.................................................. (5.50) 0.64 (0.48) 0.41 0.03 0.25 (0.12)
Fully diluted............................................ (5.50) 0.64 (0.48) 0.40 0.03 0.25 (0.12)
Dividends per common share................................... -- -- -- -- -- -- --
Total assets................................................. 19,862 6,657 3,441 3,237 1,241 20,813 6,855
Long-term debt............................................... 4,804 3,392 794 730 448 5,349 3,277
Shareholders' investment..................................... 12,960 2,188 1,827 1,912 479 13,366 2,442
</TABLE>
- ---------
(1) On December 31, 1996, WorldCom completed the MFS merger. The MFS merger was
accounted for as a purchase; accordingly, the operating results for MFS are
reflected from the date of acquisition.
(2) WorldCom's results for 1996 include a $2.14 billion charge for in-process
research and development related to the MFS merger. The charge was based
upon a valuation analysis of the technologies of MFS' worldwide information
system, the Internet network expansion system of UUNET, and certain other
identified research and development projects purchased in the MFS merger.
Additionally, 1996 results include other after-tax charges of $121 million
for employee severance, employee compensation charges, alignment charges,
and costs to exit unfavorable telecommunications contracts and $343.5
million after-tax write-down of operating assets within WorldCom's non-core
businesses. On a pre-tax basis, these charges totaled $600 million.
(3) In 1995, Metromedia Company converted its Series 1 preferred stock into
WorldCom common stock, exercised warrants to acquire WorldCom common stock
and immediately sold its position of 61,699,096 shares of WorldCom common
stock in a public offering. In connection with the preferred stock
conversion, WorldCom made a non-recurring payment of $15 million to
Metromedia, representing a discount to the minimum nominal dividends that
would have been payable on the Series 1 Preferred Stock prior to the
September 15, 1996, optional call date of approximately $26.6 million (which
amount includes an annual dividend requirement of $24.5 million plus accrued
dividends to such call date).
(4) As a result of the acquisitions of IDB Communications Group, Inc. in 1994
and of Advanced Telecommunications Corporation in 1992, WorldCom initiated
plans to reorganize and restructure its management and operational
organization and facilities to eliminate duplicate personnel, physical
facilities and service capacity, to abandon certain products and marketing
activities, and to take further advantage of the synergies available to the
combined entities. Also, during the fourth quarter of 1993, plans were
approved to reduce IDB's cost structure and to improve productivity.
Accordingly, in 1994, 1993 and 1992, WorldCom charged to operations the
estimated costs of such reorganization and restructuring activities,
including employee severance, physical facility abandonment and duplicate
service capacity. These costs totaled $43.7 million in 1994, $5.9 million in
1993 and $79.8 million in 1992. Also, during 1994 and 1992, WorldCom
incurred direct merger costs of $15.0 million and $7.3 million,
respectively, related to the IDB merger (in 1994) and the ATC merger (in
1992). These costs include professional fees, proxy solicitation costs,
travel and related expenses and certain other direct costs attributable to
these mergers.
(5) Long-term debt as of December 31, 1995 includes $1.1 billion under
WorldCom's previous credit facilities which were classified as a current
maturity on the December 31, 1995 balance sheet.
12
<PAGE> 25
Selected Historical Financial Data of MCI. The selected historical
financial data of MCI set forth below comes from the financial statements of MCI
as they appeared in MCI's Annual Reports on Form 10-K filed with the SEC for
each of the five fiscal years in the period ended December 31, 1996 and MCI's
Quarterly Reports on Form 10-Q filed with the SEC for the periods ending
September 30, 1997, and September 30, 1996.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED AND AT DECEMBER 31, AND AT SEPTEMBER 30,
------------------------------------------------------------------- -------------------------
1996(1) 1995(2) 1994(3) 1993 1992 1997 1996
----------- ----------- ----------- ----------- ----------- ----------- -----------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues...................... $ 18,494 $ 15,265 $ 13,338 $ 11,921 $ 10,562 $ 14,545 $ 13,741
Income from continuing
operations (after preferred
dividend requirement):
Total....................... 1,202 548 794 626 589 393 899
Per common share:
Primary................... 1.73 0.80 1.32 1.12 1.11 0.56 1.29
Fully diluted............. 1.72 0.79 1.32 1.11 1.10 0.56 1.29
Dividends per common share.... 0.05 0.05 0.05 0.05 0.05 0.025 0.025
Total assets.................. 22,978 19,301 16,366 11,276 9,678 24,717 21,509
Long-term debt................ 4,798 3,444 2,997 2,366 3,432 3,282 3,722
Stockholders' equity.......... 10,661 9,602 9,004 4,713 3,150 11,321 10,329
</TABLE>
- ---------------
(1) In May 1996, MCI Capital I, a wholly owned Delaware statutory business
trust, issued $750 million aggregate principal amount of 8% Cumulative
Quarterly Income Preferred Securities, Series A due June 30, 2026. MCI
Capital I exists for the sole purpose of issuing the preferred securities
and investing the proceeds in MCI's 8% Junior Subordinated Deferrable
Interest Debentures, Series A due June 30, 2026.
(2) In September and November 1995, MCI acquired all of the outstanding shares
of common stock of Nationwide Cellular Service, Inc. and SHL Systemhouse
Inc., respectively. These acquisitions were accounted for as purchases;
accordingly, the net assets and results of operations of the acquired
companies are included in the information above since their respective
acquisition dates.
(3) In 1994, BT completed the purchase of 136 million shares of MCI Class A
common stock for $4.3 billion, which resulted in a 20% voting interest in
MCI. This purchase was achieved by MCI's issuance of 108.5 million shares of
MCI Class A common stock to BT for $3.5 billion on September 30, 1994, and
BT's conversion on that date of 13,736 shares of MCI Series D convertible
preferred stock, purchased for $830 million in June 1993, into 27.5 million
shares of MCI Class A common stock. This investment is included in MCI's
stockholders' equity.
13
<PAGE> 26
SELECTED UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following selected unaudited pro forma financial information presents
the combined consolidated balance sheets and income statements of WorldCom and
MCI as if the MCI/WorldCom merger had occurred for the periods indicated. The
MCI/WorldCom merger will be treated as a purchase for financial accounting
purposes. You should read this together with the consolidated financial
statements and accompanying notes of WorldCom and MCI included in the documents
described under "Where You Can Find More Information" and the unaudited pro
forma condensed combined financial statements and accompanying discussion and
notes set forth under "Pro Forma Financial Information" included herein. The pro
forma amounts in the table below are presented for your information and do not
indicate what the financial position or the results of operations of the
combined company would have been had the merger date occurred as of the dates or
for the periods presented. The pro forma amounts also do not indicate what the
financial position or future results of operations of the combined company will
be. No adjustment has been included in the pro forma amounts for any anticipated
cost savings or other synergies. The Selected Unaudited Pro Forma Financial
Information also does not reflect several pending acquisitions by WorldCom,
because they are not material to WorldCom. See "Pro Forma Financial
Information."
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED AND AT
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(IN MILLIONS, EXCEPT PER SHARE
DATA)
<S> <C> <C>
MCI WORLDCOM PRO FORMA COMBINED
Revenues......................................................... $ 22,421 $19,614
Income (loss) from continuing operations (after preferred
dividend requirement):
Total.......................................................... (1,663) 108
Per common share:
Primary..................................................... (1.33) 0.06
Fully diluted............................................... (1.33) 0.06
Dividends per common share....................................... -- --
Total assets..................................................... 71,451
Long-term debt................................................... 16,077
Shareholders' equity............................................. 44,177
</TABLE>
14
<PAGE> 27
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The following statements are or may constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 (the
"PSLRA"):
(i) Certain statements, including possible or assumed future results of
operations of WorldCom, Inc. ("WorldCom"), MCI Communications Corporation
("MCI"), CompuServe Corporation ("CompuServe"), ANS Communications, Inc. ("ANS")
and Brooks Fiber Properties, Inc. ("BFP") contained in "Risk Factors," "The
MCI/WorldCom Merger -- Background of the Merger, "The MCI/WorldCom Merger --
WorldCom's Reasons for the MCI/WorldCom Merger; Recommendation of the WorldCom
Board" and "The Merger -- MCI's Reasons for the MCI/WorldCom Merger;
Recommendation of the MCI Board," "The MCI/WorldCom Merger -- Opinion of
WorldCom's Financial Advisors" and "The MCI/WorldCom Merger -- Opinions of MCI's
Financial Advisors," including any forecasts, projections and descriptions of
anticipated cost savings or other synergies referred to therein, and certain
statements incorporated by reference from documents filed with the Securities
and Exchange Commission (the "SEC") by WorldCom and MCI including any statements
contained herein or therein regarding the development or possible or assumed
future results of operations of WorldCom's and MCI's businesses, the markets for
WorldCom's and MCI's services and products, anticipated capital expenditures,
regulatory developments, competition or the effects of the merger (the
"MCI/WorldCom Merger") of MCI with and into TC Investments Corp., a wholly owned
subsidiary of WorldCom ("Merger Sub"), the merger (the "CompuServe Merger") of a
wholly owned subsidiary of WorldCom with and into CompuServe, the transactions
(the "AOL Transaction") contemplated by the Purchase and Sale Agreement (the
"AOL Agreement") with America Online, Inc. ("AOL") or the merger (the "BFP
Merger") of a wholly owned acquisition subsidiary of WorldCom into BFP,
(ii) any statements preceded by, followed by or that include the words
"believes," "expects," "anticipates," "intends" or similar expressions, and
(iii) other statements contained or incorporated by reference herein
regarding matters that are not historical facts.
Because such statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements; factors that could cause actual results to differ
materially include, but are not limited to, those discussed under "Risk
Factors." WorldCom and MCI shareholders are cautioned not to place undue
reliance on such statements, which speak only as of the date thereof.
All subsequent written and oral forward-looking statements attributable to
WorldCom or MCI or persons acting on its or their behalf are expressly qualified
in their entirety by the cautionary statements contained or referred to in this
paragraph. Neither WorldCom nor MCI undertakes any obligation to release
publicly any revisions to any forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
15
<PAGE> 28
RISK FACTORS
Stockholders of MCI and shareholders of WorldCom should consider carefully
all of the information contained in this Joint Proxy Statement/Prospectus (the
"Joint Proxy Statement/Prospectus"), including the following factors:
RISKS RELATED TO THE MCI/WORLDCOM MERGER
Uncertainties in Integrating the Acquired Companies and Achieving Cost Savings
WorldCom, MCI and Merger Sub have entered into an Agreement and Plan of
Merger dated as of November 9, 1997 (the "MCI/WorldCom Merger Agreement"), and
WorldCom has entered into the CompuServe Merger Agreement, the AOL Agreement and
the BFP Merger Agreement (each as defined herein), in each case with the
expectation that the transactions will result in certain benefits, including,
without limitation, cost savings, operating efficiencies, revenue enhancements
and other synergies. See "The MCI/WorldCom Merger -- WorldCom's Reasons for the
MCI/WorldCom Merger; Recommendation of the WorldCom Board." Achieving the
benefits of the MCI/WorldCom Merger (which would be significantly larger than
previous acquisitions completed by WorldCom), as well as of the CompuServe
Merger, the AOL Transaction and the BFP Merger, will depend in part upon the
integration of the businesses of WorldCom and MCI, together with those of
CompuServe, ANS and BFP, in an efficient manner, and there can be no assurance
that this will occur. The consolidation of operations will require substantial
attention from management. The diversion of management attention and any
difficulties encountered in the transition and integration process could have a
material adverse effect on the revenues, levels of expenses and operating
results of the combined company. There can be no assurance that the combined
company will realize any of the anticipated benefits of the MCI/WorldCom Merger,
the CompuServe Merger, the AOL Transaction or the BFP Merger.
Necessity of Receiving Governmental Approvals Prior to the MCI/WorldCom
Merger; Risks Associated with Failure to Obtain Approvals of Certain
Governmental Authorities
The consummation of the MCI/WorldCom Merger is conditioned upon the
expiration or termination of the applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and confirmation from the European Commission (the "European Commission")
by way of a decision under Council Regulation 4064/89 (the "Merger Control
Regulation") that the MCI/WorldCom Merger does not create or strengthen a
dominant position as a result of which competition would be significantly
impeded in the common market. In addition, other filings with, notifications to
and authorizations and approvals of, various governmental agencies, both
domestic and foreign, with respect to the transactions contemplated by the
MCI/WorldCom Merger Agreement, relating primarily to the Federal Communications
Commission ("FCC"), and state public utility or service commissions ("PUCs"),
must be made and received prior to consummation of the MCI/WorldCom Merger.
There can be no assurance that such authorizations, approvals or decisions will
be granted, or, if granted, will not contain material conditions or
restrictions, that an injunction will not be issued by a court of competent
jurisdiction enjoining the consummation of the MCI/WorldCom Merger or that a
challenge to the MCI/WorldCom Merger on the grounds that the MCI/WorldCom Merger
is not compatible with the common market will not be made, or if a challenge is
made, what the result will be.
Consummation of the MCI/WorldCom Merger is subject to additional approvals
from certain governmental authorities. If such approvals have not been received
at such time as all other material conditions to the MCI/WorldCom Merger have
been satisfied or waived, MCI and WorldCom may nonetheless determine to
consummate the MCI/WorldCom Merger. Although MCI and WorldCom are seeking such
approvals, it is uncertain whether such approvals will be timely received from,
among others, every jurisdiction in which MCI and WorldCom are authorized to do
business. If MCI and WorldCom determine to consummate the MCI/WorldCom Merger
without having received all such approvals, no assurance can be given that any
resulting loss of business would not have a material adverse effect on the
businesses, prospects, financial
16
<PAGE> 29
condition or results of operations of WorldCom and MCI on a combined basis. See
"Certain Regulatory Filings and Approvals."
Substantial Dilution of Voting Interest of WorldCom Shareholders
Based on the capitalization of WorldCom and MCI as of [ ] and
assumed Exchange Ratios (as hereinafter defined) of 1.2439 and 1.7586 (the
minimum and maximum possible Exchange Ratios, respectively), holders of Common
Stock, par value $0.01 per share, of shares of WorldCom (the "WorldCom Common
Stock"), Series A 8% Cumulative Convertible Preferred Stock, par value $0.01 per
share, of WorldCom (the "WorldCom Series A Preferred Stock") and Series B
Cumulative Convertible Preferred Stock, par value $0.01 per share, of WorldCom
(the "WorldCom Series B Preferred Stock," and, together with the WorldCom Common
Stock and the WorldCom Series A Preferred Stock, the "WorldCom Capital Stock")
will own securities representing approximately [ ]% and [ ]%, respectively, of
the voting power of the outstanding shares of WorldCom Capital Stock on a fully
diluted basis following consummation of MCI/WorldCom Merger, assuming that all
outstanding MCI Stock Options (as defined herein) are exercised. This will
constitute substantial dilution of the voting interest in WorldCom of the
WorldCom shareholders.
In addition, assuming the consummation of each of the CompuServe Merger,
the AOL Transaction and the BFP Merger, based on (i) the capitalization of
WorldCom, CompuServe and BFP as of [ ], (ii) assumed CompuServe
exchange ratios of 0.40625 and 0.5 (the minimum and maximum possible exchange
ratios, respectively) and (iii) assumed BFP exchange ratios of 1.65 and 1.85
(the minimum and maximum possible exchange ratios, respectively), the holders of
WorldCom Capital Stock will own securities representing approximately [ ]% and
[ ]%, respectively, of the voting power of the outstanding shares of WorldCom
Capital Stock on a fully diluted basis following consummation of the
MCI/WorldCom Merger, the CompuServe Merger and the BFP Merger, assuming that all
outstanding MCI Stock Options and all options and warrants to purchase common
stock of BFP ("BFP Options" and "BFP Warrants," respectively) are exercised. The
combined effect of these transactions will constitute substantial dilution of
the voting interest in WorldCom of the WorldCom shareholders.
Effect of the MCI/WorldCom Merger on Earnings Per Share and Book Value Per
Share
See "Joint Proxy Statement/Prospectus Summary -- Comparative Per Share
Data" for a table setting forth certain earnings, dividend and book value per
share data for WorldCom and MCI on historical and pro forma bases. The pro forma
data do not reflect any cost savings or other synergies or merger related
expenses anticipated by the managements of WorldCom and MCI to result from the
MCI/WorldCom Merger. Whether the MCI/WorldCom Merger will in fact be accretive
or dilutive to WorldCom and MCI shareholders with respect to future earnings per
share and book value per share of the combined company ("MCI WorldCom") will
depend on the actual results achieved by the combined company in the future as
compared to the results that could have been achieved by WorldCom on a
stand-alone basis over the same period, given the number of shares of WorldCom
Common Stock to be issued in the MCI/WorldCom Merger. No assurance can be given
as to such future results, and, accordingly, as to whether the MCI/WorldCom
Merger will be accretive or dilutive to holders of WorldCom Common Stock with
respect to future earnings per share and book value.
The Effect of Stock Price Fluctuations on the Consideration to be Received by
the Holders of MCI Common Stock in the MCI/WorldCom Merger;
The relative prices of shares of common stock, par value $0.10 per share
("MCI Common Stock"), of MCI and WorldCom Common Stock at the Effective Time (as
hereinafter defined) may vary significantly from the prices as of the date of
execution of the MCI/WorldCom Merger Agreement, the date hereof or the date of
the Special Meetings (as hereinafter defined). These variances may be due to
changes in the businesses, operations results and prospects of MCI or WorldCom,
as well as CompuServe, ANS and BFP, market assessments of the likelihood that
the MCI/WorldCom Merger, the CompuServe Merger, the AOL Transaction and the BFP
Merger will be consummated and the timing thereof, the effect of any conditions
or
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restrictions imposed on or proposed with respect to the combined companies by
regulatory agencies in connection with or following consummation of the
MCI/WorldCom Merger, the CompuServe Merger, the AOL Transaction or the BFP
Merger, general market and economic conditions, and other factors. For example,
between [ ] and [ ], the closing sales price of WorldCom
Common Stock has ranged from a high of $[ ] to a low of $[ ];
the closing sales price of the MCI Common Stock during the same period has
ranged from a high of $[ ] to a low of $[ ]. In addition, the
stock market generally has experienced significant price and volume
fluctuations. These market fluctuations could have a material adverse effect on
the market price or liquidity of the WorldCom Common Stock. The Exchange Ratio
becomes fixed if the WorldCom Average Trading Price (as defined herein) is less
than $29.00 or greater than $41.00. If the WorldCom Average Trading Price is
less than $29.00 or greater than $41.00, holders of MCI Common Stock will
receive for each share of MCI Common Stock held by them a number of shares of
WorldCom Common Stock that is likely to have an initial value that is less than
or greater than $51.00, as the case may be. The actual number of shares of
WorldCom Common Stock to be issued to the holders of MCI Common Stock pursuant
to the MCI/WorldCom Merger Agreement will not be determined until three trading
days prior to the Effective Time. In addition, due to the time that may be
required to obtain regulatory approvals or to satisfy other conditions to
consummation of the MCI/WorldCom Merger, there may be a significant time period
between the date of the Special Meetings and the Effective Time.
Interests of Certain Persons in the MCI/WorldCom Merger
In considering the recommendation of the MCI/WorldCom Merger by the Board
of Directors of MCI (the "MCI Board"), the stockholders of MCI should be aware
that certain directors and executive officers of MCI may be deemed to have
conflicts of interest with respect to the MCI/WorldCom Merger. Such interests,
together with other relevant factors, were considered by the MCI Board in
recommending the MCI/WorldCom Merger to the stockholders of MCI and approving
the MCI/WorldCom Merger Agreement. See "The MCI/WorldCom Merger -- Interests of
Certain Persons in the MCI/WorldCom Merger."
RISKS RELATING TO THE BUSINESS AND OPERATIONS OF MCI WORLDCOM
Debt Service, Interest Rate Fluctuations, Other Restrictive Covenants, and
Capital Spending
The indebtedness that will be incurred in connection with the MCI/WorldCom
Merger may have an effect on MCI WorldCom's credit rating. Increases in interest
rates, economic downturns and other adverse developments, including factors
beyond MCI WorldCom's control, could impair its ability to service its
indebtedness under its outstanding debt, its credit facilities or any financings
and/or refinancings relating to completing its announced transactions. In
addition, the cash flow required to service MCI WorldCom's debt may reduce its
ability to fund internal growth, additional acquisitions and capital
improvements. In addition, MCI WorldCom's credit facilities and its other
existing indebtedness may limit MCI WorldCom's financial flexibility.
The development of the combined company's businesses and the installation
and expansion of its domestic and international networks would continue to
require significant capital expenditures. Failure to have access to sufficient
funds for capital expenditures on acceptable terms or the failure to achieve
capital expenditure synergies may require the combined company to delay or
abandon some of its plans, which could have a material adverse effect on the
success of the proposed mergers and the combined company.
Acquisition Integration
A major portion of WorldCom'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 WorldCom's management, while WorldCom
continues to incur operating expenses to provide the services formerly provided
by the acquired company. Financial risks involve the incurrence of indebtedness
as a result of the acquisition and the consequent need to service that
indebtedness. In addition, the issuance of stock in connection with acquisitions
dilutes the voting power
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and may dilute certain other interests of existing shareholders. In carrying out
its acquisition strategy, WorldCom attempts to minimize the risk of unexpected
liabilities and contingencies associated with acquired businesses through
planning, investigation and negotiation, but there is no assurance that it will
be successful in doing so. Nor can there be any assurance that MCI WorldCom will
be successful in identifying attractive acquisition candidates or completing
additional acquisitions on favorable terms.
Risks of International Business
MCI WorldCom will derive substantial revenues from providing international
communications services to United States commercial and carrier customers. Such
operations are subject to certain risks such as changes in United States or
foreign government regulatory policies, disruption, suspension or termination of
operating agreements, carrier alliances and currency fluctuations. In
particular, MCI WorldCom's revenues and costs of sales will be sensitive to
changes in international settlement rates and international traffic routing
patterns. The rates that MCI WorldCom will be able to 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 to
provide switched voice services, the provision of international services via
non-traditional means including the Internet, the consummation of mergers, joint
ventures and alliances among large international carriers that facilitate
targeted pricing and cost reductions, and the rapid growth of international
circuit capacity due to the deployment of new undersea fiber optic cables and
new high capacity satellite systems in the Atlantic, Pacific and Indian Ocean
regions.
Risks of Overseas Business Operations
MCI WorldCom will derive substantial revenues from providing services to
customers in overseas locations, particularly the United Kingdom, Germany and
Mexico. Such operations are subject to certain risks such as changes in the
legal and regulatory policies of the foreign jurisdiction, local political and
economic developments, currency fluctuations, exchange controls, royalty and tax
increases, retroactive tax claims, expropriation, and import and export
regulations and other laws and policies of the United States affecting foreign
trade, investment and taxation. In addition, in the event of any dispute arising
from foreign operations, MCI WorldCom 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. MCI
WorldCom may also be hindered or prevented from enforcing its rights with
respect to foreign governments because of the doctrine of sovereign immunity.
There can be no assurance that the laws, regulations or administrative practices
of foreign countries relating to MCI 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 the combined company.
Rapid Technological Change; Dependence upon Product Development
The telecommunications industry is subject to rapid and significant changes
in technology. While WorldCom and MCI do 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 their ability to acquire necessary
technologies, the effect of technological changes, including changes relating to
emerging wireline and wireless transmission and switching technologies, on the
businesses of the combined company cannot be predicted.
The market for data communications products and services of MCI, UUNET
Technologies, Inc. ("UUNET"), CompuServe and ANS, including Internet access and
related products, is characterized by rapidly changing technology, evolving
industry standards, emerging competition and frequent new product and service
introductions. There can be no assurance that the combined company will
successfully identify new product and service opportunities and develop and
bring new products and services to market in a timely manner. MCI WorldCom also
will be at risk from fundamental changes in the way data communications,
including Internet access, services are marketed and delivered. The combined
company's Internet service strategy assumes that the Transmission Control
Protocol/Internet Protocol, utilizing fiber optic or copper-based
telecommunications infrastructures, will continue to be the primary protocol and
transport infrastructure for Internet-related services. Emerging transport
alternatives include wireless cable modems and satellite
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delivery of Internet information; alternative open protocol and proprietary
protocol standards have been or are being developed. MCI WorldCom's pursuit of
necessary technological advances may require substantial time and expense, and
there can be no assurance that MCI WorldCom will succeed in adapting its data
communications services business to alternate access devices, conduits and
protocols.
Regulation Risks
WorldCom's and MCI's operating subsidiaries are subject to varying degrees
of federal, state, local and international regulation. In the United States,
WorldCom's and MCI's subsidiaries are most heavily regulated by the states,
especially for the provision of local exchange services. Each such subsidiary
must be separately certified in each state to offer local exchange and
intrastate long distance services. No state, however, subjects WorldCom or MCI
to price cap or rate of return regulation, nor is WorldCom or MCI currently
required to obtain FCC authorization for installation or operation of its
network facilities used for domestic services, other than licenses for specific
terrestrial microwave and satellite earth station facilities which utilize radio
frequency spectrum. FCC approval is required, however, for the installation and
operation of international facilities and services. WorldCom and MCI are subject
to varying degrees of regulation in the foreign jurisdictions in which they
conduct business including authorization for the installation and operation of
network facilities. Although the trend in federal, state, local and
international regulation appears to favor increased competition, no assurance
can be given that changes in current or future regulations adopted by the FCC,
state or foreign regulators or legislative initiatives in the United States and
abroad would not have a material adverse effect on WorldCom or MCI.
On February 8, 1996, President Clinton signed the Telecommunications Act of
1996 (the "Telecom Act"), which permits the Bell Operating Companies (the
"BOCs") to provide domestic and international long distance services to
customers located outside of the BOC's home regions; permits a petitioning BOC
to provide domestic and international long distance service to customers within
its operating area on a state by state basis upon a finding by the FCC that a
petitioning BOC has satisfied certain criteria for opening up its local exchange
network to competition and that its provision of long distance services would
further the public interest; and removes existing barriers to entry into local
service markets. Additionally, there were significant changes in: the manner in
which carrier-to-carrier arrangements are regulated at the federal and state
level; procedures to revise universal service standards; and penalties for
unauthorized switching of customers. The FCC has instituted and, in most
instances completed, proceedings addressing the implementation of this
legislation.
In implementing the Telecom Act, the FCC established nationwide rules
designed to encourage new entrants to participate in the local services markets
through interconnection with the incumbent local exchange carriers ("ILECs"),
resale of ILECs' retail services, and use of individual and combinations of
unbundled network elements. These rules set the groundwork for the statutory
criteria governing BOC entry into the long distance market. Appeals of the FCC
order adopting those rules were consolidated before the United States Court of
Appeals for the Eighth Circuit (the "Eighth Circuit"). The Eighth Circuit found
constitutional challenges to certain practices implementing cost provisions of
the Telecom Act that were ordered by certain PUCs to be premature, but vacated
significant portions of the FCC's nationwide pricing rules and vacated an FCC
rule requiring that unbundled network elements be provided on a combined basis.
The Solicitor General, on behalf of the FCC, and certain other parties,
including WorldCom and MCI, sought certiorari in the United States Supreme
Court. Certain BOCs have also raised constitutional challenges to restrictions
in the Telecom Act preventing BOCs from entering the long distance market in
their home regions. WorldCom and MCI cannot predict either the outcome of these
or future challenges to the Telecom Act, any related appeals of regulatory or
court decisions, or the eventual effect on their businesses or the industry in
general.
The FCC has denied applications filed by Ameritech Corporation
("Ameritech") and SBC Corporation ("SBC") seeking authority to provide inter
local access transport area ("LATA") long distance service in Michigan and
Oklahoma, respectively. SBC has appealed the FCC's denial of its application to
the United States Court of Appeals. In its denial of an Ameritech application,
the FCC provided detailed guidance to applicants regarding the obligations of
the applicants, the format of future applications, the content of future
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applications, and the review standards that it will apply in evaluating any
future applications. The National Association of Regulatory Utility
Commissioners and several state regulatory commissions have appealed
jurisdictional aspects of that Ameritech application denial to the United States
Court of Appeals for the Eighth Circuit. WorldCom and MCI cannot predict either
the outcome of these appeals, or the BOCs' willingness to abide by these FCC
guidelines, or the timing or outcome of future applications submitted to the
FCC. Additionally, the FCC is presently considering BellSouth Corporation
("BellSouth") applications for authority to provide interLATA service in South
Carolina and Louisiana. Other BOCs have either filed or announced their
intention to file applications at the FCC for authority to provide interLATA
Services. WorldCom and MCI cannot predict the outcome of these proceedings.
On May 7, 1997, the FCC announced that it will issue a series of orders
that will reform Universal Service Subsidy allocations and adopted various
reforms to the existing rate structure for interstate access services provided
by the ILECs that are designed to reduce access charges, over time, to more
economically efficient levels and rate structures. It also affirmed that
information service providers (including, among others, Internet service
providers ("ISPs")) should not be subject to existing access charges ("ISP
Exemption"). Petitions for reconsideration of, among other things, the access
service and ISP Exemption related actions were filed before the FCC and appeals
taken to various United States Courts of Appeals. On reconsideration, the FCC in
significant part affirmed the access charge and ISP Exemption actions and the
court appeals have been consolidated before the Eighth Circuit. Also, several
state agencies have started proceedings to address the reallocation of implicit
subsidies contained in the access rates and retail service rates to state
universal service funds. Access charges are a principal component of the
combined company's line cost expense. Additionally, modification of the ISP
Exemption could have an adverse effect on the combined company's
Internet-related services business. Neither WorldCom nor MCI can predict either
the outcome of these appeals or whether or not the result(s) will have a
material impact upon its consolidated financial position or results of
operations.
The FCC issued on December 24, 1996, a Notice of Inquiry to seek comment on
whether it should consider various actions relating to interstate information
services and the Internet. The FCC recognized that these services and recent
technological advances may be constrained by current regulatory practices that
have their foundations in traditional circuit switched telecommunications
services and technologies. Based upon this and other proceedings, the FCC may
permit telecommunications companies, BOCs, or others to increase the scope or
reduce the cost of their Internet access services. Neither WorldCom nor MCI can
predict the effect that the Notice of Inquiry, the Telecom Act or any future
legislation, regulation or regulatory changes may have on its consolidated
financial position or results of operations.
In December 1996, the FCC adopted a new policy that makes it easier for
United States international carriers to obtain authority to route international
public switched voice traffic to and from the United States outside of the
traditional settlement rate and proportionate return regimes. In February 1997,
the United States entered into a World Trade Organization Agreement (the "WTO
Agreement") that should have the effect of liberalizing the provision of
switched voice telephone and other telecommunications services in scores of
foreign countries over the next several years. In June 1997, in order to comply
with United States commitments to the WTO Agreement, the FCC proposed to
implement new rules that would liberalize existing policies regarding (i) the
services that may be provided by foreign affiliated United States international
common carriers, including carriers owned in part or controlled by foreign
carriers that have market power in their home markets, and (ii) the provision of
international switched voice services outside of the traditional settlement rate
and proportionate return regimes. The FCC voted on November 25, 1997 to adopt
these new rules.
In August 1997, the FCC adopted mandatory settlement rate benchmarks. These
benchmarks will reduce the rates that United States carriers pay foreign
carriers, and that foreign carriers pay United States carriers, to terminate
traffic in their home countries. The FCC will also prohibit a United States
carrier affiliated with a foreign carrier from providing facilities-based
service to the foreign carrier's home market until and unless the foreign
carrier has implemented a settlement rate within the benchmark. The FCC also
adopted new rules that will liberalize the provision of switched services over
private lines, by allowing such services on routes where
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50% or more of United States billed traffic is being terminated in the foreign
country at or below the applicable settlement rate benchmark.
Although the FCC's new policies and implementation of the WTO Agreement may
result in lower costs to MCI WorldCom to terminate international traffic, there
is a risk that the revenues that MCI WorldCom will receive from inbound
international traffic may decrease to an even greater degree. The implementation
of the WTO Agreement may also make it easier for foreign carriers with market
power in their home markets to offer United States and foreign customers
end-to-end services to the disadvantage of MCI WorldCom, which may continue to
face substantial obstacles in obtaining from foreign governments and foreign
carriers the authority and facilities to provide such end-to-end services.
Further, many foreign carriers have challenged, in court and at the FCC, the
FCC's order adopting mandatory settlement rate benchmarks. If the FCC's
settlement rate benchmark order were to be overturned, it would accelerate the
full-fledged entry of foreign carriers into the United States, and make it far
easier for foreign carriers to route international traffic into the United
States at low, cost-based termination rates, while United States carriers would
continue to have little choice but to route international traffic into most
foreign countries at much higher, above cost, settlement rates.
Competition
Virtually every aspect of the telecommunications industry is extremely
competitive, and WorldCom and MCI expect that competition will intensify in the
future. WorldCom and MCI face significant competition from carriers and other
companies with greater market share and financial resources. WorldCom and MCI
compete domestically with incumbent providers, which have historically dominated
local telecommunications, and with long distance carriers, for the provision of
long distance services. Sometimes the incumbent provider offers both local and
long distance services. The ILECs presently have numerous advantages as a result
of their historic monopoly control over local exchanges. A continuing trend
toward business combinations and alliances in the telecommunications industry
may create significant new competitors to MCI WorldCom. Many of WorldCom's and
MCI's existing and potential competitors have financial, personnel and other
resources significantly greater than those of WorldCom or MCI, as the case may
be. WorldCom and MCI also face competition from one or more competitors in every
area of their businesses, including competitive access providers operating fiber
optic networks, in some cases in conjunction with the local cable television
operator. AT&T Corp. ("AT&T") and Sprint Corporation ("Sprint") have indicated
their intention to offer local telecommunications services in major United
States markets using its own facilities or by resale of the local exchange
carriers' or other providers' services. In addition, WorldCom and MCI compete
with equipment vendors and installers and telecommunications management
companies with respect to certain portions of their businesses.
Overseas, WorldCom and MCI compete with incumbent providers, many of which
still have special regulatory status and the exclusive rights to provide certain
services, and virtually all of which have historically dominated their local,
domestic long distance and international services business. These incumbent
providers have numerous advantages including existing facilities, customer
loyalty, and substantial financial resources. WorldCom and MCI also compete with
other service providers, many of which are affiliated with incumbent providers
in other countries. Typically, WorldCom and MCI must devote extensive resources
to obtaining regulatory approvals necessary to operate overseas, and then to
obtaining access to interconnection with an incumbent's network on a
non-discriminatory basis.
WorldCom and MCI may also be subject to additional competition due to the
development of new technologies and increased availability of domestic and
international transmission capacity. For example, even though fiber optic
networks, such as that of WorldCom, are now widely used for long distance
transmission, it is possible that the desirability of such networks could be
adversely affected by changing technology. The telecommunications industry is in
a period of rapid technological evolution, marked by the introduction of new
product and service offerings and increasing satellite and fiber optic
transmission capacity for services similar to those provided by WorldCom and
MCI. WorldCom and MCI 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.
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Under the Telecom Act and ensuing federal and state regulatory initiatives,
barriers to local exchange competition are being removed. The introduction of
such competition, however, also establishes, in part, the 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
WorldCom and MCI. WorldCom expects that the increased competition made possible
by regulatory reform will result in certain pricing and margin pressures in the
domestic telecommunications services business.
MCI WorldCom will also compete in offering data communications services,
including Internet access and related services. This is also an extremely
competitive business. WorldCom and MCI expect that competition will continue to
intensify in the future. WorldCom and MCI believe that the ability to compete
successfully in this arena depends on a number of factors, including: industry
presence; the ability to execute a rapid expansion strategy; the capacity,
reliability and security of its network infrastructure; ease of access to and
navigation on the Internet; the pricing policies of its competitors and
suppliers; the timing of the introduction of new products and services by the
combined company and its competitors; the combined company's ability to support
industry standards; and industry and general economic trends. The success of MCI
WorldCom will depend heavily upon its ability to provide high quality data
communication services, including Internet connectivity and value-added Internet
services, at competitive prices.
Major telecommunications companies have expanded their current services to
compete fully in offering data communication services, including Internet
services, and WorldCom and MCI expect additional telecommunications companies to
continue to compete in this arena. WorldCom and MCI believe that new
competitors, including large computer hardware, software, media and other
technology and telecommunications companies will also offer data communications
services, resulting in even greater competition for the combined company.
Certain companies, including AT&T, GTE Corporation ("GTE"), Intermedia
Communications, Inc., Teleport Communications Group Inc. and PSINet, Inc., have
obtained or expanded their Internet access products and services as a result of
acquisitions and strategic investments. Such acquisitions may permit the
combined company's competitors to devote greater resources to the development
and marketing of new competitive products and services and the marketing of
existing competitive products and services. WorldCom and MCI expect these
acquisitions and strategic investments to increase, thus creating significant
new competitors to the combined company.
As the combined company continues to expand data communications operations
outside of the United States, the combined company will be forced to compete
with and buy services from incumbent providers many of which are
government-owned and/or still have special regulatory status and the exclusive
rights to provide certain essential services. The combined company will also
encounter competition from companies whose operating styles are substantially
different from those that it usually encounters. For example, in Europe,
WorldCom's subsidiaries compete directly with: (1) telecommunications companies,
such as British Telecommunications plc ("BT"), Deutsche Telecom AG and others;
(2) other Internet access providers, such as Demon Internet Limited; and (3)
on-line services providers, such as AT&T. Foreign competitors may also possess a
better understanding of their local areas and may have better working
relationships with, or control of, local telecommunications companies. There can
be no assurance that the combined company can obtain similar levels of local
knowledge, and failure to obtain that knowledge could place the combined company
at a serious competitive disadvantage.
Anti-Takeover Provisions
The WorldCom Second Amended and Restated Articles of Incorporation (the
"WorldCom Articles") contain provisions (a) requiring a 70% vote for approval of
certain business combinations with certain 10% shareholders unless approved by a
majority of the continuing members of the Board of Directors of WorldCom (the
"WorldCom Board") or unless certain minimum price, procedural and other
requirements are met; (b) restricting aggregate beneficial ownership of the
WorldCom Capital Stock by foreign shareholders to 20% of the total outstanding
capital stock, and subjecting excess shares to redemption, and (c) authorizing
the WorldCom Board to issue preferred stock in one or more classes without any
action on the part of
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shareholders. In addition, WorldCom has entered into the Rights Agreement
between WorldCom and The Bank of New York, as Rights Agent (the "Rights Agent"),
dated as of August 25, 1996, as amended (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. Further, the Restated
Bylaws of WorldCom (the "WorldCom Bylaws") (a) contain requirements regarding
advance notice of nomination of directors by shareholders and (b) restrict the
calling of special meetings by shareholders to those owning shares representing
not less than 40% of the votes to be cast. These provisions, including the
WorldCom Rights Agreement, may have an "anti-takeover" effect. See "Description
of WorldCom Capital Stock" and "Comparative Rights of Shareholders."
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THE WORLDCOM SPECIAL MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to holders of
WorldCom Capital Stock in connection with the solicitation of proxies by the
WorldCom Board for use at a special meeting of holders of WorldCom Capital Stock
(the "WorldCom Special Meeting") and any adjournment or postponement thereof. At
the WorldCom Special Meeting, the shareholders of WorldCom will consider and
vote upon (1) the issuance of shares of WorldCom Common Stock (the "Share
Issuance") pursuant to the MCI/WorldCom Merger Agreement, (2) a proposed
amendment to the WorldCom Articles in order to change the name of WorldCom to
"MCI WorldCom, Inc." (the "Charter Amendment") and (3) any other business which
may properly be brought before the WorldCom Special Meeting or any adjournment
or postponement thereof. Each copy of this Joint Proxy Statement/Prospectus
which is being mailed or delivered to WorldCom shareholders is accompanied by a
WorldCom proxy card and a Notice of Special Meeting.
The Share Issuance is being submitted for the approval of the shareholders
of WorldCom pursuant to the requirements of the National Association of
Securities Dealers ("NASD") applicable to companies whose securities are quoted
on The Nasdaq National Market ("NASDAQ"). Pursuant to these requirements, the
Share Issuance must be approved by the holders of shares of WorldCom Capital
Stock representing a majority of the total votes cast by WorldCom shareholders
on such proposal, voting as a single class, at the WorldCom Special Meeting. See
"Proposed Amendment of the WorldCom Articles" for a discussion of the Charter
Amendment.
DATE, TIME AND PLACE
The WorldCom Special Meeting will be held at [515 East Amite Street,
Jackson, Mississippi], on [ ] at 10:00 a.m., local time.
RECORD DATE; VOTE REQUIRED
The WorldCom Board has fixed the close of business on [ ],
as the WorldCom record date for the determination of shareholders entitled to
notice of and to vote at the WorldCom Special Meeting (the "WorldCom Record
Date"). On the WorldCom Record Date, [ ] shares of WorldCom Common Stock,
[ ] shares of WorldCom Series A Preferred Stock and [ ] shares of
WorldCom Series B Preferred Stock were outstanding and entitled to vote at the
WorldCom Special Meeting. As of the WorldCom Record Date, the shares of WorldCom
Common Stock, the WorldCom Depositary Shares ("WorldCom Depositary Shares") and
the WorldCom Series B Preferred Stock were held by approximately [ ],
[ ], and [ ] shareholders of record, respectively. All the
shares of WorldCom Series A Preferred Stock are held by The Bank of New York as
Depositary (the "Depositary") for the holders of the WorldCom Depositary Shares.
Each WorldCom Depositary Share represents a one-hundredth interest in a share of
WorldCom Series A Preferred Stock. Holders of record of WorldCom Common Stock as
of the close of business on the WorldCom Record Date are entitled to one vote
per share on any matter voted on at the WorldCom Special Meeting. The holders of
WorldCom Series A Preferred Stock and WorldCom Series B Preferred Stock are
entitled to vote together with holders of WorldCom Common Stock as single class
on issues presented to a vote of WorldCom's shareholders, except under certain
conditions when such holders are entitled to vote as a separate class. The
holders of WorldCom Series A Preferred Stock are entitled to vote on the basis
of ten votes for each such share held. The holders of WorldCom Series B
Preferred Stock are entitled to vote on the basis of one vote per such share
held. The WorldCom Series A Preferred Stock will be voted by the Depositary in
accordance with instructions received from the holders of WorldCom Depositary
Shares, as described below. Holders of WorldCom Depositary Shares are entitled
to direct the Depositary with respect to one-tenth (1/10) of a vote per WorldCom
Depositary Share.
The presence, either in person or by proxy, of the holders of shares
representing a majority of the votes entitled to be cast on the matter as of the
WorldCom Record Date is necessary to constitute a quorum at the WorldCom Special
Meeting. Approval of the Share Issuance requires the affirmative vote of the
holders of
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shares of WorldCom Capital Stock representing at least a majority of the total
votes cast by WorldCom shareholders on such proposal, voting as a single class.
Approval of the Charter Amendment requires the affirmative votes of the holders
of shares of WorldCom Capital Stock representing a majority of the total votes
entitled to be cast on such Charter Amendment.
Approval by WorldCom shareholders of the Share Issuance is a condition to
the consummation of the MCI/WorldCom Merger. Approval of the proposed Charter
Amendment is not a condition to the consummation of the MCI/WorldCom Merger
Agreement.
Based on Georgia law, shares represented by proxies that reflect
abstentions and broker "non-votes" (i.e., shares held by a broker or nominee
which are represented at the WorldCom Special Meeting, but with respect to which
such broker or nominee is not empowered to vote on a particular proposal) will
be counted as shares that are present at the meeting but will have no effect on
the outcome of the Share Issuance. For approval of the Charter Amendment,
however, Georgia law provides that both abstentions and broker "non-votes" will
be counted as shares that are present at the meeting and will have the same
effect as a vote against approval of the Charter Amendment.
As of the WorldCom Record Date, directors and executive officers of
WorldCom and their affiliates (as a group) were entitled to vote approximately
[ %] of the outstanding votes entitled to be cast at the WorldCom Special
Meeting. All such directors and executive officers and their affiliates have
indicated their intention to vote their shares at the WorldCom Special Meeting
for the approval of Share Issuance and for the approval of the Charter
Amendment.
VOTING AND REVOCATION OF PROXIES
Shares of WorldCom Capital Stock which are represented by a proxy properly
executed and received prior to the vote at the WorldCom Special Meeting will be
voted at the WorldCom Special Meeting in the manner directed on the proxy card,
unless such proxy is revoked in advance of such vote. ANY WORLDCOM SHAREHOLDER
RETURNING A BLANK EXECUTED PROXY CARD WILL BE DEEMED TO HAVE AUTHORIZED THE
PROXIES TO VOTE THE SHARES COVERED BY THE PROXY CARD (I) IN FAVOR OF THE SHARE
ISSUANCE, (II) IN FAVOR OF THE CHARTER AMENDMENT, AND (III) IN THEIR DISCRETION
WITH RESPECT TO SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE WORLDCOM
SPECIAL MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
Under the terms of the Deposit Agreement dated December 31, 1996, between
WorldCom and the Depositary, all shares of WorldCom Series A Preferred Stock
held by the Depositary will be voted or not voted as directed by written
instructions from the holders of WorldCom Depositary Shares, and shares for
which no instructions are received will be voted as abstentions. If the enclosed
voting instruction card (which is also the proxy card) is executed and returned
without instructions as to how it is to be voted, the voting instruction card
will be deemed to be an instruction to vote FOR the Share Issuance, FOR the
Charter Amendment, and in the discretion of the Depositary on the transaction of
such other business as may properly come before the WorldCom Special Meeting or
any adjournment or postponement thereof.
Any shareholder of WorldCom giving a proxy may revoke it at any time prior
to the vote at the WorldCom Special Meeting. Shareholders of WorldCom wishing to
revoke a proxy prior to the time it is voted may do so by delivering to the
Secretary of WorldCom at 515 East Amite Street, Jackson, Mississippi 39201-2702,
a written notice of revocation bearing a later date than the proxy or a later
dated proxy relating to the same shares or by attending the WorldCom Special
Meeting and voting in person. Attendance at the WorldCom Special Meeting will
not in itself constitute the revocation of a proxy.
The WorldCom Board is not currently aware of any business to be brought
before the WorldCom Special Meeting other than that described herein. If,
however, other matters are properly brought before the WorldCom Special Meeting
or any adjournment or postponement thereof, the persons appointed as proxies
will have discretionary authority to vote the shares represented by duly
executed proxies in accordance with their discretion and judgment as to the best
interest of WorldCom.
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SOLICITATION OF PROXIES
WorldCom will bear the costs of soliciting proxies. Proxies will initially
be solicited by WorldCom by mail, but directors, officers and selected other
employees of WorldCom may also solicit proxies by personal interview, telephone,
telegraph or e-mail. Directors, executive officers and any other employees of
WorldCom who solicit proxies will not be specially compensated for such
services, but may be reimbursed for out-of-pocket expenses incurred in
connection therewith. Brokerage houses, nominees, fiduciaries and other
custodians will be requested to forward soliciting materials to beneficial
owners and will be reimbursed for their reasonable out-of-pocket expenses
incurred in sending proxy materials to beneficial owners. In addition, MacKenzie
Partners, Inc. ("MPI") has been retained by WorldCom to assist in the
solicitation of proxies. MPI may contact holders of shares of WorldCom Capital
Stock by mail, telephone, facsimile, telegraph and personal interviews and may
request brokers, dealers and other nominee shareholders to forward materials to
beneficial owners of shares of WorldCom Capital Stock. MPI will receive
reasonable and customary compensation for its services [(estimated at
$[ ])], will be reimbursed for certain reasonable out-of-pocket expenses
and will be indemnified against certain liabilities and expenses in connection
therewith, including certain liabilities under the federal securities laws.
HOLDERS OF WORLDCOM CAPITAL STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN
THE ACCOMPANYING WORLDCOM PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE.
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THE MCI SPECIAL MEETING
DATE, TIME AND PLACE
A special meeting of the stockholders of MCI (the "MCI Special Meeting")
will be held at -- , on -- , 1998, at -- , local time.
PURPOSE OF THE MCI SPECIAL MEETING
At the MCI Special Meeting, the holders of MCI Common Stock and the holders
of MCI Class A Common Stock, par value $.10 per share, of MCI (the "MCI Class A
Common Stock" and collectively with the MCI Common Stock, the "MCI Capital
Stock") will consider and vote upon the adoption of the MCI/ WorldCom Merger
Agreement. The MCI Board has determined that the MCI/WorldCom Merger Agreement
and the transactions contemplated thereby are fair to, and in the best interests
of, MCI and its stockholders. Because of their relationship with BT, Sir Peter
Bonfield, Sir Colin Marshall and Mr. J. Keith Oates did not attend the meetings
relating to the MCI/WorldCom Merger. THE MCI BOARD HAS UNANIMOUSLY APPROVED THE
MCI/WORLDCOM MERGER AGREEMENT AND THE MCI/WORLDCOM MERGER (with Sir Peter
Bonfield, Sir Colin Marshall and Mr. J. Keith Oates not attending due to their
relationship with BT).
THE MCI BOARD RECOMMENDS A VOTE FOR THE ADOPTION OF THE MCI/WORLDCOM MERGER
AGREEMENT (WITH SIR PETER BONFIELD, SIR COLIN MARSHALL AND MR. J. KEITH OATES
NOT PARTICIPATING IN SUCH RECOMMENDATION DUE TO THEIR RELATIONSHIP WITH BT). SEE
"THE MCI/WORLDCOM MERGER -- MCI'S REASONS FOR THE MCI/WORLDCOM MERGER;
RECOMMENDATION OF THE MCI BOARD".
RECORD DATE; QUORUM
The close of business on -- , 1998 has been fixed as the MCI record date
(the "MCI Record Date") for the determination of stockholders entitled to notice
of and to vote at the MCI Special Meeting. As of the MCI Record Date, there were
- -- shares of MCI Common Stock and 135,998,932 shares of MCI Class A Common Stock
issued and outstanding and entitled to vote at the MCI Special Meeting. The
presence in person or by properly executed proxy of holders of a majority of the
issued and outstanding shares of MCI Common Stock and shares of MCI Class A
Common Stock is necessary to constitute a quorum at the MCI Special Meeting.
REQUIRED VOTE
The affirmative vote of the holders of a majority of the outstanding shares
of MCI Common Stock and shares of MCI Class A Common Stock voting together as a
single class and the affirmative vote of the holders of a majority of the
outstanding shares of MCI Class A Common Stock voting separately as a class, are
the only votes of the holders of any class or series of MCI capital stock
necessary to adopt the MCI/WorldCom Merger Agreement and approve the
transactions contemplated thereby. Pursuant to the Agreement dated as of
November 9, 1997, among MCI, BT and WorldCom (the "BT Agreement"), BT has
committed to vote all of the shares of MCI Class A Common Stock it holds,
representing all of the MCI Class A Common Stock in the aggregate and
approximately 20% of the outstanding voting capital stock of MCI, in favor of
the adoption of the MCI/WorldCom Merger Agreement. See "The BT
Agreement -- Voting Agreement".
As of the MCI Record Date, directors and executive officers of MCI and
their affiliates (as a group) were entitled to vote approximately [ %] of
the outstanding votes entitled to be cast at the MCI Special Meeting. All such
directors and executive officers and their affiliates have indicated their
intention to vote their shares at the MCI Special Meeting for the adoption of
the MCI/WorldCom Merger Agreement and the approval of the transactions
contemplated thereby.
VOTING OF PROXIES
All shares of MCI Common Stock and MCI Class A Common Stock represented at
the MCI Special Meeting by properly executed proxies received prior to or at the
MCI Special Meeting, unless such proxies previously have been revoked, will be
voted at the MCI Special Meeting in the manner specified by the holder
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<PAGE> 41
thereof. PROXIES WHICH DO NOT CONTAIN VOTING INSTRUCTIONS WILL BE VOTED FOR
ADOPTION OF THE MCI/ WORLDCOM MERGER AGREEMENT AND IN THE DISCRETION OF THE
PROXIES WITH RESPECT TO ANY OTHER MATTERS COMING BEFORE THE MCI SPECIAL MEETING.
MCI management does not know of any matters to be presented at the MCI
Special Meeting other than those set forth in this Joint Proxy
Statement/Prospectus and the Notice accompanying this Joint Proxy
Statement/Prospectus. If other matters should properly come before the MCI
Special Meeting, the proxy holders will vote on such matters in accordance with
their judgment.
Shares of MCI Common Stock and MCI Class A Common Stock represented at the
MCI Special Meeting by a properly executed, dated and returned proxy will be
treated as present at the MCI Special Meeting for purposes of determining a
quorum, without regard to whether the proxy is marked as casting a vote or
abstaining. For voting purposes at the MCI Special Meeting, only shares
affirmatively voted in favor of adoption of the MCI/WorldCom Merger Agreement
will be counted as favorable votes for such adoption. Since only the approval
and adoption of the MCI/WorldCom Merger Agreement is expected to be voted upon
at the MCI Special Meeting, MCI does not expect to receive any "broker nonvotes"
(i.e., shares held by a broker or nominee which are represented at the MCI
Special Meeting, but with respect to which such broker or nominee is not
empowered to vote on a particular proposal), which will be counted as shares
that are present at the meeting and will have the same effect as a vote against
adoption of the MCI/WorldCom Merger Agreement.
The persons named as proxies by a stockholder may propose and vote for one
or more adjournments of the MCI Special Meeting to permit further solicitations
of proxies in favor of approval and adoption of the MCI/WorldCom Merger
Agreement; provided, however, that no proxy which is voted against the adoption
of the MCI/WorldCom Merger Agreement will be voted in favor of any such
adjournment.
REVOCABILITY OF PROXY
Any holder of shares of MCI Common Stock may revoke a proxy at any time
before it is voted by filing with the Secretary of MCI an instrument revoking
the proxy or by returning a duly executed proxy bearing a later date, or by
attending the MCI Special Meeting and voting in person. Any such filing should
be made to the attention of C. Bolton-Smith, Jr., Secretary, MCI Communications
Corporation, 1801 Pennsylvania Avenue, N.W., Washington, D.C. 20006. Attendance
at the MCI Special Meeting will not by itself constitute revocation of a proxy.
SOLICITATION OF PROXIES
In addition to the solicitation of proxies by use of the mails, proxies may
also be solicited by MCI and its directors, officers and employees (who will
receive no additional compensation therefor) by telephone, telegram, facsimile
transmission and other electronic communication methods or personal interview.
MCI will reimburse banks, brokerage houses, custodians and other fiduciaries who
hold MCI Common Stock in their name or custody, or in the name of nominees for
others, for their out-of-pocket expenses incurred in forwarding copies of the
proxy materials to those persons for whom they hold such shares. MCI will bear
the costs of the MCI Special Meeting and of soliciting proxies therefor. MCI and
WorldCom will share the amount of the filing fees and the other expenses
incurred in connection with the cost of printing and mailing this Joint Proxy
Statement/Prospectus. MCI's transfer agent, Morgan Guaranty Trust Company of New
York, has agreed to assist MCI in connection with the tabulation of proxies.
Georgeson & Company Inc. will provide various proxy services for MCI in
connection with the MCI Special Meeting at a cost of approximately [$25,000],
plus reasonable out-of-pocket expenses.
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<PAGE> 42
THE MCI/WORLDCOM MERGER
The description of the MCI/WorldCom Merger and the MCI/WorldCom Merger
Agreement contained in this Joint Proxy Statement/Prospectus describes the
material terms of the MCI/WorldCom Merger Agreement but does not purport to be
complete and is qualified in its entirety by reference to the MCI/WorldCom
Merger Agreement, a copy of which is attached hereto as Annex I and incorporated
herein by reference. Capitalized terms appearing below that are not otherwise
defined herein have the same meanings as are given such terms in the
MCI/WorldCom Merger Agreement. Whenever particular sections or defined terms are
referred to, it is intended that such sections or defined terms shall be
incorporated by reference.
GENERAL
At the Effective Time of the MCI/WorldCom Merger, MCI will be merged with
and into Merger Sub, with Merger Sub surviving as a wholly owned subsidiary of
WorldCom (the "Surviving Corporation"). If the Charter Amendment is approved,
WorldCom will change its name as of the Effective Time to "MCI WorldCom, Inc."
As a result of the MCI/WorldCom Merger, the separate corporate existence of MCI
will cease and Merger Sub (which will be renamed "MCI Communications
Corporation") will succeed to all the rights and be responsible for all the
obligations of MCI in accordance with the Delaware General Corporation Law (the
"DGCL"). Subject to the terms and conditions of the MCI/WorldCom Merger
Agreement, each share of MCI Common Stock outstanding immediately prior to the
Effective Time will be converted into the right to receive that number of shares
of WorldCom Common Stock equal to the Exchange Ratio (as defined below) (the
"MCI Common Stock Merger Consideration") and each share of MCI Class A Common
Stock outstanding immediately prior to the Effective Time will be converted into
the right to receive $51 in cash, without interest thereon (the "MCI Class A
Common Stock Merger Consideration" and, collectively with the MCI Common Stock
Merger Consideration, the "Merger Consideration"). The "Exchange Ratio" means
the quotient (rounded to the nearest 1/10,000) determined by dividing $51.00 by
the average of the high and low sales prices of WorldCom Common Stock (the
"WorldCom Average Trading Price") as reported on NASDAQ on each of the 20
consecutive trading days ending with the third trading day immediately preceding
the Effective Time (the "Measurement Period"); provided, however, that the
Exchange Ratio will not be less than 1.2439 or greater than 1.7586. Cash will be
paid in lieu of any fractional share of WorldCom Common Stock. See "Other Terms
of the MCI/WorldCom Merger Agreement -- Conversion of Shares in the MCI/WorldCom
Merger."
The MCI/WorldCom Merger will become effective upon the filing of a
certificate of merger (the "Certificate of Merger") with the Secretary of State
of the State of Delaware or at such subsequent time as WorldCom and MCI may
agree and is specified in the Certificate of Merger (the "Effective Time"). The
filing of the Certificate of Merger will occur as soon as practicable following
the closing of the MCI/WorldCom Merger, which will occur on the fifth business
day after the satisfaction or waiver of the conditions set forth in the
MCI/WorldCom Merger Agreement, unless otherwise agreed by the parties (the
"Closing Date"). Consummation of the MCI/WorldCom Merger, however, is dependent
on the receipt of the requisite approvals and authorizations for the
MCI/WorldCom Merger under the HSR Act, the Communications Act of 1934 (the
"Communications Act") and other applicable federal, state or other applicable
regulatory laws. There can be no assurance as to (i) if or when such approvals
will be obtained or that, if obtained, such approvals will satisfy the
conditions to the consummation of the MCI/WorldCom Merger set forth in the
MCI/WorldCom Merger Agreement or (ii) whether all of the other conditions
precedent to the MCI/WorldCom Merger will be satisfied or waived by the party
permitted to do so. If the MCI/WorldCom Merger is not effected on or before
December 31, 1998, the MCI/WorldCom Merger Agreement can be terminated by either
MCI or WorldCom, unless the failure to effect the MCI/WorldCom Merger by such
date is due to the failure of the party seeking to terminate the MCI/WorldCom
Merger Agreement to fulfill its obligations under the MCI/WorldCom Merger
Agreement (including without limitation its obligation to use its best efforts
to consummate the MCI/WorldCom Merger). See "Other Terms of the MCI/WorldCom
Merger Agreement -- Conditions Precedent to the MCI/WorldCom Merger" and
" -- Termination."
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BACKGROUND OF THE MERGER
Pursuant to an investment agreement (the "Investment Agreement"), BT
acquired a 20% ownership interest in MCI in 1994, and the companies subsequently
created a joint venture known as Concert Communications Company ("Concert") to
provide global communications services. Under the Investment Agreement, BT
acquired the shares of MCI Class A Common Stock and, among other things,
obtained the right to proportionate representation on the MCI Board, preemptive
rights with respect to the issuance of additional shares of MCI Common Stock and
the right to protections with respect to certain corporate actions of MCI,
including the certain future business combinations involving MCI. On November 3,
1996, MCI entered into an Agreement and Plan of Merger with BT and a subsidiary
of BT ("BT Sub")(the "Original BT/MCI Merger Agreement"), pursuant to which MCI
would merge with BT Sub and the stockholders of MCI would receive stock of BT
and cash in exchange for their MCI Common Stock. After that planned merger, the
combined company was to be named Concert plc. The Original BT/MCI Merger
Agreement was approved by the MCI and BT stockholders in April 1997 and by the
European Commission on May 14, 1997. MCI and BT agreed to amendments to an
existing consent decree that were proposed by the Department of Justice ("DOJ")
on July 7, 1997, and the merger was approved by the FCC on August 21, 1997.
On August 21, 1997, MCI and BT entered into an amendment to the Original
BT/MCI Merger Agreement (as so amended, the "BT/MCI Merger Agreement") which,
among other things, reduced the per share consideration to be received by MCI
stockholders in the planned merger. Under the terms of the amended BT/MCI Merger
Agreement, each outstanding share of MCI Capital Stock (other than treasury
shares and shares owned by BT, including shares of MCI Class A Common Stock, all
of which would be cancelled upon consummation of the BT merger) would be
converted into the right to receive (i) .375 American Depositary Shares ("ADSs")
of BT, each ADS representing ten ordinary shares of 25 pence each of BT, with
cash being paid in lieu of fractional ADSs, and (ii) $7.75 in cash. The implied
per share value to MCI stockholders of the consideration contemplated by the
amended BT/MCI Merger Agreement was approximately $30-$31 on August 21, 1997,
based on the closing sale price of BT ADSs on August 20, 1997. The BT/MCI Merger
Agreement required the approval of the stockholders of MCI and BT. Stockholder
meetings for MCI and BT were tentatively planned for December 1997.
On October 1, 1997, WorldCom publicly announced, and delivered a letter to
MCI confirming, its intention to commence an exchange offer to acquire all the
outstanding shares of MCI Capital Stock for $41.50 of WorldCom Common Stock per
share of MCI Capital Stock, subject to possible adjustment, as set forth in
materials filed by WorldCom with the SEC. WorldCom indicated that it would
effect a second-step merger following consummation of the exchange offer
pursuant to which each remaining outstanding share of MCI Capital Stock would be
converted into the same number of shares of WorldCom Common Stock offered in the
exchange offer (the "Original WorldCom Offer"). In a publicly released letter to
Bert C. Roberts, Jr., the Chairman of MCI, describing the Original WorldCom
Offer, Bernard J. Ebbers, the President and Chief Executive Officer of WorldCom,
stated that WorldCom was prepared to meet promptly with MCI and BT to achieve a
negotiated transaction on terms substantially similar to the BT/MCI Merger
Agreement. Mr. Ebbers stated WorldCom's belief that a negotiated transaction
could be structured to be accounted for as a pooling-of-interests, and that such
a pooling transaction would be more beneficial to the stockholders of MCI, BT
and WorldCom than the Original WorldCom Offer because it would be expected to be
more accretive to WorldCom's earnings per share. In addition, WorldCom filed an
application under the HSR Act.
On October 1 and 10, 1997, the MCI Board met to preliminarily review the
Original WorldCom Offer. Members of MCI's senior management and MCI's legal and
financial advisors discussed the terms and conditions of the Original WorldCom
Offer with the MCI Board.
On October 10, 1997, MCI announced that, consistent with its fiduciary
responsibility, the MCI Board had requested its advisors to further analyze the
details of the Original WorldCom Offer and that the MCI Board would meet within
the next week to address further the issues raised by the proposal. MCI also
announced that it had retained Lehman Brothers Inc. ("Lehman Brothers") to
advise it on financial issues and had previously retained Lazard Freres & Co.
LLC ("Lazard Freres") to advise it on the financial issues and Simpson Thacher &
Bartlett to advise it with respect to certain legal matters.
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On October 15, 1997, GTE publicly announced, and delivered a letter to MCI
confirming, its willingness to offer $40.00 in cash for each share of MCI
Capital Stock pursuant to a negotiated transaction. GTE proposed that,
immediately upon execution of a definitive merger agreement with MCI, it would
commence a cash tender offer for all the outstanding shares of MCI Capital Stock
at $40.00 per share, to be followed by a second-step merger in which each
outstanding share of MCI Capital Stock would be converted into $40.00 per share
(the "GTE Proposal").
The MCI Board directed the management of MCI to commence a process designed
to enable the MCI Board to fully inform itself with respect to the Original
WorldCom Offer, the GTE Proposal and the proposed merger with BT. In furtherance
of such process, on October 16, 1997, MCI and BT entered into a waiver agreement
under the BT/MCI Merger Agreement pursuant to which each party permitted the
other party to engage in discussions with GTE and WorldCom concerning their
respective proposals. On October 20, 1997, MCI entered into customary
confidentiality agreements with each of WorldCom and GTE concerning discussions
and information to be exchanged by the parties in connection with their
respective proposals.
On October 21, 1997, the MCI Board met to preliminarily review the GTE
Proposal. Members of MCI's senior management and MCI's legal and financial
advisors discussed the terms and conditions of the GTE Proposal with the MCI
Board.
On October 23, 1997, Mr. Roberts, Mr. Ebbers and Sir Iain Vallance,
Chairman of BT, met in Washington, D.C. to preliminarily discuss the Original
WorldCom Offer. Messrs. Roberts and Ebbers met on October 31, 1997, in Jackson,
Mississippi to discuss further the Original WorldCom Offer, the prospects of
WorldCom and Mr. Ebbers' preliminary plans for the combined company.
Members of senior management of MCI and WorldCom met in Washington, D.C. on
October 24 and 29, 1997, to discuss the Original WorldCom Offer and legal and
regulatory issues relating to a potential transaction. At such meetings, members
of senior management of WorldCom also provided preliminary information to MCI
senior management regarding WorldCom and WorldCom Common Stock.
From October 28 through October 31, 1997, representatives of MCI and
WorldCom and their respective financial and legal advisors met in New York, New
York and Jackson, Mississippi to participate in due diligence presentations
concerning WorldCom, the Original WorldCom Offer and the potential cost savings
contemplated by the Original WorldCom Offer.
During approximately the same period as representatives of MCI were
conducting discussions with representatives of WorldCom concerning the WorldCom
offer, senior management of MCI, as well as MCI's financial and legal advisors,
held a series of meetings with representatives of GTE and its financial and
legal advisors regarding the GTE Proposal.
On October 31, 1997, WorldCom received a request for additional information
from the DOJ with respect to its filings under the HSR Act. Also on October 31,
1997, WorldCom executed a confidentiality agreement with BT in order to carry
out further discussions about a proposed transaction.
During the following week, representatives of WorldCom and MCI and their
respective financial advisors discussed and exchanged certain nonpublic
information concerning the two companies. As a result of these discussions and
exchanges of information, the WorldCom representatives concluded that there were
significant new areas of potential cost savings that could be achieved in a
merger of MCI and WorldCom that had not been previously identified, and that,
while a transaction accounted for as a pooling-of-interests would be somewhat
more accretive than a transaction that would be accounted for as a purchase, the
difference would be less significant than previously thought.
Representatives of WorldCom and its advisors also had discussions with
representatives of BT and its advisors during that week, during which
discussions the representatives of BT expressed a desire to receive cash for
BT's stake in MCI and the parties discussed certain other issues, including
termination of the BT/MCI Merger Agreement and the status of the Concert joint
venture. The representatives of BT took the
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position that the entering into of a definitive agreement for any acquisition of
MCI would trigger the MCI Rights under the MCI Rights Agreement (each as defined
under "Certain Related Transactions -- MCI Rights Agreement"). In addition, BT
took the position that, without BT's consent, MCI could not redeem or amend the
MCI Rights before October 1, 1998 uness it obtained a super majority vote.
During the week of November 3, 1997, senior management of GTE and GTE's
financial and legal advisors held numerous discussions with senior management of
MCI and MCI's financial and legal advisors regarding potential structures GTE
might use to acquire MCI, particularly structures which would deliver value to
MCI stockholders as promptly as practicable. During this time period, GTE also
held numerous discussions with BT regarding their potential cooperation in an
acquisition of MCI.
On November 5, 1997, the MCI Board met to review further the Original
WorldCom Offer and the GTE Proposal. Members of MCI's senior management and
MCI's financial and legal advisors discussed with the MCI Board the due
diligence that had been conducted to date concerning WorldCom and the results of
meetings and discussions that had occurred between representatives and advisors
of MCI and WorldCom, on the one hand, and representatives and advisors of MCI
and GTE, on the other hand, concerning the Original WorldCom Offer and the GTE
Proposal.
On November 5, 1997, WorldCom's financial advisors contacted MCI's
financial advisors to discuss the possibility of increasing WorldCom's then
current proposal in order to secure MCI's approval. After conferring with MCI
and its representatives, the MCI financial advisors contacted WorldCom's
financial advisors and indicated that they had been informed by MCI that, before
MCI would consider accepting any proposal from WorldCom, the consideration to be
paid and the share price collar contained in any WorldCom proposal would have to
be made significantly more favorable to MCI stockholders than the proposal then
being made by WorldCom.
On November 6, 1997, Mr. Roberts met with Charles R. Lee, Chairman and
Chief Executive Officer of GTE and urged Mr. Lee to have GTE increase its offer.
On November 6 and 7, 1997, representatives of GTE met with representatives of
MCI to conduct preliminary due diligence with respect to MCI.
On Friday, November 7, 1997, after the close of the market, Mr. Ebbers
telephoned Mr. Roberts and indicated that WorldCom would be prepared to increase
its offer to $50 per share of MCI Common Stock and MCI Class A Common Stock,
which offer was based on the expectation that the boards of the two companies
would meet to consider the offer prior to the opening of the market on Monday,
November 10. Mr. Ebbers indicated that WorldCom was prepared to proceed with a
transaction that would be accounted for as a purchase, but that a transaction
could be structured that would be accounted for as a pooling-of-interests with
the cooperation of BT. Such a transaction would require BT to accept WorldCom
Common Stock for its stake in MCI and to agree to hold the WorldCom Common Stock
for an extended period of time to meet the pooling requirements. Mr. Ebbers
indicated that, in consideration for BT's cooperation and willingness to agree
to such restrictions, WorldCom would be prepared to pay a premium for the shares
of MCI Class A Common Stock held by BT. On the same day, MCI's legal advisors
and WorldCom's legal advisors discussed a draft merger agreement. On the evening
of November 7, 1997, Mr. Roberts telephoned Mr. Lee and informed him that MCI
had received a revised offer from WorldCom that the MCI Board would be
considering over the weekend. Mr. Roberts invited Mr. Lee to increase the $40.00
GTE Proposal by the end of the weekend.
On Saturday, November 8, 1997, representatives of WorldCom and its
financial and legal advisors met with representatives of BT and its financial
and legal advisors, and BT reiterated its position with respect to the MCI
Rights. However, the BT representatives indicated that BT would be inclined to
consent to an acquisition of MCI if BT were to receive cash for its shares of
MCI Class A Common Stock. The BT representatives further indicated that if BT
were to receive WorldCom Common Stock in a transaction, BT intended to dispose
of such stock promptly. Based on these discussions and the WorldCom
representatives' prior consideration of these issues, the WorldCom
representatives concluded that paying cash for the MCI Class A Common Stock held
by BT would facilitate BT's cooperation, would avoid the detrimental effects of
having a significant "overhang" on the WorldCom Common Stock during the period
before and immediately after an MCI/WorldCom merger and would result in a
purchase transaction that was more accretive than a
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<PAGE> 46
purchase transaction in which BT would receive WorldCom Common Stock for the MCI
Class A Common Stock.
Discussions also continued over that weekend in New York between
representatives of MCI and its financial and legal advisors and representatives
of WorldCom and its financial and legal advisors concerning issues related to
the revised WorldCom offer and a possible MCI/WorldCom merger, with the MCI
representatives emphasizing the importance to MCI of certainty of completion
(and, in connection therewith, requesting that WorldCom agree to pay a
significant liquidated damages amount if the MCI/WorldCom Merger were not to
close for any reason other than certain actions by MCI or its stockholders) and
the WorldCom representatives emphasizing the importance to WorldCom of (i)
obtaining MCI's agreement not to amend or redeem the MCI Rights to permit any
other transaction to be consummated prior to December 31, 1998 and (ii)
receiving a significant termination fee in the event the MCI/WorldCom Merger
Agreement were to be terminated as a result of a competing offer.
During the course of the weekend, representatives of MCI and WorldCom and
their respective financial and legal advisors also held meetings and telephonic
discussions and negotiations with representatives of BT and its financial and
legal advisors concerning termination of the amended BT Merger Agreement and
BT's potential involvement in the MCI/WorldCom Merger.
On Sunday, November 9, 1997, the negotiations between WorldCom and BT
concluded, with WorldCom agreeing to pay BT cash for its shares of MCI Class A
Common Stock and BT agreeing to, among other things, vote in favor of the
MCI/WorldCom Merger and against any competing transaction. The legal advisors to
WorldCom, MCI and BT then negotiated the terms of the BT Agreement, pursuant to
which, among other things, (i) the BT/MCI Merger Agreement would be terminated
by mutual consent of BT and MCI; (ii) WorldCom would promptly pay BT $465
million; (iii) BT would agree to vote its shares of MCI Class A Common Stock in
favor of the MCI/WorldCom Merger and against any competing transaction until the
later to occur of September 30, 1998, or the termination of the MCI/WorldCom
Merger Agreement; (iv) the parties would agree to certain changes with respect
to the Concert joint venture; (v) WorldCom would agree to withdraw its
litigation against BT and MCI, and BT would agree to withdraw its answer filed
in that litigation and (vi) WorldCom would agree to pay BT $250 million as
liquidated damages if WorldCom became obligated to pay liquidated damages to MCI
under the terms of the MCI/WorldCom Merger Agreement.
On November 9, 1997, Mr. Lee met briefly with Mr. Roberts and delivered a
letter indicating that GTE might be prepared to increase its offer above $45.00
in cash per share of MCI Capital Stock if it were given more time to conduct
additional due diligence. However, GTE did not present a detailed plan for
consummating an acquisition of MCI and did not present commitment letters or
other evidence of its ability to finance an offer of $45.00 or more.
The negotiations between WorldCom and MCI concluded on November 9, subject
to board approval by each company, with a proposed agreement on the revised
WorldCom $50.00 proposal, including $50.00 in cash for the shares of MCI Class A
Common Stock. The proposal contemplated, subject to board approval, that
WorldCom would pay MCI, as liquidated damages, an amount in cash equal to $1.635
billion in the event the MCI/WorldCom Merger Agreement were to be terminated
other than as a result of certain actions by the MCI Board or the stockholders
of MCI and that MCI would pay WorldCom a fee of $750 million (plus reimbursement
to WorldCom of the inducement amount paid by WorldCom to BT) if MCI were to
terminate the MCI/WorldCom Merger Agreement as a result of a competing proposal,
or if a competing proposal to acquire MCI is made prior to the MCI Special
Meeting, the stockholders of MCI do not approve the MCI/WorldCom Merger
Agreement and within 12 months after the termination of the MCI/WorldCom Merger
Agreement MCI enters into an agreement with respect to a competing transaction
or a competing transaction is consummated. The proposal included MCI's agreement
that it would not redeem or amend the MCI Rights other than to permit another
transaction that the MCI Board has determined is superior to the MCI/WorldCom
Merger, which other transaction would not be consummated before December 31,
1998.
On the evening of November 9, 1997, the WorldCom Board met to consider the
potential merger with MCI. At this meeting, the management of WorldCom, as well
as WorldCom's legal and financial advisors,
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<PAGE> 47
made presentations regarding their due diligence findings concerning MCI, the
terms of the definitive agreement discussed by WorldCom and MCI, and the BT
Agreement, and Salomon Brothers Inc ("Salomon") rendered an oral opinion to the
WorldCom Board to the effect that, as of such date and based upon and subject to
certain matters stated in such opinion, the consideration then proposed to be
paid pursuant to the proposed MCI/WorldCom Merger Agreement to the holders of
MCI Common Stock and MCI Class A Common Stock, taken as a whole, was fair to
WorldCom from a financial point of view. Based upon its consideration of those
presentations and matters considered at the meetings of the WorldCom Board at
which the Original WorldCom Offer was approved, as well as other factors more
fully described below, the WorldCom Board unanimously approved and authorized
the execution and delivery of the MCI/WorldCom Merger Agreement and the BT
Agreement substantially in the form presented at the meeting with such changes
thereto as each appropriate WorldCom executive officer deemed appropriate having
considered the comments and suggestions received from the WorldCom Board. In
addition, at the November 9 meeting, the WorldCom Board established a
subcommittee (the "WorldCom Subcommittee") consisting of Messrs. Ebbers,
Sidgmore and Sullivan and delegated to the WorldCom Subcommittee the authority
to establish the exact pricing terms of the MCI/WorldCom Merger, if different
from those discussed and approved by the WorldCom Board.
On the evening of November 9, 1997, the MCI Board met to consider the
proposed MCI/WorldCom Merger. Sir Peter Bonfield, Sir Colin Marshall and Mr. J.
Keith Oates did not attend because of their relationship with BT. Mr. Roberts
reported on his conversations with Mr. Lee earlier that day, and the terms of
the letter received from GTE were discussed with the MCI Board.
In addition, the recent discussions among BT, MCI and their respective
advisors were reviewed for the MCI Board. The MCI Board discussed the special
provisions applicable to the MCI Class A Common Stock held by BT, BT's rights
under the provisions of the Investment Agreement and BT's assertions as to the
impact of those provisions. Members of MCI's senior management then made
presentations and reviewed with the MCI Board the matters set forth under
"-- MCI's Reasons for the Merger; Recommendation of the MCI Board." The terms of
the MCI/WorldCom Merger Agreement were reviewed with the directors. Lazard
Freres and Lehman Brothers each then rendered its oral opinion that as of such
date the consideration then proposed to be paid pursuant to the proposed
MCI/WorldCom Merger Agreement to the holders of MCI Common Stock (other than BT
and WorldCom) was fair from a financial point of view to such holders and made a
presentation in connection with the delivery of such oral fairness opinions.
Each of Lazard Freres and Lehman Brothers confirmed their respective oral
opinions by subsequent written opinions dated as of November 9, 1997, which
reflected the final merger consideration agreed upon by the parties. See
"-- Opinions of MCI's Financial Advisors." After discussion and consideration,
the MCI Board voted unanimously (with Sir Peter Bonfield, Sir Colin Marshall and
Mr. J. Keith Oates not attending due to their relationship with BT) to terminate
the BT/MCI Merger Agreement and to approve the MCI/WorldCom Merger and the
MCI/WorldCom Merger Agreement and the BT Agreement and related documents for the
transaction, subject to Mr. Roberts, at the request of the MCI Board, making one
more attempt to seek additional consideration for MCI stockholders from
WorldCom. The MCI Board authorized Mr. Roberts to execute the MCI/WorldCom
Merger Agreement and the BT Agreement substantially in the form presented at the
meeting.
The MCI Board meeting was adjourned while Mr. Roberts telephoned Mr. Ebbers
and requested that the consideration to be received by MCI stockholders in the
proposed MCI/WorldCom Merger be increased. During their conversation Mr. Ebbers
agreed (subject to the approval of the WorldCom Subcommittee) to increase the
consideration to $51.00 of WorldCom Common Stock (subject to adjustment based on
the WorldCom Average Trading Price during the Measurement Period, as described
herein).
Subsequently Mr. Roberts reported to the MCI Board on his conversations
with Mr. Ebbers. After discussion and consideration, the MCI Board unanimously
(with Sir Peter Bonfield, Sir Colin Marshall and Mr. J. Keith Oates not
participating due to their relationship with BT) reconfirmed, based on the final
pricing terms, its approval of the MCI/WorldCom Merger, the MCI/WorldCom Merger
Agreement, the BT Agreement and the transactions contemplated thereby.
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<PAGE> 48
Later that evening, the WorldCom Subcommittee met to consider the final
pricing terms of the MCI/ WorldCom Merger. Salomon rendered an oral opinion
(subsequently confirmed in writing) to the effect that, as of such date and
based on certain matters stated in such opinion, the consideration to be paid
pursuant to the MCI/WorldCom Merger Agreement to the holders of MCI Common Stock
and MCI Class A Common Stock was fair to WorldCom from a financial point of
view. Based upon the presentations and discussions at the full WorldCom Board
meeting, the developments since the full WorldCom Board meeting and the opinion
of Salomon rendered to the WorldCom Subcommittee, the WorldCom Subcommittee
approved the final pricing terms set forth in the MCI/WorldCom Merger Agreement.
After the requisite approvals were obtained from the BT Board of Directors,
on November 9, 1997, the BT Agreement was executed, the MCI/WorldCom Merger
Agreement was executed and the BT/MCI Merger Agreement was terminated.
The execution of the MCI/WorldCom Merger Agreement and the BT Agreement, as
well as the termination of the BT/MCI Merger Agreement, were publicly announced
on November 10, 1997.
WORLDCOM'S REASONS FOR THE MCI/WORLDCOM MERGER;
RECOMMENDATION OF THE WORLDCOM BOARD
THE WORLDCOM BOARD HAS UNANIMOUSLY DETERMINED THAT THE MCI/WORLDCOM MERGER,
THE SHARE ISSUANCE AND THE CHARTER AMENDMENT ARE IN THE BEST INTERESTS OF
WORLDCOM AND ITS SHAREHOLDERS AND HAS APPROVED THE MCI/WORLDCOM MERGER
AGREEMENT. THE WORLDCOM BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF
WORLDCOM VOTE IN FAVOR OF THE SHARE ISSUANCE AND THE CHARTER AMENDMENT AT THE
WORLDCOM SPECIAL MEETING.
The WorldCom Board believes that the MCI/WorldCom Merger will create a
fully integrated communications company that will be well positioned to take
advantage of growth opportunities in global telecommunications. The combined
company, MCI WorldCom, is expected to have over $30 billion in 1998 pro forma
revenues and will provide a complete range of local, long distance, Internet and
international communications services. In addition, the WorldCom Board has
concluded that the MCI/WorldCom Merger presents significant opportunities for
cost savings and operating efficiencies. WorldCom estimates that annual cash
operating cost synergies of $2.5 billion are achievable in 1999, increasing to
$5.6 billion by 2002. In addition, capital expenditure savings of $2 billion per
year are expected in 1999 and beyond. There can, however, be no assurance that
any specific level of cost savings or other synergies will be achieved or that
such cost savings or other synergies will be achieved within the time period
contemplated.
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<PAGE> 49
Set forth below are the synergies originally estimated by WorldCom to be
achievable as a result of the MCI/WorldCom Merger and the revised synergy
estimates prepared by WorldCom following the exchange of information between MCI
and WorldCom.
The information contained in this section "WorldCom's Reasons for the
MCI/WorldCom Merger; Recommendation of the WorldCom Board" was not prepared with
a view toward compliance with published guidelines of the SEC or the American
Institute of Certified Public Accountants regarding forward-looking information
or generally accepted accounting principles and was not examined, reviewed or
compiled by independent public accountants and, accordingly, the independent
public accountants do not express an opinion or any other form of assurance with
respect thereto. The estimates of achievable cost synergies ("synergies") were
based upon a variety of estimates and assumptions. The estimates and assumptions
underlying the synergies which involved judgments with respect to, among other
things, future economic, competitive, regulatory and financial market conditions
and future business decisions which may not be realized and are inherently
subject to significant business, economic, competitive and regulatory
uncertainties, all of which are difficult to predict and many of which are
beyond the control of WorldCom and MCI and will be beyond the control of MCI
WorldCom. There can be no assurance that the synergies will be realized, and
actual results may vary materially from those shown. Additionally, the synergies
do not reflect revised prospects for WorldCom's, MCI's or MCI WorldCom's
businesses, changes in general business and economic conditions, or any other
transaction or event that has occurred or that may occur and that was not
anticipated at the time such information was prepared. None of the synergies
were intended to be a forecast of profits by WorldCom, MCI and MCI WorldCom or
any of their directors, and in deciding whether or not to approve the
MCI/WorldCom Merger, shareholders of WorldCom and stockholders of MCI should not
put undue reliance upon any such synergies. Neither WorldCom nor MCI have
updated or supplemented this information or intend to do so. This section
contains "forward looking statements" within the meaning of the PSLRA. See
"Cautionary Statement Regarding Forward-Looking Statements" and "Risk Factors."
ESTIMATES OF ACHIEVABLE COST SYNERGIES
PREVIOUS SYNERGY ESTIMATES
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
-------------------------------
1999 2000 2001 2002
---- ---- ---- ----
(DOLLARS IN BILLIONS)
<S> <C> <C> <C> <C>
Network synergies and avoided local losses...................... $1.5 $2.0 $2.7 $3.2
Core SG&A....................................................... 0.9 1.0 1.1 1.2
---- ---- ---- ----
Total pre-tax cash operating synergies.......................... $2.4 $3.0 $3.8 $4.4
As a % of combined revenues................................... 6% 6% 7% 7%
As a % of combined operating expenses......................... 8% 8% 9% 9%
Capital expenditure savings..................................... $1.5 $1.6 $1.5 $1.5
As a % of combined revenues................................... 4% 3% 3% 2%
As a % of combined capital expenditures....................... 20% 21% 19% 18%
</TABLE>
REVISED SYNERGY ESTIMATES
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
-------------------------------
1999 2000 2001 2002
---- ---- ---- ----
(DOLLARS IN BILLIONS)
<S> <C> <C> <C> <C>
Network synergies and avoided local losses...................... $1.6 $2.6 $3.5 $4.4
Core SG&A....................................................... 0.9 1.0 1.1 1.2
---- ---- ---- ----
Total pre-tax cash operating synergies.......................... $2.5 $3.6 $4.6 $5.6
As a % of combined revenues................................... 6% 8% 8% 8%
As a % of combined operating expenses......................... 8% 10% 11% 12%
Capital expenditure savings..................................... $2.0 $2.0 $2.0 $2.0
As a % of combined revenues................................... 5% 4% 4% 3%
As a % of combined capital expenditures....................... 26% 26% 24% 23%
</TABLE>
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<PAGE> 50
MCI WorldCom will be the second largest long distance carrier in the United
States. The combined company will begin operations with one of the industry's
strongest bases of business customers and more than 22 million small business
and residential customers.
The WorldCom Board believes that the MCI/WorldCom Merger will create a
company strongly positioned to fulfill the promise of the Telecom Act and
accelerate the onset of competition in local telecommunications. The new company
will offer local service over its own facilities, including more than 9,000
route miles of local fiber, in more than 100 markets.
MCI WorldCom, with offices in 65 countries, will be the second largest
carrier of international voice traffic in the world. The WorldCom Board believes
that the combination of WorldCom, and MCI will position MCI WorldCom as a
powerful competitor in the $670 billion global telecom industry.
MCI WorldCom will bring together the Internet expertise of UUNET and MCI to
create one of the world's largest providers of Internet services. The company's
advanced portfolio of Internet/data services will include access, web hosting
and development, intranet applications as well as high-speed virtual data
services.
The WorldCom Board believes that MCI WorldCom will provide global customers
with unparalleled networking strength and more than 20 years of experience in
systems integration, superior outsourcing capabilities and technology support
and implementation.
For the foregoing reasons, the WorldCom Board believes that the terms and
conditions of the MCI/WorldCom Merger Agreement are in the best interests of
WorldCom and its shareholders. In reaching its conclusion, the WorldCom Board
considered, among other things, (i) the judgment, advice and analyses of its
management, (ii) the judgment and advice of, and the analyses prepared by,
Salomon, (iii) the financial condition, results of operations and cash flows of
WorldCom and MCI, both on a historical and a prospective basis, (iv) the
synergies, cost reductions and operating efficiencies that should be available
to the combined enterprise as a result of the MCI/WorldCom Merger, (v) the many
management challenges associated with successfully integrating the businesses of
two major corporations (along with BFP, CompuServe and ANS), (vi) the strategic
benefits of the MCI/WorldCom Merger and the current and anticipated environment
in the telecommunications industry and the other strategic options available to
WorldCom, (vii) the terms and conditions of the MCI/WorldCom Merger Agreement,
(viii) historical market prices and trading information with respect to WorldCom
Common Stock and MCI Common Stock, (ix) the terms and conditions of the BT
Agreement, (x) the significant worldwide enhancement of the market position of
the combined enterprise, (xi) the likelihood of receiving regulatory clearance
for the MCI/WorldCom Merger, (xii) the business and financial information
received by WorldCom and MCI following the execution of confidentiality
agreements between the companies, (xiii) current industry, economic and market
conditions, (xiv) the corporate governance arrangements set forth in the
MCI/WorldCom Merger Agreement, including that WorldCom directors (including
directors designated by WorldCom from among pending acquisitions by WorldCom)
would constitute two-thirds of the Board of Directors of the combined company
and that Mr. Roberts would serve as Chairman of the Board of the combined
company and Mr. Ebbers would serve as Chief Executive Officer of the combined
company, and (xv) the percentage ownership of the combined company to be owned
by shareholders of WorldCom, and the potential variation in the Exchange Ratio
based upon changes in the price of WorldCom Common Stock.
The foregoing discussion of the information and factors considered by the
WorldCom Board is not intended to be exhaustive but is believed to include all
material factors considered by the WorldCom Board. In view of the variety of
factors considered in connection with its evaluation of the proposed
MCI/WorldCom Merger, the WorldCom Board did not find it practicable to and did
not quantify or otherwise assign relative weights to the specific factors
considered in reaching its determination.
OPINION OF WORLDCOM'S FINANCIAL ADVISOR
At the meeting of the WorldCom Subcommittee held on November 9, 1997,
Salomon delivered its oral opinion, subsequently confirmed in writing to the
full WorldCom Board, that, as of such date, the Exchange Ratio and the MCI Class
A Common Stock Merger Consideration, taken as a whole, were fair to WorldCom
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<PAGE> 51
from a financial point of view. (At the meeting of the full WorldCom Board held
earlier that evening, Salomon had also rendered an oral opinion that the
consideration then proposed to be paid pursuant to the MCI/WorldCom Merger
Agreement to the holders of MCI Common Stock and MCI Class A Common Stock, taken
as a whole, was fair to WorldCom from a financial point of view). No limitations
were imposed by the WorldCom Board upon Salomon with respect to the
investigation made or the procedures followed by Salomon in rendering its
opinion.
The full text of the written opinion of Salomon is set forth as Annex III
to this Joint Proxy Statement/ Prospectus and sets forth the assumptions made,
procedures followed and matters considered by Salomon. Holders of WorldCom
Common Stock are urged to read Salomon's opinion in its entirety. The summary of
the opinion as set forth in this Joint Proxy Statement/Prospectus is qualified
in its entirety by reference to the full text of such opinion.
In connection with rendering its opinion, Salomon reviewed certain publicly
available information concerning WorldCom and MCI and certain other financial
information concerning WorldCom and MCI, including financial forecasts, that
were provided to Salomon by WorldCom and MCI, respectively. Salomon also
discussed the business operations and financial condition of WorldCom and MCI as
well as other matters it believed relevant to its inquiry, including matters
relating to the obtaining of regulatory approvals for the MCI/WorldCom Merger,
with certain officers and employees of WorldCom and MCI, respectively. Salomon
also considered such other information, financial studies, analyses,
investigations and financial, economic and market criteria that Salomon deemed
relevant.
In its review and analysis and in arriving at its opinion, Salomon assumed
and relied upon the accuracy and completeness of the financial and other
information (including information relating to the obtaining of regulatory
approvals for the MCI/WorldCom Merger) reviewed by Salomon, and Salomon did not
assume any responsibility for independent verification of such information. With
respect to the financial forecasts of WorldCom and MCI, Salomon assumed that
such forecasts had been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the respective managements of
WorldCom and MCI as to the future financial performance of WorldCom or MCI,
respectively, and the cost savings and other potential synergies (including the
amount, timing, and achievability thereof) anticipated to result from the
MCI/WorldCom Merger, and Salomon expressed no opinion with respect to such
forecasts or the assumptions on which such forecasts were based. Salomon did not
make or obtain or assume any responsibility for making or obtaining any
independent valuations or appraisals of any of the assets (including properties
and facilities) or liabilities of WorldCom or MCI.
The forecasts and other projections furnished to Salomon for each of
WorldCom and MCI and estimates of potential cost savings and other synergies
resulting from the MCI/WorldCom Merger were prepared by the respective
managements of each company and constitute forward-looking statements within the
meaning of the PSLRA. As a matter of policy, neither WorldCom nor MCI publicly
discloses internal management forecasts, projections or estimates of the type
furnished to Salomon in connection with its analysis of the MCI/WorldCom Merger
terms, and such forecasts, projections and estimates were not prepared with a
view towards public disclosure. These forecasts, projections and estimates were
based on numerous variables and assumptions which are inherently uncertain and
which may not be within the control of the management of either WorldCom or MCI,
including, without limitation, factors related to the integration of WorldCom
and MCI and general economic, regulatory and competitive conditions.
Accordingly, actual results could vary materially from those set forth in such
forecasts, projections and estimates. See "Cautionary Statement Regarding
Forward-Looking Statements" and "Risk Factors."
Salomon's opinion is necessarily based upon conditions as they existed and
could be evaluated on the date thereof. Salomon's opinion does not imply any
conclusion as to the likely trading range for WorldCom Common Stock following
the consummation of the MCI/WorldCom Merger, which may vary depending upon,
among other factors, changes in interest rates, dividend rates, market
conditions, general economic conditions and other factors that generally
influence the price of securities. Salomon's opinion does not address WorldCom's
underlying business decision to effect the MCI/WorldCom Merger, nor does it
address WorldCom's decision as to financing the MCI/WorldCom Merger and other
transactions contemplated by
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<PAGE> 52
the MCI/WorldCom Merger Agreement and the BT Agreement. Further, Salomon's
opinion is directed only to the fairness, from a financial point of view, of the
Exchange Ratio and the MCI Class A Common Stock Merger Consideration, taken as a
whole, to WorldCom and does not constitute a recommendation concerning how
holders of WorldCom Common Stock should vote with respect to the transactions
contemplated by the MCI/WorldCom Merger Agreement. In rendering its opinion,
Salomon assumed that, in the ordinary course of obtaining necessary regulatory
approvals for the MCI/WorldCom Merger, no restrictions will be imposed that
would have a material adverse effect on the contemplated benefits of the
MCI/WorldCom Merger to WorldCom following the MCI/WorldCom Merger.
In connection with its opinion, Salomon performed certain financial
analyses, which it discussed with the full WorldCom Board on November 9, 1997.
The material portions of the analyses performed by Salomon in connection with
the rendering of its opinion dated November 9, 1997, are summarized below.
(i) Historical Stock Price Performance. Salomon reviewed the
relationship between movements of MCI Common Stock, WorldCom Common Stock,
GTE common stock, BT ADSs and the Standard & Poor's 400 Index for the
period from June 2, 1997, through November 6, 1997, the trading volume and
price history of MCI Common Stock for the period from October 1, 1996
through November 6, 1997, and the trading volume and price history of
WorldCom Common Stock for the period from June 2, 1997, through November 6,
1997.
(ii) Historical Exchange Ratio Analysis. Salomon also reviewed the
daily closing prices of WorldCom Common Stock and MCI Common Stock during
the period from September 15, 1993, through November 7, 1997, and the
implied historical exchange ratios determined by dividing the price per
share of MCI Common Stock by the price per share of WorldCom Common Stock
(the "Historical Exchange Ratio") over such period. Salomon calculated that
during this period the Historical Exchange Ratio ranged from a high of 3.10
to a low of 0.78 with an average of 1.63 and a ratio on November 7, 1997
(the last trading day before announcement of the MCI/WorldCom Merger
Agreement), of 1.11. Pursuant to the MCI/WorldCom Merger Agreement, the
maximum Exchange Ratio is 1.7586 and the minimum Exchange Ratio is 1.2439.
(iii) Synergies. Salomon reviewed the synergy estimates provided by
the management of WorldCom (the "WorldCom Synergy Estimates"), as well as
the revised synergy estimates prepared after the management of WorldCom
held discussions and exchanged information with the management of MCI (the
"Revised Synergy Estimates"). The synergy estimates reflect only the
incremental benefits expected by the management of WorldCom to result from
the MCI/WorldCom Merger compared to WorldCom on a stand-alone basis (pro
forma for the CompuServe Merger, the AOL Transaction and the BFP Merger),
and exclude any revenue synergies. Salomon then estimated the present value
of the future streams of after-tax cash flows generated by those synergies,
by applying discount rates reflecting a weighted average cost of capital
("WACC") ranging from 11.0% to 13.0% per annum to such cash flows through
2002 and by adding a terminal value determined by projecting a range of
nominal perpetual synergy growth rates ranging from 0.0% to 3.0%. This
analysis resulted in a range of values for the synergies of $30.9 billion
to $48.8 billion. Actual results may vary from the WorldCom Synergy
Estimates and the Revised Synergy Estimates and the variations may be
material. See "Cautionary Statement Regarding Forward-Looking Statements"
and "Risk Factors."
(iv) Business Division Analysis. Salomon arrived at a range of values
for MCI by separately valuing its long-distance business division ("MCI
Long Distance"), local business division ("MCI Local"), information
technologies services business division ("MCI IT Services") and its
cellular resale business division ("MCI Cellular Resale"). Salomon utilized
two principal valuation methodologies in valuing these business divisions:
a public market analysis and a private market analysis. Public market
analysis analyzes a division's operating performance and outlook relative
to a group of publicly traded peer companies to determine an implied
unaffected market trading value. Private market analysis provides a
valuation range based upon financial information of companies in the same
or similar industries as the business division which have been acquired in
selected recent transactions. No company used in the public market analyses
described below is identical to the respective business division of MCI and
no
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transaction used in the private market analyses described below is
identical to the MCI/WorldCom Merger. Accordingly, an analysis of the data
described below necessarily involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
business divisions and other facts that could affect the public trading
value or the acquisition value of the companies to which they are being
compared.
MCI Long Distance
Public Market Analysis. Salomon compared certain financial
information of MCI Long Distance with two groups of companies that
Salomon believed to be appropriate for comparison. The first group,
which Salomon believed was more closely comparable to MCI Long Distance,
included AT&T, Sprint and WorldCom (the "First Tier Long Distance
Comparable Companies"). The second group included Frontier Corporation
("Frontier") and LCI International Inc. ("LCI") (the "Second Tier Long
Distance Comparable Companies"), which Salomon believed were somewhat
less comparable to MCI Long Distance. The financial and valuation data
for the comparable companies were adjusted by Salomon to estimate the
financial and valuation characteristics of pure play long distance
carriers. Salomon reviewed the multiples of firm value to estimated 1997
earnings before interest, taxes, depreciation and amortization
("EBITDA") represented by the trading prices of the First Tier Long
Distance Comparable Companies, which ranged from 4.3x to 12.5x, with a
mean and a median, excluding WorldCom, of 4.7x, and the comparable
multiples for the Second Tier Long Distance Companies, which ranged from
10.3x to 12.6x, with a mean and a median of 11.5x. Using this
information and other factors relevant in the valuation of MCI Long
Distance, Salomon determined a multiple range for MCI Long Distance of
4.0x to 5.0x. This analysis resulted in a valuation of MCI Long
Distance, based on a projected 1997 EBITDA of $4.2 billion, ranging from
$17.0 billion to $21.2 billion. Actual results may vary from the EBITDA
estimate and the variations may be material. See "Cautionary Statement
Regarding Forward-Looking Statements" and "Risk Factors."
Private Market Analysis. Salomon reviewed and analyzed certain
financial, operating and stock market information relating to the
following selected merger transactions involving long-distance
telecommunications companies. The transactions used in the analysis
(some of which were completed and others of which were announced but not
completed) included LCI's acquisition of USLD Communication Corp., Excel
Communications Inc.'s acquisition of Telco Communication Group, Inc.,
BT's acquisition of MCI, ACC Corp.'s acquisition of ACC TelEnterprises
Ltd., Tel-Save Holdings, Inc.'s acquisition of TOTAL-TEL USA
Communications, Inc., LCI's acquisition of Teledial America Inc. d/b/a
U.S. Signal Corporation, Deutsche Telekom AG/France Telecom's
acquisition of Sprint, Frontier's acquisition of Schneider
Communications/Link USA, LCI's acquisition of Corporate Telemanagement
Group Inc., Frontier's acquisition of Enhanced Tele Management, Inc.,
Frontier's acquisition of ALC Communications Corporation, Frontier's
acquisition of American Sharecom, Inc., Frontier's acquisition of WCT
Communications, Inc., LDDS Communications, Inc.'s (now known as
WorldCom) acquisition of Williams Telecommunications Group, Inc., LDDS
Communications, Inc.'s acquisition of ACC Corporation, Metromedia
Communications Corporation's acquisition of Resurgens Communications
Group Inc. ("Resurgens"), LDDS Communications, Inc.'s acquisition of
Resurgens, BCE Inc.'s acquisition of Mercury Communications, LDDS
Communications, Inc.'s acquisition of Advanced Telecommunications
Corporation, Sprint's acquisition of GTE, and Resurgen's acquisition of
Com Systems, Inc (the "Precedent Long Distance Transactions"). Salomon
reviewed the multiples of firm value to EBITDA in the most recently
announced last twelve months ("LTM") prior to announcement of the
relevant transaction represented by the Precedent Long Distance
Transactions, which ranged from 3.8x to 34.6x, with a mean of 14.9x and
a median of 13.0x. Using this information and other factors deemed
relevant in the valuation of MCI Long Distance, Salomon determined a
multiple range for MCI Long Distance of 5.0x to 6.0x. This analysis
resulted in a valuation of MCI Long Distance, based on projected 1997
EBITDA of $4.2 billion, ranging from $21.2 billion to
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$25.5 billion. Actual results may vary from the EBITDA estimate and the
variations may be material. See "Cautionary Statement Regarding
Forward-Looking Statements" and "Risk Factors."
MCI Local
Public Market Analysis. Salomon compared certain financial
information of MCI Local with the following group of companies that
Salomon believed to be appropriate for comparison: American
Communications Services, Inc., GST Telecommunications, Inc., ICG
Communications, Inc., Intermedia Communications Inc., McLeodUSA, Inc.,
Nextlink Communications Inc., Teleport Communications Group Inc. and
WinStar Communications Inc. (the "Local Comparable Companies"). Salomon
reviewed the multiples of firm value to last quarter annualized ("LQA")
revenues represented by the trading prices of the Local Comparable
Companies, which ranged from 6.1x to 31.8x, with a mean of 14.3x and a
median of 13.2x. Using this information and other factors deemed
relevant in the valuation of MCI Local, Salomon determined a multiple
range for MCI Local of 13.0x to 16.0x. This analysis resulted in a
valuation of MCI Local, based on LQA revenues of $320 million, ranging
from $4.2 billion to $5.1 billion.
Private Market Valuation Analysis. Salomon reviewed and analyzed
certain financial, operating and stock market information relating to
selected merger transactions involving competitive local exchange
carriers. The transactions used in this analysis included the BFP
Merger, BFP's acquisition of Metro Access Networks, Inc. and WorldCom's
acquisition of MFS Communications Company Inc. ("MFS") (the "MFS
Merger") (the "Precedent Local Transactions"). Salomon reviewed the
multiples of firm value to LQA revenues represented by the Precedent
Local Transactions, which ranged from 12.1x to 25.7x, with a mean of
19.4x and a median of 20.4x. Using this information and other factors
deemed relevant in the valuation of MCI Local, Salomon determined a
multiple range for MCI Local of 12.0x to 20.0x. This analysis resulted
in a valuation of MCI Local, based on LQA revenues of $320 million,
ranging from $3.8 billion to $6.4 billion.
IT Services
Public Market Analysis. Salomon compared certain financial
information of MCI IT Services with the following group of companies
that Salomon believed to be appropriate for comparison: Affiliated
Computer Services, Inc., American Management Systems Incorporated, CACI
International Inc, Computer Sciences Corporation, and Electronic Data
Systems Corporation (the "IT Comparable Companies"). Salomon reviewed
the multiples of firm value to LTM revenues represented by the trading
prices of the IT Comparable Companies, which ranged from 0.8x to 1.5x,
with a mean and a median of 1.1x. Using this information and other
factors deemed relevant in the valuation of MCI IT Services, Salomon
determined a multiple range for MCI IT Services of 1.0x to 1.4x. This
analysis resulted in a valuation of MCI IT Services, based on LTM
revenues of $1.6 billion, ranging from $1.6 billion to $2.2 billion.
Private Market Analysis. Salomon reviewed and analyzed certain
financial, operating and stock market information relating to selected
merger transactions involving information technology services companies.
The transactions used in this analysis included CIBER's acquisition of
Davis Thomas & Associates, Inc., CIBER's acquisition of Spectrum
Technology Group, Inc. Analysts International Corporation's acquisition
of DPI, Inc-Software Services Business, MCI's acquisition of SHL
Systemhouse Inc., Cambridge Technology Partners' acquisition of The
Systems Consulting Group, Inc., CIBER's acquisition of C.P.U. Inc.,
Computer Science Corporation's acquisition of ARC Professional Services
Group, CIBER's acquisition of Technology Management Group, Inc.,
Affiliated Computer Services, Inc's. acquisition of Genix Group (MCN,
Corp), CIBER's acquisition of CIBER Network Services, Inc., Cambridge
Technology Partners' acquisition of Ramos & Associates, Inc., The
Registry Inc.'s acquisition of Renaissance Solutions, Inc., BRC Holdings
Inc.'s acquisition of The Pace Group, Inc., Computer Sciences
Corporation's acquisition of The Continuum Co. Inc., Cambridge
Technology's acquisition of Axiom Management Consulting, Inc.,
Electronic Data Systems Corporation's acquisition of A.T. Kearney, and
Keane, Inc.'s, acquisition of
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AGS Information Services (the "Precedent IT Transactions"). Salomon
reviewed the multiples of firm value to LTM revenues represented by the
Precedent IT Transactions, which ranged from 0.3x to 7.2x, with a mean
of 1.6x and a median of 1.2x. Using this information and other factors
deemed relevant in the valuation of MCI IT Services, Salomon determined
a multiple range for MCI IT Services of 1.2x to 1.6x. This analysis
resulted in a valuation of MCI IT Services, based on LTM revenues of
$1.6 billion, ranging from $1.9 billion to $2.6 billion.
Cellular Resale
Public Market Analysis. Salomon compared certain financial
information of MCI Cellular Resale with a group of companies that
Salomon believed to be appropriate for comparison. Salomon reviewed the
multiples of firm value to subscribers represented by the trading prices
of the comparable companies. Using this information and other factors
deemed relevant in the valuation of MCI Cellular Resale, Salomon
determined a multiple range for MCI Cellular Resale of $450 to $600 per
subscriber. This analysis resulted in a valuation of MCI Cellular
Resale, based on 434,000 subscribers, ranging from $195 million to $260
million.
Private Market Analysis. Salomon reviewed and analyzed certain
financial, operating and stock market information relating to MCI's
acquisition of Nationwide Cellular Service, Inc. Salomon reviewed the
multiple of firm value to subscribers in such transaction, which was
$770. Using this information and other factors deemed relevant in the
valuation of MCI Cellular Resale, Salomon determined a multiple range
for MCI Cellular Resale of $600 to $800 per subscriber. This analysis
resulted in a valuation of MCI Cellular Resale, based on 434,000,
subscribers ranging from $260 million to $347 million.
Total MCI Valuation
By combining the stand-alone valuations for MCI Long Distance, MCI
Local, MCI IT Services and MCI Cellular Resale described above and
making certain adjustments for debt, mandatorily redeemable preferred
securities, cash and cash equivalents, investments and option proceeds,
this analysis resulted in a valuation range for MCI's aggregate equity
of $22.8 billion to $28.7 billion, or $29.21 to $36.79 per share, using
the public market analysis and $27.1 billion to $34.6 billion, or $34.74
to $44.39 per share, using the private market analysis, based on the
number of fully-diluted shares as of August 19, 1997. After applying a
15% conglomerate discount to the public market analysis and adding the
present value of the Revised Synergy Estimates, using a discount rate of
12% and a nominal perpetual synergy growth rate of 1.5% (the "Assumed
Synergy Value"), this analysis resulted in a range of implied per share
value of MCI Capital Stock including synergies ranging from $73.21 to
$79.65. Actual results may vary from the Revised Synergy Estimates or
the assumed perpetual synergy growth rate and the variations may be
material. See "Cautionary Statement Regarding Forward-Looking
Statements" and "Risk Factors."
(v) Discounted Cash Flow Analysis. Salomon performed a discounted cash
flow analysis to provide insight into the intrinsic value of MCI based on
projected earnings and capital requirements and the subsequent cash flows
generated by the assets of MCI. Salomon derived ranges of per share equity
value for MCI based upon the present value of its fiscal year end five-year
stream of projected cash flow and the projected fiscal year 2002 terminal
values based upon a range of multiples of its projected fiscal year 2002
EBITDA if MCI were to continue on a stand-alone basis (without giving
effect to the MCI/WorldCom Merger). Salomon applied discount rates
reflecting a WACC ranging from 11.0% to 13.0% and multiples of terminal
EBITDA ranging from 5.0x to 7.0x. Salomon performed this analysis with
respect to MCI by using both the original projections provided by the
management of WorldCom (the "WorldCom Projections") and projections
provided by MCI. Based on terminal EBITDA multiples ranging from 5.5x to
6.5x and discount rates of 11.5% to 12.5%, this analysis resulted in
implied per share values of MCI Capital Stock ranging from $29.82 to $36.52
based on the WorldCom Projections and from $36.86 to $44.61 based on the
MCI projections. After adding the Assumed Synergy Value these analyses
resulted in implied per share values of MCI Capital Stock including
synergies ranging from $78.20 to $84.90
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based on the WorldCom Projections and $85.24 to $92.99 based on the MCI
projections. Actual results may vary from the WorldCom Projections and the
MCI projections and the variations may be material. See "Cautionary
Statement Regarding Forward-Looking Statements" and "Risk Factors."
(vi) WorldCom Valuation Analysis. Salomon also performed a discounted
cash flow analysis of WorldCom. Salomon derived ranges of per share equity
value for WorldCom based upon the present value of its fiscal year end
five-year stream of projected cash flow and the projected fiscal year 2002
terminal values based upon a range of multiples of its projected fiscal
year 2002 EBITDA if WorldCom were to continue on a stand-alone basis
(without giving effect to the MCI/WorldCom Merger). Actual results may vary
from the projected cash flows and projected 2002 EBITDA and the variations
may be material. See "Cautionary Statement Regarding Forward-Looking
Statements" and "Risk Factors." Salomon applied discount rates reflecting a
WACC ranging from 11.0% to 13% and multiples of terminal EBITDA ranging
from 7.0x to 9.0x. This analysis resulted in a range of implied per share
equity values for WorldCom of $37.69 to $54.18. In addition, Salomon
reviewed the recommendations and price targets of certain Wall Street
analysts following WorldCom's third quarter 1997 earnings release. WorldCom
takes no responsibility for any of the research analyst estimates. Actual
results may vary from such estimates and the variations may be material.
See "Cautionary Statement Regarding Forward-Looking Statements" and "Risk
Factors." Salomon also compared, based upon stock prices on November 6,
1997, and projected 1997 and 1998 earnings per share, the stock price to
earnings ("P/E") multiple of WorldCom Common Stock to the P/E multiples of
a group of long distance companies, including AT&T, MCI, Sprint, Frontier
and LCI, which Salomon determined to be comparable to WorldCom.
The preparation of a fairness opinion is a complex process not susceptible
to partial analysis or summary descriptions. The summary set forth above does
not purport to be a complete description of the analyses underlying Salomon's
opinion or its presentation to the WorldCom Board. Salomon believes that its
analyses and the summary set forth above must be considered as a whole and that
selecting portions of its analyses and the factors considered by it, without
considering all analyses and factors, could create an incomplete view of the
processes underlying the analyses set forth in its opinion.
In performing its analyses, Salomon made numerous assumptions with respect
to industry performance, general business, financial, market and economic
conditions and other matters, many of which are beyond the control of WorldCom
or MCI. The analyses which Salomon performed are not necessarily indicative of
actual values or actual future results, which may be significantly more or less
favorable than suggested by such analyses. Such analyses were prepared solely as
part of Salomon's analysis of the fairness, from a financial point of view, of
the Exchange Ratio and the MCI Class A Common Stock Merger Consideration, taken
as a whole, to WorldCom. The analyses do not purport to be appraisals or to
reflect the prices at which a company might actually be sold or the prices at
which any securities may trade at the present time or at any time in the future.
In the ordinary course of its business, Salomon (including its current and
future affiliates) actively trades the securities of WorldCom and MCI for its
own account and for the accounts of its customers and, accordingly, may at any
time hold a significant long or short position in such securities. Pursuant to
an engagement letter dated September 29, 1997, WorldCom agreed to pay Salomon a
fee of: (a) $2 million, which became payable following the public announcement
of the Original WorldCom Offer; plus (b) an additional fee of $3 million, which
became payable following the termination of the BT/MCI Merger Agreement; plus
(c) an additional fee of $5 million which became payable upon the execution of
the MCI/ WorldCom Merger Agreement; plus (d) a fee of $32.5 million (less any
fees paid under the immediately preceding clauses (a), (b) and (c)) contingent
upon the consummation of the MCI/WorldCom Merger and payable promptly after the
closing thereof. WorldCom also agreed, under certain circumstances, to reimburse
Salomon for certain out-of-pocket expenses incurred by Salomon in connection
with the MCI/WorldCom Merger, and agreed to indemnify Salomon and certain
related persons against certain liabilities, including liabilities under the
federal securities laws, relating to or arising out of its engagement.
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Salomon is an internationally recognized investment banking firm that
provides financial services in connection with a wide range of business
transactions. As part of its business, Salomon regularly engages in the
valuation of companies and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and other
purposes. In the past, Salomon has rendered banking and financial advisory
services to WorldCom for which Salomon received customary compensation. The
WorldCom Board retained Salomon based on Salomon's expertise in the valuation of
companies as well as its substantial experience in transactions such as the
MCI/WorldCom Merger.
MCI'S REASONS FOR THE MCI/WORLDCOM MERGER; RECOMMENDATION OF THE MCI BOARD
At a special meeting on November 9, 1997, the MCI Board determined that the
MCI/WorldCom Merger Agreement and the transactions contemplated thereby were
fair to, and in the best interests of, MCI and its stockholders. Accordingly, at
such meeting, the MCI Board unanimously approved the MCI/WorldCom Merger
Agreement and directed that the MCI/WorldCom Merger Agreement be submitted to
MCI stockholders for approval and adoption (with Sir Peter Bonfield, Sir Colin
Marshall and Mr. J. Keith Oates not attending due to their relationship with
BT).
THE MCI BOARD RECOMMENDS A VOTE FOR THE MCI/WORLDCOM MERGER.
The determination of the MCI Board to approve the MCI/WorldCom Merger
Agreement was based upon consideration of a number of factors. The following is
a list of the material factors considered by the MCI Board in the evaluation of
the MCI/WorldCom Merger and the MCI/WorldCom Merger Agreement:
1. The Merger Consideration negotiated with WorldCom and the implied
premium for MCI Common Stock over (i) the recent market price of MCI Common
Stock (ii) the implied purchase price set forth in the Original BT/MCI
Merger Agreement and the amended BT/MCI Merger Agreement and (iii) the GTE
Proposal;
2. The opportunity for MCI stockholders to participate as stockholders
of MCI WorldCom in a large, fully integrated telecommunications company of
which MCI would be a significant part and in the value that may be
generated through the combination of the two companies;
3. The complementary strengths of WorldCom and MCI particularly in
U.S. local markets, domestic and international long distance markets and in
the Internet services market in the U.S. and abroad;
4. The potential cost savings and revenue enhancement opportunities
available from a combination of the two companies;
5. The strong management team drawn from both companies that will
manage MCI WorldCom and the shared culture and entrepreneurial vision of
the management and employees of both companies developed from their status
as leading challengers to the incumbent carriers in the U.S. and abroad;
6. The fact that the MCI/WorldCom Merger is designed to be tax-free to
the holders of MCI Common Stock;
7. The oral opinion of Lazard Freres to the effect that, as of
November 9, 1997 the proposed MCI Common Stock Merger Consideration to be
received by holders of MCI Common Stock (other than BT or WorldCom) in the
MCI/WorldCom Merger pursuant to the proposed MCI/WorldCom Merger Agreement
is fair from a financial point of view and the oral opinion of Lehman
Brothers to the effect that, as of November 9, 1997, the proposed MCI
Common Stock Merger Consideration to be offered to the holders of MCI
Common Stock other than BT, WorldCom, Merger Sub or MCI in the MCI/WorldCom
Merger pursuant to the proposed MCI/WorldCom Merger Agreement is fair from
a financial point of view to such holders. (Lazard Freres and Lehman
Brothers each subsequently delivered its written opinion dated November 9,
1997 to the MCI Board to such effect with respect to the MCI Common Stock
Merger Consideration). See "-- Opinions of MCI's Financial Advisors."
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8. The MCI Board's knowledge of the financial performance and
condition, business operations, capital levels, asset quality and prospects
of MCI in light of the importance of market position, scale, scope and
financial resources to a company's ability to compete effectively in the
changing environment in the global telecommunications industry;
9. Information regarding the financial condition, results of
operations and prospects for WorldCom presented by senior management of
WorldCom to MCI and its financial advisors;
10. Potential alternatives, including the MCI/BT merger, the GTE
Proposal and the possibility of continuing without a strategic partner, and
the benefits and risks associated with each alternative;
11. Current industry, economic and market conditions and trends,
including the changing regulatory environment in the U.S. and abroad and
the likelihood of continuing consolidation and increasing competition in
the telecommunications industry (and the corresponding decrease in the
number of suitable merger partners for MCI);
12. The special provisions applicable to the MCI Class A Common Stock
owned by BT and pursuant to the provisions of the Investment Agreement.
13. The terms of the MCI/WorldCom Merger Agreement;
14. The uncertainty concerning MCI's future in light of the competing
proposals and its potential for having a detrimental long-term effect on
MCI and its stockholders, customers and employees; and
15. The lack of interest displayed by BT in not attempting to preserve
the strategic alliance between MCI and BT and not increasing its offer for
MCI; and BT's willingness to sell its MCI Class A Common Stock in, and to
vote in favor of, the MCI/WorldCom Merger.
There can be no assurance that any of the potential savings, synergies or
opportunities considered by the MCI Board will be achieved through consummation
of the MCI/WorldCom Merger. See "Cautionary Statement Regarding Forward-Looking
Statements" and "Risk Factors."
In view of the wide variety of the material factors considered in
connection with its evaluation of the MCI/WorldCom Merger, the MCI Board did not
find it practicable to, and did not, quantify or otherwise attempt to assign any
relative weight to the various factors considered.
OPINIONS OF MCI'S FINANCIAL ADVISORS
Lazard Freres. At the November 9, 1997, meeting of the MCI Board, Lazard
Freres delivered its opinion to the MCI Board to the effect that, as of such
date, the proposed MCI Common Stock Merger Consideration to be received by
holders of MCI Common Stock (other than BT or WorldCom) in the MCI/WorldCom
Merger pursuant to the proposed MCI/WorldCom Merger Agreement is fair from a
financial point of view. Lazard Freres also made a presentation to the MCI Board
as of such date describing the basis for such oral opinion delivered, including
the valuation methodologies set forth below. Lazard Freres subsequently
delivered to the MCI Board its written opinion dated November 9, 1997, to the
effect that, as of such date, the MCI Common Stock Merger Consideration to be
received by holders of MCI Common Stock (other than BT or WorldCom) in the MCI
WorldCom Merger pursuant to the MCI WorldCom Merger Agreement is fair from a
financial point of view.
The full text of Lazard Freres' written opinion dated November 9, 1997 (the
"Lazard Opinion"), which sets forth the assumptions made, matters considered and
limits on the review undertaken, is attached hereto as Annex IV and is
incorporated herein by reference. This summary of the Lazard Opinion is
qualified in its entirety by reference to the full text of the Lazard Opinion.
The Lazard Opinion is directed only to the fairness of the MCI Common Stock
Merger Consideration to the holders of MCI Common Stock (other than BT or
WorldCom) from a financial point of view and does not address any other aspect
of the MCI/WorldCom Merger. In addition, the Lazard Opinion does not address the
fairness of the MCI Class A Common Stock Merger Consideration to be received by
the holders of MCI Class A Common Stock. MCI did not authorize Lazard Freres to
solicit, and Lazard Freres did not solicit, any indications of interest from any
third party with
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respect to the purchase of all or a part of MCI's business. The Lazard Opinion
is for the use and benefit of the MCI Board and is not intended to be and does
not constitute a recommendation to any holder of MCI Common Stock as to how such
stockholder should vote with respect to the MCI/WorldCom Merger. HOLDERS OF MCI
COMMON STOCK ARE URGED TO READ THE LAZARD OPINION CAREFULLY AND IN ITS ENTIRETY.
In connection with rendering its opinion, Lazard Freres: (1) reviewed the
financial terms and conditions of the MCI/WorldCom Merger Agreement and the BT
Agreement; (2) analyzed certain historical business and financial information
relating to MCI and WorldCom; (3) reviewed various financial forecasts and other
data provided to Lazard Freres by MCI and WorldCom relating to their respective
businesses; (4) reviewed various financial forecasts and other data provided to
Lazard Freres by WorldCom relating to the BFP Merger, the CompuServe Merger and
the AOL Transaction and related transactions (collectively, the "Pending
WorldCom Transactions"); (5) participated in discussions with members of the
senior managements of MCI and WorldCom with respect to the business and
prospects of MCI and WorldCom, the strategic objectives of each and the possible
benefits which might be realized following the MCI/WorldCom Merger; (6) reviewed
the agreement (the "BT Investment Agreement") pursuant to which BT acquired its
shares of MCI Class A Common Stock which, among other things, gave BT the right
to proportionate representation on the MCI Board, preemptive rights with respect
to the issuance of additional shares of MCI Common Stock and to investor
protections with respect to certain corporate actions of MCI, including the
right to consent to future business combinations of MCI until September 30,
1998; (7) reviewed the financial terms and conditions of the BT/MCI Merger
Agreement; (8) reviewed certain financial terms and conditions of the GTE
Proposal to acquire MCI; (9) reviewed public information with respect to certain
other companies in lines of business Lazard Freres believed to be generally
comparable to those of MCI and WorldCom; (10) reviewed the financial terms of
certain business combinations involving companies in lines of business Lazard
Freres believed to be generally comparable to those of MCI and WorldCom, and in
other industries generally; (11) reviewed historical stock prices and trading
volumes of the MCI Common Stock and WorldCom Common Stock; (12) held discussions
with the attorneys and internal accountants of MCI concerning the results of
their due diligence procedures in connection with the MCI/WorldCom Merger; and
(13) conducted such other financial studies, analyses and investigations as
Lazard Freres deemed appropriate.
Lazard Freres relied upon the accuracy and completeness of the financial
and other information reviewed by it for the purpose of the Lazard Opinion, and
has not assumed any responsibility for any independent verification of such
information or any independent valuation or appraisal of any of the assets or
liabilities of MCI or WorldCom (including the assets to be acquired and the
liabilities to be assumed by WorldCom in the Pending WorldCom Transactions).
With respect to the financial forecasts, including therein the synergies
projected by MCI to be realized by the combined company from the MCI/WorldCom
Merger, Lazard Freres assumed that they were reasonably prepared on bases
reflecting the best currently available estimates and judgments of MCI and
WorldCom management as to the future financial performance of MCI and WorldCom,
respectively. However, in rendering its opinion, Lazard Freres relied on the
financial forecasts of WorldCom provided by WorldCom management and modified
with the approval of MCI management and assumed that such adjusted forecasts
were reasonably prepared on bases reflecting the best currently available
estimates and judgments of MCI management. Lazard Freres assumed no
responsibility for and expressed no view as to such forecasts or the assumptions
on which they were based. Lazard Freres also assumed the MCI/WorldCom Merger
would be consummated on the terms described in the MCI/WorldCom Merger Agreement
and that the transactions contemplated by the BT Agreement would be consummated
on the terms described therein, without any waiver of any material terms or
conditions by MCI or the obtaining of any further consents or approvals of the
holders of MCI Class A Common Stock or under the BT Investment Agreement, that
obtaining the necessary regulatory approvals for the MCI/WorldCom Merger would
not have a material adverse effect on WorldCom or on the trading of WorldCom
Common Stock and that the synergies projected by MCI to be realized by the
combined company from the MCI/WorldCom Merger would be realized substantially in
accordance with such projections, both as to the financial effect and timing
thereof. Also, Lazard Freres assumed that all of the Pending WorldCom
Transactions would be consummated in accordance with their respective terms,
without any waiver or modification of any material terms or
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conditions relating thereto. In addition, Lazard Freres expressed no opinion as
to the prices at which the WorldCom Common Stock would trade following the date
of the Lazard Opinion. Furthermore, the Lazard Opinion was necessarily based on
accounting standards, economic, monetary, market and other conditions as in
effect on, and information made available to Lazard Freres as of, the date of
the Lazard Opinion.
Lazard Freres is an internationally recognized investment banking firm and
is continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements, leveraged
buyouts and valuations for estate, corporate and other purposes. Lazard Freres
was selected to act as financial advisor to the MCI Board because its investment
banking professionals have substantial experience in transactions similar to the
MCI/WorldCom Merger and in the telecommunications industry and because of its
expertise and reputation in investment banking and mergers and acquisitions
generally as well as its familiarity with MCI.
In connection with Lazard Freres' services as financial advisor to the MCI
Board, including its rendering of the opinion summarized below, MCI has paid
Lazard Freres a fee of $6.25 million and previously agreed to pay Lazard Freres
an additional fee of $18.75 million upon, and subject to, consummation of the
MCI/WorldCom Merger. Whether or not the MCI/WorldCom Merger is consummated, MCI
has agreed to reimburse Lazard Freres for its out-of-pocket expenses, including
fees and expenses of its legal counsel, and to indemnify Lazard Freres and
certain related parties against certain liabilities, including liabilities
arising under U.S. securities laws.
Lazard Freres has from time to time in the past provided, and is currently
providing, investment banking advisory services to MCI for which it has received
fees. In the ordinary course of business, Lazard Freres and its affiliates may
actively trade in securities of MCI for their own account and for the account of
their customers and, accordingly, may at any time hold long or short positions
in such securities. In addition, from January 1, 1994 through the date of this
Joint Proxy Statement/Prospectus, Lazard Freres and its affiliates have invoiced
financial advisory and investment banking fees of approximately $12.9 million to
date, in connection with various projects on which it has been providing advice
to MCI excluding the MCI/WorldCom Merger and the BT/MCI Merger.
Lehman Brothers. At the November 9, 1997, meeting of the MCI Board, Lehman
Brothers delivered its oral opinion to the MCI Board to the effect that, as of
such date, the proposed MCI Common Stock Merger Consideration to be offered to
the holders other than BT, WorldCom, Merger Sub or MCI (such holders being the
"Public Stockholders") of MCI Common Stock in the MCI/WorldCom Merger pursuant
to the proposed MCI/WorldCom Merger Agreement is fair from a financial point of
view to the Public Stockholders. Lehman Brothers also made a presentation to the
MCI Board as of such date describing the bases for such oral opinion delivered,
including the valuation methodologies set forth below. Lehman Brothers
subsequently delivered to the MCI Board its written opinion dated November 9,
1997, to the effect that, as of such date, the MCI Common Stock Merger
Consideration to be offered to the Public Stockholders of MCI Common Stock in
the MCI/WorldCom Merger pursuant to the MCI/WorldCom Merger Agreement is fair
from a financial point of view to the Public Stockholders.
The full text of Lehman Brothers' written opinion dated November 9, 1997
(the "Lehman Opinion"), which sets forth the assumptions made, matters
considered and limits on the review undertaken, is attached hereto as Annex V
and is incorporated herein by reference. This summary of the Lehman Opinion is
qualified in its entirety by reference to the full text of the Lehman Opinion.
No limitations were imposed by MCI on the scope of Lehman Brothers'
investigation or the procedures to be followed by Lehman Brothers in rendering
its opinion, except MCI did not authorize Lehman Brothers to solicit, and Lehman
Brothers did not solicit, any indications of interest from any third party with
respect to the purchase of all or a part of MCI's business. Lehman Brothers was
not requested to and did not make any recommendation to the MCI Board as to the
form or amount of the consideration to be received by the Public Stockholders,
which was determined through arm's-length negotiations between the parties. In
arriving at its opinion, Lehman Brothers did not ascribe a specific range of
value to MCI, but rather made its determination as to the fairness, from a
financial point of view, of the consideration to be received by the Public
Stockholders in the MCI/WorldCom Merger on the basis of the financial and
comparative analyses described below. In addition, the Lehman Opinion does
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not address the fairness to the Public Stockholders of the MCI Class A Common
Stock Merger Consideration to be offered for the MCI Class A Common Stock.
Lehman Brothers' opinion is for the use and benefit of the MCI Board and was
rendered to the MCI Board in connection with its consideration of the
MCI/WorldCom Merger. Lehman Brothers' opinion is not intended to be and does not
constitute a recommendation to any stockholder of MCI as to how such stockholder
should vote with respect to the MCI/WorldCom Merger. Lehman Brothers was not
requested to opine as to, and its opinion does not address, MCI's underlying
business decision to proceed with or effect the MCI/WorldCom Merger.
In arriving at its opinion, Lehman Brothers reviewed and analyzed: (1) the
MCI/WorldCom Merger Agreement and the BT Agreement and the specific terms of the
MCI/WorldCom Merger; (2) publicly available information concerning MCI that
Lehman Brothers believed to be relevant to its analysis; (3) WorldCom's Form S-4
and Preliminary Proxy Statement filed on October 1, 1997, in connection with
WorldCom's proposed acquisition of MCI and such other publicly available
information concerning WorldCom that Lehman Brothers believed to be relevant to
its analysis; (4) financial and operating information with respect to the
business, operations and prospects of MCI furnished to Lehman Brothers by MCI;
(5) financial and operating information with respect to the business, operations
and prospects of WorldCom (including the Pending WorldCom Transactions)
furnished to Lehman Brothers by WorldCom; (6) a trading history of the MCI
Common Stock from November 6, 1992, to the present and a comparison of that
trading history with those of other companies Lehman Brothers deemed relevant;
(7) a trading history of the WorldCom Common Stock from November 6, 1992, to the
present and a comparison of that trading history with those other companies
Lehman Brothers deemed relevant; (8) a comparison of the historical financial
results and present financial condition of MCI with those other companies Lehman
Brothers deemed relevant; (9) a comparison of the historical financial results
and present financial conditions of WorldCom with those other companies Lehman
Brothers deemed relevant; (11) the financial terms of the proposed merger of MCI
with a wholly owned subsidiary of BT pursuant to the BT/MCI Merger Agreement;
and (12) certain financial terms of the GTE Proposal. In addition, Lehman
Brothers had discussions with the management of MCI and the management of
WorldCom concerning their respective businesses, operations, assets, financial
conditions and prospects and the cost savings, operating synergies and strategic
benefits expected to result from a combination of the businesses of MCI and
WorldCom, and undertook such other studies, analyses and investigations as
Lehman Brothers deemed appropriate.
In arriving at its opinion, Lehman Brothers assumed and relied upon the
accuracy and completeness of the financial and other information used by Lehman
Brothers without assuming any responsibility for independent verification of
such information and further relied upon the assurances of MCI management that
they were not aware of any facts or circumstances that would make such
information inaccurate or misleading. With respect to the financial projections
of MCI and WorldCom and the cost savings, operating synergies and strategic
benefits expected to result from the combination of the businesses of MCI and
WorldCom (the "Projected Synergies"), Lehman Brothers assumed that such
projections were reasonably prepared on a basis reflecting the best currently
available estimates and judgments of MCI management as to the future financial
performance of MCI and the Projected Synergies, and of the management of
WorldCom as to the future financial performance of WorldCom and the Projected
Synergies, and that with respect to the projections prepared by MCI, that MCI
would perform, and the Projected Synergies would be realized, substantially in
accordance with such projections. However, with respect to the projections for
WorldCom and the Projected Synergies prepared by WorldCom, Lehman Brothers also
considered an adjusted set of projections for WorldCom and the Projected
Synergies based upon more conservative assumptions and estimates. Lehman
Brothers discussed these adjusted projections with MCI management and they
agreed with the appropriateness of the use of such adjusted projections in
performing its analysis. In addition, upon the advice of MCI, Lehman Brothers
assumed that all of the Pending WorldCom Transactions would be consummated in
accordance with their respective terms, without any waivers or modifications of
any material terms or conditions relating thereto, and Lehman Brothers included
the impact of the Pending WorldCom Transactions on WorldCom in performing its
analysis. In rendering its opinion, Lehman Brothers assumed that the
MCI/WorldCom Merger would be consummated on the terms described in the
MCI/WorldCom Merger Agreement and that the transactions contemplated by the BT
Agreement would be consummated on the terms described therein, without any
waiver of any material terms or conditions by MCI or the obtaining of
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any further consents or appraisals from BT, and that obtaining the necessary
regulatory approvals for the MCI/WorldCom Merger would not have a material
adverse effect on WorldCom. In arriving at its opinion, Lehman Brothers did not
conduct a physical inspection of the properties and facilities of MCI or
WorldCom and did not make or obtain any evaluations or appraisals of the assets
or liabilities of MCI or WorldCom (including the assets to be acquired and the
liabilities to be assumed by WorldCom in the Pending WorldCom Transactions). In
addition, Lehman Brothers was not requested to and did not express any opinion
as to the prices at which WorldCom Common Stock may trade at any time prior to
or following the consummation of the MCI/WorldCom Merger. The Lehman Opinion is
necessarily based upon market, economic and other conditions as they existed on,
and could be evaluated as of, the date of the Lehman Opinion.
Lehman Brothers is an internationally recognized investment banking firm
and, as part of its investment banking activities, is regularly engaged in the
evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. The MCI Board selected Lehman
Brothers because of its expertise, reputation and familiarity with MCI in
particular and the telecommunications industry in general and because its
investment banking professionals have substantial experience in transactions
similar to the MCI/WorldCom Merger.
As compensation for its services in connection with the MCI/WorldCom
Merger, MCI has paid Lehman Brothers a fee of $1.0 million and an additional fee
of $2.5 million upon the rendering by Lehman Brothers of the Lehman Opinion and
has agreed to pay Lehman Brothers an additional fee between $6.5 million and
$8.5 million upon, and subject to, consummation of the MCI/WorldCom Merger.
Whether or not the MCI/WorldCom Merger is consummated, MCI has agreed to
reimburse Lehman Brothers for its reasonable expenses (including, without
limitation, professional and legal fees and disbursements), and to indemnify
Lehman Brothers for certain liabilities that may arise out of the rendering of
the Lehman Opinion. Lehman Brothers has performed various investment bank
services for MCI in the past and has received the customary fees for such
services. In the ordinary course of Lehman Brothers' business, Lehman Brothers
actively trades in the debt and equity securities of MCI and WorldCom for its
own account and for the accounts of its customers and, accordingly, may at any
time hold a significant long or short position in such securities.
Special Considerations. The preparation of a fairness opinion is a complex
process and not necessarily susceptible to partial analysis or summary
description. Selecting portions of the analyses or the summary set forth herein,
without considering the analyses as a whole, could create an incomplete or a
misleading view of the process underlying the respective opinions of Lazard
Freres and Lehman Brothers (together, the "Financial Advisors"). The Financial
Advisors did not attribute any particular weight to any analysis or factor
considered by them. No company or transaction used in the analyses as a
comparison is identical to MCI or
WorldCom or the transaction contemplated by the MCI/WorldCom Merger Agreement.
The analyses were prepared solely for the purpose of the Financial Advisors in
providing their respective opinions to the MCI Board in connection with its
consideration of the MCI/WorldCom Merger and do not purport to be appraisals or
to reflect the prices at which businesses or securities actually may be sold,
which may be significantly more or less favorable than as set forth in the
analyses. Similarly, any estimate of values or forecast of future results
contained in the analyses is not necessarily indicative of actual values or
actual future results, which may be significantly more or less favorable than
suggested by such analyses. In performing their analyses, the Financial Advisors
assumed that both MCI and WorldCom would perform in accordance with earnings
forecasts provided to the Financial Advisors by the managements of MCI and
WorldCom or their representatives. The actual results achieved by the combined
company following the MCI/WorldCom Merger could vary from the projected results
and the variations may be material. See "Cautionary Statement Regarding
Forward-Looking Statements" and "Risk Factors."
The forecasts and other projections furnished to the Financial Advisors for
each of WorldCom and MCI and estimates of potential cost savings and other
synergies resulting from the MCI/WorldCom Merger were prepared by the respective
managements of each company and constitute forward-looking statements within the
meaning of the PSLRA. As a matter of policy, neither WorldCom nor MCI publicly
discloses internal management forecasts, projections or estimates of the type
furnished to the Financial Advisors in connection with their analysis of the
MCI/WorldCom Merger terms, and such forecasts, projections and estimates were
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not prepared with a view towards public disclosure. These forecasts, projections
and estimates were based on numerous variables and assumptions which are
inherently uncertain and which may not be within the control of the management
of either WorldCom or MCI, including, without limitation, factors related to the
integration of WorldCom and MCI and general economic, regulatory and competitive
conditions. Accordingly, actual results could vary materially from those set
forth in such forecasts, projections and estimates. See "Cautionary Statement
Regarding Forward-Looking Statements" and "Risk Factors."
In performing these analyses, the Financial Advisors made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters. Because such analyses are inherently subject to
uncertainty, being based upon numerous factors or events beyond the control of
MCI or WorldCom or their respective advisors, none of MCI, WorldCom or the
Financial Advisors or any other person assumes responsibility if future results
or actual values are materially different from those forecasts or estimates
contained in the analyses. Although, in connection with the delivery of their
respective opinions, the Financial Advisors also analyzed WorldCom, their
respective opinions are not a valuation of WorldCom and do not represent the
Financial Advisors' view as to what the value of the WorldCom Common Stock will
be prior to or after consummation of the MCI/WorldCom Merger. In addition, the
Financial Advisors each noted that, notwithstanding the fact that holders of MCI
Common Stock will receive WorldCom Common Stock in the MCI/WorldCom Merger, the
trading prices for WorldCom Common Stock will be significantly affected by the
results of operations and other factors, such as the realization of synergies
resulting from the MCI/WorldCom Merger, relating to both WorldCom and MCI. The
Financial Advisors' opinions to the MCI Board were one of many factors taken
into consideration by the MCI Board in making its determination to approve the
MCI/WorldCom Merger Agreement. This summary does not purport to be a complete
description of the analyses performed by the Financial Advisors.
Financial Analyses. The following is a summary of certain financial and
comparative analyses performed by the Financial Advisors in connection with
providing their respective opinions to the MCI Board. The analyses were prepared
before the completion of all of the negotiations on the MCI/WorldCom Merger
Agreement and, with respect to the ratio at which shares of MCI Common Stock
will be exchanged for shares of WorldCom Common Stock, assumed that holders of
MCI Common Stock would receive such number of shares of WorldCom Common Stock
equal to an assumed exchange ratio (the "Assumed Exchange Ratio") determined by
dividing $50.00 by the stock prices used in the analyses within the share price
collar of $29.00 to $41.00 for each share of WorldCom Common Stock. In
negotiations subsequent to the presentation made to the MCI Board in connection
with the delivery of the Financial Advisors' fairness opinions, the amount of
the MCI Common Stock Merger Consideration was increased by increasing the
numerator in the Exchange Ratio to $51.00, as is contemplated by the
MCI/WorldCom Merger Agreement. The summary description set forth below does not
reflect the Exchange Ratio as contemplated by the MCI/WorldCom Merger Agreement
but instead reflects the lower Assumed Exchange Ratio. In addition, holders of
MCI Common Stock are reminded that, based on the $51.00 in MCI Common Stock
Merger Consideration contemplated by the MCI/WorldCom Merger Agreement, if the
average of the high and low prices of WorldCom Common Stock during the
Measurement Period falls below $29.00 per share, the Exchange Ratio in the
MCI/WorldCom Merger Agreement will be fixed at 1.7586 and, if the average of the
high and low prices of WorldCom Common Stock during the Measurement Period rises
above $41.00 per share, the Exchange Ratio in the MCI/WorldCom Merger Agreement
will be fixed at 1.2439. Any per share analyses with respect to MCI Common Stock
prior to the MCI/WorldCom Merger take into account the outstanding shares of MCI
Class A Common Stock as well as the outstanding shares of MCI Common Stock.
Collar Range Analysis
The Financial Advisors reviewed and analyzed selected terms and stock
market information relating to selected acquisition transactions ("Selected
Acquisition Collar Transactions"), selected acquisition transactions by
acquirors whose stock had a 100-day volatility at the time of announcement above
the median for the Selected Acquisition Collar Transactions ("Selected
High-Volatility Collar Transactions") and selected acquisition transactions
where the time period from announcement to closing was longer than the median
for the Selected Acquisition Collar Transactions ("Selected Distant-Closing
Collar Transactions"), all involving
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some form of floating exchange ratios, including floating exchange ratios,
subject to fixed share price collars. The Financial Advisors noted that the
reasons for, and circumstances surrounding, each of the transactions analyzed
were diverse and that the characteristics of such transactions and the companies
involved were not directly comparable to the MCI/WorldCom Merger or to MCI or
WorldCom.
Based on the data for the Selected Acquisition Collar Transactions, this
analysis indicated that the mean of the minimum collar prices of comparable
collar transactions was 13.6% lower and the mean of the maximum collar prices
was 10.9% higher than the closing price of the acquiror's stock as of the
trading day before the announcement of the transaction. Based on data for the
Selected High-Volatility Collar Transactions, this analysis also indicated that
the mean of the minimum collar prices was 18.1% lower and the mean of the
maximum collar prices was 11.0% higher than the closing price of the acquiror's
stock as of the trading day before the announcement of the transaction. In
addition, based on data for the Selected Distant-Closing Collar Transactions,
this analysis indicated that the mean of the minimum collar prices was 14.4%
lower and the mean of the maximum collar prices was 11.4% higher than the
closing price of the acquiror's stock as of the trading day before the
announcement of the transaction. Based on a closing price of $33.13 for WorldCom
Common Stock (the closing price on November 7, 1997), the minimum collar price
under the Assumed Exchange Ratio is 12.5% lower than the price of WorldCom
Common Stock and the maximum collar price under the Assumed Exchange Ratio is
23.8% higher than the price of WorldCom Common Stock. As noted above, no
transaction reviewed was identical to the MCI/WorldCom Merger. Accordingly, an
assessment of the results of this analysis necessarily involves complex
considerations and judgments concerning the financial and operating
characteristics of MCI and WorldCom and other factors relating to the
MCI/WorldCom Merger as compared to the Selected Acquisition Collar Transactions
and the companies involved in such transactions.
Historical Stock Trading Analysis
The Financial Advisors analyzed the indexed historical trading prices for
the MCI Common Stock and the WorldCom Common Stock during the one-year and
three-year periods prior to and ending November 7, 1997, as compared to the
indexed historical trading prices for an index comprised of AT&T and Sprint, an
index comprised of Ameritech, Bell Atlantic Corporation ("Bell Atlantic"),
BellSouth, GTE, SBC, and U S WEST Communications Group ("U S WEST") and the
Standard and Poor's 500 Index.
Comparable Publicly Traded Companies Analysis
The Financial Advisors reviewed and compared certain actual and projected
financial, operating and stock market information of companies in lines of
business believed to be comparable to those of MCI and WorldCom. The Financial
Advisors noted that, although there were no public companies with precisely the
same mix of businesses and financial condition as MCI or WorldCom, the Financial
Advisors believed the most relevant comparable companies to MCI to include AT&T
and Sprint (the "MCI Comparable Companies"). The Financial Advisors believed the
most relevant comparable companies to WorldCom to include AT&T, Sprint, and an
average of Ameritech, Bell Atlantic, BellSouth, SBC and U S WEST (the "WorldCom
Telecom Comparable Companies") and also to include Cisco Systems, Inc.,
Microsoft Corporation and Oracle Corporation (the "WorldCom Growth Comparable
Companies" and, together with the MCI Comparable Companies and the WorldCom
Telecom Comparable Companies, the "Comparable Companies").
This analysis indicated that the enterprise value (determined as equity
market value plus net debt) of the MCI Comparable Companies as a multiple of
projected 1997 revenue ranged from 1.5x to 1.6x; and of projected 1997 EBITDA
ranged from 5.3x to 8.2x. This analysis indicated that the stock price as a
multiple of projected 1997 earnings per share ("EPS") of the MCI Comparable
Companies ranged from 17.8x to 23.1x. This analysis also indicated that the
enterprise value of the MCI Comparable Companies as a multiple of projected 1998
revenue ranged from 1.4x to 1.6x; and of projected 1998 EBITDA ranged from 5.0x
to 7.6x. This analysis indicated that the stock price as a multiple of projected
1998 EPS of the MCI Comparable Companies ranged from 16.3x to 22.9x.
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This analysis indicated that the enterprise value of the WorldCom Telecom
Comparable Companies as a multiple of projected 1997 revenue ranged from 1.5x to
2.7x; and of projected 1997 EBITDA ranged from 5.3x to 8.2x. This analysis
indicated that the stock price as a multiple of projected 1997 EPS of the
WorldCom Telecom Comparable Companies ranged from 17.1x to 23.1x. This analysis
also indicated that the enterprise value of the WorldCom Telecom Comparable
Companies as a multiple of projected 1998 revenue ranged from 1.4x to 2.5x; and
of projected 1998 EBITDA ranged from 5.0x to 7.6x. This analysis indicated that
the stock price as a multiple of projected 1998 EPS of the WorldCom Telecom
Comparable Companies ranged from 15.6x to 22.9x.
This analysis indicated that the enterprise value of the WorldCom Growth
Comparable Companies as a multiple of projected 1997 revenue ranged from 5.5x to
12.2x; and of projected 1997 EBITDA ranged from 19.9x to 23.3x. This analysis
also indicated that the stock price as a multiple of projected 1997 EPS of the
WorldCom Growth Comparable Companies ranged from 36.9x to 43.1x. This analysis
also indicated that the enterprise value of the WorldCom Growth Comparable
Companies as a multiple of projected 1998 revenue ranged from 4.1x to 10.1x; and
of projected 1998 EBITDA ranged from 15.4x to 19.7x. This analysis also
indicated that the stock price as a multiple of projected 1998 EPS of the
WorldCom Growth Comparable Companies ranged from 28.9x to 37.2x.
Based on the foregoing data and other data deemed relevant for the
Comparable Companies and based on projections for MCI provided by the management
of MCI and for WorldCom by the management of WorldCom (and modified with the
approval of the management of MCI), the Financial Advisors performed a public
market valuation analysis. This analysis indicated pre-tax "sum-of-the-parts"
equity value reference ranges of approximately $34 to $39 for each share of MCI
Common Stock and approximately $28 to $36 for each share of WorldCom Common
Stock. This analysis also indicated an equity value reference range for MCI
based on projected consolidated 1998 EBITDA of approximately $23 to $31 for each
share of MCI Common Stock. As noted above, no company used in this analysis was
identical to MCI or WorldCom. Accordingly, any analysis of the value of MCI or
WorldCom based on the Comparable Companies involves complex considerations and
judgments concerning differences in potential financial and operating
characteristics of the Comparable Companies and other factors in relation to the
trading and acquisition values of the Comparable Companies.
Selected Precedent Transactions Analysis
The Financial Advisors reviewed and analyzed selected financial, operating
and stock market information relating to selected acquisition transactions in
the telecommunications industry (the "Telecommunications Transactions"). The
Financial Advisors noted that the reasons for, and circumstances surrounding,
each of the transactions analyzed were diverse and that the characteristics of
such transactions and the companies involved were not directly comparable to the
MCI/WorldCom Merger or to MCI or WorldCom.
The Financial Advisors performed a private market valuation analysis based
on the Telecommunications Transactions that they deemed relevant. Among other
factors, the Financial Advisors indicated that the merger and acquisition
transaction environment varies over time because of macroeconomic factors such
as interest rate and equity market fluctuations, and microeconomic factors, such
as industry results and growth expectations.
Based on the data for Telecommunications Transactions, and based on the
projections provided by the management of MCI, this analysis indicated implied
equity value reference ranges of approximately $27 to $37 for each share of MCI
Common Stock. As noted above, no transaction reviewed was identical to the
MCI/WorldCom Merger and, accordingly, an assessment of the results of this
analysis necessarily involves complex considerations and judgments concerning
differences in financial and operating characteristics of MCI and WorldCom and
other factors that would affect the acquisition value of the companies to which
MCI was compared.
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Discounted Cash Flow Analysis
Based upon forecasts for MCI provided by the management of MCI through 2001
and 2002, the Financial Advisors calculated the net present value of the
estimated future consolidated cash flows of MCI. Utilizing discount rates of
11.5% to 12.5% and in perpetuity free cash flow growth rates of 4.5% to 5.5%,
this analysis indicated net present values per share of MCI Common Stock ranging
from approximately $25 to $35 using MCI's projected cash flows through 2001 and
from approximately $32 to $45 using MCI's projected cash flows through 2002.
Based upon forecasts for WorldCom provided by the management of WorldCom (and
modified with the approval of the management of MCI), the Financial Advisors
calculated the net present value of the estimated future consolidated cash flows
of WorldCom through 2002 and the present value of the implied 2002 terminal
value of WorldCom. Utilizing discount rates of 14% to 15% and projected EBITDA
terminal multiples of 9.0x to 10.0x, this analysis indicated net present values
per share of WorldCom Common Stock ranging from approximately $35 to $42.
Analysis at Various Combined Company Trading Prices
Based upon projections for MCI provided by the management of MCI and for
WorldCom provided by the management of WorldCom (and modified with the approval
of the management of MCI), the Financial Advisors analyzed, among other things,
a range of potential enterprise values for the combined company as a multiple of
projected revenue and projected EBITDA for the combined company. For the
purposes of this analysis, the Financial Advisors assumed, among other things,
the realization of the potential synergies following the MCI/WorldCom Merger
projected by the management of MCI and certain other assumptions such as the
Assumed Exchange Ratio, the payment of the proposed MCI Class A Consideration
pursuant to the proposed MCI/WorldCom Merger Agreement and the fee to BT under
the BT/MCI Merger Agreement and the closing of the MCI/WorldCom Merger on
December 31, 1998. Based on the foregoing and other assumptions and the Assumed
Exchange Ratio resulting from an assumed average closing price for the WorldCom
Common Stock of $33.13 (the closing price on November 7, 1997) and per share
prices for the combined company ranging from $25.00 per share to $45.00 per
share, this analysis indicated that the enterprise value of the combined company
as a multiple of projected 1999 revenue ranged from 1.8x to 2.8x; of projected
2000 revenue ranged from 1.5x to 2.4x; of projected 1999 EBITDA ranged from 6.1x
to 9.5x; and of projected 2000 EBITDA ranged from 4.9x to 7.7x.
Contribution Analysis
The Financial Advisors considered the contribution of each of MCI and
WorldCom to revenue, EBITDA and net income of the combined company, without
taking into account any operating, financial or accounting impacts resulting
from the MCI/WorldCom Merger or any synergies projected by WorldCom and MCI to
be realized from the MCI/WorldCom Merger. This analysis used MCI management's
forecasts for MCI and WorldCom management's forecast for WorldCom (as modified
with the approval of the management of MCI) for projected fiscal years 1999 and
2002. This analysis indicated that MCI's contribution to combined revenue was
estimated to be approximately 63% in projected year 1999 and to be approximately
52% in projected year 2002; to combined EBITDA was estimated to be approximately
54% in projected year 1999 and to be approximately 46% in projected year 2002;
and to combined net income, normalized for amortization from goodwill and other
intangibles, was estimated to be approximately 41% in projected year 1999 and to
be approximately 38% in projected year 2002. Based on the Assumed Exchange Ratio
and an average trading price for the WorldCom Common Stock within the share
price collar of $29.00 and $41.00 per share in the MCI/WorldCom Merger
Agreement, current holders of MCI Common Stock would own approximately 40% to
48% of the combined company upon consummation of the MCI/WorldCom Merger.
Has/Gets Analysis
The Financial Advisors calculated the effect that the MCI/WorldCom Merger
could have on the projected revenue per share of MCI Common Stock, EBITDA per
share of MCI Common Stock and EPS of MCI Common Stock for MCI on a stand-alone
basis before the MCI/WorldCom Merger as compared to the projected revenue per
share of MCI Common Stock, EBITDA per share of MCI Common Stock and EPS of
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MCI Common Stock for the combined company after the MCI/WorldCom Merger. This
analysis was based on the assumptions described above, including the realization
of the potential synergies following the MCI/WorldCom Merger projected by the
management of MCI, and certain other assumptions such as the Assumed Exchange
Ratio, fair market value accounting adjustments in the MCI/WorldCom Merger and
the payment of the proposed MCI Class A Common Stock Merger Consideration
pursuant to the proposed MCI/WorldCom Merger Agreement and the fee to BT under
the BT/MCI Merger Agreement.
This analysis indicated that, assuming the Assumed Exchange Ratio resulting
from an assumed average trading price per share of WorldCom Common Stock of
$33.13 (the closing price as of November 7, 1997), the MCI/WorldCom Merger would
result in a decrease in projected 1999 revenue per share of MCI Common Stock;
significant increase in projected 1999 EBITDA per share of MCI Common Stock; and
substantial increase in projected 1999 EPS of MCI Common Stock. This analysis
also indicated that, assuming the Assumed Exchange Ratio resulting from an
assumed average trading price per share of WorldCom Common Stock of $33.13, the
MCI/WorldCom Merger would result in a modest increase in projected 2002 revenue
per share of MCI Common Stock; substantial increase in projected 2002 EBITDA per
share of MCI Common Stock; and substantial increase in projected 2002 EPS of MCI
Common Stock.
This analysis also indicated that, assuming the Assumed Exchange Ratio
resulting from an assumed average trading price per share of WorldCom Common
Stock of $35 (such price being the midpoint of the share price collar), the
MCI/WorldCom Merger would result in a decrease in projected 1999 revenue per
share of MCI Common Stock; significant increase in projected 1999 EBITDA per
share of MCI Common Stock; and substantial increase in projected 1999 EPS of MCI
Common Stock. This analysis also indicated that, assuming the Assumed Exchange
Ratio resulting from an assumed average trading price per share of WorldCom
Common Stock of $35, the MCI/WorldCom Merger would result in a modest increase
in projected 2002 revenue per share of MCI Common Stock; substantial increase in
projected 2002 EBITDA per share of MCI Common Stock; and substantial increase in
projected 2002 EPS of MCI Common Stock.
Pro Forma Combination Analysis
The Financial Advisors considered the effect the MCI/WorldCom Merger could
have on the EPS of the combined company as compared with the EPS of WorldCom on
a stand-alone basis. Using potential WorldCom Common Stock average closing
prices ranging from $29.00 to $41.00, including the November 7, 1997, closing
price of $33.13 for WorldCom Common Stock, and after giving effect to certain
tax and other considerations and the assumptions described above, including the
realization of 100% of the potential synergies following the MCI/WorldCom Merger
projected by the management of MCI, and to certain other assumptions such as the
Assumed Exchange Ratio, fair market value accounting adjustments in the
MCI/WorldCom Merger and the payment of the proposed MCI Class A Common Stock
Merger Consideration pursuant to the proposed MCI/WorldCom Merger Agreement and
the fee to BT under the BT/MCI Merger Agreement, this analysis indicated that,
based on forecasts for MCI provided by MCI's management and based on forecasts
for WorldCom provided by WorldCom's management (and modified with the approval
of the management of MCI), the MCI/WorldCom Merger would be significantly
accretive to the projected stand-alone EPS of WorldCom in 1999 and 2000. Based
on the foregoing assumptions, but assuming the realization of 50% of the
potential synergies following the MCI/WorldCom Merger projected by the
management of MCI, the MCI/WorldCom Merger would range from being modestly
dilutive to modestly accretive to the projected 1999 and 2000 stand-alone EPS of
WorldCom.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
In considering the MCI Board's recommendation that you vote in favor of
adoption of the MCI/WorldCom Merger Agreement, MCI stockholders should be aware
that a number of executive officers of MCI, including some officers who are also
directors, have certain interests in the MCI/WorldCom Merger that are different
from, or in addition to, the interests of stockholders of MCI generally. The MCI
Board recognized such interests and determined that such interests neither
supported nor detracted from the fairness of the MCI/WorldCom Merger to the
holders of MCI Common Stock.
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Ownership of MCI Common Stock; Stock Options
As of December 31, 1997, directors and executive officers of MCI
beneficially owned an aggregate of -- shares of MCI Common Stock (or
approximately --% of the then outstanding MCI Common Stock), including
restricted shares of MCI Common Stock ("MCI Restricted Shares") and incentive
stock units ("ISUs") but excluding shares of MCI Common Stock that may be
acquired upon the exercise of outstanding stock options to purchase MCI Common
Stock ("MCI Stock Options.")
As of December 31, 1997, directors and executive officers of MCI held
options to purchase an aggregate of -- shares of MCI Common Stock, of which
options to purchase -- shares of MCI Common Stock were exercisable, and the
remainder of which will, pursuant to the MCI/WorldCom Merger Agreement, become
fully vested and exercisable immediately prior to the Effective Time if not
previously vested. The MCI/WorldCom Merger Agreement provides that each option
to purchase shares of MCI Common Stock that remains outstanding at the Effective
Time is to be converted into an option to acquire that number of shares of
WorldCom Common Stock determined by multiplying the number of shares of MCI
Common Stock subject to such option by the Exchange Ratio, rounded, if
necessary, up to the nearest whole share of WorldCom Common Stock, at a price
per share equal to the per-share exercise price specified in such MCI Stock
Option divided by the Exchange Ratio. See "the MCI/WorldCom Merger
Agreement--Stock Options and Other Stock Plans".
As of December 31, 1997, executive officers of MCI held an aggregate of --
MCI Restricted Shares and ISUs. Pursuant to the MCI/WorldCom Merger Agreement at
the Effective Time, all unvested and unpaid MCI Restricted Shares and ISUs
outstanding on the date of execution of the MCI/WorldCom Merger Agreement will
become fully vested and (unless voluntarily deferred) paid. Any ISUs or MCI
Restricted Shares, at the Effective Time shall, be converted to the number of
shares of WorldCom Common Stock or ISUs determined by multiplying such MCI
Restricted Shares and ISUs by the Exchange Ratio.
Employment Agreements
MCI had previously entered into employment agreements (the "Employment
Agreements") with Messrs. Bert C. Roberts, Jr., Gerald H. Taylor, Timothy F.
Price, Douglas L. Maine, Michael J. Rowny, Michael H. Salsbury, Fred M. Briggs
and Scott B. Ross (the "Executives"), effective as of November 2, 1996, and
expiring on December 31, 1999. The Employment Agreements will remain in place
whether or not the MCI/WorldCom Merger is approved by MCI's stockholders.
Pursuant to the Employment Agreements, each Executive will receive an
annual base salary, subject to increases (but not decreases) at the discretion
of MCI. The current 1997 annual salaries of each of the Executives under the
Employment Agreements are as follows: Bert C. Roberts, Jr., $1,000,000; Gerald
H. Taylor, $700,000; Timothy F. Price, $550,000; Michael J. Rowny, $350,000;
Scott B. Ross, $325,000; Douglas L. Maine, $330,000; Michael H. Salsbury,
$300,000; and Fred M. Briggs, $300,000. In addition, each Executive will receive
an annual bonus for each fiscal year of MCI ending during the term of the
Executive's employment with a minimum bonus amount of no less than the average
annual bonus earned by the Executive in respect of the 1994, 1995 and 1996
fiscal years. The Executives will also participate in any long-term incentive
compensation plan or program maintained by MCI for senior executives of MCI and
all long-term compensation plans and programs in existence immediately prior to
the MCI/WorldCom Merger are, under the Employment Agreements, required to be
maintained for at least two years following the Effective Time or replaced by
programs that are no less favorable to the Executives. In addition, the
Executives will participate in all MCI pension and welfare benefit plans and
programs which are applicable to senior executives of MCI, and all pension and
welfare benefit plans and programs in existence immediately prior to the
MCI/WorldCom Merger are, under the Employment Agreements, required to be
maintained for at least two years following the Effective Time or be replaced by
programs that are no less favorable to the Executives.
Under the Employment Agreements, in the event an Executive's employment is
terminated by MCI (for this purpose "MCI" shall mean MCI, WorldCom and their
respective affiliates) without "Cause" or by the Executive for "Good Reason" (as
each such term is defined below), the Executive is to receive (a) the
Executive's accrued but unpaid salary and vacation pay, and any unpaid bonus
from the prior fiscal year, (b) a
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cash payment equal to three times the sum of (x) the Executive's annual base
salary and (y) the greater of (A) the average annual bonus paid to or accrued
for the Executive by MCI in respect of the three calendar years preceding the
termination of employment and (B) the annual bonus paid to or accrued for the
Executive in respect of 1995, (c) continued medical, dental and life insurance
coverage for the Executive and the Executive's eligible dependents on the same
basis as in effect immediately prior to the Executive's termination of
employment until the earlier of (A) 36 months after the Executive's termination
of employment or (B) the commencement of coverage with a subsequent employer,
but only to the extent such coverage duplicates or exceeds the coverage provided
by MCI, (d) unless otherwise expressly elected by the Executive prior to such
termination, payment, in a cash lump sum, of all amounts deferred by the
Executive under any non-qualified plan of deferred compensation maintained by
MCI or MCI WorldCom (notwithstanding the payment provisions of any such plan to
the contrary), (e) full acceleration of vesting and exercisability of any equity
based and cash retention awards (including, but not limited to, MCI Stock
Options, MCI Restricted Shares and ISUs) granted to the Executive prior to the
Executive's termination of employment and (f) 36 months of age and service
credit for all purposes under all defined benefit plans of MCI (or the
equivalent).
For purposes of the Employment Agreements, "Cause" means: (i) a deliberate
and material breach by the Executive of his duties and responsibilities under
the Employment Agreement that results in material harm to MCI, which breach is
(A) either the product of willful malfeasance or gross neglect, (B) committed in
bad faith or without reasonable belief that such breach is in, or not contrary
to, the best interests of MCI and (C) not remedied within 30 days after receipt
of written notice from MCI specifying such breach; (ii) the Executive's willful
and material breach of the restrictive covenants contained in the Employment
Agreements which is not remedied within 30 days after receipt of written notice
from MCI specifying such breach; or (iii) the Executive's plea of guilty or nolo
contendere to, or nonappealable conviction of, a felony, which conviction or
plea causes material harm to the reputation or financial position of MCI. "Good
Reason" means the occurrence of any of the following without the Executive's
express written consent: (i) the assignment to the Executive of any duties
inconsistent with the Executive's current positions, duties, responsibilities
and status with MCI, a change in the Executive's reporting responsibilities,
title or offices or any removal of the Executive from or failure to elect or
re-elect the Executive to any position with MCI (including membership on the MCI
Board) except in connection with the Executive's promotion or a termination of
employment for Cause; (ii) a reduction in the Executive's base salary or target
annual bonus or long-term incentives, as such salary, target bonus and
incentives are increased from time to time; (iii) the failure to continue in
effect any employee benefit plan or compensation plan in which the Executive
participates unless the Executive is provided with participation in other plans
that provide substantially comparable benefits or the taking of any action that
would adversely affect the Executive's benefits under any such plan; (iv) any
relocation of the Executive's principal place of business from the location
described in the Employment Agreement; (v) any reduction in fringe benefits and
perquisites provided to the Executive; (vi) any material breach by MCI of any
provisions of the Employment Agreement; and (vii) a failure by MCI WorldCom to
expressly assume, as of the date of the MCI/WorldCom Merger, all obligations of
MCI under the Employment Agreement.
The Employment Agreements further provide that if the payments described
above constitute "parachute payments" under applicable provisions of the
Internal Revenue Code of 1986, as amended (the "Code"). MCI is to pay the
Executive an additional amount sufficient to place the Executive in the same
after-tax financial position the Executive would have been in if the Executive
had not incurred the excise tax imposed under Section 4999 of the Code in
respect of such parachute payments.
In the event an Executive's employment is terminated due to the Executive's
death or "Disability" (as defined in the Employment Agreements), the Employment
Agreements provide that MCI is to pay to the Executive (or the Executive's
beneficiaries) a lump sum cash amount equal to (i) the annual rate of the
Executive's annual base salary as in effect on the date of termination and (ii)
the highest bonus paid to the Executive under MCI's annual bonus plan during the
three fiscal years preceding the termination of employment. In addition, the
Executive is to receive (i) the unpaid portion of his annual base salary accrued
to the date of termination and any accrued vacation as of the date of
termination and (ii) the unpaid portion of his bonus accrued with respect to the
last full fiscal year of MCI ended prior to the date of termination, when such
bonus would otherwise be payable.
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The Employment Agreements contain confidentiality, non-competition and
non-solicitation clauses which provide, among other things, that the Executive
is not to (i) render services to a competitor of MCI or its affiliates or (ii)
solicit or offer employment to any employee of MCI or its affiliates during the
Executive's employment with MCI or its affiliates and, thereafter, for a period
expiring on the earlier of (x) the first anniversary of the Executive's
termination of employment and (y) the expiration of the term of the Employment
Agreement.
Executive Severance Policy
MCI has adopted an executive severance plan (the "ESP") effective for the
period commencing on November 3, 1996, and terminating on November 9, 2000 (the
"Benefits Termination Date"). The ESP covers 20 senior executives of MCI (the
"Covered Executives") who do not have employment agreements. The ESP provides
that if a Covered Executive's employment is terminated prior to the Benefits
Termination Date for any reason other than "disability" or for "cause" (as such
terms are defined in the ESP), or if the Covered Executive terminates employment
for "good reason" (as such term is defined in the ESP) prior to the Benefits
Termination Date, MCI will pay to the Covered Executive an amount equal to two
times the sum of (x) the Covered Executive's annual base salary and (y) the
greater of (A) the average annual bonus paid to or accrued by the Covered
Executive in respect of the three calendar years preceding the termination of
employment and (B) the Covered Executive's annual bonus in respect of 1995.
Under the ESP, such amount is to be paid as follows: the amount attributable to
base salary will be paid in a lump sum following the termination of the Covered
Executive's employment, except that if the Covered Executive terminates his
employment for good reason such amount will be payable over a six-month period
in equal installments, and the amount attributable to the annual bonus will be
paid in a lump sum following the termination of the Covered Executive's
employment. Under the ESP, a Covered Executive whose employment terminates under
the circumstances described above will also be entitled to: (i) continued
medical, dental and life insurance coverage (or their equivalents) until the
earlier of (A) 24 months after the Covered Executive's termination of employment
or (B) the commencement of coverage with a subsequent employer to the extent
such coverage duplicates or exceeds the coverage provided by MCI, (ii) unless
otherwise expressly elected by the Covered Executive prior to such termination,
payment in a cash lump sum of all amounts deferred by the Covered Executive
pursuant to any non-qualified deferred compensation and cash retention plan of
MCI, (iii) full acceleration of vesting and exercisability of any equity-based
compensation awards granted to the Covered Executive and (iv) 24 months of age
and service credit for all purposes under all defined benefit pension plans of
MCI (or their equivalents).
Under the ESP, in the event of the termination of a Covered Executive's
employment prior to the Benefits Termination Date due to a Covered Executive's
death or disability, MCI will pay to the Covered Executive or his beneficiaries,
as applicable, a lump sum cash amount equal to (i) the Covered Executive's
annual base salary and (ii) the highest bonus paid to the Covered Executive by
MCI during the three fiscal years preceding the termination of employment. In
addition, under the ESP, the Covered Executive will be entitled to payment in a
cash lump sum of all amounts deferred by the Covered Executive under any
nonqualified deferred compensation plan maintained by MCI, unless otherwise
expressly elected by the Covered Executive.
The ESP also provides for a gross-up payment to be made to a Covered
Executive for any excise tax imposed under Section 4999 of the Code with respect
to any payments made to the Covered Executive under the ESP or under the terms
of any other MCI plan, program, agreement or arrangement.
The ESP contains confidentiality, non-competition and non-solicitation
clauses which provide, among other things, that a Covered Employee may not, for
a period of six months, in the event a Covered Employee terminates his or her
employment for good reason, (i) render services to a competitor of MCI or its
affiliates or (ii) solicit or offer employment to any employees of MCI or its
affiliates.
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Retention Bonuses
Retention Bonuses for Senior Executives
In connection with the MCI/WorldCom Merger, a cash retention award pool
(the "Executive Retention Program") of up to approximately $170 million will be
created to provide retention incentives for MCI senior executives, as determined
by the MCI Compensation Committee as soon as practicable after the date of the
MCI/WorldCom Merger Agreement. These bonuses generally replace the Senior
Retention ISUs granted pursuant to the Original MCI/BT Merger Agreement, which
were discontinued when that agreement was terminated. The schedule of payment of
such incentives will be subject to approval of WorldCom, which will not be
unreasonably withheld; and WorldCom will be informed as to the other aspects of
the incentives.
Retention Bonuses for Employees
As was the case under the Original MCI/BT Agreement, MCI managers are
permitted to make discretionary grants of retention bonuses (in cash or
otherwise) to key individuals (other than those individuals who have entered
into the Employment Agreements, and it being understood that it is intended that
the Covered Executives generally are not to be eligible to participate) from a
separate approximately $100 million pool created for that purpose. Awards are to
be granted from this pool as follows: (i) up to one-half was awarded not earlier
than December 1, 1997, and (ii) one-half is to be awarded not earlier than
December 1, 1998, except that upon the closing date of any transaction involving
the sale or other disposition of a majority of MCI's capital stock or assets,
any such amounts that have not yet been paid will be accelerated and paid out.
Discretionary Retention Bonus Pool
In addition, a cash retention pool of up to $150 million has been created
for post-MCI/WorldCom Merger retention; such pool will be allocated in
consultation with WorldCom.
Director and Officer Indemnification and Insurance
Pursuant to the MCI/WorldCom Merger Agreement, from and after the Effective
Time, the Surviving Corporation is to cause to be maintained in effect in its
certificate of incorporation and bylaws (i) for a period of six years after the
Effective Time, the current provisions regarding indemnification of officers and
directors contained in the MCI Restated Certificate of Incorporation (the "MCI
Restated Certificate of Incorporation") and the MCI Bylaws (the "MCI Bylaws")
and (ii) for a period of six years, the current policies of directors' and
officers' liability insurance and fiduciary liability insurance maintained by
MCI with respect to claims arising from facts or events that occurred on or
before the Effective Time, except that in no event is the Surviving Corporation
to be required to expend in any one year an amount in excess of 200% of the
annual premiums currently paid by MCI for such insurance, and, if the annual
premiums of such insurance coverage exceed such amount, the Surviving
Corporation is to obtain a policy with the greatest coverage available for a
cost not exceeding such amount.
Board of Directors; Management
Pursuant to the MCI/WorldCom Merger Agreement, WorldCom has agreed that the
WorldCom Board, as of the Effective Time, shall consist of fifteen members,
eight of whom shall be designated by WorldCom from among the directors of
WorldCom, five of whom shall be designated by MCI from among the directors of
MCI and two of whom shall be directors designated by WorldCom from among pending
acquisitions of WorldCom; provided that the persons designated by each party
shall be reasonably acceptable to the other party. As of the date hereof, the
WorldCom Board is composed of eleven directors. WorldCom has further agreed to
cause Bert C. Roberts, Jr. to be appointed Chairman of MCI WorldCom, and to
cause the senior management of MCI WorldCom to be as previously agreed between
the parties. Pursuant to the MCI/WorldCom Merger Agreement, Bernard J. Ebbers
will be the President and Chief Executive Officer of MCI WorldCom. In addition,
Gerald H. Taylor, currently Chief Executive Officer of MCI, will become Vice
Chairman of MCI WorldCom and will be responsible for international operations
and ventures; Timothy F.
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Price, currently President and Chief Operating Officer of MCI, will become
President and Chief Executive Officer of MCI WorldCom's U.S. telecommunications
operating subsidiary; John W. Sidgmore will be Vice Chairman and Chief Operating
Officer of MCI WorldCom and will serve his current responsibilities including
European operations; and Scott D. Sullivan will continue to serve as Chief
Financial Officer of MCI WorldCom. See "Management of MCI WorldCom Following the
Merger".
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General. The following discusses the material federal United States income
tax consequences of the MCI/WorldCom Merger to United States persons who hold
shares of MCI Capital Stock as capital assets within the meaning of Section 1221
of the Code. It does not discuss the tax consequences that might be relevant to
MCI stockholders entitled to special treatment under federal income tax law
(including, without limitation, dealers in securities or foreign currency,
tax-exempt entities, banks, trusts, insurance companies, persons that hold MCI
Capital Stock as part of a straddle, a hedge against currency risk or a
constructive sale or conversion transaction, persons that have a functional
currency other than the U.S. dollar, investors in pass-through entities and
foreign persons, including foreign individuals, partnerships and corporations),
to MCI stockholders who acquired their shares of MCI Common Stock or WorldCom
Common Stock through the exercise or cancellation of employee stock options or
otherwise as compensation, to MCI stockholders who exercise dissenters' rights,
if any, or to BT. This discussion also does not describe any tax consequences
arising out of the tax laws of any state, local or foreign jurisdiction.
Consummation of the MCI/WorldCom Merger is conditioned upon, among other
things, the receipt of opinions of Cravath, Swaine & Moore, counsel to WorldCom,
and Simpson Thacher & Bartlett, counsel to MCI, each dated as of the Closing
Date, to the effect that, on the basis of the facts, representations and
assumptions set forth in such opinions, (i) the MCI/WorldCom Merger will be
treated for federal income tax purposes as a "reorganization" within the meaning
of Section 368(a) of the Code, and (ii) WorldCom, Merger Sub and MCI will each
be a party to that reorganization within the meaning of Section 368(b) of the
Code.
Assuming the MCI/WorldCom Merger is consummated in accordance with the
terms of the MCI/WorldCom Merger Agreement and as described in this Joint Proxy
Statement/Prospectus, under current law, for federal income tax purposes, (i)
the MCI/WorldCom Merger will be treated as a "reorganization" within the meaning
of Section 368(a) of the Code and (ii) WorldCom, Merger Sub and MCI will each be
a party to that reorganization within the meaning of Section 368(b) of the Code.
This conclusion is based on the Code, regulations promulgated thereunder and
rulings in effect as of the date hereof, current administrative rulings and
practice and judicial precedent (collectively, "Current Applicable Law"), all of
which are subject to change, and certain representations as to factual matters
to be made by, among others, WorldCom and MCI (such representations, the
"Factual Representations"). Any change in Current Applicable Law, which may or
may not be retroactive, or failure of the Factual Representations to be true,
correct and complete in all material respects could alter the tax consequences
discussed herein. The parties will not request and the MCI/WorldCom Merger is
not conditioned upon a ruling from the Internal Revenue Service (the "IRS") with
respect to any of the federal income tax consequences of the MCI/WorldCom Merger
and as a result, there can be no assurance that the IRS will not disagree with
or challenge any of the conclusions set forth in this discussion.
Accordingly, as a reorganization under the Code, (i) no gain or loss will
be recognized by the stockholders of MCI with respect to the shares of WorldCom
Common Stock exchanged for WorldCom Common Stock in the MCI/WorldCom Merger,
(ii) the adjusted tax basis of the shares of WorldCom Common Stock received by
an MCI stockholder (including any fractional interest) will be equal to the
adjusted tax basis of the shares of MCI Capital Stock exchanged therefor, (iii)
a holder's holding period with respect to the shares of WorldCom Common Stock
received pursuant to the MCI/WorldCom Merger will include the holding period of
the MCI Capital Stock exchanged therefor, provided the shares of MCI Capital
Stock were held as capital assets within the meaning of Section 1221 of the Code
on the date of the MCI/WorldCom Merger, (iv) the receipt of cash in lieu of
fractional shares of WorldCom Common Stock by a stockholder of MCI will be
treated as if the fractional shares were distributed as part of the exchange and
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then were redeemed by WorldCom and (v) no gain or loss will be recognized by
WorldCom, the Merger Sub or MCI as a result of the MCI/WorldCom Merger.
The receipt of cash in lieu of a fractional share of WorldCom Common Stock
by an MCI stockholder pursuant to the MCI/WorldCom Merger will result in taxable
gain or loss to such stockholder for federal income tax purposes based on the
difference between the amount of cash received by such stockholder and such
stockholder's adjusted tax basis in such fractional share as set forth above.
Such gain or loss will constitute capital gain or loss if such stockholder's MCI
Common Stock is a capital asset within the meaning of Section 1221 of the Code
at the Effective Time and will constitute long-term capital gain or loss, if the
holder's holding period is greater than 12 months as of the date of the
consummation of the MCI/WorldCom Merger. For noncorporate holders, any such
long-term capital gain generally will be taxed at one of two preferential rates
depending upon whether the holding period for the underlying MCI Common Stock is
greater than 18 months as of the date of the consummation of the MCI/WorldCom
Merger. The deductibility of capital losses is subject to limitations.
Backup Withholding. Certain noncorporate holders of MCI Common Stock may
be subject to backup withholding at a 31% rate on cash payments received in lieu
of fractional shares of WorldCom Common Stock. Backup withholding will not
apply, however, to a stockholder who (i) furnishes a correct taxpayer
identification number and certifies that he or she is not subject to backup
withholding on the substitute Form W-9 (or successor form) included in the
letter of transmittal to be delivered to MCI stockholders following consummation
of the MCI/WorldCom Merger, (ii) provides a certification of foreign status on
Form W-8 (or successor form) or (iii) is otherwise exempt from backup
withholding.
BECAUSE OF THE COMPLEXITY OF THE TAX LAWS, AND BECAUSE THE TAX CONSEQUENCES
OF ANY PARTICULAR MCI STOCKHOLDER MAY BE AFFECTED BY MATTERS NOT DISCUSSED
HEREIN, EACH MCI STOCKHOLDER AND OPTION HOLDER IS URGED TO CONSULT HIS OR HER
PERSONAL TAX ADVISOR CONCERNING THE APPLICABILITY OF ANY FOREIGN LAWS AS WELL AS
OTHER FEDERAL, STATE AND LOCAL INCOME TAX CONSEQUENCES OF THE MCI/WORLDCOM
MERGER.
ACCOUNTING TREATMENT
The MCI/WorldCom Merger will be accounted for as a purchase for financial
accounting purposes in accordance with generally accepted accounting principles.
For purposes of preparing WorldCom's consolidated financial statements, WorldCom
will establish a new accounting basis for MCI's assets and liabilities based
upon the fair values thereof, the Merger Consideration and the costs of the
MCI/WorldCom Merger. WorldCom's management believes that any excess of cost over
the fair value of the net assets of MCI will be recorded as goodwill, in-process
research and development, and other intangible assets. In-process research and
development projects may include projects for which technological feasibility
has not been established and the technology has no future alternative use. To
the extent that a portion of the purchase price is allocated to such in-process
research and development projects, a charge, which may be material to WorldCom's
results of operations, would be recognized in the period in which the
MCI/WorldCom Merger occurs. A final determination of the intangible asset lives
and required purchase accounting adjustments, including the allocation of the
purchase price to the assets acquired and liabilities assumed based on their
respective fair values, has not yet been made. Accordingly, the purchase
accounting adjustments made in connection with the development of the unaudited
pro forma condensed combined financial information appearing elsewhere in this
Joint Proxy Statement/Prospectus are preliminary and have been made solely for
purposes of developing such unaudited pro forma condensed combined financial
information. WorldCom has undertaken a study to determine the fair value of
certain of MCI's assets and liabilities and will make appropriate purchase
accounting adjustments upon completion of that study. For financial reporting
purposes, the results of operations of MCI will be included in the WorldCom
consolidated statement of operations following the Effective Time. See
"Unaudited Pro Forma Financial Information."
PERCENTAGE OWNERSHIP INTEREST OF MCI STOCKHOLDERS AFTER THE MCI/WORLDCOM MERGER
The number of shares of WorldCom Common Stock to be issued in the
MCI/WorldCom Merger will depend on the actual Exchange Ratio, which will not be
known until the end of the Measurement Period
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(which ends three trading days preceding the Effective Time). If the minimum
Exchange Ratio (1.2439) is applicable, and assuming that there will be
shares of WorldCom Common Stock and shares of MCI Common
Stock outstanding immediately prior to the Effective Time, the number of shares
of WorldCom Common Stock to be issued in the MCI/WorldCom Merger would be
, which would represent % of the outstanding shares of WorldCom
Common Stock immediately after the Effective Time. If the maximum Exchange Ratio
(1.7586) is applicable, and based on the same assumptions, the number of shares
of WorldCom Common Stock to be issued in the MCI/WorldCom Merger would be
, which would represent % of the outstanding shares of WorldCom
Common Stock immediately after the Effective Time.
APPRAISAL RIGHTS
Under the Georgia Business Corporation Code ("GBCC"), the holders of
WorldCom Common Stock are not entitled to appraisal rights in connection with
the Share Issuance or the Charter Amendment.
Under the DGCL, the holders of MCI Common Stock will not be entitled to
appraisal rights in connection with the MCI/WorldCom Merger. The holders of MCI
Class A Common Stock would ordinarily be entitled to appraisal rights in
connection with the MCI/WorldCom Merger; however, BT, which is the sole holder
of MCI Class A Common Stock, waived its appraisal rights in the BT Agreement.
See "The BT Agreement."
NASDAQ LISTING
It is a condition to the consummation of the MCI/WorldCom Merger, that the
shares of WorldCom Common Stock to be issued be authorized for quotation on
NASDAQ, subject only to official notice of issuance.
DELISTING AND DEREGISTRATION OF MCI COMMON STOCK
If the MCI/WorldCom Merger is consummated, the MCI Common Stock will be
delisted from the NASDAQ and will be deregistered under the Securities Exchange
Act of 1934, as amended (the "Exchange Act").
CONDUCT OF THE BUSINESS OF MCI AND WORLDCOM IF THE MCI/WORLDCOM MERGER IS NOT
CONSUMMATED
If the MCI/WorldCom Merger is not consummated, it is expected that the
respective businesses and operations of MCI and WorldCom will continue to be
conducted substantially as they currently are being conducted.
RESALES OF WORLDCOM COMMON STOCK
The shares of WorldCom Common Stock to be issued to stockholders of MCI
pursuant to the MCI/WorldCom Merger Agreement have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), thereby allowing such
shares to be freely traded without restriction by persons who will not be
"affiliates" of WorldCom after the MCI/WorldCom Merger or who were not
"affiliates" of MCI on the date of the MCI Special Meeting. All directors and
certain officers and stockholders of MCI may be deemed to have been "affiliates"
of MCI within the meaning of such rules. Any such person may resell the WorldCom
Common Stock received by him or her in the MCI/WorldCom Merger only if such
shares are registered for such resale under the Securities Act or an exemption
from such registration under the Securities Act is available. Such persons may
be permitted to effect resales under the safe harbor provisions of Rule 145
under the Securities Act (or Rule 144 in the case of such persons who become
"affiliates" of WorldCom) or as otherwise permitted under the Securities Act.
Persons who may be deemed affiliates of MCI or WorldCom generally include
individuals or entities that control, are controlled by, or are under common
control with, such party, and may include certain officers and directors of such
party as well as principal stockholders of such party. It is recommended that
any such person obtain advice of securities counsel prior to effecting any
resales.
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The MCI/WorldCom Merger Agreement provides that, on or prior to the date of
the MCI Special Meeting, MCI will deliver to WorldCom a letter identifying all
persons who are "affiliates" of MCI for purposes of Rule 145 under the
Securities Act and that, on or prior to the Closing Date, MCI will deliver on
behalf of each of MCI's "affiliates" a written agreement to the effect that such
person will not offer or sell or otherwise dispose of any of the WorldCom Common
Stock received in the MCI/WorldCom Merger in violation of the Securities Act or
the rules and regulations thereunder. The MCI/WorldCom Merger Agreement also
provides that, on or prior to the date of the WorldCom Special Meeting, WorldCom
will deliver to MCI a letter identifying all persons who are "affiliates" of
WorldCom for purposes of Rule 145 under the Securities Act and that, on or prior
to the Closing Date, WorldCom will deliver on behalf of each of WorldCom's
"affiliates" a written agreement to the effect that such person will not offer
or sell or otherwise dispose of any of the WorldCom Common Stock received in the
MCI/WorldCom Merger in violation of the Securities Act or the rules and
regulations thereunder.
This Joint Proxy Statement/Prospectus does not cover resales of WorldCom
Common Stock received by any person who may be deemed to be an affiliate of
WorldCom or MCI.
OTHER TERMS OF THE MCI/WORLDCOM MERGER AGREEMENT
CONVERSION OF SHARES IN THE MCI/WORLDCOM MERGER
At the Effective Time, by virtue of the MCI/WorldCom Merger and without any
further action on the part of the holder thereof:
(i) each share of common stock of Merger Sub issued and outstanding
immediately prior to the Effective Time will remain issued, outstanding and
unchanged as validly issued, fully paid and nonassessable shares of common
stock, par value $.01 per share, of the Surviving Corporation;
(ii) each share of MCI Capital Stock issued and owned or held by
WorldCom, Merger Sub or MCI at the Effective Time will, by virtue of the
MCI/WorldCom Merger, cease to be outstanding and will be canceled and
retired, and no stock of WorldCom or other consideration will be delivered
in exchange therefor;
(iii) each share of MCI Common Stock issued and outstanding
immediately prior to the Effective Time (other than any shares to be
canceled as described in subparagraph (ii) above) will be converted into
the right to receive that number of shares of WorldCom Common Stock equal
to the Exchange Ratio; provided, however, that cash will be paid in lieu of
any fractional share of WorldCom Common Stock. See "-- No Fractional
Shares"; and
(iv) each share of MCI Class A Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares to be canceled
as described in paragraph (ii) above) will be converted into the right to
receive $51.00 in cash, without interest thereon.
As a result of the MCI/WorldCom Merger and without any action on the part
of the holders thereof, all shares of MCI Capital Stock will cease to be
outstanding and will be canceled and retired and will cease to exist, and each
holder of a certificate which immediately prior to the Effective Time
represented any such shares of MCI Capital Stock (a "Certificate") will cease to
have any rights with respect thereto, except the right to receive, as
hereinafter described: (i) a certificate representing the number of whole shares
of WorldCom Common Stock (or the amount in cash, as applicable) into which any
shares of MCI Common Stock have been converted; (ii) certain dividends and other
distributions and (iii) the cash, without interest, into which the shares of MCI
Class A Common Stock have been converted and the cash in lieu of any fractional
shares of WorldCom Common Stock that would otherwise be issued. See
" -- Exchange Agent; Procedures for Exchange of Certificates" and " -- No
Fractional Shares".
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EXCHANGE AGENT; PROCEDURES FOR EXCHANGE OF CERTIFICATES
WorldCom has authorized The Bank of New York to act as Exchange Agent (the
"Exchange Agent") under the MCI/WorldCom Merger Agreement. At or prior to the
Effective Time, WorldCom will deposit with the Exchange Agent in trust for the
benefit of the holders of shares of MCI Capital Stock, certificates ("WorldCom
Certificates") representing the WorldCom Common Stock issuable pursuant to the
MCI/ WorldCom Merger Agreement in exchange for outstanding shares of MCI Common
Stock and the amount of cash payable pursuant to the MCI/WorldCom Merger
Agreement in exchange for the outstanding shares of MCI Class A Common Stock.
WorldCom will make available to the Exchange Agent from time to time, as needed,
cash sufficient to pay cash in lieu of fractional shares and any dividends or
other distributions payable pursuant to the MCI/WorldCom Merger Agreement. Any
cash or certificates of WorldCom Common Stock deposited with the Exchange Agent
is hereinafter referred to as the "Exchange Fund."
As soon as reasonably practicable after the Effective Time, the Surviving
Corporation will cause the Exchange Agent to mail to each record holder of a
Certificate a packet of information about exchanging Certificates for the
property described below. The packet will include a letter of transmittal and
instructions for the record holder to use to transmit the Certificates to the
Exchange Agent, which letter of transmittal will specify that delivery will be
effected, and risk of loss and title to the Certificates will pass, only upon
actual delivery thereof to the Exchange Agent and will be in such form and have
such other provisions as WorldCom may reasonably specify. Upon surrender of a
Certificate to the Exchange Agent together with such letter of transmittal, duly
executed and completed in accordance with the instructions thereto, and such
other documents as may reasonably be required by the Exchange Agent, such holder
will be entitled to receive in exchange for each Certificate formerly
representing shares of MCI Common Stock (A) one or more shares of WorldCom
Common Stock representing, in the aggregate, the whole number of shares that
such holder has the right to receive pursuant to the MCI/WorldCom Merger
Agreement and (B) a check in the amount equal to the cash that such holder has
the right to receive pursuant to the provisions of the MCI/WorldCom Merger
Agreement, including cash in lieu of fractional shares of WorldCom Common Stock
(see " -- No Fractional Shares"), and for each Certificate formerly representing
shares of MCI Class A Common Stock, a check in the amount equal to the cash that
such holder has the right to receive pursuant to the MCI/WorldCom Merger
Agreement. All Certificates so surrendered will be canceled. No interest will be
paid or will accrue on any cash payable to such holders pursuant to the
MCI/WorldCom Merger Agreement. In the event of a transfer of ownership of MCI
Capital Stock that is not registered in the transfer records of MCI, one or more
shares of WorldCom Common Stock evidencing, in the aggregate, the proper number
of shares of WorldCom Common Stock, and any dividends or other distributions to
which such holder is entitled pursuant to the MCI/WorldCom Merger Agreement, may
be issued with respect to such MCI Capital Stock to such a transferee if the
Certificate representing such shares of MCI Capital Stock is presented to the
Exchange Agent, accompanied by all of the documents required to evidence and
effect such transfer and to evidence that any applicable stock transfer taxes
have been paid.
No dividends or other distributions declared or made with respect to shares
of WorldCom Common Stock with a record date after the Effective Time will be
paid to the holder of any unsurrendered Certificate with respect to the shares
of WorldCom Common Stock that such holder would be entitled to receive upon
surrender of such Certificate, and no cash payment in lieu of fractional shares
will be paid to any such holder pursuant to the MCI/WorldCom Merger Agreement,
until such holder surrenders such Certificate in accordance with the exchange
procedures set forth in the MCI/WorldCom Merger Agreement. Subject to the effect
of applicable laws, following surrender of any such Certificate there will be
paid to such holder of shares of WorldCom Common Stock issuable in exchange
therefor, without interest, (i) promptly after the time of such surrender, the
amount of any cash payable in lieu of fractional shares of WorldCom Common Stock
to which such holder is entitled pursuant to the MCI/WorldCom Merger Agreement
and the amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of WorldCom
Common Stock, and (ii) at the appropriate payment date, the amount of dividends
or other distributions with a record date after the Effective Time but prior to
such surrender and a payment date subsequent to such surrender payable with
respect to such shares of WorldCom Common Stock.
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Any portion of the Exchange Fund that remains undistributed to the holders
of Certificates for twelve months after the Effective Time will be delivered to
the Surviving Corporation or otherwise on the instruction of the Surviving
Corporation, and any holders of Certificates who have not theretofore complied
with the exchange provisions of the MCI/WorldCom Merger Agreement may thereafter
look only to the Surviving Corporation and WorldCom for the Merger Consideration
with respect to the shares of MCI Capital Stock formerly represented thereby,
any cash in lieu of fractional shares of WorldCom Common Stock and any dividends
or distributions with respect to shares of WorldCom Common Stock to which such
holders are entitled pursuant to the MCI/WorldCom Merger Agreement. Any such
portion of the Exchange Fund remaining unclaimed by the holders of shares of MCI
Capital Stock five years after the Effective Time (or such earlier date
immediately prior to such time as such amounts would otherwise escheat to or
become property of any governmental entity) will, to the extent permitted by
law, become the property of the Surviving Corporation free and clear of any
claims or interest of any person previously entitled thereto.
None of WorldCom, Merger Sub, MCI, the Surviving Corporation or the
Exchange Agent will be liable to any person in respect of any Merger
Consideration from the Exchange Fund delivered to a public official pursuant to
any applicable abandoned property, escheat or similar law.
The Exchange Agent will invest any cash included in the Exchange Fund, as
directed by the Surviving Corporation, on a daily basis. Any interest and other
income resulting from such investments will be promptly paid to the Surviving
Corporation.
STOCKHOLDERS OF MCI SHOULD NOT FORWARD THEIR CERTIFICATES WITH THE ENCLOSED
PROXY CARD, NOR SHOULD THEY FORWARD THEIR CERTIFICATES TO THE EXCHANGE AGENT
UNTIL THEY HAVE RECEIVED THE PACKET OF INFORMATION DESCRIBED ABOVE, INCLUDING
THEIR LETTER OF TRANSMITTAL.
NO FRACTIONAL SHARES
No certificates or scrip or shares of WorldCom Common Stock representing
fractional shares of WorldCom Common Stock will be issued upon the surrender for
exchange of Certificates and such fractional share interests will not entitle
the owner thereof to vote or have any other rights of a stockholder of WorldCom.
In lieu of any such fractional share, each holder of shares of MCI Common Stock
exchanged pursuant to the MCI/WorldCom Merger Agreement who would otherwise have
been entitled thereto (after taking into account all Certificates) will be paid
cash (without interest) in an amount equal to the product of (i) such fractional
part of a share of WorldCom Common Stock multiplied by (ii) the last sales price
per share of WorldCom Common Stock quoted on NASDAQ on the Closing Date. As
promptly as practicable after the determination of the amount of cash, if any,
to be paid to holders of fractional interests, the Exchange Agent shall notify
WorldCom, and WorldCom will cause the Surviving Corporation to deposit such
amount with the Exchange Agent and will cause the Exchange Agent to forward
payments to such holders of fractional interests in accordance with the terms of
the MCI/WorldCom Merger Agreement.
REPRESENTATIONS AND WARRANTIES
The MCI/WorldCom Merger Agreement contains various representations and
warranties of WorldCom, MCI and Merger Sub relating, among other things, to the
following:
(i) their incorporation, existence, good standing, corporate power and
similar corporate matters;
(ii) their capitalization;
(iii) their authorization, execution, delivery and performance and the
enforceability of the MCI/ WorldCom Merger Agreement and related matters;
(iv) the absence of conflicts, violations and defaults under their
certificate or articles of incorporation and bylaws and certain other
agreements and documents;
(v) the absence of required consents, approvals, orders or
authorizations of, or registration, declaration or filing with certain
governmental entities;
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(vi) the documents and reports filed with the SEC and the accuracy and
completeness of the information contained therein;
(vii) the Registration Statement and this Joint Proxy
Statement/Prospectus and the accuracy and completeness of the information
contained therein and herein;
(viii) the absence of certain material changes or events with respect
to WorldCom since December 31, 1996;
(ix) the stockholder votes required to approve the transaction;
(x) the inapplicability of MCI's stockholder rights plan to the
MCI/WorldCom Merger;
(xi) brokers or finders fees and expenses;
(xii) the receipt of fairness opinions by MCI from its financial
advisors; and
(xiii) the receipt of letters identifying "affiliates" of each company
for purposes of Rule 145 under the Securities Act.
All representations and warranties of WorldCom, MCI and Merger Sub expire
at the Effective Time.
CONDUCT OF BUSINESS PENDING THE MCI/WORLDCOM MERGER
Each of WorldCom and MCI has agreed that during the period from the date of
the MCI/WorldCom Merger Agreement and continuing until the Effective Time,
except as expressly contemplated or permitted by the MCI/WorldCom Merger
Agreement or as otherwise indicated on its disclosure schedule or as required by
a Governmental Entity of competent jurisdiction or to the extent that the other
party shall otherwise consent in writing, it and its Subsidiaries will conduct
their business in the usual, regular and ordinary course of business in all
material respects, in substantially the same manner as conducted prior to the
MCI/WorldCom Merger Agreement, and will use all reasonable efforts to preserve
intact their present lines of business, maintain their rights and franchises and
preserve their relationships with customers, suppliers and others having
business dealings with them to the end that their ongoing businesses are not
impaired in any material respect at the Effective Time. As used in the
MCI/WorldCom Merger Agreement and this Joint Proxy Statement/Prospectus,
"Subsidiary" means any corporation or other organization, whether incorporated
or unincorporated, (i) of which such party or any other Subsidiary of such party
is a general partner (excluding partnerships, the general partnership interests
of which held by such party or any Subsidiary of such party do not have a
majority of the voting interests in such partnership) or (ii) at least a
majority of the securities or other interests of which have by their terms
ordinary voting power to elect a majority of the Board of Directors or others
performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such party or by
any one or more of its Subsidiaries, or by such party and one or more of its
Subsidiaries and "Governmental Entity" means any supranational, national, state,
municipal or local government, any instrumentality, subdivision, court,
administrative agency or commission or other authority thereof, or any
quasi-governmental or private body exercising any regulatory, taxing, importing
or other governmental or quasi-governmental authority, including the European
Union.
Each of WorldCom and MCI has further agreed that during the period from the
date of the MCI/ WorldCom Merger Agreement and continuing until the Effective
Time, except as expressly contemplated or permitted by the MCI/WorldCom Merger
Agreement or as otherwise indicated on its disclosure schedule or as required by
a Governmental Entity of competent jurisdiction or to the extent that the other
party otherwise consents in writing, that it will not and will not permit any of
its Subsidiaries to:
(i) enter into any new material line of business or incur or commit to
any capital expenditures other than capital expenditures incurred or
committed in the ordinary course of business consistent with past practice
and which, in the case of MCI, together with all such expenditures incurred
or committed to during any fiscal year, are not in excess of specified
amounts;
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(ii) (A) declare or pay any dividends on or make other distributions
in respect of any of its capital stock, except (x) in the case of MCI, to
continue the declaration and payment of regular semiannual cash dividends
not in excess of $0.025 per share of MCI Common Stock and MCI Class A
Common Stock, in each case with usual record and payment dates for such
dividends in accordance with MCI's past practice and, in the case of
WorldCom, to continue the declaration and payment of regular quarterly cash
dividends in amounts, including increases, consistent with past practice,
and (y) dividends by its wholly owned Subsidiaries, (B) split, combine or
reclassify any of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in
substitution for, shares of its capital stock, except for any such
transaction by a wholly owned Subsidiary which remains a wholly owned
Subsidiary after consummation of such transaction, or (C) repurchase,
redeem or otherwise acquire any shares of its capital stock or any
securities convertible into or exercisable for any shares of its capital
stock except for the purchase from time to time of capital stock (and in
the case of MCI, the associated MCI Rights) in the ordinary course of
business consistent with past practice in connection with certain of its
benefit plans or, in the case of WorldCom, repurchases of shares of
WorldCom Common Stock in open market or privately negotiated transactions
other than during the Measurement Period;
(iii) amend, in the case of Subsidiaries, in any material respect, or
propose to amend their respective certificates of incorporation, bylaws or
other governing documents, except to the extent required to comply with
their respective obligations under the MCI/WorldCom Merger Agreement,
required by law or required by the rules and regulations of the NASD;
(iv) issue, deliver or sell, or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock of any class, any debt
securities having the right to vote on any matters on which stockholders
may vote ("Voting Debt") or any securities convertible into or exercisable
for, or any rights, warrants or options to acquire, any such shares or
Voting Debt or enter into any agreement with respect to any of the
foregoing, other than (A) the issuance of common stock (and in the case of
MCI, the associated MCI Rights) upon the exercise of stock options or in
connection with other stock-based benefits plans outstanding on the date of
the MCI/WorldCom Merger Agreement in accordance with their present terms,
(B) issuances by a wholly owned Subsidiary of capital stock to such
Subsidiary's parent, (C) issuances in accordance with its rights agreement,
(D) in the case of MCI, issuances of shares, options, rights or other
awards and amendments to equity-related awards pursuant to certain of its
benefit plans, in the ordinary course of business and consistent with past
practice, and (E) in the case of WorldCom, issuances in respect of any
acquisitions by WorldCom or its subsidiaries that are currently pending as
of the date of the MCI/WorldCom Merger Agreement ("WorldCom Pending
Acquisitions");
(v) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial equity interest in or a substantial portion of
the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof
or otherwise acquire or agree to acquire any assets (other than the
acquisition of assets used in the ordinary course) other than (A) in the
case of WorldCom, the WorldCom Pending Acquisitions and (B) acquisitions in
existing or related lines of its business the fair market value of the
total consideration (including the value of indebtedness or other liability
acquired or assumed) for which, in the case of WorldCom, does not exceed
$525 million in the aggregate and for which, in the case of MCI does not
exceed $325 million in the aggregate, provided, however, that the foregoing
does not prohibit (x) internal reorganizations or consolidations involving
existing Subsidiaries or (y) the creation of new Subsidiaries organized to
conduct or continue activities otherwise permitted by the MCI/WorldCom
Merger Agreement;
(vi) sell, lease, encumber or otherwise dispose of, any of its assets
(including capital stock of its Subsidiaries) which are material,
individually or in the aggregate, other than (A) internal reorganizations
or consolidations involving existing Subsidiaries, (B) dispositions
referred to in its reports filed with the SEC prior to the date of the
MCI/WorldCom Merger Agreement and (C) as may be required by or in
conformance with law or regulation in order to permit or facilitate the
consummation of the transactions contemplated hereby;
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(vii) make any loans, advances or capital contributions to, or
investments in, any other person, other than by MCI or WorldCom, or a
respective Subsidiary of each to or in MCI or WorldCom or any respective
Subsidiary of each or to pay, discharge or satisfy any claims, liabilities
or obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than indebtedness, issuances of debt securities,
guarantees, loans, advances, capital contributions, investments, payments,
discharges or satisfactions incurred or committed to in the ordinary course
of business consistent with past practice;
(viii) take any action that would prevent or impede the MCI/WorldCom
Merger from qualifying as a reorganization under Section 368 of the Code;
(ix) take any action that would, or that could reasonably be expected
to, result in, except, in the case of MCI as otherwise permitted with
respect to Acquisition Proposals (as hereinafter defined), any of the
conditions to the MCI/WorldCom Merger not being satisfied;
(x) except as disclosed in its reports filed with the SEC prior to the
date of the MCI/WorldCom Merger Agreement, or as required by a Governmental
Entity, (A) change its methods of accounting in effect at December 31,
1996, except as required by changes in United States generally accepted
accounting principles ("U.S. GAAP") as concurred in by its independent
auditors,(B) change its fiscal year or (C) make any material Tax election,
other than in the ordinary course of business consistent with past
practice, without consultation with the other party; or
(xi) amend, modify or waive any provision of its respective rights
agreement, and shall not take any action to redeem the respective rights or
render them inapplicable to any transaction, except, in the case of MCI to
(A) render the rights inapplicable to the MCI/WorldCom Merger and (B) to
permit another transaction that the MCI Board has determined is a Superior
Proposal to be consummated no earlier than December 31, 1998. As used in
the MCI/WorldCom Merger Agreement and this Joint Proxy Statement
Prospectus, "Superior Proposal" means a bona fide written Acquisition
Proposal (as hereinafter defined) which the Board of Directors of MCI
concludes in good faith (after consultation with its financial advisors and
legal counsel), taking into account all legal, financial, regulatory and
other aspects of the proposal and the person making the proposal, (i)
would, if consummated, result in a transaction that is more favorable to
MCI's stockholders (in their capacities as stockholders), from a financial
point of view, than the transactions contemplated by the MCI/WorldCom
Merger Agreement and (ii) is reasonably capable of being completed
(provided that for purposes of this definition the term "Acquisition
Proposal" will have the meaning assigned to such term in "--Acquisition
Proposals" except that the reference to "10%" in the definition of
"Acquisition Proposal" will be deemed to be a reference to "50%" and
"Acquisition Proposal" will only be deemed to refer to a transaction
involving MCI, or with respect to assets (including the shares of any
Subsidiary of MCI) of MCI and its Subsidiaries, taken as a whole, and not
any of its Subsidiaries alone).
In addition, WorldCom has agreed that it will not, and that it will not
permit any of its Subsidiaries to, enter into any agreement with respect to or
consummate any transaction contemplated by an Acquisition Proposal.
Each of WorldCom and MCI has also further agreed that each party will (a)
confer on a regular and frequent basis with the other, (b) report (to the extent
permitted by law or regulation or any applicable confidentiality agreement) on
operational matters, (c) file all reports required to be filed by each of them
with the SEC (and all other Governmental Entities) between the date of the
MCI/WorldCom Merger Agreement and the Effective Time and will (to the extent
permitted by law or regulation or any applicable confidentiality agreement)
deliver to the other party copies of all such reports, announcements and
publications promptly after the same are filed, (d) have the right (subject to
applicable laws relating to the exchange of information) to review in advance,
and will consult with the other with respect to, all the information relating to
the other party and each of their respective Subsidiaries, which appears in any
filings, announcements or publications made with, or written materials submitted
to, any third party or any Governmental Entity in connection with the
transactions contemplated by the MCI/WorldCom Merger Agreement. In exercising
the foregoing right, each of WorldCom and MCI has agreed to act reasonably and
as promptly as practicable, and to the extent
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practicable and as timely as practicable, it will consult with, and provide all
appropriate and necessary assistance to, the other party with respect to the
obtaining of all permits, consents, approvals and authorizations of all third
parties and Governmental Entities necessary or advisable to consummate the
transactions contemplated by the MCI/WorldCom Merger Agreement and each party
will keep the other party apprised of the status of matters relating to
completion of the transactions contemplated hereby.
Each of WorldCom and MCI has also further agreed that Bernard J. Ebbers, as
Chief Executive Officer of WorldCom, and Gerald H. Taylor, as Chief Executive
Officer of MCI, or their respective successors, jointly will be responsible for
coordinating all aspects of transition planning and implementation relating to
the MCI/ WorldCom Merger and the other transactions contemplated thereby,
including, during the period between the date of the MCI/WorldCom Merger
Agreement and the Effective Time, (i) examining various alternatives regarding
the manner in which to best organize and manage the businesses of WorldCom and
MCI after the Effective Time and (ii) coordinating policies and strategies with
respect to regulatory authorities and bodies, in all cases subject to applicable
law and regulation; provided, however, that nothing contained in the MCI/
WorldCom Merger Agreement will give MCI or WorldCom, directly or indirectly, the
right to control or direct the other party's operations prior to the Effective
Time.
Each of WorldCom and MCI has also further agreed that (i) it will, as
promptly as practicable following the date of the MCI/WorldCom Merger Agreement,
in cooperation with the other, prepare and file with the SEC this Joint Proxy
Statement/Prospectus and an amendment to its existing registration statement on
Form S-4 with respect to the Share Issuance (the "Form S-4"), (ii) use all
reasonable efforts to have the Form S-4 cleared by the SEC as promptly as
practicable after filing with the SEC and to keep the Form S-4 effective as long
as is necessary to consummate the MCI/WorldCom Merger and (iii) as promptly as
practicable following the execution of the MCI/WorldCom Merger Agreement, duly
call, give notice of, convene and hold a meeting of its stockholders for the
purpose of obtaining the required votes with respect to the transactions
contemplated by the MCI/WorldCom Merger Agreement.
WorldCom has further agreed to take all necessary action to, as of the
Effective Time, (i) reconstitute the MCI WorldCom Board to consist of fifteen
members, eight of whom will be designated by WorldCom from among the directors
of WorldCom, five of whom will be designated by MCI from among the directors of
MCI and two of whom shall be directors designated by WorldCom from among pending
acquisitions of WorldCom; provided that the persons designated by each party are
reasonably acceptable to the other party, (ii) cause Bert C. Roberts, Jr. to be
appointed Chairman of MCI WorldCom, (iii) cause the senior management of MCI
WorldCom to be as previously agreed between the parties and (iv) amend its
Articles to change its name to "MCI WorldCom." See "Directors and Management of
MCI WorldCom Following the Merger" and "Proposed Amendment of the WorldCom
Articles." Each of WorldCom and MCI has also agreed that MCI WorldCom will be
headquartered in Jackson, Mississippi and the Surviving Corporation (which will
be a subsidiary of MCI WorldCom) will be headquartered in Washington D.C.
Each of WorldCom and MCI has also further agreed that upon reasonable
notice, during the period prior to the Effective Time, MCI will and will cause
its Subsidiaries to (i) afford to the officers, employees, accountants, counsel,
financial advisors and other representatives of WorldCom reasonable access
during normal business hours to all its properties, books, contracts,
commitments and records and (ii) furnish promptly to WorldCom (a) a copy of each
report, schedule, registration statement and other document filed, published,
announced or received by it during such period pursuant to the requirements of
Federal or state securities laws, as applicable (other than reports or documents
which such party is not permitted to disclose under applicable law), and (b)
consistent with its legal obligations, all other information concerning its
business, properties and personnel as such other party may reasonably request;
provided, however, that MCI may restrict the foregoing access to the extent that
(x) a Governmental Entity requires MCI or any of its Subsidiaries to restrict
access to any properties or information reasonably related to any such contract
on the basis of applicable laws and regulations with respect to national
security matters or (y) any law, treaty, rule or regulation of any Governmental
Entity applicable to MCI requires MCI or its Subsidiaries to restrict access to
any properties or information. The parties have also agreed to hold any such
information which is non-public in confidence to the extent required by, and in
accordance with, the provisions of the letter dated October 16, 1997 between MCI
and WorldCom (the "Confidentiality Agreement").
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Each of WorldCom and MCI has also further agreed that, subject to the terms
and conditions of the MCI/WorldCom Merger Agreement, each party will use its
best efforts to take, or cause to be taken, all actions and to do, or cause to
be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate the MCI/WorldCom Merger and the other transactions
contemplated by the MCI/WorldCom Merger Agreement as soon as practicable, and in
furtherance thereof, each party has made filings of a Notification and Report
Form pursuant to the HSR Act with respect to the transactions contemplated by
the MCI/WorldCom Merger Agreement and each has agreed to supply as promptly as
practicable any additional information and documentary material that may be
requested pursuant to the HSR Act and to take all other actions necessary to
cause the expiration or termination of the applicable waiting periods under the
HSR Act as soon as practicable.
Each of WorldCom and MCI has also further agreed that it will, in
connection with the efforts referenced in the previous paragraph, use its best
efforts to (i) cooperate in all respects with the other party in connection with
any filing or submission and in connection with any investigation or other
inquiry, including any proceeding initiated by a private party; (ii) promptly
inform the other party of any communication received by such party from, or
given by such party to, the FCC, PUCs, the DOJ or any other Governmental Entity
and of any material communication received or given in connection with any
proceeding by a private party, in each case regarding any of the transactions
contemplated hereby, and (iii) permit the other party to review any
communication given by it to, and consult with each other in advance of any
meeting or conference with, the FCC, PUCs, the DOJ or any such other
Governmental Entity or, in connection with any proceeding by a private party,
with any other person, and to the extent permitted by the FCC, PUCs, the DOJ or
such other applicable Governmental Entity or other person, give the other party
the opportunity to attend and participate in such meetings and conferences. As
used in the MCI/WorldCom Merger Agreement and this Joint Proxy
Statement/Prospectus, "Regulatory Law" means the Sherman Act, as amended, the
Clayton Act, as amended, the HSR Act, the Federal Trade Commission Act, as
amended, the Federal Communications Act, as amended, and all other federal,
state and foreign, if any, statutes, rules, regulations, orders, decrees,
administrative and judicial doctrines and other laws that are designed or
intended to prohibit, restrict or regulate actions having the purpose or effect
of monopolization or restraint of trade or lessening of competition, whether in
the communications industry or otherwise through merger or acquisition.
Each of WorldCom and MCI has also further agreed that, in furtherance and
not in limitation of the covenants of the parties described in the previous two
paragraphs, if any administrative or judicial action or proceeding, including
any proceeding by a private party, is instituted (or threatened to be
instituted) challenging any transaction contemplated by the MCI/WorldCom Merger
Agreement as violative of any Regulatory Law, it will cooperate in all respects
with the other and use its respective best efforts to contest and resist any
such action or proceeding and to have vacated, lifted, reversed or overturned
any decree, judgment, injunction or other order, whether temporary, preliminary
or permanent, that is in effect and that prohibits, prevents or restricts
consummation of the transactions contemplated by the MCI/WorldCom Merger
Agreement provided that the covenant described above of each party to use its
best efforts to effect the merger, does not limit a party's right to terminate
the MCI/WorldCom Merger Agreement so long as such party has up to then complied
in all respects with such covenant.
Each of WorldCom and MCI has further agreed that, if any objections are
asserted with respect to the transactions contemplated by the MCI/WorldCom
Merger Agreement under any Regulatory Law or if any suit is instituted by any
Governmental Entity or any private party challenging any of the transactions
contemplated by the MCI/WorldCom Merger Agreement as violative of any Regulatory
Law, it will use its best efforts to resolve any such objections or challenge as
such Governmental Entity or private party may have to such transactions under
such Regulatory Law so as to permit consummation of the transactions
contemplated by the MCI/WorldCom Merger Agreement.
Each of WorldCom, Merger Sub and MCI has further agreed that it will use
its best efforts to cause the MCI/WorldCom Merger to qualify and will not (both
before and after consummation of the MCI/ WorldCom Merger) take any actions
which to its knowledge could reasonably be expected to prevent the MCI/WorldCom
Merger from qualifying as a reorganization under the provisions of Section 368
of the Code.
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ACQUISITION PROPOSALS
Each of WorldCom and MCI has agreed that neither it nor any of its
Subsidiaries nor any of the officers and directors of it or its Subsidiaries
will, and that it will direct and use its best efforts to cause its and its
Subsidiaries' employees, agents and representatives (including any investment
banker, attorney or accountant retained by it or its Subsidiaries) not to,
directly or indirectly, initiate, solicit, encourage or otherwise facilitate
(including by way of furnishing information) any inquiries or the making of any
proposal or offer with respect to a merger, reorganization, share exchange,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction involving, or any purchase or sale of all or any
significant portion of the assets or 10% or more of the equity securities of, it
or any of its Subsidiaries that, in any such case, could reasonably be expected
to interfere with the completion of the MCI/WorldCom Merger or the other
transactions contemplated by the MCI/WorldCom Merger Agreement (any such
proposal or offer being herein referred to as an "Acquisition Proposal "). Each
of WorldCom and MCI has further agreed not to, directly or indirectly, have any
discussion with or provide any confidential information or data to any person
relating to an Acquisition Proposal, or engage in any negotiations concerning an
Acquisition Proposal, or otherwise facilitate any effort or attempt to make or
implement an Acquisition Proposal or accept an Acquisition Proposal.
Notwithstanding the foregoing, MCI or the MCI Board may (A) comply with
Rule 14e-2(a) promulgated under the Exchange Act with regard to an Acquisition
Proposal, (B) recommend an unsolicited bona fide written Acquisition Proposal to
the stockholders of MCI, or withdraw or modify in any adverse manner its
approval or recommendation of the MCI/WorldCom Merger Agreement in response to
such an unsolicited bona fide written Acquisition Proposal or (C) engage in any
discussions or negotiations with, or provide any information to, any person in
response to an unsolicited bona fide written Acquisition Proposal by any such
person, if and only to the extent that, in any such case as is referred to in
clause (B) or (C), (i) the MCI Special Meeting has not occurred, (ii) the MCI
Board concludes in good faith that such Acquisition Proposal (x) in the case of
clause (B) above would, if consummated, constitute a Superior Proposal or (y) in
the case of clause (C) above could reasonably be expected to constitute a
Superior Proposal, (iii) prior to providing any information or data to any
person in connection with an Acquisition Proposal by any such person, the MCI
Board receives from such person an executed confidentiality agreement on terms
substantially similar to those contained in the Confidentiality Agreement and
(iv) prior to providing any information or data to any person or entering into
discussions or negotiations with any person, the MCI Board notifies WorldCom
immediately of such inquiries, proposals or offers received by, any such
information requested from, or any such discussions or negotiations sought to be
initiated or continued with, any of its representatives indicating, in
connection with such notice, the name of such person and the material terms and
conditions of any proposals or offers.
MCI has also agreed that it will keep WorldCom informed, on a current
basis, of the status and terms of any such proposals or offers and the status of
any such discussions or negotiations. Each of WorldCom and MCI has agreed that
it will immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted prior to November 9, 1997
with respect to any Acquisition Proposal. Each of WorldCom and MCI has also
agreed that it will take the necessary steps to promptly inform its and its
Subsidiaries' officers and directors, employees and representatives of these
obligations.
CONDITIONS PRECEDENT TO THE MCI/WORLDCOM MERGER
The respective obligations of MCI, WorldCom and Merger Sub to effect the
MCI/WorldCom Merger are subject, among other things, to the satisfaction or
waiver on or prior to the Closing Date of the following conditions:
(i) adoption of the MCI/WorldCom Merger Agreement by the stockholders
of MCI;
(ii) approval of the Share Issuance by the shareholders of WorldCom;
(iii) no statute, rule, regulation, executive order, decree, ruling or
injunction shall have been adopted or promulgated or be in effect, having
the effect of making the MCI/WorldCom Merger illegal or otherwise
prohibiting consummation of the MCI/WorldCom Merger; provided, however,
that this
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provision shall not be available to any party whose failure to fulfill its
obligations pursuant to the MCI/ WorldCom Merger Agreement shall have been
the cause of, or shall have resulted in, such order or injunction;
(iv) approvals for the MCI/WorldCom Merger from the FCC and from the
PUCs, other than those the failure of which to be obtained would not
reasonably be expected to have individually or in the aggregate a Material
Adverse Effect on WorldCom and its Subsidiaries (including the Surviving
Corporation);
(v) the expiration or termination of the waiting period (and any
extension thereof) applicable to the MCI/WorldCom Merger under the HSR Act;
(vi) the confirmation by way of a decision from the European
Commission under the Merger Control Regulation (with or without the
initiation of proceedings under Article 6(1)(c) thereof) that the
MCI/WorldCom Merger and any matters arising therefrom are compatible with
the common market;
(vii) the approval upon official notice of issuance for quotation on
NASDAQ of the shares of WorldCom Common Stock to be issued in the
MCI/WorldCom Merger; and
(viii) effectiveness of the Form S-4 by declaration of the SEC under
the Securities Act and the absence of a stop order suspending its
effectiveness.
As used in the MCI/WorldCom Merger Agreement and this Joint Proxy
Statement/Prospectus, "Material Adverse Effect" means with respect to any
entity, any adverse change, circumstance or effect that, individually or in the
aggregate with all other adverse changes, circumstances and effects, is or is
reasonably likely to be materially adverse to the business, financial condition
or results of operations of such entity and its Subsidiaries taken as a whole,
other than any change, circumstance or effect relating to (i) the economy or
securities markets in general or (ii) the industries in which WorldCom or MCI
operate and not specifically relating to WorldCom or MCI.
The obligations of WorldCom and the Merger Sub to effect the MCI/WorldCom
Merger are also subject to the satisfaction of, or waiver by WorldCom, on or
prior to the Closing Date of the following conditions:
(i) the representations and warranties of MCI set forth in the
MCI/WorldCom Merger Agreement that are qualified as to materiality being
true and correct on the date of the MCI/WorldCom Merger Agreement, and each
of the representations and warranties of MCI that is not so qualified being
true and correct in all material respects on the date of the MCI/WorldCom
Merger Agreement, and WorldCom's receipt of a certificate of the chief
executive officer and the chief financial officer of MCI to such effect;
(ii) MCI having performed or complied with all agreements and
covenants required to be performed by it under the MCI/WorldCom Merger
Agreement at or prior to the Closing Date that are qualified as to
materiality and MCI having performed or complied in all material respects
with all other agreements and covenants required to be performed by it
under the MCI/WorldCom Merger Agreement at or prior to the Closing Date
that are not so qualified as to materiality, and WorldCom's receipt of a
certificate of the chief executive officer and the chief financial officer
of MCI to such effect; and
(iii) WorldCom's receipt from Cravath, Swaine & Moore, counsel to
WorldCom, on the Closing Date, a written opinion stating, among other
things, that the MCI/WorldCom Merger qualifies as a reorganization under
Section 368 of the Code.
The obligations of MCI to effect the MCI/WorldCom Merger are also
subject to the satisfaction of, or waiver by MCI, on or prior to the
Closing Date of the following additional conditions:
(i) the representations and warranties of WorldCom set forth in the
MCI/WorldCom Merger Agreement that are qualified as to materiality being
true and correct on the date of the MCI/WorldCom Merger Agreement, and each
of the representations and warranties of WorldCom that is not so qualified
being true and correct in all material respects on the date of the
MCI/WorldCom Merger Agreement,
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and MCI's receipt of a certificate of the chief executive officer and the
chief financial officer of WorldCom to such effect;
(ii) WorldCom having performed or complied with all agreements and
covenants required to be performed by it under the MCI/WorldCom Merger
Agreement at or prior to the Closing Date that are qualified as to
materiality and WorldCom having performed or complied in all material
respects with all other agreements and covenants required to be performed
by it under the MCI/WorldCom Merger Agreement at or prior to the Closing
Date that are not so qualified as to materiality, and MCI's receipt of a
certificate of the chief executive officer and the chief financial officer
of WorldCom to such effect;
(iii) MCI's receipt from Simpson Thacher & Bartlett, counsel to MCI,
on the Closing Date, a written opinion stating, among other things, that
the MCI/WorldCom Merger qualifies as a reorganization under Section 368 of
the Code; and
(iv) since the date of the MCI/WorldCom Merger Agreement, the absence
of WorldCom and its Subsidiaries having incurred any material liability,
except in the ordinary course of business consistent with past practice, or
any adverse change, circumstance or effect that, individually or in the
aggregate with all other adverse changes, circumstances and effects, is or
is reasonably likely to be materially adverse to the business, financial
condition or results of operations of WorldCom and its Subsidiaries taken
as a whole, other than any change, circumstance or effect relating to (i)
the economy or securities markets in general or (ii) the industries in
which WorldCom or MCI operate and not specifically relating to WorldCom or
MCI.
STOCK OPTIONS AND OTHER STOCK PLANS
Each of MCI and WorldCom have also agreed that, pursuant to the
MCI/WorldCom Merger, each MCI Stock Option that was granted pursuant to the MCI
Stock Option Plans prior to the Effective Time and which remains outstanding
immediately prior to the Effective Time will be converted, at the Effective
Time, into an option to acquire, on the same terms and conditions as were
applicable under the MCI Stock Option, that number of shares of WorldCom Common
Stock determined by multiplying the number of shares of MCI Common Stock subject
to such MCI Stock Option by the Exchange Ratio, rounded, if necessary, up to the
nearest whole share of Worldcom Common Stock, at a price per share equal to the
per-share exercise price specified in such MCI Stock Option divided by the
Exchange Ratio; provided however, that in the case of any MCI Stock Option to
which Section 421 of the Code applies by reason of its qualification under
Section 422 of the Code, the option price, the number of shares subject to such
option and the terms and conditions of exercise of such option will be
determined in a manner consistent with the requirements of Section 424(a) of the
Code. In addition, all unvested and unpaid MCI restricted stock and ISU's will
be converted to the number of shares of WorldCom Common Stock or ISUs determined
by multiplying such shares of restricted stock and ISUs by the Exchange Ratio.
INDEMNIFICATION; DIRECTORS AND OFFICERS' INSURANCE
The Surviving Corporation will maintain in effect in its certificate of
incorporation and by-laws (i) for a period of six years after the Effective
Time, the current provisions regarding elimination of liability of directors and
indemnification of officers, directors and employees contained in the
certificate of incorporation and by-laws of MCI and (ii) for a period of six
years, the current policies of directors' and officers' liability insurance and
fiduciary liability insurance maintained by MCI (provided that the Surviving
Corporation may substitute therefor policies of at least the same coverage and
amounts containing terms and conditions which are, in the aggregate, no less
advantageous to the insured) with respect to claims arising from facts or events
that occurred on or before the Effective Time; provided, however, that in no
event will the Surviving Corporation be required to expend in any one year an
amount in excess of 200% of the annual premiums currently paid by MCI for such
insurance; and, provided, further, that if the annual premiums of such insurance
coverage exceed such amount, the Surviving Corporation will be obligated to
obtain a policy with the greatest coverage available for a cost not exceeding
such amount.
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TERMINATION
The MCI/WorldCom Merger Agreement may be terminated at any time prior to
the Effective Time, by action taken or authorized by the Board of Directors of
the terminating party or parties, and except as provided below, whether before
or after approval of the matters presented in connection with the MCI/WorldCom
Merger by the stockholders of MCI or WorldCom:
(i) By mutual written consent of WorldCom and MCI, by action of their
respective Boards of Directors;
(ii) By either MCI or WorldCom if the Effective Time has not occurred
on or before December 31, 1998 (the "Termination Date"); provided, however,
that this right to terminate the MCI/WorldCom Merger Agreement will not be
available to any party whose failure to fulfill any obligation under the
MCI/WorldCom Merger Agreement has to any extent been the cause of, or
resulted in, the failure of the Effective Time to occur on or before the
Termination Date;
(iii) By either MCI or WorldCom if any Governmental Entity (A) has
issued an order, decree or ruling or taken any other action (which the
parties have used their best efforts to resist, resolve or lift, as
applicable, in accordance with the MCI/WorldCom Merger Agreement)
permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by the MCI/WorldCom Merger Agreement, and such
order, decree, ruling or other action has become final and nonappealable or
(B) has failed to issue an order, decree or ruling or to take any other
action (which order, decree, ruling or other action the parties have used
their best efforts to obtain, in accordance with the MCI/WorldCom Merger
Agreement), in each case (A) and (B) which is necessary to fulfill the
conditions set forth in subsections 6.1(c) (FCC and PUC approvals), (d)
(expiration or termination of the waiting period under the HSR Act) and (e)
(receipt of a decision from the European Commission that the MCI/WorldCom
Merger is compatible with the common market) of the MCI/WorldCom Merger
Agreement, as applicable, and such denial of a request to issue such order,
decree, ruling or take such other action has become final and
nonappealable; provided, however, that this right to terminate the
MCI/WorldCom Merger Agreement will not be available to any party whose
failure to comply with the covenant in the MCI/WorldCom Merger Agreement
requiring such party to use its best efforts to effect the MCI/WorldCom
Merger has to any extent been the cause of such action or inaction;
(iv) By either MCI or WorldCom if the approval by the stockholders of
MCI or of WorldCom required for the consummation of the MCI/WorldCom Merger
has not been obtained by reason of the failure to obtain the requisite
votes at a duly held meeting of stockholders of MCI or WorldCom, as the
case may be, or at any adjournment thereof;
(v) By WorldCom if the MCI Board, prior to the MCI Special Meeting (A)
withdraws or modifies in any adverse manner its approval or recommendation
of the MCI/WorldCom Merger Agreement, (B) approves or recommends a Superior
Proposal or (C) resolves to take any of the actions specified in clauses
(A) or (B) above; or
(vi) By MCI at any time prior to the MCI Special Meeting, upon two
Business Days' (any days on which banks are not required or authorized to
close in the City of New York) prior notice to WorldCom, if the MCI Board
approves a Superior Proposal; provided, however, that (A) MCI has complied
with the provisions described above under "-- Acquisition Proposals", (B)
the MCI Board has concluded in good faith, after giving effect to all
concessions which may be offered by WorldCom pursuant to clause (C) below,
on the basis of the advice of its financial advisors and outside counsel,
that such proposal is a Superior Proposal and (C) prior to any such
termination, MCI has, and has caused its financial and legal advisors to,
negotiate with WorldCom to make such adjustments in the terms and
conditions of the MCI/ WorldCom Merger Agreement as would enable WorldCom
to proceed with the transactions contemplated thereby; provided, however,
that it is a condition to termination by MCI pursuant to this subsection
(vi) that MCI has made the payment of the WorldCom Alternative Transaction
Fee to WorldCom referred to in "-- Termination Fees".
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The right to terminate the MCI/WorldCom Merger Agreement pursuant to the
foregoing is not available to any party (i) that is in material breach of its
obligations under the MCI/WorldCom Merger Agreement or (ii) whose failure to
fulfill its obligations or to comply with its covenants under the MCI/WorldCom
Merger Agreement has been the cause of, or resulted in, the failure to satisfy
any condition to the obligations of either party under the MCI/WorldCom Merger
Agreement.
FEES AND EXPENSES
Whether or not the MCI/WorldCom Merger is consummated, all expenses
incurred in connection with the MCI/WorldCom Merger Agreement and the
transactions contemplated thereby shall be paid by the party incurring such
expenses, except (a) if the MCI/WorldCom Merger is consummated, the Surviving
Corporation shall pay any and all property or transfer taxes imposed on MCI or
its Subsidiaries and any real property transfer tax imposed on any holder of
shares of capital stock of MCI resulting from the MCI/ WorldCom Merger, (b)
expenses incurred in connection with the filing, printing and mailing of this
Joint Proxy Statement/Prospectus, which shall be shared equally by WorldCom and
MCI and (c) the Reimbursement Amount described in "-- Termination Fees".
TERMINATION FEES
WorldCom and MCI agree that (i) if MCI terminates the MCI/WorldCom Merger
Agreement due to the MCI Board having approved a Superior Proposal or (ii) if
(x) MCI or WorldCom terminate the MCI/ WorldCom Merger Agreement pursuant to the
failure of the MCI stockholders to approve and adopt the MCI/WorldCom Merger
Agreement or WorldCom terminates the MCI/WorldCom Merger Agreement due to the
withdrawal or modification of the approval or recommendation in any adverse
manner of the Board of Directors of MCI or its approval or recommendation of a
Superior Proposal, (y) at the time of the event giving rise to such termination
there exists an Acquisition Proposal with respect to MCI and (z) within 12
months of the termination of the MCI/WorldCom Merger Agreement, MCI enters into
a definitive agreement with any third party with respect to an Acquisition
Proposal or an Acquisition Proposal is consummated, then MCI will pay to
WorldCom an amount equal to $750 million (the "WorldCom Alternative Transaction
Fee") and will reimburse WorldCom for the fee paid by WorldCom to BT pursuant to
the BT Agreement (such amount, the "Reimbursement Amount").
If (a) the MCI/WorldCom Merger Agreement is terminated (i) because the
MCI/WorldCom Merger has not been consummated by December 31, 1998 and any of the
following conditions to the MCI/WorldCom Merger have not been satisfied: absence
of injunctions, receipt of FCC and PUC approvals, expiration or termination of
the waiting period under the HSR Act, receipt of a decision from the European
Commission that the MCI/WorldCom Merger is compatible with the common market,
accuracy of WorldCom's representations and warranties, performance by WorldCom
of its obligations under the MCI/WorldCom Merger Agreement, or absence of any
material adverse change with respect to WorldCom, (ii) because of the issuance
of an order, decree, ruling or other action prohibiting the transactions
contemplated by the MCI/ WorldCom Merger Agreement or the absence of a
governmental action necessary to proceed with the transactions contemplated by
the MCI/WorldCom Merger Agreement, or (iii) because of the failure to obtain the
requisite vote to approve the Share Issuance at the WorldCom Special Meeting or
(b) notwithstanding the satisfaction of all the conditions to the obligations of
WorldCom to effect the MCI/ WorldCom Merger and the satisfaction or waiver by
MCI of all the conditions to its obligations to effect the MCI/WorldCom Merger,
WorldCom is not willing to consummate the MCI/WorldCom Merger, then, unless (i)
MCI has not used its best efforts to cause, or cause to be taken all things
necessary to consummate the MCI/WorldCom Merger and other transactions
contemplated by the MCI/WorldCom Merger Agreement or (ii) MCI has breached its
representations or warranties or its agreements or covenants under the
MCI/WorldCom Merger Agreement such that either of the conditions to WorldCom's
obligations to effect the MCI/WorldCom Merger has not been satisfied, WorldCom
will pay to MCI an amount in cash equal to $1.635 billion.
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AMENDMENT
The MCI/WorldCom Merger Agreement may be amended by WorldCom and MCI at any
time before or after approval of the matters presented in connection with the
MCI/WorldCom Merger by the stockholders of MCI and the shareholders of WorldCom,
but, after any such approval, no amendment may be made that by law or in
accordance with the rules of any relevant stock exchange requires further
approval by such stockholders or shareholders without such further approval. The
MCI/WorldCom Merger Agreement may not be amended except by an instrument in
writing signed on behalf of each of WorldCom and MCI.
WAIVER
The MCI/WorldCom Merger Agreement permits WorldCom and MCI at any time
prior to the Effective Time, to (i) extend the time for the performance of any
of the obligations or other acts of the other parties thereto, (ii) waive any
inaccuracies in the representations and warranties contained therein or in any
document delivered pursuant thereto and (iii) waive compliance with any of the
agreements or conditions contained therein, in each case pursuant to a written
instrument.
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THE BT AGREEMENT
The description of the BT Agreement contained in this Joint Proxy
Statement/Prospectus describes the material terms of the BT Agreement but does
not purport to be complete and is qualified in its entirety by reference to the
BT Agreement, a copy of which is attached hereto as Annex II and incorporated
herein by reference. Capitalized terms appearing below that are not otherwise
defined herein have the same meanings as are given such terms in the BT
Agreement. Whenever particular sections or defined terms are referred to, it is
intended that such sections or defined terms shall be incorporated by reference.
TERMINATION OF THE BT/MCI MERGER AGREEMENT; PAYMENT OF FEES
Pursuant to the BT Agreement, the BT/MCI Merger Agreement was terminated
and WorldCom agreed to pay BT a fee of $450 million and expenses of $15 million.
These fees were paid on November 12, 1997. WorldCom also agreed to pay to BT an
additional payment of $250 million in the event that WorldCom is required to
make a payment to MCI in accordance with Section 7.3 of the MCI/WorldCom Merger
Agreement (which requires WorldCom to pay MCI $1.635 billion if (a) the
MCI/WorldCom Merger Agreement is terminated (i) because the MCI/WorldCom Merger
has not been consummated by December 31, 1998 and any of the following
conditions to the MCI/WorldCom Merger have not been satisfied: absence of
injunctions, receipt of FCC and PUC approvals, expiration or termination of the
waiting period under the HSR Act, receipt of a decision from the European
Commission that the MCI/WorldCom Merger is compatible with the common market,
accuracy of WorldCom's representations and warranties, performance by WorldCom
of its obligations under the MCI/WorldCom Merger Agreement, or absence of any
material adverse change with respect to WorldCom, (ii) because the MCI/WorldCom
Merger has been permanently enjoined or a required governmental action or
approval has not been obtained or (iii) because the WorldCom shareholders fail
to approve the Share Issuance or (b) WorldCom is unwilling to consummate the
MCI/ WorldCom Merger (notwithstanding the satisfaction of the conditions
precedent to its obligations).
VOTING AGREEMENT
Pursuant to the BT Agreement, BT has agreed to vote (or cause to be voted)
its shares of MCI Class A Common Stock in favor of the MCI/WorldCom Merger, the
adoption by MCI of the MCI/WorldCom Merger Agreement and the approval of the
other transactions contemplated by the MCI/WorldCom Merger Agreement.
Pursuant to the BT Agreement, BT has also agreed to vote (or cause to be
voted) its shares of MCI Class A Common Stock against (i) any merger agreement
or merger (other than the MCI/WorldCom Merger Agreement and the MCI/WorldCom
Merger), consolidation, combination, sale of substantial assets, reorganization,
recapitalization, dissolution, liquidation or winding up of or by MCI or any
other MCI acquisition or (ii) any amendment of the MCI Restated Certificate of
Incorporation or MCI Bylaws or other proposal or transaction involving MCI, or
any of its subsidiaries, which amendment or other proposal or transactions would
in any manner impede, frustrate, prevent or nullify the MCI/WorldCom Merger, the
MCI/WorldCom Merger Agreement or any of the other transactions contemplated by
the MCI/WorldCom Merger Agreement.
Pursuant to the BT Agreement, BT has agreed not to (i) transfer (which term
includes, without limitation, any sale, gift, pledge or other disposition), or
consent to any transfer of, any or all of its shares of MCI Class A Common Stock
or any interest therein, except pursuant to the MCI/WorldCom Merger, (ii) enter
into any contract, option or other agreement, arrangement or understanding with
respect to any or all of its shares of MCI Class A Common Stock or any interest
therein, (iii) grant any proxy, power-of-attorney or other authorization in or
with respect to its shares of MCI Class A Common Stock, except for the BT
Agreement or (iv) deposit its shares of MCI Class A Common Stock into a voting
trust or enter into a voting agreement or arrangement with respect to its shares
of MCI Class A Common Stock.
Pursuant to the BT Agreement, BT has agreed to use all reasonable efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, and
to assist and cooperate with the other parties in doing, all things
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necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the MCI/WorldCom Merger and the other
transactions contemplated by the MCI/WorldCom Merger Agreement.
TERMINATION OF CONCERT JOINT VENTURE AGREEMENT
Pursuant to the BT Agreement, WorldCom, MCI and BT have agreed to
appropriately modify the Modified Joint Venture Agreement among BT, Moorgate
(Twelve) Limited ("BTH"), MCI, MCI Ventures Corporation ("Ventures"; together
with BTH, the "Shareholders") and Concert (the "Joint Venture Agreement"),
effective as of the consummation of the purchase of the joint venture interest
described below (the "Purchase Date") to reflect the following provisions:
(a) The exclusive distribution rights set forth in the Joint Venture
Agreement and the related distribution agreements will be terminated.
(b) Concert will continue to provide services to MCI on a nonexclusive
basis to customers based in the United States for a period of five years
from the Purchase Date in accordance with the terms of the related MCI
distribution agreement. This is intended to enable MCI to continue to
provide services to existing customers under the terms of its contractual
obligations and to enter into new contractual obligations with new
customers and existing customers provided that the term of such obligations
does not extend beyond the fifth anniversary of the Purchase Date.
Pursuant to the BT Agreement, BT has agreed to exercise the call option set
forth in the Joint Venture Agreement immediately following the occurrence of the
Effective Time to purchase MCI's interest in Concert.
Pursuant to the BT Agreement, BT and WorldCom have agreed to undertake in
good faith to negotiate within 180 days a transition agreement:
(i) to provide for a professional exit from the existing Concert
arrangements while satisfying the requirements of BT's and MCI's customers
before and during the exit;
(ii) to agree to the requirements (financial, operational, technical)
of making Concert more self-standing and better able to support customer
and distributor requirements; and
(iii) to give BT and customers comfort that during the pendency of the
merger and the post-merger period underlying components and services
necessary to provide Concert service which are sourced from MCI are
available on commercially reasonable terms despite the change in
circumstances.
Pursuant to the BT Agreement, if the transition agreement is not executed
within 180 days despite BT's and WorldCom's good faith efforts, the nonexclusive
distributorship referred to in (b) above will have a term of two (rather than
five) years.
LITIGATION
WorldCom agreed to promptly withdraw its complaint in the matter entitled
WorldCom, Inc. and TC Investments Corp. against MCI Communications Corporation
et al., and BT agreed to promptly withdraw the answer to such complaint filed by
it.
MERGER CONSIDERATION
WorldCom and MCI agreed not to amend the MCI/WorldCom Merger Agreement to
increase the consideration payable to holders of shares of MCI Common Stock,
unless the consideration to be paid in respect of the shares of MCI Class A
Common Stock is increased in such amendment by a like amount per share.
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AMENDMENTS TO MCI/WORLDCOM MERGER AGREEMENT
WorldCom and MCI agreed not to amend the MCI/WorldCom Merger Agreement in a
manner that adversely affects the interests of BT.
CERTAIN REGULATORY FILINGS AND APPROVALS
FCC Transfer Approvals. Certain activities of WorldCom and MCI are
regulated by the FCC. Provisions of Title 47 of the United States Code,
including Sub-Titles II and III and the Cable Landing License Act, require the
prior approval of the FCC for the acquisition of control of a company such as
MCI that holds various licenses and authorizations issued by the FCC. The FCC
traditionally grants approval of such transactions if it determines that the
transfer of control is consistent with the public interest, convenience and
necessity, without consideration of the relative merits of such a transfer of
control vis-a-vis those of any other possible transfers of control that may be
pending or contemplated. On October 1, 1997, WorldCom requested FCC approval for
both stages of a two-step transfer of control of MCI to WorldCom that
contemplated as a first step an interim Step I Transfer of control to the
"caretaker" Voting Trustee empowered to acquire and hold shares of MCI tendered
pursuant to the Original WorldCom Offer. Subsequently, WorldCom and MCI agreed
upon the terms of a merger and in light of the MCI/WorldCom Merger Agreement,
MCI and WorldCom jointly requested that the request for a voting trust be
withdrawn and jointly submitted amendments to WorldCom's October 1, 1997
applications under Section 214 of the Communications Act and applications under
Title III of the Communications Act of 1934 relating to MCI's radio licenses,
requesting approval of transfer of control of MCI to WorldCom. WorldCom and its
Subsidiaries already hold certain similar authorizations issued by the FCC, and
WorldCom believes it is likely that the transfer applications will be granted.
However, the transfer applications are subject to public comment, petitions to
deny, and informal objections by third parties, which may interpose objections
in an attempt to delay or impede approval by the FCC. Accordingly, there can be
no assurance that the FCC will timely grant the transfer applications or not
subject their approval to various conditions and restrictions. The MCI/WorldCom
Merger is conditioned on receipt of approval of the transfer applications, other
than those the failure of which to be obtained would not reasonably be expected
to have individually or, together with any approvals from the PUCs which shall
not have been obtained, in the aggregate a Material Adverse Effect on WorldCom
and its Subsidiaries (including the Surviving Corporation).
State Regulatory Transfer Approval. WorldCom has amended or expects shortly
to amend pending state transfer applications and to file additional state
applications (the "State Applications") that seek prior approval of the
contemplated acquisition of control of MCI by WorldCom from multiple state PUCs,
whose governing statutes and rules require their consent for transfers of
control of common carriers such as MCI, that provide intrastate local and
interexchange telecommunications services within their respective states. The
State Applications are subject to public comment and objections and oppositions
of third parties which may interpose objections in an attempt to delay or impede
approval by the state PUCs. Notwithstanding any such challenges, WorldCom
believes it is likely that the state PUCs will grant all State Applications
other than those the failure of which to be obtained would not reasonably be
expected to have individually or in the aggregate a Material Adverse Effect.
WorldCom's subsidiaries hold authorizations from the state PUCs, and most of
those authorizations convey the same or similar authority as the corresponding
authorizations held by MCI. There can be no assurance, however, that the State
PUCs will timely grant the transfer applications or not subject their approval
to various conditions and restrictions. The MCI/WorldCom Merger is conditioned
on receipt of approval of the transfer applications, other than those the
failure of which to be obtained would not reasonably be expected to have
individually or, together with any approvals from the FCC which shall not have
been obtained, in the aggregate a Material Adverse Effect on WorldCom and its
Subsidiaries (including the Surviving Corporation).
Hart-Scott-Rodino Act and European Commission Approvals. Under the HSR Act
and the rules promulgated thereunder by the Federal Trade Commission (the
"FTC"), the MCI/WorldCom Merger may not be consummated until notifications have
been given and certain information has been furnished to the FTC and specified
waiting period requirements have been satisfied. WorldCom filed notification and
report
79
<PAGE> 92
forms under the HSR Act with the FTC and the DOJ on October 1, 1997. On October
31, 1997 each of WorldCom and MCI received a request for additional information
from the DOJ.
The consummation of the MCI/WorldCom Merger is also contingent upon
confirmation from the European Commission under the Merger Control Regulation
that the MCI/WorldCom Merger does not create or strengthen a dominant position
as a result of which effective competition would be significantly impeded in
common market. MCI and WorldCom jointly filed with the European Commission the
required notification of the MCI/WorldCom Merger on November 20, 1997. If,
following a preliminary one month investigation, the European Commission
considers that it needs to examine the MCI/WorldCom Merger more closely, it may
initiate a Phase II investigation; if it does not initiate a Phase II
investigation, the European Commission must make a final determination as to
whether or not the MCI/WorldCom Merger is compatible with the common market no
later than four months after the initiation of such investigation. If the
European Commission were not to make a decision within this four month period,
the MCI/WorldCom Merger would automatically be deemed to be compatible with the
common market and would be allowed to proceed. WorldCom and MCI believe it is
likely that the European Commission will determine that the MCI/WorldCom Merger
is compatible with the common market. However, no assurance can be given that
the European Commission will not impose certain conditions or restrictions on
the MCI/WorldCom Merger.
At any time before or after the Effective Time of the MCI/WorldCom Merger,
and notwithstanding that the HSR Act waiting period may have expired, the
MCI/WorldCom Merger may have been approved by the European Commission pursuant
to the Merger Control Regulation or the MCI/WorldCom Merger may have been
consummated, the DOJ, or any state could take such action under the applicable
laws as it deems necessary or desirable. Such action could include seeking to
enjoin the consummation of the MCI/WorldCom Merger or seeking divestiture of MCI
or businesses of WorldCom or MCI acquired as a result of the MCI/WorldCom
Merger. Private parties may also bring legal actions under the antitrust laws
under certain circumstances.
80
<PAGE> 93
PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma condensed combined financial statements combine the
consolidated balance sheets and statements of operations of WorldCom and MCI as
if the MCI/WorldCom Merger had occurred for the periods indicated. The
MCI/WorldCom Merger will be treated as a purchase for financial reporting
purposes. No adjustment has been included in the pro forma amounts for any
anticipated cost savings or other synergies. The Pro Forma Financial Information
also does not include amounts with respect to the BFP Merger, the AOL
Transaction or the CompuServe Merger because they are individually, and in the
aggregate, not material to WorldCom.
WORLDCOM PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited Pro Forma Condensed Combined Balance Sheet as of
September 30, 1997 and unaudited Pro Forma Condensed Combined Statements of
Operations for the nine months ended September 30, 1997 and for the year ended
December 31, 1996, illustrate the effect of the MCI/WorldCom Merger as if the
MCI/WorldCom Merger had occurred on September 30, 1997, for the Pro Forma
Condensed Combined Balance Sheet and as of the earliest date presented for the
Pro Forma Condensed Combined Statements of Operations. No adjustment has been
included in the pro forma amounts for any anticipated cost savings or other
synergies. The Pro Forma Condensed Combined Financial Statements also do not
include amounts with respect to the BFP Merger, the AOL Transaction or the
CompuServe Merger because they are individually, and in the aggregate, not
material to WorldCom.
Pursuant to the terms of the MCI/WorldCom Merger, each share of MCI Common
Stock will be converted into the right to receive that number of shares of
WorldCom Common Stock equal to the Exchange Ratio. The holder of MCI Class A
Common Stock will be entitled to receive $51.00 per share in cash for each of
the MCI Class A Common Stock shares it owns, or approximately $7 billion in the
aggregate. The Pro Forma Condensed Combined Financial Statements have been
prepared assuming the WorldCom Average Trading Price to be $33.13, resulting in
an assumed Exchange Ratio of 1.5396. The actual Exchange Ratio may vary as
described herein. The MCI/WorldCom Merger will be accounted for as a purchase.
These Pro Forma Condensed Combined Financial Statements should be read in
conjunction with the historical financial statements of WorldCom and MCI which
are incorporated by reference herein and the Additional Pro Forma Presentation
which is set forth elsewhere herein.
The Pro Forma Condensed Combined Financial Statements are presented for
comparative purposes only and are not intended to be indicative of actual
results had the transactions occurred as of the dates indicated above nor do
they purport to indicate results which may be attained in the future.
81
<PAGE> 94
WORLDCOM PRO FORMA CONDENSED COMBINED BALANCE SHEET(1)
AS OF SEPTEMBER 30, 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
MCI WORLDCOM
WORLDCOM MCI PRO FORMA PRO FORMA
HISTORICAL(2) HISTORICAL(3) ADJUSTMENTS COMBINED
------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Current assets.......................... $ 1,625 $ 4,603 $ -- $ 6,228
Property, plant and equipment, net...... 5,419 13,783 (2,700)(4) 16,502
Goodwill and other intangibles, net..... 13,002 2,366 28,621(4) 43,989
Other assets............................ 767 3,965 -- 4,732
------- ------- ------- -------
Total assets.................. $20,813 $24,717 $25,921 $ 71,451
======= ======= ======= =======
Current liabilities..................... $ 1,870 $ 7,327 $ -- $ 9,197
Long-term debt.......................... 5,349 3,282 7,446(5) 16,077
Other liabilities....................... 228 2,037 (1,015)(4) 1,250
Mandatorily redeemable preferred
stock................................. -- 750 -- 750
Shareholders' equity:
Preferred stock....................... -- -- -- --
Class A common stock.................. -- 14 (14)(6) --
Common stock.......................... 9 60 (60)(6) 18
9(7)
Paid in capital....................... 15,036 6,394 (6,394)(6) 45,838
30,802(7)
Retained earnings (deficit)........... (1,713) 5,607 (5,607)(6) (1,713)
Other................................. 34 (754) 754(6) 34
------- ------- ------- -------
Total shareholders' equity.... 13,366 11,321 19,490 44,177
------- ------- ------- -------
Total liabilities and
shareholders' equity........ $20,813 $24,717 $25,921 $ 71,451
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
82
<PAGE> 95
WORLDCOM PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS(1)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MCI WORLDCOM
WORLDCOM MCI PRO FORMA PRO FORMA
HISTORICAL(2) HISTORICAL(3) ADJUSTMENTS COMBINED
------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues................................. $ 5,349 $14,545 $(280)(8) $ 19,614
Operating expenses:
Line costs............................. 2,806 8,090 (280)(8) 10,616
Selling, general and administrative.... 1,141 4,028 5,169
Depreciation and amortization.......... 682 1,475 537(9) 2,281
(413)(10)
------ ------- ----- -------
Operating income......................... 720 952 (124) 1,548
Other income (expense):
Interest expense....................... (235) (174) (363)(11) (772)
Other.................................. 17 (94) -- (77)
------ ------- ----- -------
Income before income taxes............... 502 684 (487) 699
Provision for income taxes............... 261 246 19(12) 526
------ ------- ----- -------
Income from continuing operations........ 241 438 (506) 173
Preferred dividend requirements.......... 20 45 -- 65
------ ------- ----- -------
Net income applicable to common
shareholders........................... $ 221 $ 393 $(506) $ 108
====== ======= ===== =======
Number of shares issued and outstanding:
Primary................................ 955 705 1,831
====== ======= =======
Fully diluted.......................... 959 706 1,838
====== ======= =======
Earnings per share(13):
Primary................................ $ 0.25 $ 0.56 $ 0.06
Fully diluted.......................... $ 0.25 $ 0.56 $ 0.06
</TABLE>
The accompanying notes are an integral part of this statement.
83
<PAGE> 96
WORLDCOM PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS(1)
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MCI WORLDCOM
WORLDCOM MCI PRO FORMA PRO FORMA
HISTORICAL(2) HISTORICAL(3) ADJUSTMENTS COMBINED
------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Revenues.................................. $ 4,485 $18,494 $(558)(8) $22,421
Operating expenses:
Line costs.............................. 2,457 9,489 (500)(8) 11,446
Selling, general and administrative..... 829 5,028 5,857
Depreciation and amortization........... 303 1,664 716(9) 2,133
(550)(10)
Charge for in-process research and
development.......................... 2,140 -- -- 2,140
Other................................... 600 -- (58)(8) 542
------- ------- ----- -------
Operating income (loss)................... (1,844) 2,313 (166) 303
Other income (expense):
Interest expense........................ (222) (196) (484)(11) (902)
Other................................... 6 (127) -- (121)
------- ------- ----- -------
Income (loss) before income taxes......... (2,060) 1,990 (650) (720)
Provision for income taxes................ 129 753 25(12) 907
------- ------- ----- -------
Income (loss) from continuing
operations.............................. (2,189) 1,237 (675) (1,627)
Preferred dividend requirements........... 1 35 -- 36
------- ------- ----- -------
Net income (loss) applicable to common
shareholders............................ $(2,190) $ 1,202 $(675) $(1,663)
======= ======= ===== =======
Number of shares issued and outstanding:
Primary................................. 398 695 1,246
======= ======= =======
Fully diluted........................... 398 701 1,246
======= ======= =======
Earnings (loss) per share(13):
Primary................................. $ (5.50) $ 1.73 $ (1.33)
Fully diluted........................... $ (5.50) $ 1.72 $ (1.33)
</TABLE>
The accompanying notes are an integral part of this statement.
84
<PAGE> 97
NOTES TO WORLDCOM PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
1. The unaudited pro forma financial data do not give effect to any
restructuring costs, nor any potential cost savings or other synergies that
could result from the MCI/WorldCom Merger. Furthermore, the pro forma
financial data do not reflect any expense of intangible assets attributable
to the value of any in-process research and development projects of MCI at
the time of the MCI/WorldCom Merger. However, WorldCom has undertaken a
study to determine the allocation of the total purchase price to the various
assets acquired, including in- process research and development, and the
liabilities assumed. To the extent that a portion of the purchase price is
allocated to in-process research and development projects of MCI, a charge,
which may be material, would be recognized in the period in which the
MCI/WorldCom Merger occurs. The pro forma data are not necessarily
indicative of the operating results or financial position that would have
occurred had the MCI/WorldCom Merger been consummated at the dates
indicated, nor necessarily indicative of future operating results or
financial position.
2. On December 31, 1996, WorldCom completed the MFS merger. The MFS Merger was
accounted for as a purchase; accordingly, the operating results for MFS are
not reflected in the historical results of WorldCom for the year ended
December 31, 1996. See "Additional Pro Forma Presentation," which should be
read in conjunction with these pro forma financial statements.
3. These columns represent historical results of operations and financial
position.
4. This adjustment reflects the excess of consideration over net assets
acquired. The following is a calculation (in millions except per share
data):
<TABLE>
<S> <C>
MCI Common Stock outstanding at September 30, 1997........................ 560
Shares issuable (treasury stock method) upon exercise of MCI options...... 44
--------
MCI Common Stock assumed outstanding at September 30, 1997................ 604
Exchange Ratio per share.................................................. 1.5396
--------
WorldCom Common Stock assumed to be issuable.............................. 930
WorldCom per share closing price on November 7, 1997...................... $ 33.13
--------
Sub-total................................................................. $ 30,811
Payment to MCI Class A Common Stockholder................................. 6,936
Inducement fee and other estimated transaction costs...................... 510
--------
Total consideration....................................................... $ 38,257
Preliminary purchase accounting adjustments:
Fair value adjustment to property, plant and equipment.................... 2,700
Deferred tax impact of fair value adjustment.............................. (1,015)
--------
39,942
Historical net book value of MCI net assets acquired...................... (11,321)
--------
Excess of consideration over net assets acquired.......................... $ 28,621
========
</TABLE>
The total consideration will be allocated to the assets and liabilities of
MCI based on their estimated fair value. A preliminary allocation of the
purchase price has been presented in the pro forma condensed combined
financial statements in which the historical MCI property, plant and
equipment has been adjusted to its estimated fair value based upon its
depreciated replacement cost. The impact of this fair value adjustment has
also been reflected in pro forma deferred tax balances. The excess of
consideration over the historical book value of MCI net assets acquired has
been preliminarily allocated to goodwill and other intangible assets. A
final allocation of the purchase price to the MCI assets acquired and
liabilities assumed is dependent upon certain valuations and studies that
have not progressed to a stage where there is sufficient information to make
such an allocation in the accompanying pro forma financial information.
WorldCom's management believes that the consideration in excess of the
historical book value of MCI's net assets acquired, primarily comprises
goodwill, certain in-process research and development projects
85
<PAGE> 98
and other intangible assets. In-process research and development projects
may include projects for which technological feasibility has not been
established and the technology has no future alternative use. To the extent
that a portion of the purchase price is allocated to such in-process
research and development projects, a charge, which may be material to
WorldCom's results of operations, would be recognized in the period in which
the MCI/WorldCom Merger occurs. (See Note 1).
5. This adjustment represents additional borrowings for the purpose of
financing the cash payment to the holder of the MCI Class A Common Stock,
and other estimated transaction costs of $510 million (which includes a $465
million inducement fee paid to BT).
6. These adjustments represent the elimination of MCI's stockholders' equity
accounts.
7. These adjustments represent the issuance of approximately 930 million shares
of WorldCom Common Stock, par value $.01 per share, in connection with the
MCI/WorldCom Merger and an assumed Exchange Ratio of 1.5396 shares of
WorldCom Common Stock for each share of MCI Common Stock outstanding. The
actual Exchange Ratio may vary as described herein.
8. These estimated adjustments eliminate the revenues and corresponding line
costs and other charges attributable to the intercompany transactions
between WorldCom and MCI.
9. This entry reflects the adjustment to amortization for the effect of the
excess of consideration over net assets acquired in the MCI/WorldCom Merger.
For purposes of the Pro Forma Condensed Combined Financial Statements, the
excess consideration has been amortized over an estimated life of 40 years.
WorldCom management expects that amounts allocated to goodwill and trade
names will be amortized over 40 years while other intangible assets may be
amortized over shorter periods consequently reducing net income reported by
MCI WorldCom. A final determination of the lives attributable to the
intangible assets has not yet been made (See Note 1). As discussed in Note
4, a portion of the excess consideration may be allocated to certain
in-process research and development projects. To the extent amounts are
allocated to certain in-process research and development projects, pro forma
amortization expense would be ratably reduced accordingly.
10. This entry reflects the adjustment to depreciation expense for the effect of
the fair value adjustment of MCI's property, plant and equipment based on a
preliminary evaluation of depreciated replacement cost (See Note 4).
11. These adjustments represent the recognition of interest expense on the
additional borrowings of WorldCom to finance the cash payment to the holder
of the MCI Class A Common Stock and transaction costs (see Note 5). The
interest expense was calculated based on WorldCom's incremental borrowing
rate of 6.5%. A change of 1/8% in the incremental rate would affect
interest expense by $7.0 million for the nine months ended September 30,
1997, and $9.3 million for the year ended December 31, 1996.
12. These entries represent the tax effect of the pro forma adjustments.
13. Pro forma per share data are based on the number of WorldCom common and
common equivalent shares that would have been outstanding had the
MCI/WorldCom Merger occurred on the earliest date presented.
86
<PAGE> 99
ADDITIONAL PRO FORMA PRESENTATION
The following unaudited Additional Pro Forma Presentation illustrates the
effect of the MCI/WorldCom Merger and the MFS merger as well as MFS's earlier
acquisition of UUNET (the "UUNET acquisition") on the results of operations of
WorldCom for the year ended December 31, 1996, as if the transactions had
occurred on January 1, 1996. The Additional Pro Forma Presentation is presented
for purposes of additional analysis due to the significance of the MFS Merger.
Pursuant to the terms of the MCI/WorldCom Merger, each share of MCI Common
Stock will be converted into the right to receive that number of shares of
WorldCom Common Stock equal to the Exchange Ratio. The holder of MCI Class A
Common Stock will be entitled to receive $51.00 per share in cash for each of
the MCI Class A Common Stock shares it owns, or approximately $7 billion in the
aggregate. The pro forma financial statements have been prepared assuming the
WorldCom Average Trading Price to be $33.13 resulting in an assumed Exchange
Ratio of 1.5396. The actual Exchange Ratio may vary as described herein. The
MCI/WorldCom Merger will be accounted for as a purchase.
On December 31, 1996, WorldCom through a wholly owned subsidiary merged
with MFS. As a result of the MFS Merger, each share of MFS common stock was
converted into the right to receive 2.1 shares of WorldCom Common Stock or
approximately 471.0 million shares of WorldCom Common Stock in the aggregate.
Each share of MFS Series A 8% Cumulative Convertible Preferred Stock was
converted into the right to receive one share of WorldCom Series A Preferred
Stock or 94,992 shares of WorldCom Series A Preferred Stock. Each share of MFS
Series B Convertible Preferred Stock was converted into the right to receive one
share of WorldCom Series B Preferred Stock or approximately 12.7 million shares
of WorldCom Series B Preferred Stock. In addition, each depositary share
representing 1/100th of a share of MFS Series A Preferred Stock was exchanged
for a depositary share representing 1/100th of a share of WorldCom Series A
Preferred Stock.
On August 12, 1996 and prior to the MFS Merger, MFS issued approximately 58
million shares of MFS common stock and options valued at approximately $2.1
billion in connection with its acquisition of UUNET.
The Additional Pro Forma Presentation should be read in conjunction with
the historical financial statements of WorldCom, MCI, MFS and UUNET which are
incorporated by reference herein.
The Additional Pro Forma Presentation is presented for comparative purposes
only and is not intended to be indicative of actual results had the transactions
occurred as of the dates indicated above nor do they purport to indicate results
which may be attained in the future. No adjustment has been included in the pro
forma amounts for any anticipated cost savings or other synergies. The
Additional Pro Forma Presentation also does not include amounts with respect to
the BFP Merger, the AOL Transaction or the CompuServe Merger because they are
individually, and in the aggregate, not material to WorldCom.
87
<PAGE> 100
ADDITIONAL PRO FORMA PRESENTATION(1)
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
UUNET WORLDCOM/
HISTORICAL(2) MFS/UUNET
WORLDCOM MFS JANUARY 1, 1996 - PRO FORMA PRO FORMA
HISTORICAL(2) HISTORICAL(2) AUGUST 12, 1996 ADJUSTMENTS COMBINED
------------- ------------- ----------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues.............................................. $ 4,485 $ 1,115 $ 129 $ (94)(3) $ 5,635
Operating expenses:
Line costs.......................................... 2,457 687 71 (94)(3) 3,121
Selling, general and administrative................. 829 493 44 -- 1,366
Depreciation and amortization....................... 303 286 12 237(4) 838
Charge for in-process research and development...... 2,140 -- -- -- 2,140
Other............................................... 600 -- -- -- 600
-------- ----- ---- ------ --------
Operating income (loss)............................... (1,844) (351) 2 (237) (2,430)
Other income (expense):
Interest expense.................................... (222) (62) (1) -- (285)
Other............................................... 6 (3) -- -- 3
-------- ----- ---- ------ --------
Income (loss) before income taxes..................... (2,060) (416) 1 (237) (2,712)
Provision for income taxes............................ 129 1 -- (125)(5) 5
-------- ----- ---- ------ --------
Income (loss) from continuing operations.............. (2,189) (417) 1 (112) (2,717)
Preferred dividend requirements....................... 1 29 -- -- 30
-------- ----- ---- ------ --------
Net income (loss) applicable to common shareholders... $(2,190) $ (446) $ 1 $(112) $(2,747)
======== ===== ==== ====== ========
Number of shares issued and outstanding:
Primary............................................. 398 N/M N/M 869
======== ========
Fully diluted....................................... 398 N/M N/M 869
======== ========
Earnings (loss) per share (6):
Primary............................................. $ (5.50) N/M N/M $ (3.16)
Fully diluted....................................... $ (5.50) N/M N/M $ (3.16)
<CAPTION>
MCI PRO FORMA PRO FORMA
HISTORICAL(2) ADJUSTMENTS COMBINED
------------- ----------- ---------
<S> <C><C> <C> <C>
Revenues.............................................. $18,494 $(558)(3) $23,571
Operating expenses:
Line costs.......................................... 9,489 (500)(3) 12,110
Selling, general and administrative................. 5,028 -- 6,394
Depreciation and amortization....................... 1,664 716(7) 2,668
(550)(8)
Charge for in-process research and development...... -- -- 2,140
Other............................................... -- (58)(3) 542
------- ------ --------
Operating income (loss)............................... 2,313 (166) (283)
Other income (expense):
Interest expense.................................... (196) (484)(9) (965)
Other............................................... (127) -- (124)
------- ------ --------
Income (loss) before income taxes..................... 1,990 (650) (1,372)
Provision for income taxes............................ 753 25(5) 783
------- ------ --------
Income (loss) from continuing operations.............. 1,237 (675) (2,155)
Preferred dividend requirements....................... 35 -- 65
------- ------ --------
Net income (loss) applicable to common shareholders... $ 1,202 $(675) $(2,220)
======= ====== ========
Number of shares issued and outstanding:
Primary............................................. 695 1,718
======= ========
Fully diluted....................................... 701 1,718
======= ========
Earnings (loss) per share (6):
Primary............................................. $ 1.73 $ (1.29)
Fully diluted....................................... $ 1.72 $ (1.29)
</TABLE>
The accompanying notes are an integral part of this statement.
88
<PAGE> 101
NOTES TO ADDITIONAL
PRO FORMA PRESENTATION
1. The unaudited Additional Pro Forma Presentation does not give effect to any
potential cost savings or other synergies that could result from the
MCI/WorldCom Merger, the MFS Merger and UUNET acquisition. WorldCom's
results for 1996 do not include charges related to extraordinary items of
$24.4 million, net of taxes. Furthermore, the pro forma financial data do
not reflect any expense of intangible assets attributable to the value of
any in-process research and development projects of MCI at the time of the
MCI/WorldCom Merger. However, WorldCom has undertaken a study to determine
the allocation of the total purchase price to the various assets acquired,
including in-process research and development, and the liabilities assumed.
To the extent that a portion of the purchase price is allocated to certain
in-process research and development projects of MCI, a charge, which may be
material, would be recognized in the period in which the MCI/WorldCom
Merger occurs. The pro forma data are not necessarily indicative of the
operating results or financial position that would have occurred had the
MCI/WorldCom Merger, MFS Merger and UUNET Acquisition been consummated at
the date indicated, nor necessarily indicative of future operating results
or financial position.
2. These columns represent historical results of operations.
3. These estimated adjustments eliminate the revenues, corresponding line
costs and other charges attributable to the intercompany transactions among
WorldCom, MFS, UUNET and MCI.
4. This entry reflects the adjustment to amortization for the effect of the
intangible assets acquired. For purposes of allocating the acquisition
costs among the various assets acquired in the MFS Merger and UUNET
Acquisition, the carrying value of the acquired assets approximated their
fair value, with all of the excess of such acquisition costs being
attributed to in-process research and development (network design and
development projects in-process), goodwill, network technology and
assembled workforce. It is WorldCom's intention to continue to evaluate the
acquired assets and, as a result, the allocation of the acquisition costs
among the tangible and intangible assets acquired may change. Goodwill
attributable to MFS is being amortized over 40 years while goodwill
attributable to UUNET is being amortized over 5 years. Network technology
and assembled work force are being amortized over 5 years and 10 years,
respectively.
5. These entries represent the tax effect of the pro forma adjustments.
6. Pro forma per share data is based on the number of shares of WorldCom
Common Stock that would have been outstanding had the MCI/WorldCom Merger,
the MFS Merger and UUNET Acquisition occurred on the earliest date
presented. The per share data also includes the effect of the $2.14 billion
charge for in-process research and development related to the MFS Merger.
Excluding this non-recurring charge from the pro forma data would have
resulted in loss per share of $(0.05).
7. This entry reflects the adjustment to amortization for the effect of the
excess of consideration over net assets acquired in the MCI/WorldCom
Merger. The total consideration of the MCI/WorldCom Merger will be
allocated to the assets and liabilities of MCI based on their estimated
fair value. The excess of consideration over the historical book value of
MCI net assets acquired has been preliminarily allocated to goodwill and
other intangible assets. A final allocation of the purchase price to the
MCI assets acquired and liabilities assumed is dependent upon certain
valuations and studies that have not progressed to a stage where there is
sufficient information to make such an allocation in the accompanying pro
forma financial information. WorldCom's management believes that the
consideration in excess of the historical book value of MCI's net assets
acquired, primarily comprises goodwill, certain in-process research and
development projects and other intangible assets. In-process research and
development projects may include projects for which technological
feasibility has not been established and the technology has no future
alternative use. To the extent that a portion of the purchase price is
allocated to such in-process research and development projects, a charge,
which may be material to WorldCom's results of operations, would be
recognized in the period in which the MCI/WorldCom Merger occurs. For
purposes of the Additional Pro Forma Presentation, the excess consideration
has been amortized over an estimated life of
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40 years. WorldCom management expects that amounts allocated to goodwill
and trade names will be amortized over 40 years while other intangible
assets may be amortized over shorter periods consequently reducing net
income reported by MCI WorldCom. A final determination of lives
attributable to the intangible assets has not yet been made (See Note 1).
To the extent amounts are allocated to certain in-process research and
development projects, pro forma amortization expense would be ratably
reduced accordingly.
8. This entry reflects the adjustment to depreciation expense for the effect
of the fair value adjustment of MCI's property, plant and equipment based
on a preliminary evaluation of depreciated replacement cost (See Note 7).
9. These adjustments represent the recognition of interest on the additional
borrowings of WorldCom to finance the cash payment to the holder of the MCI
Class A Common Stock and other estimated transaction costs of $510 million
(which includes a $465 million inducement fee paid to BT). The interest
expense was calculated at WorldCom's incremental borrowing rate of 6.5%. A
change of 1/8% in the incremental rate would affect interest expense by
$9.3 million for the year ended December 31, 1996.
DIRECTORS AND MANAGEMENT OF MCI WORLDCOM FOLLOWING THE MERGER
Pursuant to the terms of the MCI/WorldCom Merger Agreement, WorldCom has
agreed to cause the WorldCom Board as of the Effective Time to consist of
fifteen members, which shall consist of eight members designated by WorldCom
from among directors of WorldCom, five members designated by MCI from among
directors of MCI, and two additional members designated by WorldCom from among
pending acquisitions of WorldCom; provided that the persons designated by each
party are required to be reasonably acceptable to the other party. As of the
date hereof, the WorldCom Board is comprised of 11 directors. After the
MCI/WorldCom Merger, it is anticipated that [ ] will continue to serve as
directors of WorldCom after the Effective Time. [ ], [ ], [ ], and [ ], each of
whom voted in favor of the MCI/WorldCom Merger, have agreed to resign as
directors of WorldCom after the Effective Time. MCI has announced its intention
to designate [ ], [ ], [ ], [ ], and [ ] as directors of WorldCom. Additionally,
the AOL Agreement provides that, if so requested at least five business days
before the closing of the AOL Transaction, WorldCom will cause Stephen M. Case,
Chairman of the Board, Chief Executive Officer and President of AOL, to be
appointed to the WorldCom Board. Further, in connection with the negotiation and
approval of the BFP Merger Agreement, Mr. Ebbers indicated his expectation that
the WorldCom Board would consider the nomination of an individual designated by
the BFP Board of Directors (who is expected to be Mr. James C. Allen, Vice
Chairman and Chief Executive Officer of BFP) for election as a director of
WorldCom following the effective time of the BFP Merger. If, prior to the
Effective Time, any of the persons named by either WorldCom or MCI to serve on
the MCI WorldCom Board of Directors as of the Effective Time declines or is
unable to serve as a director, the party that designated such individual may
name a replacement to become a director. The directors of MCI WorldCom will be
elected annually. See "Information Regarding WorldCom -- Management and
Principal Shareholders" for certain information regarding the current management
of WorldCom.
The following table sets forth information as to the persons who are
expected to serve as directors of MCI WorldCom following the MCI/WorldCom
Merger:
<TABLE>
<CAPTION>
NAME AND YEAR FIRST BECAME A
DIRECTOR OF WORLDCOM BUSINESS EXPERIENCE DURING STOCK
OR MCI, AS APPLICABLE AGE PAST FIVE YEARS AND OTHER INFORMATION OWNERSHIP
- -------------------------------------- --- ------------------------------------- ---------
<S> <C> <C> <C>
</TABLE>
None of the director designees of MCI beneficially owned any shares of
WorldCom Common Stock as of such date. As of [ ], Messrs, Allen and Case
beneficially owned 0 shares and [ ] shares, respectively, of WorldCom Common
Stock. As of such date, Mr. Allen beneficially owned 319,885 shares of BFP
Common Stock which, based on an assumed BFP exchange ratio of 1.65 and 1.85 (the
minimum and maximum exchange ratios, respectively), would be converted into the
right to receive 527,810 shares and 591,787 shares,
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respectively, of WorldCom Common Stock as a result of the BFP Merger. Additional
information about such persons is contained under the captions "Information
Regarding WorldCom" and "Information Regarding MCI" as well as in the WorldCom
1996 Annual Report on Form 10-K for the year ended December 31, 1996 and the MCI
1996 Annual Report on Form 10-K, as amended. See "Where You Can Find More
Information."
See "Certain Related Transactions--Other" for certain information regarding
certain transactions between WorldCom and MCI. For additional information
concerning certain interests of directors of MCI and WorldCom in the
MCI/WorldCom Merger, see "The MCI/WorldCom Merger--Interests of Certain Persons
in the MCI/WorldCom Merger."
COMPENSATION OF DIRECTORS
WorldCom's directors are currently paid fees of $22,500 per year and $1,000
per meeting of the Board plus certain expenses. Committee members are currently
paid a fee of $750 for any committee meeting on the same day as a Board meeting
and $1,000 for any other committee meeting, plus certain expenses. The chairman
of each committee receives an additional $3,000 per year.
Pursuant to WorldCom's Third Amended and Restated 1990 Stock Option Plan,
each non-employee director receives annually a non-discretionary grant of
options to purchase 5,000 shares of WorldCom Common Stock at the fair market
value of such stock on the date of grant. Such options are immediately
exercisable and expire on the earliest to occur of (a) ten years following the
date of grant, (b) three months following retirement, (c) 12 months following
termination of service due to disability or death, (d) upon cessation of service
for reasons other than retirement, death or disability, or (e) the date of
consummation of a specified change in control transaction, defined generally to
include the dissolution or liquidation of WorldCom, a reorganization, merger or
consolidation of WorldCom in which WorldCom is not the surviving corporation, or
a sale of substantially all of the assets or 80% or more of the outstanding
stock of WorldCom to another entity. The exercise price may be paid in cash or,
in the discretion of the committee which administers the plan, WorldCom Common
Stock. In the discretion of such committee, shares receivable on exercise may be
withheld to pay applicable taxes on the exercise.
EXECUTIVE OFFICERS
WorldCom has agreed to cause Bert C. Roberts, Jr. to be appointed Chairman
of MCI WorldCom, and to cause the senior management of MCI WorldCom to be as
previously agreed between the parties. Pursuant to the MCI WorldCom Merger
Agreement, Bernard J. Ebbers will be the President and Chief Executive Officer
of MCI WorldCom. In addition, Gerald H. Taylor, currently Chief Executive
Officer of MCI, will become Vice Chairman of MCI WorldCom and will be
responsible for international operations and ventures; Timothy F. Price,
currently President and Chief Operating Officer of MCI, will become President
and Chief Executive Officer of MCI WorldCom's U.S. telecommunications operating
subsidiary; John W. Sidgmore will continue to serve as Vice Chairman and Chief
Operating Officer of MCI WorldCom and will continue his current responsibilities
including European operations; and Scott D. Sullivan will continue to serve as
Chief Financial Officer of MCI WorldCom.
Additional information about such persons is contained under the captions
"Information Regarding WorldCom" and "Information Regarding MCI" as well as in
the WorldCom 1996 Form 10-K and the MCI 1996 Form 10-K. See "Where You Can Find
More Information."
See "Certain Related Transactions -- Other" for certain information
regarding certain transactions between WorldCom and MCI. For additional
information concerning certain interests of executive officers of WorldCom and
MCI in the MCI/WorldCom Merger, see "The MCI/WorldCom Merger -- Interests of
Certain Persons in the MCI/WorldCom Transaction."
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COMPENSATION OF EXECUTIVE OFFICERS
WorldCom will rely on its Compensation and Stock Option Committee (the
"Compensation Committee") to recommend the form and amount of compensation of
its executive officers. It is anticipated that, when the Compensation Committee
meets to determine such compensation, which meeting is not expected to occur
until after the Closing Date, the Compensation Committee will generally adhere
to its policies designed to attract, motivate, reward and retain executives with
the skills, experience and talents required to promote the short- and long-term
performance and growth of WorldCom. Historically, WorldCom's executive
compensation has had three elements: base salary, annual incentive compensation
and long-term incentive compensation.
For information concerning the compensation paid to the chief executive
officer and certain other executive officers of each or WorldCom and MCI for the
1996 fiscal year, see the WorldCom 1996 Form 10-K and the MCI 1996 Form 10-K.
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CERTAIN RELATED TRANSACTIONS
MCI RIGHTS AGREEMENT
In connection with the execution of the MCI/WorldCom Merger Agreement, on
November 9, 1997, the MCI Board amended the Rights Agreement between MCI and
Morgan Guaranty Trust Company of New York, as Rights Agent, dated as of
September 30, 1994, and as amended as of November 3, 1996 and August 20, 1997
(the "MCI Rights Agreement") to (i) exempt WorldCom from the application of the
MCI Rights Agreement so long as WorldCom is not the beneficial owner of any
shares of MCI Common Stock other than shares beneficially owned by WorldCom as
of November 9, 1997 and above described to be beneficially owned by WorldCom by
reason of the MCI/WorldCom Merger Agreement, (ii) provide that none of the
approval, execution or delivery the MCI/WorldCom Merger Agreement nor the
consummation of the transactions contemplated thereby would cause the occurrence
of a "Distribution Date" or "Stock Acquisition Date", cause the rights (the "MCI
Rights") distributed to holders of MCI Capital Stock pursuant to the MCI Rights
Agreement to become exercisable or cause WorldCom to be an "Acquiring Person"
under the MCI Rights Agreement, and (iii) cause the rights issued under the MCI
Rights Agreement to expire immediately prior to the Effective Time. See
"Comparative Rights of Shareholders -- Preferred Stock Purchase Rights."
The foregoing summary of the MCI Rights Agreement is qualified in its
entirety by reference to such agreement.
OTHER
As of the date hereof, neither WorldCom nor MCI is aware of any material
relationship between WorldCom or its directors or executive officers and MCI or
its directors or executive officers, except as contemplated by the MCI/WorldCom
Merger Agreement or as described herein or in the documents incorporated by
reference herein.
WorldCom and MCI have entered into certain interconnection or other
services agreements with each other and certain of their affiliates in the
ordinary course of their businesses, which agreements have been amended from
time to time. In the nine months ended September 30, 1997, fiscal 1996 and
fiscal 1995, MCI and its subsidiaries and WorldCom and its subsidiaries have
engaged in transactions aggregating $280 million, $558 million and $
million, respectively.
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DESCRIPTION OF WORLDCOM CAPITAL STOCK
The following summary does not purport to be complete and is subject in all
respects to the applicable provisions of the GBCC, the WorldCom Articles, the
Deposit Agreement (referred to below), and the WorldCom Rights Agreement. The
WorldCom Articles, the Deposit Agreement and the WorldCom Rights Agreement are
included in or incorporated by reference as exhibits to the Registration
Statement of which this Joint Proxy Statement/Prospectus is a part.
The authorized capital stock of WorldCom consists of 2,500,000,000 shares
of common stock, par value $.01 per share, and 50,000,000 shares of preferred
stock, par value $.01 per share. As of September 30, 1997, there were
907,159,586 shares of WorldCom Common Stock, 94,992 shares of WorldCom Series A
Preferred Stock and 12,445,113 shares of WorldCom Series B Preferred Stock
issued and outstanding. All the shares of WorldCom Series A Preferred Stock are
held by The Bank of New York as Depositary for the holders of WorldCom
Depositary Shares.
COMMON STOCK
All of the outstanding shares of WorldCom Common Stock are fully paid and
nonassessable. Subject to the prior rights of the holders of preferred stock
which may be issued and outstanding, the holders of WorldCom Common Stock are
entitled to receive dividends as and when declared by the WorldCom Board out of
funds legally available therefor, and, in the event of the liquidation,
dissolution or winding up of WorldCom, to share ratably in all assets remaining
after payment of liabilities. Subject to the prior rights of the holders of
preferred stock, each holder of WorldCom Common Stock is entitled to one vote
for each share held of record on all matters presented to a vote of
shareholders, including the election of directors. Holders of WorldCom Common
Stock have no cumulative voting rights or preemptive rights to purchase or
subscribe for any stock or other securities and there are no conversion rights
or redemption or sinking fund provisions with respect to such stock. Additional
shares of authorized WorldCom Common Stock may be issued without shareholder
approval.
The transfer agent and registrar for the WorldCom Common Stock is The Bank
of New York, 101 Barclay Street -- 12W, New York, NY 10286.
PREFERRED STOCK
The authorized but unissued preferred stock of WorldCom is available for
issuance from time to time at the discretion of the WorldCom Board without
shareholder approval. The WorldCom Board has the authority to prescribe for each
series of preferred stock it establishes the number, designation, preferences,
limitations and relative rights of the shares of such series, subject to
applicable law and the provisions of any outstanding series of preferred stock.
The terms of any series of preferred stock including, but not limited to,
dividend rate, redemption price, liquidation rights, sinking fund provisions,
conversion rights and voting rights, and any corresponding effect on other
shareholders, will be dependent largely on factors existing at the time of
issuance. Such terms and effects could include restrictions on dividends on the
WorldCom Common Stock if dividends on the preferred stock are in arrears,
dilution of the voting power of other shareholders to the extent a series of the
preferred stock has voting rights, and reduction of amounts available on
liquidation as a result of any liquidation preference granted to any series of
preferred stock.
SERIES A PREFERRED STOCK
The following description of the WorldCom Series A Preferred Stock and the
rights represented by the WorldCom Depositary Shares does not purport to be
complete and is subject to, and qualified in its entirety by, the provisions of
the WorldCom Articles. Each of the WorldCom Depositary Shares represents a one
one-hundredth interest in a share of WorldCom Series A Preferred Stock and
entitles the owner to such proportion of all the rights, preferences and
privileges of the shares of WorldCom Series A Preferred Stock represented
thereby. See "-- Depositary Shares" below.
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Dividends
The holders of shares of WorldCom Series A Preferred Stock are entitled to
receive cumulative preferential dividends from the issue date of the WorldCom
Series A Preferred Stock, accruing at the rate per share of $268.00 per annum or
$67.00 per quarter (equivalent to $2.68 per annum or $.67 per quarter for each
WorldCom Depositary Share), payable quarterly in arrears. Dividends are payable
in cash or in shares of WorldCom Common Stock, at the election of the WorldCom
Board. WorldCom intends to pay dividends in shares of WorldCom Common Stock on
each dividend payment date to the extent that it is unable to pay dividends in
cash. If the dividends are paid in shares of WorldCom Common Stock, the number
of shares of WorldCom Common Stock to be issued on each dividend payment date
will be determined by dividing the total dividend to be paid on each WorldCom
Depositary Share by 90% of the average of the high and low sales prices of the
WorldCom Common Stock as reported by NASDAQ or any national securities exchange
upon which the WorldCom Common Stock is then listed or included, for each of the
ten consecutive trading days immediately preceding the fifth business day
preceding the record date for such dividend.
Unless all accumulated dividends on the Series A Preferred Stock have been
paid, (i) no dividend (other than a dividend payable solely in shares of junior
stock (as defined in the WorldCom Articles)) may be paid on the WorldCom Common
Stock, (ii) no other distribution shall be made upon any shares of junior stock;
(iii) no shares of junior stock or any series of WorldCom preferred stock shall
be purchased, redeemed, or otherwise acquired for cash or other property
(excluding junior stock or the WorldCom Series B Preferred Stock) by WorldCom or
any of its subsidiaries; and (iv) no monies shall be paid into or set apart or
made available for a sinking or other like fund for the purchase, redemption or
other acquisition for value of any shares of junior stock by WorldCom or any of
its subsidiaries.
Mandatory Conversion of WorldCom Series A Preferred Stock
On May 31, 1999 (the "Mandatory Conversion Date"), subject to the optional
conversion rights referred to below, each outstanding share of WorldCom Series A
Preferred Stock (and the related WorldCom Depositary Shares) will convert
automatically into shares of WorldCom Common Stock at the Common Equivalent Rate
(as defined below) in effect on such date and the holder will also be entitled
to receive accrued and unpaid dividends thereon. The "Common Equivalent Rate" is
initially four hundred twenty shares (420) of WorldCom Common Stock for each
share of WorldCom Series A Preferred Stock (equivalent to 4.2 shares of WorldCom
Common Stock for each WorldCom Depositary Share), subject to adjustment for
certain capital events.
Right to Redeem WorldCom Series A Preferred Stock
The WorldCom Series A Preferred Stock (and the related WorldCom Depositary
Shares) are not redeemable by WorldCom prior to May 31, 1998 (the "Initial
Redemption Date"). On or after the Initial Redemption Date and prior to the
Mandatory Conversion Date, WorldCom may redeem the WorldCom Series A Preferred
Stock (and thereby the WorldCom Depositary Shares), in whole or in part. Upon
any such redemption, the holder of record of shares of WorldCom Series A
Preferred Stock will receive shares of WorldCom Common Stock equal to the call
price of the WorldCom Series A Preferred Stock in effect on the date of
redemption (the "Call Price") divided by the Current Market Price (as defined in
the WorldCom Articles) of the WorldCom Common Stock. The Call Price of each
WorldCom Series A Preferred Stock is (i) $3,417.00 ($34.170 per WorldCom
Depositary Share) on and after the Initial Redemption Date through August 30,
1998, $3,400.25 ($34.003 per WorldCom Depositary Share) on and after August 31,
1998 through November 29, 1998, $3,383.50 ($33.835 per WorldCom Depositary
Share) on and after November 30, 1998 through February 27, 1999, $3,366.75
($33.668 per WorldCom Depositary Share) on and after February 28, 1999 through
April 29, 1999, and $3,350.00 ($33.500 per WorldCom Depositary Share) on and
after April 30, 1999 until the Mandatory Conversion Date, plus (ii) all accrued
and unpaid dividends thereon to the date fixed for redemption.
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Conversion at Option of Holder
The WorldCom Series A Preferred Stock (and thereby the WorldCom Depositary
Shares) are convertible, in whole or in part, at the option of the holder
thereof, at any time prior to the Mandatory Conversion Date, into shares of
WorldCom Common Stock at a rate of 344.274 shares of WorldCom Common Stock for
each WorldCom Series A Preferred Stock (equivalent to 3.443 shares of WorldCom
Common Stock for each WorldCom Depositary Share and equivalent to a conversion
price of $9.73 per share of WorldCom Common Stock), subject to adjustment for
certain capital events. The right to convert WorldCom Series A Preferred Stock
called for redemption will terminate at the close of business on the redemption
date.
Adjustment for Consolidation or Merger
In the case of certain mergers, consolidations or other capital
transactions, certain customary provisions are required to be made relating to
the terms of conversion and redemption applicable to the WorldCom Series A
Preferred Stock in order to protect the interests of the holders thereof.
Liquidation Rights
In the event of the liquidation, dissolution or winding up of the business
of WorldCom, the holders of WorldCom Series A Preferred Stock are entitled to
receive a liquidation preference for each share of WorldCom Series A Preferred
Stock in an amount equal to the greater of (i) the sum of (a) $3,350 and (b) all
accrued and unpaid dividends thereon to the date of liquidation, dissolution or
winding up and (ii) the value of the shares of WorldCom Common Stock into which
such shares of WorldCom Series A Preferred Stock are convertible on the date of
such liquidation, dissolution or winding up.
Voting Rights
Each share of WorldCom Series A Preferred Stock is entitled to ten votes
per share (equivalent to 0.1 of a vote for each WorldCom Depositary Share) with
respect to all matters. The holders of the WorldCom Series A Preferred Stock and
the holders of WorldCom Common Stock will vote together as a single class,
unless otherwise provided by law or the WorldCom Articles. The approval of more
than two-thirds of the votes entitled to be cast by the holders of issued and
outstanding shares of WorldCom Series A Preferred Stock is required for any
amendment to the WorldCom Articles that materially adversely changes the rights,
preferences or privileges of the WorldCom Series A Preferred Stock. The holders
of the outstanding shares of WorldCom Series A Preferred Stock shall also have
the right, voting together with the holders of any other outstanding shares of
Voting Preferred Stock (as hereinafter defined) as a separate voting group, to
elect two members of the WorldCom Board at any time six or more quarterly
dividends on any shares of Voting Preferred Stock shall be in arrears and
unpaid, in whole or in part, whether or not declared and whether or not any
funds shall be or have been legally available for payment thereof. For this
purpose, "Voting Preferred Stock" shall mean the shares of WorldCom Series A
Preferred Stock and each other series of WorldCom Preferred Stock which shall
have substantially similar voting rights (including voting as one voting group
with other shares of Voting Preferred Stock) with respect to the election of
directors upon substantially similar arrearages of dividends.
SERIES B PREFERRED STOCK
The following description of WorldCom Series B Convertible Preferred Stock
does not purport to be complete and is subject to, and qualified in its entirety
by, the provisions of the WorldCom Articles.
Dividends
The holders of WorldCom Series B Preferred Stock are entitled to receive
cumulative dividends from the issue date of the WorldCom Series B Preferred
Stock, accruing at the rate per share of $.0775 per annum, payable when and as
the WorldCom Board may determine, in cash, before any dividends shall be set
apart for or paid upon the WorldCom Common Stock or any other stock ranking as
to dividends junior to the
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WorldCom Series B Preferred Stock in any year. Notwithstanding the foregoing,
WorldCom may declare, set apart and pay dividends on shares of the WorldCom
Series A Preferred Stock whether or not dividends have been declared, set apart
or paid on the shares of WorldCom Series B Preferred Stock. Dividends are only
payable in cash, except for payment of accrued but unpaid dividends upon
conversion, redemption or liquidation of the WorldCom Series B Preferred Stock,
as the case may be, as described below.
WorldCom is not permitted to set apart for or pay upon the WorldCom Common
Stock any Extraordinary Cash Dividend (as defined below) unless, at the same
time, WorldCom shall have set apart for or paid upon all shares of WorldCom
Series B Preferred Stock an amount of cash per share of WorldCom Series B
Preferred Stock equal to the Extraordinary Cash Dividend that would have been
paid in respect of such share if the holder of such share of WorldCom Series B
Preferred Stock had converted such share into shares of WorldCom Common Stock
immediately prior to the record date for such Extraordinary Cash Dividend. The
term "Extraordinary Cash Dividend" means, with respect to any cash dividend or
distribution paid on any date, the amount, if any, by which all cash dividends
and cash distributions on the WorldCom Common Stock paid during the consecutive
12-month period ending on and including such date exceeds, on a per share of
WorldCom Common Stock basis, 10% of the average daily closing price of the
WorldCom Common Stock over such 12-month period.
Conversion at Option of Holder
The shares of WorldCom Series B Preferred Stock are convertible, in whole
or in part, at the option of the holder thereof, at any time, unless previously
redeemed, into shares of WorldCom Common Stock at a rate of 0.0973912 shares of
WorldCom Common Stock for each share of WorldCom Series B Preferred Stock
(equivalent to an initial conversion price of $10.268 per share of WorldCom
Common Stock), subject to adjustment for certain capital events, and the holder
will also be entitled to receive accrued and unpaid dividends payable in cash
or, at the option of WorldCom, in shares of WorldCom Common Stock, based on the
Fair Market Value thereof (as defined in the WorldCom Articles).
Right to Redeem WorldCom Series B Preferred Stock
The WorldCom Series B Preferred Stock is not redeemable by WorldCom prior
to September 30, 2001. Thereafter, WorldCom has the right to redeem the shares
of WorldCom Series B Preferred Stock, in whole or in part at a redemption price
of $1.00 per share plus accrued and unpaid dividends thereon (the "Redemption
Price"); provided, that all or any portion of the Redemption Price may be paid
in shares of WorldCom Common Stock as determined by the WorldCom Board based on
the Fair Market Value (as defined in the WorldCom Articles).
Adjustment for Consolidation or Merger
In the case of certain mergers, consolidations or other capital
transactions, certain customary provisions are required to be made relating to
the terms of conversion and redemption applicable to the WorldCom Series B
Preferred Stock in order to protect the interests of the holders thereof.
Liquidation Rights
In the event of the liquidation, dissolution or winding up of the business
of WorldCom, the holders of WorldCom Series B Preferred Stock are entitled to
receive a liquidation preference for each share of WorldCom Series B Preferred
Stock in an amount equal to the sum of $1.00 plus all accrued and unpaid
dividends thereon to the date of liquidation, dissolution or winding up.
Voting Rights
Each share of WorldCom Series B Preferred Stock is entitled to one vote per
share with respect to all matters. The holders of the WorldCom Series B
Preferred Stock and the holders of WorldCom Common Stock (and WorldCom Series A
Preferred Stock) will vote together as a single class, unless otherwise provided
by law or the WorldCom Articles. The approval of at least a majority of the
votes entitled to be cast
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by the holders of issued and outstanding shares of WorldCom Series B Preferred
Stock is required to adversely change the rights, preferences or privileges of
the WorldCom Series B Preferred Stock. For this purpose, the authorization or
issuance of any series of preferred stock with preference or priority over, or
being on a parity with the WorldCom Series B Preferred Stock as to the right to
receive either dividends or amounts distributable upon liquidation, dissolution
or winding up of WorldCom shall not be deemed to affect adversely the WorldCom
Series B Preferred Stock. In case WorldCom shall at any time prior to March 23,
1999 subdivide (whether by stock dividend, stock split or otherwise) its
outstanding shares of WorldCom Common Stock into a greater number of shares
(each a "Subdivision"), the voting rights of each share of WorldCom Series B
Preferred Stock will be adjusted to provide that the percentage of the aggregate
voting power of the WorldCom Common Stock represented by the WorldCom Series B
Preferred Stock shall be the same as such percentage immediately prior to such
Subdivision, with the holder of each share of WorldCom Series B Preferred Stock
being entitled to the number of votes proportionate to such adjustment. Such
adjustments made pursuant to a Subdivision will become effective immediately
after the effective date of the Subdivision.
DEPOSITARY SHARES
Each WorldCom Depositary Share represents a one-hundredth interest in a
share of WorldCom Series A Preferred Stock deposited under the Deposit Agreement
(the "Deposit Agreement"), by and among WorldCom, The Bank of New York, as
Depositary, and the holders from time to time of Depositary Receipts issued
thereunder. Subject to the terms of the Deposit Agreement, each owner of a
WorldCom Depositary Share is entitled proportionately to all of the rights and
preferences of the shares of WorldCom Series A Preferred Stock represented
thereby (including dividend, voting, redemption and liquidation rights)
contained in the WorldCom Articles and summarized above under "Description of
WorldCom Capital Stock -- Preferred Stock," and "-- Series A Preferred Stock."
The WorldCom Depositary Shares are evidenced by depositary receipts issued
pursuant to the Deposit Agreement ("Depositary Receipts"). The following
description of the WorldCom Depositary Shares does not purport to be complete
and is subject to, and qualified in its entirety by, the provisions of the
Deposit Agreement.
Mandatory Conversion, or Call. As described under " -- Preferred
Stock -- Series A Preferred Stock," the WorldCom Series A Preferred Stock is
subject to mandatory conversion into shares of WorldCom Common Stock on the
Mandatory Conversion Date, and to the right of WorldCom to call the WorldCom
Series A Preferred Stock at WorldCom's option, for redemption on or after the
initial Redemption Date and before the Mandatory Conversion Date. The WorldCom
Depositary Shares are subject to mandatory conversion or call upon substantially
the same terms and conditions as the WorldCom Series A Preferred Stock, except
that the number of shares of WorldCom Common Stock received upon mandatory
conversion or redemption of each WorldCom Depositary Share will be equal to the
number of shares of WorldCom Common Stock received upon mandatory conversion or
redemption of each share of WorldCom Series A Preferred Stock divided by one
hundred.
Conversion at the Option of Holder. As described under " -- Preferred
Stock -- Series A Preferred Stock," the WorldCom Series A Preferred Stock may be
converted, in whole or in part, into shares of WorldCom Common Stock at the
option of the holders of WorldCom Series A Preferred Stock at any time before
the Mandatory Conversion Date, unless previously redeemed. The WorldCom
Depositary Shares may, at the option of holders thereof, be converted into
shares of WorldCom Common Stock upon the same terms and conditions as the
WorldCom Series A Preferred Stock, except that the number of shares of WorldCom
Common Stock received upon conversion of each WorldCom Depositary Share will be
equal to the number of shares of WorldCom Common Stock received upon conversion
of each share of WorldCom Series A Preferred Stock divided by one hundred.
Voting of WorldCom Series A Preferred Stock. Each record holder of
Depositary Receipts on the record date (which will be the same date as the
record date for the WorldCom Series A Preferred Stock) will be entitled to
instruct the Depositary as to the exercise of the voting rights pertaining to
the number of WorldCom Series A Preferred Stock represented by such holder's
WorldCom Depositary Shares. The
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Depositary will abstain from voting WorldCom Series A Preferred Stock to the
extent it does not receive specific written voting instructions from the holders
of Depositary Receipts representing such WorldCom Series A Preferred Stock.
Termination of Deposit Agreement. The Deposit Agreement is subject to
termination by WorldCom, or, if the Depositary resigns and no successor
depositary is properly appointed and accepted, by the Depositary. If any
Depositary Receipts remain outstanding after the date of termination, the
Depositary thereafter will discontinue the transfer of Depositary Receipts, will
suspend the distribution of dividends to the holders thereof, and will not give
any further notices (other than notice of such termination) or perform any
further acts under the Deposit Agreement except as provided below and except
that the Depositary will continue (i) to collect dividends on the WorldCom
Series A Preferred Stock and any other distributions with respect thereto and
(ii) to deliver the WorldCom Series A Preferred Stock and any money and other
property represented by Depositary Shares upon surrender thereof by the holders
thereof. WorldCom does not intend to terminate the Deposit Agreement or to
permit the resignation of the Depositary without appointing a successor
depositary. In the event the Deposit Agreement is terminated, WorldCom has
agreed to use its best efforts to list the WorldCom Series A Preferred Stock on
Nasdaq.
WORLDCOM SERIES 3 PREFERRED STOCK
In connection with the issuance of the WorldCom Rights (as hereinafter
defined), the WorldCom Board has authorized 2,500,000 shares of preferred stock
to be issued as Series 3 Junior Participating Preferred Stock (the "WorldCom
Series 3 Preferred Stock"), a description of the terms of which is set forth
below under "-- Preferred Stock Purchase Rights."
PREFERRED STOCK PURCHASE RIGHTS
On August 25, 1996, WorldCom entered into the WorldCom Rights Agreement and
the WorldCom Board authorized the issuance of one preferred share purchase right
(a "WorldCom Right") for each outstanding share of WorldCom Common Stock
outstanding as of September 6, 1996, and issued thereafter until the
Distribution Date, as defined in the WorldCom Rights Agreement (the "WorldCom
Distribution Date"). Each WorldCom Right entitles the registered holder to
purchase from WorldCom one one-thousandth of a share of Series 3 Preferred Stock
at an initial price of $160.00 per one one-thousandth of such share, subject to
adjustment as described in the WorldCom Rights Agreement.
The WorldCom Rights will be evidenced by the WorldCom Common Stock and a
WorldCom Distribution Date will occur upon the earlier of ten business days
following public disclosure or the date on which WorldCom first determines that
certain persons or groups (a "WorldCom Acquiring Person") have become the
beneficial owner of 15% or more of the outstanding shares of voting stock of
WorldCom (the "Stock Acquisition Date") or ten business days (or such later date
as may be determined by action of the WorldCom Board but not later than the
Stock Acquisition Date) following the commencement of a tender offer or exchange
offer that would result in certain persons or groups becoming a WorldCom
Acquiring Person. Pursuant to the WorldCom Rights Agreement, as amended, the
WorldCom Rights are not exercisable until the WorldCom Distribution Date and
will expire, if not previously exercised, on September 6, 2001, unless such
final expiration date is extended (subject to shareholder approval) or unless
the WorldCom Rights are earlier redeemed or exchanged by WorldCom.
Upon the occurrence of a WorldCom Distribution Date, each holder of a
WorldCom Right, except for a WorldCom Acquiring Person, has the right to
acquire, upon exercise of the WorldCom Right, WorldCom Common Stock having a
value equal to two times the exercise price of the WorldCom Right. If a person
becomes a WorldCom Acquiring Person and (i) WorldCom is acquired in a merger or
other business combination transaction in which either WorldCom is not the
surviving corporation or WorldCom Common Stock is exchanged or changed, or (ii)
50% or more of WorldCom's assets or earnings power is sold in one or several
transactions, each holder of a WorldCom Right, except for a WorldCom Acquiring
Person, would acquire, upon exercise of the WorldCom Right, such number of
shares of the acquiring company's common stock as shall be equal to the result
obtained by multiplying the then current exercise price for a WorldCom
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Right by the number one one-thousandths of a share of WorldCom Series 3
Preferred Stock for which a WorldCom Right is then exercisable and dividing that
product by 50% of the then current market price per share of the common stock of
the acquiring company on the date of such merger or other business combination
transaction.
If a certain person or group acquires more than 15% but less than 50% of
the outstanding WorldCom Common Stock, WorldCom can exchange each WorldCom
Right, except those held by such persons, for one share of WorldCom Common
Stock.
The WorldCom Series 3 Preferred Stock will be nonredeemable and junior to
any other series of WorldCom preferred stock (unless otherwise provided in the
terms of such WorldCom preferred stock). Each share of WorldCom Series 3
Preferred Stock will have a preferential dividend in an amount equal to 1,000
times any dividend declared on each share of WorldCom Common Stock. In the event
of liquidation, the holders of the WorldCom Series 3 Preferred Stock will
receive a preferred liquidation payment equal to the greater of $1,000 or 1,000
times the payment made per share of WorldCom Common Stock. Each share of
WorldCom Series 3 Preferred Stock will have 1,000 votes, voting together with
the WorldCom Common Stock. In the event of any merger, consolidation or other
transaction in which shares of WorldCom Common Stock are converted or exchanged,
each share of WorldCom Series 3 Preferred Stock will be entitled to receive
1,000 times the amount and type of consideration received per share of WorldCom
Common Stock. The rights of the WorldCom Series 3 Preferred Stock as to
dividends, liquidation and voting, and in the event of mergers and
consolidations, are protected by customary antidilution provisions.
At any time prior to the time a WorldCom Acquiring Person becomes such,
WorldCom may redeem the WorldCom Rights in whole, but not in part, at a price of
$.01 per WorldCom Right. The redemption of the WorldCom Rights may be made
effective at such time, on such basis and with such conditions as the WorldCom
Board, in its sole discretion, may establish. Immediately upon any redemption of
the WorldCom Rights, the right to exercise the WorldCom Rights will terminate
and the only right of the holders of the WorldCom Rights will be to receive the
redemption price.
The terms of the WorldCom Rights may be amended by the WorldCom Board
without the consent of the holders of the WorldCom Rights, including an
amendment to lower certain thresholds described above to not less than the
greater of (i) any percentage greater than the largest percentage of the voting
power of all securities of WorldCom then known to WorldCom to be beneficially
owned by certain persons or groups and (ii) 10%, except that from and after such
time as any person or group of affiliated or associated persons becomes a
WorldCom Acquiring Person no such amendment may adversely affect the interests
of the holders of the WorldCom Rights.
The WorldCom Rights have certain anti-takeover effects. The WorldCom Rights
will cause substantial dilution to a person or group that attempts to acquire or
merge with WorldCom in certain circumstances. Accordingly, the existence of the
WorldCom Rights may deter certain potential acquirors from making certain
takeover proposals or tender offers. The WorldCom Rights should not interfere
with any merger or other business combination approved by the WorldCom Board
since WorldCom may redeem the WorldCom Rights as described above.
CERTAIN CHARTER AND BYLAW PROVISIONS
In addition to the WorldCom Rights Agreement described above, the WorldCom
Articles and the WorldCom Bylaws contain certain provisions, which are referred
to below and which may have the effect of discouraging certain types of
transactions that involve an actual or threatened change of control of WorldCom.
Reference is made to the full text of the WorldCom Articles and the WorldCom
Bylaws, which are incorporated by reference as exhibits to the Registration
Statement of which this Prospectus is a part. See "Comparative Rights of
Shareholders -- Election of Directors," "-- Special Meetings of Shareholders,"
"-- Special Redemption Provisions" and "-- Business Combination Restrictions."
In addition, one of the effects of the existence of unissued and unreserved
WorldCom Common Stock and preferred stock may be to enable the WorldCom Board to
issue shares to persons friendly to current management, which could render more
difficult or discourage an attempt to obtain control of WorldCom by means of a
merger, tender offer,
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proxy contest or otherwise, and thereby protect the continuity of WorldCom's
management and possibly deprive the shareholders of opportunities to sell their
shares of WorldCom Common Stock at prices higher than the prevailing market
prices. Such additional shares also could be used to dilute the stock ownership
of persons seeking to obtain control of WorldCom.
COMPARATIVE RIGHTS OF SHAREHOLDERS
As a result of the MCI/Worldcom Merger, the stockholders of MCI, whose
rights are currently governed by Delaware law and the MCI Restated Certificate
of Incorporation and the MCI Bylaws, will become shareholders of WorldCom, whose
rights will be governed by Georgia law, the WorldCom Articles and the WorldCom
Bylaws. The following discussion is intended only to highlight certain material
differences between the rights of corporate shareholders under Georgia law and
Delaware law generally and specifically with respect to stockholders of MCI and
shareholders of WorldCom pursuant to their respective charters and bylaws. The
discussion does not constitute a complete comparison of the differences between
the rights of such holders or the provisions of the GBCC, the DGCL the MCI
Restated Certificate of Incorporation and the MCI Bylaws and the WorldCom
Articles and the Worldcom Bylaws, and MCI stockholders are referred to the DGCL,
the MCI Restated Certificate of Incorporation and the MCI Bylaws and the GBCC,
the WorldCom Articles and the WorldCom Bylaws for detailed information regarding
such differences.
ELECTION OF DIRECTORS
Under Delaware law, directors, unless their terms are staggered, are
elected at each annual stockholder meeting. Vacancies on the board of directors
may be filled by the stockholders or directors, unless the certificate of
incorporation or a bylaw provides otherwise. The certificate of incorporation
may authorize the election of certain directors by one or more classes or series
of shares, and the certificate of incorporation, an initial bylaw or a bylaw
adopted by a vote of the stockholders may provide for staggered terms for the
directors. The certificate of incorporation or the bylaws also may allow the
stockholders or the board of directors to fix or change the number of directors,
but a corporation must have at least one director. The MCI Bylaws provide for a
classified Board of Directors (for directors other than directors designated
only by the holders of Class A Common Stock, the "Class A Directors") consisting
of three classes of directors, each class elected for a term of three years.
Class A Directors are not classified and are elected to one-year terms. Under
Delaware law, stockholders do not have cumulative voting rights unless the
certificate of incorporation so provides. The MCI Restated Certificate of
Incorporation provides for cumulative voting at all elections of directors.
Upon consummation of the MCI/WorldCom Merger, the former stockholders of
MCI will have rights under Georgia law in the election of directors similar to
those provided by Delaware law. Directors, unless their terms are staggered
pursuant to the corporation's articles of incorporation or bylaws, are elected
at each annual shareholder meeting under Georgia law, and vacancies on the board
of directors may be filled by the shareholders or directors, unless the articles
of incorporation or a bylaw approved by the shareholders provides otherwise. The
articles of incorporation may authorize the election of certain directors by one
or more classes or series of shares. The articles of incorporation or the bylaws
also may allow the shareholders or the board of directors to fix or change the
number of directors. Currently, the WorldCom Bylaws provide that the number of
members of the WorldCom Board shall be fixed by the WorldCom Board but shall not
be less than three. The WorldCom Articles and the WorldCom Bylaws do not provide
for a staggered board of directors. Subject to certain restrictions, nominations
to the WorldCom Board may be made by either the Board or shareholders, if
delivered to WorldCom not later than 90 days prior to the anniversary date of
the immediately preceding annual meeting of WorldCom shareholders. Under Georgia
law, shareholders do not have cumulative voting rights for the election of
directors unless the articles of incorporation so provide. The WorldCom Articles
do not provide for cumulative voting.
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REMOVAL OF DIRECTORS
Under Delaware law, classified directors of a corporation may only be
removed for cause, by the holders of a majority of the shares entitled to vote
at an election, unless the certificate of incorporation of the corporation
specifically provides that such directors can be removed without cause. The MCI
Restated Certificate of Incorporation provides that directors (other than Class
A Directors) may be removed only for cause and only by a vote of the holders of
at least four-fifths of the outstanding shares entitled to vote thereon.
Georgia law provides that, unless director terms are staggered, directors
may be removed with or without cause by a majority of the votes entitled to be
cast, unless the articles of incorporation or a bylaw adopted by the
shareholders provides that directors may be removed only for cause, provided,
however, that if a director is elected by a particular voting group of
shareholders, that director may only be removed by the vote of that voting
group. The WorldCom Articles and the WorldCom Bylaws contain no provisions that
a director may be removed only for cause and, because, additionally, director
terms are not staggered, directors of WorldCom may be removed with or without
cause.
VACANCIES ON THE BOARD OF DIRECTORS
Under Delaware law, unless the certificate of incorporation or bylaws
provide otherwise, the board of directors of a corporation may fill any vacancy
on the board, including vacancies resulting from an increase in the number of
directors. Under the MCI Bylaws, in case of a vacancy among the directors the
remaining directors, although less than a quorum, by an affirmative vote of a
majority thereof, may fill such vacancy except as otherwise provided in the MCI
Restated Certificate of Incorporation as to the filling of vacancies occurring
by reason of removal by the stockholders, in which case the vacancy may be
filled by vote of the stockholders at the same meeting, and except that in the
event that any director who has been elected by the holders of one or more
classes of the capital stock (other than the MCI Common Stock) of the
corporation, and/or by the holders of one or more series thereof, shall die,
resign from or otherwise vacate the board of directors, the resulting vacancy
will, except as otherwise provided by law, be filled in the manner provided in
the MCI Restated Certificate of Incorporation, and the successor so determined
shall serve for the term likewise provided in the MCI Restated Certificate of
Incorporation.
Under Georgia law, the articles of incorporation or a bylaw approved by the
shareholders may make specific provision for filling vacancies on the board of
directors. Under the WorldCom Bylaws, any vacancy occurring on the board of
directors created by an increase in the number of directors by action of the
shareholders must be filled by the shareholders by an affirmative vote of the
holders of a majority of the votes entitled to be cast by the voting group. The
WorldCom Bylaws provide that the WorldCom Board shall fill any vacancy occurring
on the board created by an increase in the number of directors by action of the
board or the removal or resignation of a director, except such vacancy shall be
filled pursuant to the WorldCom Articles to the extent such Articles provide
that a class of shareholders may fill a vacancy created by the removal or
resignation of a director elected by that class. A director elected to fill a
vacancy created by the removal or resignation of a director shall hold office
for the unexpired term of his or her predecessor.
ACTION BY WRITTEN CONSENT
Delaware law provides that, unless limited by the certificate of
incorporation, any action that could be taken by stockholders at a meeting may
be taken without a meeting if a consent (or consents) in writing, setting forth
the action so taken, is signed by the holders of record of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted. Under the MCI Restated Certificate of
Incorporation, MCI stockholders may not take any action required to be taken at
a meeting of stockholders, or any other action which may be taken at a meeting
of the stockholders, without a meeting, without prior notice or without a vote,
and the right to act by written consent of stockholders in lieu of a meeting is
specifically denied.
Georgia law provides that any action which might be taken by the
shareholders at a meeting may be taken by the shareholders without a meeting if
evidenced by one or more written consents describing the action taken, signed by
all shareholders, or, if the articles of incorporation provide for less than all
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shareholders, by the number of shareholders required by the corporation's
articles. The WorldCom Articles do not provide for the consent of a lesser
number of shareholders with respect to an action by written consent; thus the
written consent of all shareholders of WorldCom would be required in order to
take such an action without a meeting of shareholders.
AMENDMENTS TO CHARTER
Under Delaware law, unless a higher vote is required in the certificate of
incorporation, an amendment to the certificate of incorporation of a corporation
may be approved by a majority of the outstanding shares entitled to vote upon
the proposed amendment. Under the MCI Restated Certificate of Incorporation the
affirmative vote of the holders of not less than four-fifths of the outstanding
MCI shares entitled to vote thereon, voting as a single class, is required in
order to amend the provisions of the MCI Restated Certificate of Incorporation
relating to cumulative voting, bylaw amendments, calling of special meetings of
stockholders and amendments to the MCI Restated Certificate of Incorporation.
Georgia law provides that, unless a corporation's articles of incorporation
provide otherwise, directors may make only certain relatively technical
amendments to a corporation's articles of incorporation. Otherwise, unless
Georgia law, the articles of incorporation, or the corporation's board of
directors requires a greater vote or vote by voting groups, the affirmative vote
of a majority of the votes entitled to be cast on the amendment by each voting
group entitled to vote on the amendment is required to amend a Georgia
corporation's articles of incorporation.
AMENDMENTS TO BYLAWS
Under Delaware law, the power to amend the bylaws of a corporation is
vested in the stockholders, but a corporation in its certificate of
incorporation may also confer such power upon the board of directors. Under the
MCI Restated Certificate of Incorporation, the MCI Board is authorized to amend
the MCI Bylaws, and stockholders may amend the MCI Bylaws only upon the
affirmative vote of the holders of not less than four-fifths of the outstanding
shares entitled to vote.
Georgia law provides that, unless a corporation's articles of
incorporation, applicable law or a particular bylaw approved by the
corporation's shareholders provides otherwise, either the corporation's
directors or its shareholders may amend that corporation's bylaws. The WorldCom
Bylaws allow the directors or shareholders to amend or repeal the WorldCom
Bylaws unless the WorldCom Articles or applicable law reserves the power to
amend or repeal a particular bylaw exclusively to the shareholders or unless the
shareholders, in amending or repealing a particular bylaw, provide expressly
that the directors may not amend or repeal that bylaw.
SPECIAL MEETINGS OF SHAREHOLDERS
Delaware law provides that special meetings of the stockholders of a
corporation may be called by the corporation's board of directors or by such
other persons as may be authorized in the corporation's certificate of
incorporation or bylaws. The MCI Bylaws provide that a special meeting of
stockholders may be called by the Chairman of the Board, a majority of the whole
MCI Board or by stockholders owning at least two-thirds of the issued and
outstanding shares of capital stock of the corporation entitled to vote in the
election of directors.
Georgia law permits the board of directors or any person specified in the
corporation's articles of incorporation or bylaws to call special meetings of
shareholders. Except in the case of a corporation having 100 or fewer
shareholders of record, a special meeting may also be called by holders of
shares representing at least 25% or such greater or lesser percentage of all the
votes entitled to be cast on any issue proposed to be considered at the special
meeting as is designated in the corporation's articles of incorporation or
bylaws. The WorldCom Bylaws provide that a special meeting may be called by the
WorldCom Board, the President of WorldCom or the holders of shares representing
not less than 40% of all the votes entitled to be cast on the issue proposed to
be considered at the proposed special meeting.
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VOTE ON EXTRAORDINARY CORPORATE TRANSACTIONS
Delaware law provides that, unless otherwise specified in a corporation's
certificate of incorporation or unless the provisions of Delaware law relating
to "business combinations" discussed below are applicable, a sale, lease or
exchange of all or substantially all of the corporation's assets, a merger or
consolidation of the corporation with another corporation or a dissolution of
the corporation requires the affirmative vote of the board of directors (except
in certain limited circumstances) plus, with certain exceptions, the affirmative
vote of a majority of the outstanding stock entitled to vote thereon. The
foregoing provisions apply to MCI and its stockholders. In addition, pursuant to
the MCI Restated Certificate of Incorporation, a merger must be approved by the
affirmative vote of the holders of at least a majority of the outstanding shares
of MCI Class A Common Stock, voting as a separate class from the MCI Common
Stock, unless the merger is with the owner of the MCI Class A Common Stock or is
effected after October 1, 1998. In the case of a merger with the owner of the
MCI Class A Common Stock, the merger must be approved by the affirmative vote of
the holders of a majority in voting power of the outstanding shares of the MCI
Class A Common Stock of such stock and the MCI Common Stock, voting as a single
class.
Georgia law is similar to Delaware law in that, except as described below
with respect to "business combinations," a sale or other disposition of all or
substantially all of the corporation's assets, a merger of the corporation with
and into another corporation, a share exchange involving one or more classes or
series of the corporation's shares or a dissolution of the corporation requires
the affirmative vote of the board of directors (except in certain limited
circumstances) plus, with certain exceptions, the affirmative vote of the
holders of a majority of all shares of stock entitled to vote thereon.
RIGHTS OF INSPECTION
The DGCL allows any stockholder, upon written demand under oath stating the
purpose thereof, to have the right during the usual hours for business to
inspect for any proper purpose the corporation's stock ledger, a list of its
stockholders, and its other books and records, and to make copies or extracts
therefrom. A proper purpose means a purpose reasonably related to such person's
interest as a stockholder.
Georgia law permits any shareholder who gives five business days' written
notice to the corporation to have the right to inspect and copy during normal
business hours, at the principal office of the corporation, certain of the
corporation's books and records, including: (i) the articles of incorporation
and the bylaws currently in effect; (ii) all resolutions adopted by shareholders
or the board of directors increasing or decreasing the number of directors, the
classification of directors, if any, and the names and residence addresses of
all members of the board of directors; (iii) resolutions adopted by the board of
directors creating one or more classes or series of shares, and fixing their
relative rights, if any, if shares issued under the resolutions are outstanding;
(iv) resolutions adopted by the board of directors that affect the size of the
board of directors; (v) the minutes of all shareholders' meetings and executed
written consents evidencing all action taken by shareholders without a meeting
for the past three years; (vi) all written communications to shareholders
generally for the past three years, including the annual financial statements
furnished as provided in GBCC Section 14-2-1620; (vii) the names and business
addresses of the corporation's current directors and officers; and (viii) the
most recent annual registration of the corporation filed with the Georgia
Secretary of State. A shareholder is also entitled to receive, upon proper
demand, a copy of the corporation's most recent balance sheet and profit and
loss statement.
Under Georgia law, a shareholder has only a qualified right to inspect
certain other specified records of the corporation, including (i) excerpts from
minutes of any meeting of the board, records of action of a committee of the
board of directors while acting for the board, minutes of meetings of
shareholders, and records of action taken by shareholders or the board of
directors without a meeting, to the extent not subject to inspection under the
mandatory inspection and copying provision; (ii) accounting records of the
corporation; and (iii) the record of shareholders.
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DIVIDENDS
Subject to any restrictions contained in a corporation's certificate of
incorporation, Delaware law generally provides that a corporation may declare
and pay dividends out of "surplus" (defined as the excess, if any, of net assets
(total assets less total liabilities) over capital) or, when no surplus exists,
out of net profits for the fiscal year in which the dividend is declared and/or
the preceding fiscal year, except that dividends may not be paid out of net
profits if the capital of the corporation is less than the amount of capital
represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets. In accordance with the DGCL,
"capital" is determined by the board of directors and shall not be less than the
aggregate par value of the outstanding capital stock of the corporation having
par value. The MCI Restated Certificate of Incorporation and MCI Bylaws do not
restrict the payment of dividends on the MCI Common Stock, unless preferred
stock is outstanding and the dividends thereon have not been paid and unless MCI
shall not have complied with all the requirements, if any, with respect to the
setting aside of sums as sinking funds or redemption or purchase accounts in
respect of preferred stock. Certain agreements of MCI, however, currently
restrict MCI's ability to pay dividends.
Georgia law provides that, subject to any restrictions contained in a
corporation's articles of incorporation, the directors of a corporation may
authorize the payment of dividends to that corporation's shareholders, provided
that no such dividend may be paid if, after giving effect to such payment, (a)
the corporation would be unable to pay its debts as they come due in the usual
course of business or (b) the corporation's total assets would be less than the
sum of its total liabilities (unless the corporation's articles of incorporation
permit otherwise) plus any preferential liquidation amounts payable to
shareholders whose preferential rights on dissolution are superior to those of
the shareholders receiving the dividend. Other than the preferential rights of
the holders of WorldCom preferred stock with respect to dividends, the WorldCom
Articles contain no additional restrictions on the declaration or payment of
dividends.
APPRAISAL RIGHTS OF DISSENTING SHAREHOLDERS
Under Delaware law, a stockholder of a Delaware corporation is generally
entitled to demand appraisal and obtain payment in cash of the judicially
determined fair value of his or her shares in the event of any plan of merger or
consolidation to which the corporation, the shares of which he or she holds, is
a party. However, this right to demand appraisal does not apply to stockholders
if: (1) they are stockholders of the surviving corporation and a vote of the
stockholders of such corporation is not necessary to authorize the merger or
consolidation; or (2) the shares held by the stockholders are of a class or
series registered on a national securities exchange, designated as a national
market system security on an interdealer quotation system by the NASD or are
held of record by more than 2,000 stockholders, in each case, on the record date
set to determine the stockholders entitled to vote on the merger or
consolidation. Notwithstanding the above, appraisal rights are available for the
shares of any class or series of stock of a Delaware corporation if the holders
thereof are required by the terms of an agreement of merger or consolidation to
accept for their stock anything except: (i) shares of stock of the corporation
surviving or resulting from the merger or consolidation; (ii) shares of stock of
any other corporation which at the effective date of the merger or consolidation
will be listed on a national securities exchange, designated as a national
market system security on an interdealer quotation system by the NASD or held of
record by more than 2,000 stockholders; (iii) cash in lieu of fractional shares
of the corporations described in (i) and (ii); or (iv) any combination of the
shares of stock and cash in lieu of fractional shares described in (i), (ii) and
(iii).
A Delaware corporation may provide in its certificate of incorporation that
appraisal rights shall be available for the shares of any class or series of its
stock as the result of an amendment to its certificate of incorporation, any
merger or consolidation to which the corporation is a party, or a sale of all or
substantially all of the assets of the corporation. The MCI Restated Certificate
of Incorporation contains no such provision.
Georgia law provides that shareholders are entitled to dissent from and
obtain payment of the fair value of their shares if shareholders are permitted
to dissent and do dissent from mergers, share exchanges, sales or exchanges of
all or substantially all of the corporation's assets, amendments to the articles
of incorporation that materially and adversely affects certain rights in respect
of a dissenter's shares and certain other actions
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taken pursuant to a shareholder vote to the extent provided for under Article 9
of the GBCC, the articles of incorporation, bylaws or resolution of the board of
directors. However, unless the corporation's articles of incorporation otherwise
provide, appraisal rights are not available: (i) to holders of shares of any
class of shares not entitled to vote on the merger, share exchange or sale or
exchange of all or substantially all of a corporation's assets; (ii) in a sale
of all or substantially all of the property of the corporation pursuant to court
order; (iii) in a sale for cash, where all or substantially all of the net
proceeds will be distributed to the shareholders within one year; or (iv) to
holders of shares which at the record date were either listed on a national
securities exchange or held of record by more than 2,000 shareholders, unless:
(a) in the case of a plan of merger or share exchange, the holders of shares of
the class or series are required under the plan of merger or share exchange to
accept for their shares anything except shares of the surviving corporation or a
publicly held corporation which at the effective date of the merger or share
exchange are either listed on a national securities exchange or held of record
by more than 2,000 shareholders, except for scrip or cash payments in lieu of
fractional shares; or (b) the articles of incorporation or a resolution of the
board of directors approving the transaction provides otherwise. Appraisal
rights under Georgia law differ from appraisal rights under Delaware law in
that, under Georgia law, shareholders have appraisal rights for more types of
transactions than under Delaware law, and unlike the appraisal rights provisions
under Delaware law, under Georgia law, the board of directors may voluntarily
extend appraisal rights to shareholders. WorldCom shareholders are not entitled
to dissenters' or appraisal rights in connection with the MCI/WorldCom Merger.
INDEMNIFICATION AND LIMITATION OF LIABILITY OF DIRECTORS AND OFFICERS;
DIRECTORS' AND OFFICERS' INSURANCE
Delaware law permits a corporation to adopt a provision in its certificate
of incorporation eliminating or limiting the personal liability of a director to
the corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except that such provision shall not limit the liability of
a director for: (i) any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
liability under Section 174 of the DGCL for unlawful payment of dividends or
stock purchases or redemptions or (iv) any transaction from which the director
derived an improper personal benefit. The MCI Restated Certificate of
Incorporation contains a provision eliminating a director's monetary liability
to the full extent permitted by those provisions of Delaware law.
Under Delaware law, a corporation may indemnify any person made a party or
threatened to be made a party to any type of proceeding (other than an action by
or in the right of the corporation) because he or she is or was an officer,
director, employee or agent of the corporation, or was serving at the request of
the corporation as a director, officer, employee or agent of another corporation
or entity, against expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with such proceeding: (1) if he
or she acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the corporation, or (2) in the case
of a criminal proceeding, he or she had no reasonable cause to believe that his
or her conduct was unlawful. A corporation may indemnify any person made a party
or threatened to be made a party to any threatened, pending or completed action
or suit brought by or in the right of the corporation because he or she is or
was an officer, director, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation or other entity, against expenses actually and
reasonably incurred in connection with such action or suit if he or she acted in
good faith and in a manner he or she reasonably believed to be in or not opposed
to the best interests of the corporation, except that there may be no such
indemnification if the person is found liable to the corporation unless, in such
a case, the court determines the person is entitled thereto. A corporation must
indemnify a present or former officer or director against expenses actually and
reasonably incurred by him or her who successfully defends himself or herself in
a proceeding to which he or she was a party because he or she is or was an
officer or director of the corporation. Expenses incurred by an officer or
director (or other employees or agents as deemed appropriate by the board of
directors) in defending a civil or criminal proceeding may be paid by the
corporation in advance of the final disposition of such proceeding, but in the
case of a present officer or director only upon receipt of an undertaking by or
on behalf of such officer or director to repay such amount if it shall
ultimately be determined that he or she is not entitled to be indemnified by the
corporation. The Delaware law indemnification and expense advancement provisions
are
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not exclusive of any other rights which may be granted by the bylaws, a vote of
stockholders or disinterested directors, agreement or otherwise.
MCI has entered into contracts with each of its directors and 28 of its
executive officers requiring MCI to indemnify such persons and to advance
litigation expenses to such persons to the fullest extent permitted by
applicable law.
Pursuant to the MCI/WorldCom Merger Agreement the Surviving Corporation
will maintain in effect in its certificate of incorporation and bylaws (i) for a
period of six years after the Effective Time, the current provisions regarding
elimination of liability of directors and indemnification of officers, directors
and employees contained in the certificate of incorporation and bylaws of MCI
and (ii) for a period of six years, the current policies of directors' and
officers' liability insurance and fiduciary liability insurance maintained by
MCI (provided that the Surviving Corporation may substitute therefor policies of
at least the same coverage and amounts containing terms and conditions which
are, in the aggregate, no less advantageous to the insured) with respect to
claims arising from facts or events that occurred on or before the Effective
Time; provided, however, that in no event will the Surviving Corporation be
required to expend in any one year an amount in excess of 200% of the annual
premiums currently paid by MCI for such insurance; and, provided, further, that
if the annual premiums of such insurance coverage exceed such amount, the
Surviving Corporation will be obligated to obtain a policy with the greatest
coverage available for a cost not exceeding such amount.
Georgia law permits corporations to adopt a provision in their articles of
incorporation eliminating or limiting the personal liability of a director to
the corporation or its shareholders for monetary damages for breach of the
director's duty of care or other duties as directors. Georgia law does not
permit the elimination or limitation of monetary liability in the event of (i)
misappropriation of corporate business opportunities; (ii) intentional
misconduct or knowing violation of the law; (iii) unlawful distributions; or
(iv) improper personal benefit. The WorldCom Articles limit the personal
liability of directors for monetary damages to the fullest extent permissible
under applicable law.
Georgia law permits WorldCom to indemnify any director or officer of
WorldCom for any "liability" (including the obligation to pay a judgment,
settlement, penalty, fine or receivable expenses) that may be incurred in
connection with any threatened, pending or completed civil, criminal,
administrative or investigative action, suit or proceeding (whether brought by
or in the right of WorldCom), in which he or she may become involved by reason
of his or her being or having been a director or officer of WorldCom, provided
that such person acted in a manner he or she believed in good faith to be in or
not opposed to the best interests of WorldCom, and with respect to any criminal
action or proceeding, had no reasonable cause to believe his or her conduct was
unlawful. Except where an individual is successful on the merits or otherwise in
defense of any such action, suit or proceeding, in which case indemnification is
as of right, the determination of whether the director has met the requisite
standard of conduct for indemnification may be made by (i) a majority vote of a
quorum consisting of directors not at that time parties to the suit; (ii) a duly
designated committee of directors; (iii) duly selected special legal counsel; or
(iv) the shareholders, excluding shares owned by or voted under the control of
directors who are at that time parties to the suit. If authorized by the
articles of incorporation or a bylaw, contract, or resolution approved or
ratified by the shareholders, a corporation may indemnify a director made a
party to a proceeding including a proceeding brought by or in the right of the
corporation unless the director is adjudged liable: (1) for any appropriation,
in violation of his or her duties, of any business opportunity of the
corporation; (2) for acts which involve intentional misconduct or a knowing
violation of law; (3) for unlawful distributions; or (4) for any transaction
from which he or she received an improper personal benefit. A corporation may
pay for or reimburse the reasonable expenses incurred by a director who is a
party to a proceeding in advance of final disposition if the director certifies
that he or she has met the standards of conduct under Georgia law and the
director agrees to repay any advances if it is ultimately determined that he or
she is not entitled to indemnification. Under Georgia law, a corporation's
authority to indemnify officers, unlike directors, is restricted only by public
policy. A person who is both an officer and a director is treated, for
indemnification purposes, as a director. The WorldCom Articles and the WorldCom
Bylaws authorize indemnification of its officers and directors to the fullest
extent permitted by Georgia law.
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PREEMPTIVE RIGHTS
Neither Delaware nor Georgia law provides for preemptive rights to acquire
a corporation's unissued stock. However, such right may be expressly granted to
the shareholders in a corporation's certificate or articles of incorporation.
Neither the WorldCom Articles nor the MCI Restated Certificate of Incorporation
provides for preemptive rights, except for certain equity purchase rights
granted to BT as the holder of the MCI Class A Common Stock.
SPECIAL REDEMPTION PROVISIONS
Under the DGCL, a corporation may purchase or redeem, if so provided in the
corporation's certificate of incorporation, shares of any class of its capital
stock, but subject generally to the availability of sufficient lawful funds
therefor and provided that at all times, at the time of any such redemption, the
corporation generally must have outstanding shares of one or more classes or
series of capital stock which have full voting rights that are not subject to
redemption. The MCI Restated Certificate of Incorporation provides that
outstanding shares of stock of MCI held by "Disqualified Holders" are subject to
redemption to the extent necessary, in the judgment of the MCI Board, to prevent
the loss or secure the renewal or reinstatement of any license or franchise from
any governmental agency held by MCI or any of its subsidiaries. The redemption
price will be the average of the daily closing prices on NASDAQ for such a share
for the 20 consecutive trading days commencing on the 22nd trading day prior to
the date on which notice of redemption is given. A "Disqualified Holder" is
defined as any holder of shares of any class or series of stock of MCI whose
continued holding of such stock, either individually or taken together with the
holding of shares of stock of MCI by any other holder or holders of shares of
stock of MCI, may result, in the judgment of the MCI Board, in the loss of, or
the failure to secure the renewal or reinstatement of, any license or franchise
from any governmental agency held by MCI or any of its subsidiaries to conduct
any portion of the business of MCI or any of its subsidiaries. Certain
agreements of MCI also restrict MCI's ability to purchase or redeem shares of
its capital stock.
Under the GBCC, a corporation may acquire its own shares of capital stock,
subject to the requirement that at all times the corporation must have
authorized: (i) at least one or more classes of shares that together have
unlimited voting rights; and (ii) at least one or more classes of shares (which
may be the same class or classes as those with unlimited voting rights) that
together are entitled to receive the net assets of the corporation upon
dissolution. In addition, a corporation's acquisition of its own shares of
capital stock is deemed a "distribution" under Georgia law and, accordingly, is
subject to the restrictions on distributions set forth in the corporation's
articles of incorporation and Section 14-2-640 of the GBCC. The WorldCom
Articles contain provisions permitting WorldCom to redeem shares of its capital
stock from certain foreign shareholders in order to enable it to continue to
hold certain common carrier radio licenses. These provisions are intended to
cause WorldCom to remain in compliance with the Communications Act of 1934, as
amended, and the regulations of the FCC promulgated thereunder. Under these
provisions, at such time as the percentage of capital stock owned by foreign
shareholders or certain affiliates thereof exceeds 20%, WorldCom has the right
to redeem the "excess shares" held by such persons at the fair market value
thereof. Following any determination that such excess shares exist, such excess
shares shall not be deemed outstanding for purposes of determining the vote
required on any matter presented to the shareholders of WorldCom and such excess
shares shall have no right to receive any dividends or other distributions,
including distributions in liquidation. If such shares are traded on a national
securities exchange or in the over-the-counter market, such fair market value is
the average closing price for the 45 trading days immediately preceding the date
of redemption. If such shares are not so traded, such fair market value shall be
established by the WorldCom Board. In the event there is a foreign shareholder
who acquired shares within 120 days of the date of redemption, however, the
redemption price shall not exceed the price per share paid by such shareholder.
At least 30 days' notice of redemption must be given, and the redemption price
may be paid in cash, securities or any combination thereof. WorldCom may require
confirmation of citizenship from any record or beneficial owner of shares of its
capital stock, and from any transferee thereof, as a condition to the
registration or transfer of those shares.
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PREFERRED STOCK PURCHASE RIGHTS
Under the MCI Rights Agreement, each outstanding share of MCI Common Stock
and Class A Common Stock also represents a right that, under certain
circumstances, may trade separately from the MCI and Class A Common Stock. The
rights, which are not currently exercisable, under certain circumstances permit
their holders (other than an acquiror) to purchase at a favorable price a number
of shares of MCI Common Stock or securities of a successor to MCI with the
result that an acquiror's interest in MCI would be substantially diluted. The
terms of the rights are set forth in the MCI Rights Agreement. Prior to entering
into the MCI/WorldCom Merger Agreement, the MCI Rights Agreement was amended to
render it inapplicable to the approval, execution and delivery of the
MCI/WorldCom Merger Agreement and the consummation of the MCI/WorldCom Merger.
For a description of the WorldCom Preferred Stock Purchase Rights, See
"Description of WorldCom Capital Stock -- Preferred Stock Purchase Rights."
STOCKHOLDERS SUITS
Under Delaware law, a stockholder may institute a lawsuit against one or
more directors, either on his own behalf, or derivatively on behalf of the
corporation. An individual stockholder may also commence a lawsuit on behalf of
himself or herself and other similarly situated stockholders when the
requirements for maintaining a class action under Delaware law have been met.
Section 102(b)(7) of the DGCL enables a corporation in its certificate of
incorporation to eliminate or limit, and the MCI Restated Certificate of
Incorporation eliminates, the personal liability of a director to the
corporation and its stockholders for monetary damages for violations of the
director's fiduciary duty, except (i) for any breach of a director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) for liability pursuant to Section 174 of the DGCL (providing for
liability of directors for unlawful payment of dividends or unlawful stock
purchases or redemptions) or (iv) for any transaction from which a director
derived an improper personal benefit.
Under Georgia law, a shareholder may institute a lawsuit against one or
more directors, either on his own behalf, or derivatively on behalf of the
corporation. Georgia law contains a provision allowing a corporation, through a
provision in its articles of incorporation, to limit or eliminate the personal
liability of a director to the corporation or its shareholders for monetary
damages for breach of the duty of care or other duty of a director except in
certain enumerated circumstances. The WorldCom Articles contain such a
provision. No director of WorldCom shall be liable to the corporation or to its
shareholders for monetary damages for breach of duty of care or other duty as a
director, except for liability (i) for any appropriation, in violation of his or
her duties, of any business opportunity of the corporation); (ii) for acts or
omissions which involve intentional misconduct or a knowing violation of law,
(iii) for unlawful distributions as set forth in section 14-2-832 of the GBCC,
or (iv) for any transaction from which a director received an improper personal
benefit.
BUSINESS COMBINATION RESTRICTIONS
In general, Delaware law prevents an "Interested Stockholder" (defined
generally as a person beneficially owning with 15% or more of a corporation's
outstanding voting stock, with the exception of any person who owned and has
continued to own shares in excess of the 15% limitation since December 23, 1987)
from engaging in a "Business Combination" with a Delaware corporation for three
years following the date such person became an Interested Stockholder. The term
"Business Combination" includes mergers or consolidations with an Interested
Stockholder and certain other transactions with an Interested Stockholder,
including, without limitation: (i) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (except proportionately as a stockholder of such
corporation) to or with the Interested Stockholder of assets having an aggregate
market value equal to 10% or more of the aggregate market value of all assets of
the corporation or of certain subsidiaries thereof determined on a consolidated
basis or the aggregate market value of all the outstanding stock of the
corporation; (ii) any transaction which results in the issuance or transfer by
the corporation or by certain subsidiaries thereof of stock of the corporation
or such subsidiary to the Interested Stockholder, except pursuant to certain
transfers in a conversion or exchange or a pro rata distribution to all
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stockholders of the corporation or certain other transactions, none of which
increases the Interested Stockholder's proportionate ownership of any class or
series of the corporation's or such subsidiary's stock; (iii) any transaction
involving the corporation or certain subsidiaries thereof which has the effect,
directly or indirectly, of increasing the proportionate share of the stock of
any class or series, or securities convertible into stock of the corporation or
any subsidiary which is owned by the Interested Stockholder (except as a result
of immaterial changes due to fractional share adjustments or as a result of any
purchase or redemption of any shares of stock not caused directly or indirectly
by the Interested Stockholder); or (iv) any receipt by the Interested
Stockholder of the benefit (except proportionately as a stockholder of such
corporation) of any loans, advances, guarantees, pledges, or other financial
benefits provided by or through the corporation or certain subsidiaries.
The three-year moratorium may be avoided if: (i) before such person became
an Interested Stockholder, the Board of Directors of the corporation approved
either the Business Combination or the transaction in which the Interested
Stockholder became an Interested Stockholder; or (ii) upon consummation of the
transaction which resulted in the stockholder becoming an Interested
Stockholder, the stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced (excluding shares
held by directors who are also officers of the corporation and by employee stock
ownership plans that do not provide employees with the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer); or (iii) on or following the date on which such
person became an Interested Stockholder, the Business Combination is approved by
the Board of Directors of the corporation and authorized at an annual or special
meeting of stockholders (not by written consent) by the affirmative vote of the
stockholders of at least 66 2/3% of the outstanding voting stock of the
corporation not owned by the Interested Stockholder.
The Business Combination restrictions described above do not apply if,
among other things: (i) the corporation's original certificate of incorporation
contains a provision expressly electing not to be governed by the statute; (ii)
the corporation by action by the holders of a majority of the voting stock of
the corporation approve an amendment to its certificate of incorporation or
bylaws expressly electing not to be governed by the statute (effective twelve
(12) months after the amendment's adoption), which amendment shall not be
applicable to any business combination with a person who was an Interested
Stockholder at or prior to the time of the amendment; or (iii) the corporation
does not have a class of voting stock that is (a) listed on a national
securities exchange, (b) authorized for quotation on NASDAQ or a similar
quotation system; or (c) held of record by more than 2,000 stockholders. The
statute also does not apply to certain Business Combinations with an Interested
Stockholder when such combination is proposed after the public announcement of,
and before the consummation or abandonment of, a merger or consolidation, a sale
of 50% or more of the aggregate market value of the assets of the corporation on
a consolidated basis or the aggregate market value of all outstanding shares of
the corporation, or a tender offer for 50% or more of the outstanding voting
shares of the corporation, if the triggering transaction is with or by a person
who either was not an Interested Stockholder during the previous three years or
who became an Interested Stockholder with Board of Director approval, and if the
transaction is approved or not opposed by a majority of the current directors
who were also directors prior to any person becoming an Interested Stockholder
during the previous three years. MCI is subject to the terms of this statute. In
connection with the execution of MCI/WorldCom Merger Agreement, the MCI Board
adopted a resolution to render the statute inapplicable to the MCI/WorldCom
Merger Agreement and the consummation of the MCI/WorldCom Merger.
Under Georgia law, Georgia corporations may adopt a provision in their
bylaws requiring that "Business Combinations" be approved by a special vote of
the board of directors and/or the shareholders unless certain fair pricing
criteria are met. Georgia corporations may also adopt a provision in their
articles of incorporation or bylaws which requires that "Business Combinations"
with "Interested Shareholders" be approved by a supermajority vote. These
provisions, neither of which has been adopted by WorldCom, are described below.
Also described below is the business combination restriction contained in the
WorldCom Articles.
Georgia's "fair price" statute authorizes a corporation to adopt a bylaw
provision which requires special approval by the board of directors and/or
shareholders for "Business Combinations" unless certain "fair price" criteria
are met. Generally, for purposes of this statute, "Business Combination" is
defined to include mergers,
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sales of assets out of the ordinary course of business, liquidations, and
certain issuances of securities involving the corporation and any "Interested
Shareholder." For purposes of this statute, an "Interested Shareholder" is
defined as a person or entity that is the beneficial owner of 10% or more of the
outstanding shares of the corporation's voting stock, or a person or entity that
is an affiliate of the corporation and, at any time within the two-year period
immediately prior to the date in question, was the beneficial owner of 10% or
more of the then outstanding shares of the corporation's voting stock. A
Business Combination with an Interested Shareholder must meet one of three
criteria: (i) the transaction must be unanimously approved by the "Continuing
Directors" (directors who served as directors immediately prior to the date the
Interested Shareholder first became an Interested Shareholder and who are not
affiliates or associates of the Interested Shareholder), provided that the
Continuing Directors constitute at least three members of the board of directors
at the time of such approval; (ii) the transaction must be recommended by at
least two-thirds of the Continuing Directors and approved by a majority of the
votes entitled to be cast by holders of voting shares, excluding shares
beneficially owned by the Interested Shareholder who is, or whose "affiliate"
is, a party to the Business Combination; or (iii) the terms of the transaction
must meet fair pricing criteria and certain other tests intended to assure that
all shareholders receive a fair price and equivalent consideration for their
shares regardless of when they sell to the acquiring party.
Georgia's "business combination" statute authorizes a "resident domestic
corporation" to adopt a bylaw provision which prohibits "Business Combinations"
with "Interested Shareholders" occurring within five years of the date a person
first becomes an Interested Shareholder, unless special approval of the
transaction is obtained. For purposes of this statute, "Business Combination" is
defined to include mergers, sales of 10% or more of the corporation's net
assets, and certain issuances of securities involving the corporation and any
"Interested Shareholder." "Interested Shareholder" has the same definition as
under the Georgia "fair price" statute. With limited exceptions, any Business
Combination with an Interested Shareholder within five years of the date such
person first became an Interested Shareholder requires approval in one of three
ways: (i) prior to such person becoming an Interested Shareholder, the
corporation's board of directors must have approved the Business Combination or
the transaction which resulted in the shareholder becoming an Interested
Shareholder; (ii) the Interested Shareholder acquires at least 90% of the
outstanding voting stock of the corporation (other than shares owned by
officers, directors and their affiliates and associates) in the same transaction
in which such person becomes an Interested Shareholder; or (iii) subsequent to
becoming an Interested Shareholder, such person acquires additional shares
resulting in ownership of at least 90% of the outstanding shares (other than
shares owned by officers, directors and their affiliates and associates), and
obtains the approval of the Business Combination by the holders of a majority of
the remaining shares.
The WorldCom Articles contain a provision that requires the approval by the
holders of at least 70% of the voting power of the outstanding shares of any
class of stock of WorldCom entitled to vote generally in the election of
directors as a condition for Business Transactions (defined below) involving
WorldCom and a Related Person (defined below) or in which a Related Person has
an interest, unless (a) the Business Transaction is approved by at least a
majority of WorldCom's Continuing Directors (defined below) then serving on the
WorldCom Board, but if the votes of such Continuing Directors would have been
insufficient to constitute an act of the WorldCom Board, then such transaction
must have been approved by the unanimous vote of such Continuing Directors so
long as there were at least three such Continuing Directors serving on the
WorldCom Board at the time of such unanimous vote, provided that no such
Continuing Director is a Related Person who has an interest in the Business
Transaction (other than a proportionate interest as a shareholder of WorldCom),
or (b) certain minimum price and procedural requirements are met. A "Business
Transaction" is defined to mean: (i) any merger, share exchange or consolidation
involving WorldCom or any of its subsidiaries; (ii) any sale, lease, exchange,
transfer or other disposition by WorldCom or any of its subsidiaries of more
than 20% of its assets; (iii) any sale, lease, exchange, transfer or disposition
of more than 20% of the assets of an entity to WorldCom or a subsidiary of
WorldCom; (iv) the issuance, sale, exchange, transfer or other disposition by
WorldCom or a subsidiary of WorldCom of any securities of WorldCom or any
subsidiary in exchange for cash, securities or other properties having an
aggregate fair market value of $15.0 million or more; (v) any merger, share
exchange or consolidation between WorldCom and any subsidiary of WorldCom in
which WorldCom is not the survivor and the charter of the surviving corporation
does not contain provisions similar to this provision; (vi) any recapitalization
or reorganization of WorldCom or reclassification of its
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securities which would have the effect of increasing the voting power of a
Related Person; (vii) any liquidation, spin off, split off, split up or
dissolution of WorldCom; and (viii) any agreement, contract or other arrangement
providing for any of the Business Transactions defined or having a similar
purpose or effect. A "Related Person" is defined to mean a beneficial owner
which, together with its Affiliates and Associates (defined below), beneficially
own 10% or more of WorldCom's outstanding voting stock or who had such level of
beneficial ownership: (a) at the time of entering into the definitive agreement
providing for the Business Transaction; (b) at the time of adoption by the
WorldCom Board of a resolution approving such transaction; or (c) as of the
record date for the determination of shareholders entitled to vote on or consent
to the Business Transaction. A "Continuing Director" is a director of WorldCom
who either was a member of the WorldCom Board on September 15, 1993, or who
became a director of WorldCom subsequent to such date and whose election, or
nomination for election by the shareholders, was approved by at least a majority
of the Continuing Directors then on the WorldCom Board. If the votes of such
Continuing Directors would have been insufficient to constitute an act of the
Board of Directors, then such election or nomination must have been approved by
the unanimous vote of the Continuing Directors so long as there were at least
three such Continuing Directors on the WorldCom Board at the time of such
unanimous vote. An "Affiliate" is defined to mean a person that directly, or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control with, such specified person. An "Associate" is defined
to mean: (a) any corporation, partnership or other organization of which such
specified person is an officer or partner; (b) any trust or other estate in
which such specified person has a substantial beneficial interest or as to which
such specified person serves as trustee or in a similar fiduciary capacity; (c)
any relative or spouse of such specified person, or any relative of such spouse,
who has the same home as such specified person or who is a director or officer
of WorldCom or any of its subsidiaries; and (d) any person who is a director,
officer or partner of such specified person or of any corporation (other than
WorldCom or any wholly owned subsidiary of WorldCom), partnership or other
entity which is an Affiliate of such specified person.
DISCLOSURE OF INTERESTS
Acquirors of shares of MCI Common Stock are subject to disclosure
requirements under Section 13(d)(1) of the Exchange Act and Rule 13d-1
thereunder, which provide that any person who becomes the beneficial owner of
more than 5% of the issued and outstanding shares of MCI Common Stock shall,
within 10 days after such acquisition, file a Schedule 13D with the SEC
disclosing certain specified information, and send a copy of the Schedule 13D to
MCI and to the securities exchange on which the security is traded.
After the MCI/WorldCom Merger, acquirors of MCI WorldCom Common Stock will
be required to comply with, among other things, the provisions of Section 13(d)
of the Exchange Act and Rule 13d-1 thereunder.
MARKET PRICES AND DIVIDENDS
Each of WorldCom Common Stock and MCI Common Stock is traded on NASDAQ
under the symbol "WCOM" and "MCIC", respectively. The following table sets forth
the high and low intra-day sales prices per share of such securities as reported
on NASDAQ based on published financial sources, for the periods indicated. No
dividends have been paid on the WorldCom Common Stock. MCI paid cash dividends
of $.025 per share of MCI Common Stock and MCI Class A Common Stock in July and
December of 1995, 1996 and 1997. The per share information presented below and
elsewhere in this Joint Proxy Statement/Prospectus has been adjusted to reflect
all stock splits and stock dividends of WorldCom and MCI.
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<TABLE>
<CAPTION>
WORLDCOM MCI
COMMON STOCK COMMON STOCK
--------------- ---------------
HIGH LOW HIGH LOW
------ ------ ------ ------
<S> <C> <C> <C> <C>
1995:
First Quarter............................................ $13.13 $ 9.56 $21.25 $17.38
Second Quarter........................................... 13.69 11.56 23.13 19.11
Third Quarter............................................ 17.06 13.38 27.13 20.88
Fourth Quarter........................................... 17.94 14.88 27.50 23.75
1996:
First Quarter............................................ 23.31 16.25 31.13 25.63
Second Quarter........................................... 27.72 21.31 30.38 24.88
Third Quarter............................................ 28.88 18.38 28.13 22.38
Fourth Quarter........................................... 26.13 21.00 33.88 23.88
1997:
First Quarter............................................ 27.88 21.75 38.75 32.38
Second Quarter........................................... 32.97 21.25 41.88 35.63
Third Quarter............................................ 37.75 29.88 43.38 27.31
Fourth Quarter (through , 1997)............
</TABLE>
- ---------------
INFORMATION REGARDING MCI
The following is a brief description of the business of MCI. Additional
information regarding MCI is contained in its filings with the SEC pursuant to
the Exchange Act. See "Where You Can Find More Information."
MCI is one of the world's leading providers of communication services and
the second largest carrier of long distance telecommunication services in the
U.S. MCI is the second largest carrier of international long-distance
telecommunication services in the world. MCI provides a broad range of
communications services, including long distance, local and wireless
telecommunications services and information technology services. The provision
of long distance telecommunication services is MCI's core business. Long
distance telecommunication services comprise a wide spectrum of domestic and
international voice and data services, including long distance telephone
services, data communication services, teleconferencing services and electronic
messaging services.
MCI has its principal executive offices at 1801 Pennsylvania Avenue, N.W.,
Washington, D.C. 20006 (telephone number (202) 872-1600).
INFORMATION REGARDING WORLDCOM
The following briefly describes the business and management of WorldCom.
Additional information regarding WorldCom is contained in its filings with the
SEC pursuant to the Exchange Act. See "Where You Can Find More Information."
BUSINESS OF WORLDCOM
WorldCom is one of the largest long distance telecommunications companies
in the United States, serving local, long distance and Internet customers
domestically and internationally. WorldCom provides telecommunications services
to business, government, telecommunications companies and consumer customers,
through its network of fiber optic cables, digital microwave, and fixed and
transportable satellite earth stations.
WorldCom is one of the first major facilities-based telecommunications
companies with the capability to provide businesses with high quality local,
long distance, Internet, data and international communications services over its
global networks. With service to points throughout the nation and the world,
WorldCom
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provides telecommunications products and services including: switched and
dedicated long distance and local products, 800 services, calling cards,
domestic and international private lines, broadband data services, debit cards,
conference calling, advanced billing systems, enhanced fax and data connections,
high speed data communications, facilities management, local access to long
distance companies, local access to ATM-based backbone service and
interconnection via Network Access Points to ISPs. In addition, WorldCom's
subsidiary, UUNET, is an international ISP.
WorldCom's principal executive offices are located at 515 East Amite
Street, Jackson, Mississippi 39201-2702, and its telephone number is (601)
360-8600.
THE COMPUSERVE MERGER
On September 7, 1997, WorldCom entered into an Agreement and Plan of Merger
(the "CompuServe Merger Agreement") with H&R Block, Inc. ("H&R Block"), H&R
Block Group, Inc. ("Block Group"), CompuServe and a wholly owned acquisition
subsidiary of WorldCom, providing for the CompuServe Merger. In the CompuServe
Merger, each share of CompuServe common stock will be converted into a fraction
of a share of WorldCom Common Stock equal to the CompuServe exchange ratio (the
"CompuServe Exchange Ratio"), which will be determined as follows: (i) if the
average trading price (generally based on the average reported closing prices
for a specified twenty day period prior to closing) of a share of WorldCom
Common Stock is greater than or equal to $29.54, the CompuServe Exchange Ratio
will be 0.40625; (ii) if such average trading price is greater than or equal to
$24.00 but less than $29.54, the CompuServe Exchange Ratio will equal a fraction
determined by dividing $12.00 by such average trading price; and (iii) if such
average trading price is less than $24.00, the CompuServe Exchange Ratio will be
0.5, provided that CompuServe has the right to terminate the CompuServe Merger
Agreement if such average trading price is less than $24.00. Based on (i) the
number of shares of CompuServe common stock outstanding as of September 30, 1997
(without adjustment for stock options) and (ii) assumed CompuServe Exchange
Ratios of 0.40625 and 0.5, approximately 37,618,750 shares and 46,300,000
shares, respectively, of WorldCom Common Stock will be issued in the CompuServe
Merger. Consummation of the CompuServe Merger is subject to certain conditions,
including the approval of the stockholders of CompuServe. The applicable waiting
period under the HSR Act has expired. The CompuServe Merger Agreement may be
terminated if the effective time has not occurred on or before March 1, 1998 and
under certain other circumstances. Termination of the CompuServe Merger
Agreement by WorldCom or CompuServe under certain circumstances, including
failure to receive the approval of CompuServe's stockholders, will require one
party to make a $15 million payment to the other party as a termination fee. H&R
Block and Block Group have agreed to vote all of the CompuServe shares directly
or indirectly owned by them (the "Block Shares") in favor of the CompuServe
Merger, which number of shares is sufficient for such approval. In addition, H&R
Block and Block Group have irrevocably appointed WorldCom or its nominee as
proxy to vote the Block Shares at any stockholder meeting or otherwise as
described above, and have granted WorldCom an option to purchase the Block
Shares under certain circumstances. The closing of the CompuServe Merger, which
will be accounted for as a purchase, is expected to occur as soon as practicable
after satisfaction of all the conditions set forth in the CompuServe Merger
Agreement. Neither WorldCom nor MCI assumes any responsibility for the accuracy
of any information contained herein relating to CompuServe.
The CompuServe Merger Agreement includes customary representations and
warranties, and provisions for each of WorldCom, on the one hand, and H&R Block
and CompuServe, on the other hand, to indemnify each other for certain losses
and expenses, subject to specified time limits and minimum accounts.
A copy of the CompuServe Merger Agreement is attached as Exhibit 2.1 to
WorldCom's Form 8-K dated September 7, 1997 (filed September 17, 1997), and
incorporated herein by reference. The foregoing description does not purport to
be complete and is qualified in its entirety by reference to the CompuServe
Merger Agreement.
CompuServe operates primarily through two divisions: Interactive Services
and Network Services. Interactive Services offers worldwide online and Internet
access services for consumers, while Network Services provide worldwide network
access, management and applications, and Internet Service to businesses.
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<PAGE> 127
THE AOL TRANSACTION
On September 7, 1997, WorldCom entered into the AOL Agreement, under which
WorldCom agreed to (a) transfer to AOL the online services businesses (the
"COLS") of CompuServe and Sprynet, a CompuServe subsidiary ("Sprynet"), which
WorldCom will acquire as a result of the CompuServe Merger, and (b) acquire all
outstanding shares of ANS, a wholly owned subsidiary of AOL which provides
Internet and other networking services to AOL and other customers. In addition
to the transfer of the COLS, WorldCom will pay AOL $175 million in cash, subject
to certain adjustments specified in the AOL Agreement. If there should occur a
material adverse change relating to the COLS between the date of the AOL
Agreement and the date of closing thereunder, WorldCom would be required to
compensate AOL in respect thereof, but such event would not affect AOL's
obligation to proceed with the closing. The closing of the AOL Transaction is
conditioned on, and is expected to occur immediately after, the closing of the
CompuServe Merger. The closing of the AOL Transaction, which will be accounted
for as a purchase, is also subject to certain other conditions. The applicable
waiting period under the HSR Act with respect to the AOL Transaction has
expired. Neither WorldCom nor MCI assumes any responsibility for the accuracy of
any information contained herein relating to AOL.
Following the closing under the AOL Agreement, AOL will have rights to use
the CompuServe name in the online services business, and WorldCom will have
rights to use the name in the network services business.
Pursuant to the AOL Agreement, WorldCom, AOL and ANS have agreed to enter
into a Master Agreement for Data Communications upon the closing of the AOL
Transaction, which will have an initial term expiring December 31, 2002, subject
to extension by AOL in certain circumstances. The agreement provides that ANS
will (i) continue to maintain and operate portions of AOL's dial-up member
access network; (ii) install, activate, maintain and operate additional modems
for AOL's dial-up network in the United States and Canada; and (iii) provide AOL
with Internet access. AOL will commit to purchase from ANS specified percentages
of its incremental modem requirements each year, subject to ANS fulfilling
certain obligations. The fees for the foregoing services will be based on
several factors, including certain fixed base prices, the prices offered by ANS
to its non-affiliated customers, prices paid by AOL to, or offered to AOL by,
other significant suppliers of modems and modem services, and, if AOL provides
such services to itself, AOL's cost. The fees are subject to adjustment twice
per year and include certain agreed-upon discounts.
The AOL Agreement also provides that AOL, UUNET and the surviving
corporation of the CompuServe Merger will enter into a Network Services
Agreement upon the closing of the AOL Transaction, which will have an initial
term expiring December 31, 2002, subject to extension by AOL in certain
circumstances. Under this agreement, such surviving corporation will provide AOL
with capacity on the CompuServe network, and AOL will commit to use the network
for specified portions of its requirements. The fees to be paid by AOL will be
based on several factors, including certain fixed base prices, the prices
offered to AOL by other significant suppliers of network capacity, and such
surviving corporation's actual cost to provide the network capacity.
The AOL Agreement provides that, if so requested at least five business
days before the closing of the AOL Transaction, WorldCom will cause Stephen M.
Case, Chairman of the Board, Chief Executive Officer and President of AOL, to be
appointed to the WorldCom Board. See "Directors and Management of MCI WorldCom
Following the MCI/WorldCom Merger."
The AOL Agreement includes customary representations and warranties, and
provisions for each of AOL and WorldCom to indemnify the other for certain
losses and expenses, subject to specified time limits and minimum amounts.
Representations and warranties by WorldCom include certain representations and
warranties relating to the COLS, a number of which are incorporated by reference
from the CompuServe Merger Agreement. WorldCom anticipates that, if AOL were to
successfully assert a claim for indemnification based on any provision
incorporated by reference from the CompuServe Merger Agreement. WorldCom would
be entitled to assert a corresponding claim against H&R Block or Block Group
under the CompuServe Merger Agreement. However, since the AOL Agreement and the
CompuServe Merger Agreement are separate, and since any liability of WorldCom
under the AOL Agreement is not conditioned on its ability to
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<PAGE> 128
recover in respect of claims which may be asserted under the CompuServe Merger
Agreement, there can be no assurance that amounts recovered by WorldCom in
respect of any claim related to COLS would equal any amounts which WorldCom
might be required to pay to AOL in respect of the same claim.
At the closing under the AOL Agreement, WorldCom, AOL and ANS will enter
into a Noncompetition and Nonsolicitation Agreement under which (1) AOL will
agree to certain limitations on its business activities in the network service
business, (2) WorldCom will agree that CompuServe will be subject to certain
limitations in the online services business and (3) each of the parties will
agree to certain restrictions on its right to solicit or otherwise deal with
customers, suppliers, employees, independent contractors, agents or
representatives of the other.
Under a Stockholders Agreement, by and among H&R Block, Block Group and
WorldCom, WorldCom has been granted an option to acquire the Block Shares under
certain circumstances. The AOL Agreement provides that if WorldCom becomes
entitled to exercise the option, WorldCom and AOL will negotiate with each other
in good faith, for so long as the option remains exercisable and, if the option
is exercised by WorldCom, for 180 days following such exercise, with the goal of
entering into agreements and arrangements and engaging in transactions which
would, as closely as would be commercially reasonable at that time and in
accordance with applicable law and taking into account the changed facts and
circumstances as they exist at that time), effectuate the intent and purposes of
the AOL Agreement and the transactions contemplated thereby.
The AOL Agreement may be terminated by either WorldCom or AOL under certain
circumstances, including certain defaults by the other party. Depending on the
reason for termination, either WorldCom or AOL may be required to pay $15
million to the other as a reimbursement of expenses. In addition, in the event
H&R Block, Block Group or CompuServe pays WorldCom the $15 million termination
fee required under certain circumstances by the CompuServe Merger Agreement,
WorldCom is obligated under the AOL Agreement to pay AOL one-half of such fee.
ANS provides Internet access to AOL and AOL's subscribers in the United
States and Canada and also designs, develops and operates high performance
wide-area networks for business, research, education and governmental
organizations.
A copy of the AOL Agreement is attached as Exhibit 2.4 to WorldCom's Form
8-K dated September 7, 1997 (filed September 17, 1997), and incorporated hereby
by reference. The foregoing description does not purport to be complete and is
qualified in its entirety by reference to the AOL Agreement.
THE BFP MERGER
WorldCom entered into an Amended and Restated Agreement and Plan of Merger
dated as of October 1, 1997 (the "BFP Merger Agreement") with BFP and a wholly
owned acquisition subsidiary of WorldCom, providing for the BFP Merger. In the
BFP Merger, each share of BFP common stock will be converted into a fraction of
a share of WorldCom Common Stock equal to the BFP Exchange Ratio. The BFP
Exchange Ratio will be determined as follows: (i) if the average trading price
(generally based on the average reported closing prices for a specified
twenty-day period prior to closing) of a share of WorldCom Common Stock greater
than or equal to $35.15, the BFP Exchange Ratio will equal 1.65 (ii) if such
average trading price is greater than or equal to $31.35 but less than $35.15,
the BFP Exchange Ratio will equal a fraction determined by dividing $58.00 by
such average trading prices; and (iii) if such average trading price is less
than $31.35, the BFP Exchange Ratio will equal 1.85. Based on (i) BFP common
stock outstanding as of November 7, 1997 and (ii) assumed BFP Exchange Ratios of
1.65 and 1.85, approximately 64,194,214 shares and 71,980,937 shares,
respectively, of WorldCom Common Stock will be issued in the BFP Merger (the
"BFP Exchange Ratio"). In addition, outstanding warrants and options to purchase
shares of BFP common stock would be converted in the BFP Merger to warrants and
options to acquire an aggregate of approximately 4,928,158 shares and 5,525,510
shares, respectively, of WorldCom Common Stock, and the exercise price would be
adjusted to reflect the BFP Exchange Ratio, so that, on exercise, the holders
would receive, in the aggregate, the same number of shares of WorldCom Common
Stock as if they had exercised prior to the BFP Merger, at the same aggregate
exercise price. The BFP Merger has been structured to qualify as a pooling of
interests.
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<PAGE> 129
Consummation of the BFP Merger is subject to the fulfillment of a number of
conditions, including the expiration or termination of any applicable waiting
period under the HSR Act, the receipt of other required regulatory approvals and
the absence of certain material adverse changes. Consummation of the BFP Merger
is also subject to the approval and adoption of the BFP Merger Agreement by the
stockholders of BFP. The BFP Merger Agreement may be terminated if the effective
time has not occurred on or before March 31, 1998 and under certain other
circumstances. Termination of the BFP Merger Agreement by WorldCom or BFP under
certain circumstances will require one party to make a $40 million payment to
the other party. Each of BFP's directors has agreed to vote his or her
beneficially owned shares of BFP stock in favor of the BFP Merger Agreement. The
closing of the BFP Merger is expected to occur as soon as practicable after
satisfaction of all the conditions set forth in the BFP Merger Agreement, but
not before January 2, 1998. Neither WorldCom nor MCI assumes any responsibility
for the accuracy of any information contained herein related to BFP.
The following information concerning BFP has been prepared on the basis of
information filed by BFP with the SEC.
BFP, founded in November 1993, is a leading facilities-based provider of
competitive local telecommunications services, commonly referred to as a
competitive local exchange carrier ("CLEC"), in selected cities within the
United States. BFP acquires and constructs its own state-of-the-art fiber optic
networks and facilities and leases network capacity from others to provide long
distance carriers ("IXCs"), ISPs, wireless carriers and business, government and
institutional end users with an alternative to the ILECs for a broad array of
high quality voice, data, video transport and other telecommunications services.
BFP has assembled an experienced management, sales and operations team with
extensive experience and strong contacts within the telecommunications industry.
BFP's goal is to become the primary full-service provider of competitive
local telecommunications services to its customers in selected cities by
offering superior products with excellent customer service at prices below those
charged by the ILECs. The principal elements of BFP's strategy include targeting
selected U.S. markets with an emphasis on second- and third-tier markets,
aggressively pursuing switched services opportunities, further building out its
existing systems and expanding its service offerings. BFP currently has networks
in operation or under construction in a total of 44 U.S. cities, and plans to
have networks in a total of 50 cities by the end of 1998. As of September 30,
1997, BFP had a total of 28 digital telephone switches installed serving a total
of 33 of its operating networks, collocation in a total of 121 ILEC central
offices and a total of 2,177 route miles of optical fiber cable installed,
1,041,275 voice grade equivalent ("VGE") circuits in service, 80,019 CLEC lines
installed and 1,667 on-net and 2,202 off-net buildings connected. BFP's
annualized revenues, based on the revenues for the quarter ended September 30,
1997, are $143.1 million, as compared with total revenues in 1996, 1995 and
1994, BFP's first full year of operation, of $45.6 million, $14.2 million and
$2.8 million, respectively.
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MANAGEMENT AND PRINCIPAL SHAREHOLDERS
Information about Directors and Executive Officers
The directors and executive officers of WorldCom are: Carl J. Aycock
(Director), Max E. Bobbitt (Director), Bernard J. Ebbers (Director, Chairman,
President and Chief Executive Officer), Francesco Galesi (Director), Richard B.
Jaros (Director), Stiles A. Kellett, Jr. (Director), David C. McCourt
(Director), John A. Porter (Director), John W. Sidgmore (Director, Vice Chairman
of the Board and Chief Operations Officer), Scott D. Sullivan (Director, Chief
Financial Officer and Secretary) and Lawrence C. Tucker (Director). In September
1997, Mr. McCourt become Chairman and Chief Executive Officer of the Cable
Michigan, Inc., a cable television company, Chairman and Chief Executive Officer
of RCN Corporation, a telecommunications company, and Chairman of the Board and
Chief Executive Officer of Commonwealth Telephone Enterprises, Inc. (formerly
known as C-TEC Corporation), a telecommunications company.
The Audit Committee of the WorldCom Board consists of Max E. Bobbitt
(Chairman), Francesco Galesi, David C. McCourt and Richard R. Jaros. The
Compensation and Stock Option Committee of the WorldCom Board consists of Stiles
A. Kellett, Jr. (Chairman), Max E. Bobbitt and Lawrence C. Tucker. The
Nominating Committee of the WorldCom Board of Directors consists of John A.
Porter (Chairman), Carl J. Aycock and Richard R. Jaros.
WorldCom anticipates that Mr. Ebbers and Mr. Sullivan will receive payments
of $13.0 million and $3.5 million, respectively, in the fourth quarter of 1997
pursuant to the WorldCom Performance Bonus Plan approved by WorldCom
shareholders on May 22, 1997.
Security Ownership and Management and Principal Shareholders
As of November 5, 1997, the following persons, individually or as a group,
were known to WorldCom to be deemed to be the beneficial owners of more than
five percent of the issued and outstanding WorldCom Common Stock, each of which
persons has sole voting and investment power over such WorldCom Common Stock,
except as set forth in the footnotes hereto:
<TABLE>
<CAPTION>
AMOUNT AND
NAME AND ADDRESS OF NATURE OF EXISTING PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OF CLASS(1)
---------------------------------------------------- ----------------------- -----------
<S> <C> <C>
FMR Corp. .......................................... 70,566,021(2) 7.7%
82 Devonshire Street
Boston, Massachusetts 02104
</TABLE>
- ---------------
(1) Based upon 908,380,987 shares of WorldCom Common Stock issued and
outstanding plus, as to the holder thereof only, exercise or conversion of
all derivative securities that are exercisable or convertible currently or
within 60 days after November 5, 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 to various non-United States investment companies.
The number of shares beneficially owned by Fidelity includes 4,301,357
shares issuable upon conversion of WorldCom Series A Preferred Stock. The
number of shares beneficially owned by Fidelity Management Trust Company
includes 267,839 shares issuable upon conversion of WorldCom Series A
Preferred
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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 WorldCom, 7,791 shares, or approximately 8.2%, of the
94,992 outstanding shares of WorldCom Series A Preferred Stock are beneficially
owned by Salomon, a wholly owned subsidiary of Salomon Brothers Holding Company
which is in turn a wholly owned subsidiary of Salomon. The principal address of
Salomon is Seven World Trade Center, New York, New York 10048. As of November 5,
1997, the 7,791 outstanding shares of WorldCom Series A Preferred Stock owned by
Salomon were convertible into 2,682,238 shares of WorldCom Common Stock,
representing less than one percent of the outstanding WorldCom Common Stock.
The following table sets forth the beneficial ownership of WorldCom Common
Stock and WorldCom Series B Preferred Stock, as of November 5, 1997, by each
director, the named executive officers and by all persons, as a group, who are
currently directors and executive officers of WorldCom. No person listed on the
following table is the beneficial owner of any shares of WorldCom Series A
Preferred Stock. Each director or executive officer has sole voting and
investment power over the shares listed opposite his name except as set forth in
the footnotes hereto.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) PERCENT OF CLASS(L)
- -------------------------------------------------------- --------------------- -------------------
<S> <C> <C>
Carl J. Aycock.......................................... 709,438(2) *
Max E. Bobbitt.......................................... 156,292(3) *
Bernard J. Ebbers....................................... 16,919,993(4) 1.9%
Francesco Galesi........................................ 3,522,108(5) *
Richard R. Jaros........................................ 781,536(6) *
Stiles A. Kellett, Jr................................... 3,507,176(7) *
David C. McCourt........................................ 824,423(8) *
John A. Porter.......................................... 4,668,053(9) *
John W. Sidgmore........................................ 3,471,350(10) *
Scott D. Sullivan....................................... 436,904(11) *
Lawrence C. Tucker...................................... 3,170,096(12) *
All Directors and Current Executive Officers as a Group
(11 persons).......................................... 38,167,369(13) 4.2%
</TABLE>
- ---------------
* Less than one percent.
(1) Based upon 908,380,987 shares of WorldCom Common Stock issued and
outstanding plus, as to the holder thereof only, exercise or conversion of
all derivative securities that are exercisable or convertible currently or
within 60 days after November 5, 1997.
(2) Includes 5,576 shares owned by Mr. Aycock's spouse; 73,048 shares
purchasable upon exercise of options; and 3,312 shares held as custodian
for children.
(3) Includes 38,512 shares purchasable upon exercise of options; and 117,780
shares as to which Mr. Bobbitt shares voting and investment power with his
spouse.
(4) Includes 36,432 shares held as custodian for children; 2,875,696 shares
purchasable upon exercise of options; and 855,448 shares owned by Mr.
Ebbers' spouse, as to which Mr. Ebbers shares voting and investment power.
(5) Consists of 3,483,596 shares owned by Rotterdam Ventures, Inc., of which
Mr. Galesi is sole shareholder; and 38,512 shares purchasable upon exercise
of options.
(6) Includes 6,449 shares issuable upon conversion of WorldCom Series B
Preferred Stock; 5,000 shares purchasable upon exercise of options; and
15,930 shares held as custodian for Mr. Jaros' children, as to which Mr.
Jaros disclaims beneficial ownership.
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(7) Includes 16,000 shares owned by Mr. Kellett's spouse; 860 shares held as
custodian for minor daughter; 400,000 shares owned by a family partnership;
and 90,316 shares purchasable upon exercise of options.
(8) Includes 95 shares issuable upon conversion of WorldCom Series B Preferred
Stock; and 5,000 shares purchasable upon exercise of options.
(9) Includes 167,578 shares held as custodian or trustee for minor children;
73,048 shares purchasable upon exercise of options; 218,000 shares owned by
Mr. Porter's spouse, as to which beneficial ownership is disclaimed; 85,812
shares held in trust for son of majority age, as to which beneficial
ownership is also disclaimed; 5,700 shares held in a trust of which Mr.
Porter is trustee with sole voting and dispositive power; and 3,250 shares
held in trust for employees of Mr. Porter.
(10) Includes 368,704 shares purchasable upon exercise of options; and 13,884
shares held in a trust of which Mr. Sidgmore is sole trustee with sole
voting and dispositive power.
(11) Includes 433,333 shares purchasable upon exercise of options.
(12) A total of 3,131,828 of these shares are beneficially owned by The 1818
Fund, L.P., and The 1818 Fund II, L.P. (collectively, "The 1818 Funds").
Mr. Tucker is the general and managing partner of The 1818 Funds and Mr.
Tucker, as a general partner of Brown Brothers Harriman & Co., shares
voting and investment power with respect to such securities. Also includes
38,268 shares purchasable upon exercise of options.
(13) Includes 4,045,981 shares purchasable upon exercise of options or
conversion of WorldCom Series B Preferred Stock.
PROPOSED AMENDMENT OF THE WORLDCOM ARTICLES
The WorldCom Board has proposed an amendment to the WorldCom Articles
(previously defined as the "Charter Amendment") and, pursuant to the
MCI/WorldCom Merger Agreement, directed that the Charter Amendment be submitted
to the shareholders of WorldCom for approval. The Charter Amendment would change
the name of WorldCom to "MCI WorldCom, Inc." from "WorldCom, Inc." Approval of
the Charter Amendment by the WorldCom shareholders is not a condition precedent
to the consummation of the MCI/WorldCom Merger.
The full text of the proposed resolution and Charter Amendment is as
follows:
"RESOLVED, that Article One of the Second Amended and Restated
Articles of Incorporation of WorldCom be amended by deleting said Article
One in its entirety and substituting in lieu thereof a new Article One that
reads as follows:
'Article One. The name of this corporation is MCI WorldCom, Inc. This
corporation is referred to hereinafter as the "Corporation".' "
If approved by the shareholders at the WorldCom Special Meeting, the
Charter Amendment will become effective upon the filing of an amendment to the
WorldCom Articles with the Georgia Secretary of State.
The change in corporate name will not affect the validity or
transferability of stock certificates presently outstanding and WorldCom's
shareholders will not be required to exchange any certificates presently held by
them.
The WorldCom Board has deemed it advisable and in the best interests of
WorldCom to amend Article One of the WorldCom Articles to change the name of
WorldCom. Approval of the Charter Amendment requires the affirmative vote of the
holders of a majority of the votes entitled to be cast on the Charter Amendment,
voting as a single class. Consequently, any shares not voted on the Charter
Amendment (whether by abstention or broker non-votes) will have the same effect
as votes against such Charter Amendment.
THE WORLDCOM BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
APPROVAL OF THE CHARTER AMENDMENT.
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<PAGE> 133
OWNERSHIP OF MCI CAPITAL STOCK
DIRECTORS, MANAGEMENT AND PRINCIPAL STOCKHOLDERS
Information about Directors and Executive Officers
The directors and executive officers of MCI are: Clifford L. Alexander, Jr.
(Director), Judith Areen (Director), Michael H. Bader (Director), Sir Peter L.
Bonfield (Director), Richard M. Jones (Director), Gordon S. Macklin (Director),
Douglas L. Maine (Executive Vice President and Chief Financial Officer), Timothy
F. Price (President and Chief Operating Officer), Bert C. Roberts, Jr.
(Director, Chairman), Michael J. Rowny (Executive Vice President), Richard B.
Sayford (Director), Gerald H. Taylor (Director, Chief Executive Officer), Judith
Whittaker (Director), John R. Worthington (Director).
Security Ownership of Directors, Management and Principal Stockholders
As of September 30, 1997, the following persons, individually or as a
group, were known to MCI to be deemed to be the beneficial owners of more than
five percent of the issued and outstanding MCI Common Stock or MCI Class A
Common Stock. Other than as set forth in the table below, there are no persons
known to MCI to beneficially own more than 5% of MCI Common Stock or MCI Class A
Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND
NAME AND ADDRESS OF NATURE OF EXISTING PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
---------------------------------------------------------- -------------------- --------
<S> <C> <C>
British Telecommunications plc............................ 135,998,932(1) 100%
81 Newgate Street
London, U.K.
</TABLE>
- ---------------
(1) BT has sole voting and investment power with respect to all MCI Class A
Common Stock. BT has agreed, pursuant to the BT Agreement, to exchange all
of its MCI Class A Common Stock for $51 in cash from WorldCom.
The following table sets forth certain information regarding the beneficial
ownership of MCI Common Stock as of September 30, 1997, assuming the exercise of
all options exercisable on, or within 60 days of, such date, by the directors,
the named executive officers and all executive officers and directors as a
group. Each director or executive officer has sole voting and investment power
over the shares listed opposite his name except as set forth in the footnotes
hereto.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OF CLASS
------------------------------------------------------- --------------------- --------
<S> <C> <C>
Clifford L. Alexander, Jr.............................. 46,000(2) *
Judith Areen........................................... 23,000 *
Michael H. Bader....................................... 426,074(3) *
Sir Peter L. Bonfield.................................. 350(4) *
Richard M. Jones....................................... 50,000(5) *
Gordon S. Macklin...................................... 64,000(6) *
Douglas L. Maine....................................... 451,811(7) *
Timothy F. Price....................................... 452,109(8) *
Bert C. Roberts, Jr.................................... 1,876,756(9) *
Michael J. Rowny....................................... 242,472(10) *
Richard B. Sayford..................................... 60,990(11) *
Gerald H. Taylor....................................... 900,604(12) *
Judith Whittaker....................................... 61,000(13) *
John R. Worthington.................................... 285,259(14) *
All Directors and Current Officers as a Group(15)...... 6,298,388(16) 1.1%
</TABLE>
- ---------------
* Less than one percent.
(1) Unless otherwise noted, each person has sole voting power and sole
investment power with respect to the securities reported, except with
respect to shares of MCI Common Stock allocated to accounts under
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MCI's Employee Stock Ownership and 401(k) Plan ("ESOP"), with respect to which
shares such person has sole voting power only. Where indicated, the data also
include shares which each person had the right to acquire upon exercise of stock
options within sixty days of September 30, 1997, and also shares issued as
awards of MCI Restricted Shares and/or ISUs. As of September 30, 1997, no
individual officer or director beneficially owned more than 1% of the
outstanding shares of any class of MCI's capital stock.
(2) Includes 40,000 shares of MCI Common Stock Mr. Alexander has the right to
acquire pursuant to the exercise of stock options. Mr. Alexander shares
voting and investment power with respect to all shares other than those
which he has the right to acquire pursuant to the exercise of such stock
options.
(3) Includes 40,000 shares of MCI Common Stock Mr. Bader has the right to
acquire pursuant to the exercise of stock options. Mr. Bader shares voting
and investment power with respect to all shares other than those which he
has the right to acquire pursuant to the exercise of such stock option. Mr.
Bader is one of seven trustees for the William G. McGowan Charitable Fund,
Inc.; he does not, however, have voting or investment power over any of the
shares of MCI Common Stock held by such Fund.
(4) Sir Peter Bonfield is an executive officer and director of BT, the holder
of all the outstanding MCI Class A Common Stock and 732,499 shares of MCI
Common Stock.
(5) Includes 30,000 shares of MCI Common Stock Mr. Jones has the right to
acquire pursuant to the exercise of stock options.
(6) Includes 40,000 shares of MCI Common Stock Mr. Macklin has the right to
acquire pursuant to the exercise of stock options. Does not include 3,200
shares of MCI Common Stock owned solely by Mr. Macklin's wife, in which
shares he disclaims beneficial ownership.
(7) Includes 14,133 shares of MCI Common Stock allocated to Mr. Maine's ESOP
account, 363,300 shares of MCI Common Stock he has the right to acquire
pursuant to the exercise of stock options and 58,557 shares of MCI Common
Stock issued as ISUs. Does not include 1,700 shares of MCI Common Stock
held by Mr. Maine's wife as custodian for the benefit of a minor child, in
which MCI shares Mr. Maine disclaims beneficial ownership.
(8) Includes 14,882 shares of MCI Common Stock allocated to Mr. Price's ESOP
account, 237,470 shares of MCI Common Stock he has the right to acquire
pursuant to the exercise of stock options and 154,368 shares of MCI Common
Stock issued as ISUs. Does not include 1,000 shares of MCI Common Stock
held by Mr. Price's wife as custodian for the benefit of their minor
children, in which shares Mr. Price disclaims beneficial ownership.
(9) Includes 45,992 shares of MCI Common Stock allocated to Mr. Roberts' ESOP
account, 1,218,400 shares of MCI Common Stock he has the right to acquire
pursuant to the exercise of stock options, 268,936 shares of MCI Common
Stock issued as restricted stock awards, 44,828 shares of MCI Common Stock
issued as ISUs, 122,400 shares of MCI Common Stock owned by a limited
partnership in which Mr. Roberts is a general partner, and 13,000 shares of
MCI Common Stock owned by the Roberts' Foundation. Does not include 12,000
shares of MCI Common Stock held by Mr. Roberts' wife as custodian for the
benefit of their minor child, in which shares Mr. Roberts disclaims
beneficial ownership.
(10) Includes 1,079 shares of MCI Common Stock allocated to Mr. Rowny's ESOP
account, 152,600 shares of MCI Common Stock he has the right to acquire
pursuant to the exercise of stock options and 83,345 shares of MCI Common
Stock issued as ISUs.
(11) Includes 40,000 shares of MCI Common Stock Mr. Sayford has the right to
acquire pursuant to the exercise of stock options. Does not include 800
shares of MCI Common Stock owned solely by Mr. Sayford's wife, in which
shares he disclaims beneficial ownership.
(12) Includes 36,230 shares of MCI Common Stock allocated to Mr. Taylor's ESOP
account, 563,070 shares of MCI Common Stock he has the right to acquire
pursuant to the exercise of stock options, and 230,037 shares of MCI Common
Stock issued as ISUs.
(13) Includes 40,000 shares of MCI Common Stock Ms. Whittaker has the right to
acquire pursuant to the exercise of stock options.
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(14) Includes 10,000 shares of MCI Common Stock Mr. Worthington has the right to
acquire pursuant to the exercise of stock options. Does not include 147,890
shares of MCI Common Stock owned solely by Mr. Worthington's wife, in which
shares he disclaims beneficial ownership.
(15) This group includes MCI executive officers, as such term is defined in Rule
3b-7 of the Exchange Act, and its directors, a total of 19 persons.
(16) Includes 143,975 shares of MCI Common Stock allocated to such officers'
accounts under the ESOP, 3,691,970 shares of MCI Common Stock that officers
and directors have the right to acquire pursuant to the exercise of stock
options and 1,125,736 shares of MCI Common Stock issued to officers
pursuant to restricted stock awards and/or ISUs. Officers and directors
have shared voting and investment power with respect to 392,074 of these
shares of MCI Common Stock.
CERTAIN LITIGATION
On November 4, 1996, and thereafter, and on August 25, 1997, and
thereafter, MCI, and all of its directors, including the two directors who are
also executive officers of the company and the three directors elected by BT,
were named as defendants in a total of 15 complaints filed in the Court of
Chancery in the State of Delaware. BT was named as a defendant in thirteen of
the complaints. In addition, amended or revised complaints were filed in four of
the cases commenced in or about November 1996 and in one of the cases filed in
or about August 1997. The complaints were brought by alleged stockholders of
MCI, individually and purportedly as class actions on behalf of all other
stockholders of MCI. Generally these complaints allege breach of fiduciary duty
by the MCI Board in connection with the BT/MCI Merger Agreement. Seven of the
complaints in which BT was named as a defendant allege that BT aided and abetted
those breaches of fiduciary duty. Five of the complaints in which BT was named
as a defendant allege that BT owes fiduciary duties to other MCI stockholders
and breached those duties in connection with the BT Merger Agreement. They seek,
inter alia, damages and injunctive and other relief.
On or about October 8, 1997, a purported derivative action was filed in
Delaware Chancery Court on behalf of MCI against the MCI Board, including the
two directors who are also executive officers and the three directors elected by
BT. BT and Tadworth Corporation were also named as defendants, and the company
was named as a nominal defendant. Generally, the complaint alleges that the MCI
Board breached duties owed to shareholders in connection with the BT Merger
Agreement and the WorldCom exchange offer. The complaint seeks damages,
injunctive relief, and other relief.
On November 14, 1997, plaintiffs' counsel and defendants' counsel in the
Delaware actions held a conference with the Court of Chancery, at which
plaintiff sought an injunction requiring plaintiffs' representatives to
participate in any further negotiations. Plaintiffs' counsel also sought
expedited treatment and the setting of an early trial date with respect to their
challenge to the inducement fee to be paid to BT under the BT Merger Agreement
and the different form of consideration payable to BT contemplated by the
MCI/WorldCom Merger Agreement. Citing the absence of immediate and irreparable
injury, the Court denied plaintiffs' request for injunctive relief and expedited
treatment, and declined to set an early trial date. Plaintiffs indicated that
they would be amending their complaints and joining additional parties as
defendants.
On or about November 14, 1997, one of the purported shareholder class
actions pending in Delaware Chancery Court was amended. On November 19, 1997,
plaintiffs in four of the purported shareholder class actions moved to amend
their complaints. The amended complaint and proposed amended complaints name as
defendants MCI, the MCI Board, WorldCom, BT and TC Investments Corp. They
generally allege that the defendants breached their fiduciary duty to
shareholders in connection with the MCI/WorldCom Merger, the agreement to pay a
termination fee to WorldCom, and alleged discrimination in favor of BT in
connection with the MCI/WorldCom Merger. They seek, inter alia, damages and
injunctive relief prohibiting the consummation of the MCI/WorldCom Merger and
the payment of the inducement fee to BT.
On August 28, 1997, a complaint was filed in the federal district court in
Washington D.C., by an alleged stockholder of MCI, individually and putatively
as a class action on behalf of purchasers of the MCI's shares during the period
from August 14, 1997, through August 20, 1997. On or about October 27, 1997,
another
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<PAGE> 136
complaint was filed in the federal district court in Washington D.C. by two
alleged stockholders of MCI, individually and putatively as a class action on
behalf of purchasers of MCI Common Stock during the period from August 14, 1997,
through August 22, 1997. On or about October 31, 1997, another complaint was
filed in the federal district court in Washington D.C. by an alleged stockholder
of MCI, individually and putatively as a class action on behalf of purchasers of
MCI Common Stock during the period from July 10, 1997, through August 22, 1997.
The three complaints allege that MCI and certain of its officers and directors
failed to disclose material information about MCI, including that MCI was
renegotiating the terms of the BT Merger Agreement dated November 3, 1996. The
complaints seek damages and other relief.
MCI believes that all of these complaints are without merit.
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LEGAL MATTERS
Certain tax matters with respect to the MCI/WorldCom Merger will be passed
upon for WorldCom by Cravath, Swaine & Moore. Certain legal matters in
connection with the MCI/WorldCom Merger will be passed upon for MCI by Simpson
Thacher & Bartlett (a partnership which includes professional corporations) New
York, New York.
EXPERTS
The consolidated financial statements and schedule of WorldCom as of
December 31, 1996, and 1995, and for each of the years in the three-year period
ended December 31, 1996, have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included in WorldCom's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, and are incorporated herein by reference, in reliance upon
the authority of such firm as experts in accounting and auditing in giving said
reports.
The consolidated financial statements and schedule of MFS as of December
31, 1996, and for the period then ended (See Note 1 to the MFS Form 10-K), and
for the year ended December 31, 1996, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included in the MFS Annual Report on Form 10-K for the fiscal
year ended December 31, 1996, and are incorporated herein by reference, in
reliance upon the authority of such firm as experts in accounting and auditing
in giving said reports.
The consolidated financial statements of MFS as of December 31, 1995, and
1994 and for each of the three years in the period ended December 31, 1995,
included in WorldCom's Current Report on Form 8-K/A dated August 25, 1996 (filed
November 4, 1996), and incorporated by reference into this registration
statement and the consolidated financial statements of MFS as of December 31,
1995, and for the two years in the period ended December 31, 1995, included in
the MFS Annual Report on Form 10-K for the fiscal year ended December 31, 1996,
and incorporated by reference in this registration statement, have been
incorporated in reliance on the report of Coopers & Lybrand L.L.P., independent
accountants, given upon the authority of that firm as experts in accounting and
auditing.
The consolidated financial statements of UUNET as of December 31, 1995, and
1994 and for each of the three years in the period ended December 31, 1995,
included in WorldCom's Current Report on Form 8-K/A dated August 25, 1996 (filed
November 4, 1996), and incorporated by reference into this registration
statement, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto and are
incorporated herein by reference in reliance upon the authority of said firm as
experts in giving said reports.
The consolidated financial statements and financial statement schedule of
MCI for the year ended December 31, 1996 incorporated in this Joint Proxy
Statement/Prospectus by reference to MCI's Annual Report on Form 10-K for the
year ended December 31, 1996, have been so incorporated in reliance on the
report of Price Waterhouse, LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
SHAREHOLDER PROPOSALS
MCI expects to hold an annual meeting in [ ], 1998. Proposals
submitted by stockholders of MCI for presentation at the 1998 annual meeting
must have been received by MCI no later than [ ], 199 , for
inclusion, if appropriate, in MCI's proxy statement and form of proxy relating
to the 1998 annual meeting.
All proposals of security holders of WorldCom intended to be presented at
the 1998 annual meeting of shareholders of WorldCom must be received by WorldCom
not later than December 22, 1997, for inclusion in WorldCom's 1998 proxy
statement and form of proxy relating to the 1998 annual meeting. Upon timely
receipt of any such proposal, WorldCom will determine whether or not to include
such proposal in the proxy
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statement and proxy in accordance with applicable regulations and provisions
governing the solicitation of proxies.
Under the WorldCom Bylaws, shareholders entitled to vote in the election of
directors 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 WorldCom not later than 90 days prior to
the anniversary date of the immediately preceding annual meeting. Such notice
must set forth: (a) the name and 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 WorldCom
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 SEC; and (e) the consent of each nominee to
serve as a director of WorldCom if so elected.
WHERE YOU CAN FIND MORE INFORMATION
MCI and WorldCom file annual, quarterly and current reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information that the companies file at the SEC's
public reference rooms in Washington, D.C., New York, New York and Chicago,
Illinois. Please call the SEC at (800)SEC-0330 for further information on the
public reference rooms. MCI and WorldCom public filings are also available to
the public from commercial document retrieval services and at the Internet World
Wide Web site maintained by the SEC at "http://www.sec.gov." Reports, proxy
statements and other information concerning WorldCom and MCI also may be
inspected at the offices of the NASD, 1735 K Street, Washington D.C., 20006.
WorldCom has filed the Registration Statement to register with the SEC the
shares of WorldCom Common Stock and the WorldCom Rights to be issued to MCI
stockholders in the MCI/WorldCom Merger. This Joint Proxy Statement/Prospectus
is a part of the Registration Statement and constitutes a prospectus of
WorldCom, as well as a proxy statement of MCI and WorldCom for the Special
Meetings.
As allowed by SEC rules, this Joint Proxy Statement/Prospectus does not
contain all the information that stockholders can find in the Registration
Statement or the exhibits to the Registration Statement.
The SEC allows MCI and WorldCom to "incorporate by reference" information
into this Joint Proxy Statement/Prospectus, which means that the companies can
disclose important information to you by referring you to another document filed
separately with the SEC. The information incorporated by reference is deemed to
be part of this Joint Proxy Statement/Prospectus, except for any information
superseded by information contained directly in the Joint Proxy
Statement/Prospectus. This Joint Proxy Statement/Prospectus incorporates by
reference the documents set forth below that MCI and WorldCom have previously
filed with the SEC. These documents contain important information about the
companies and their financial condition.
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<TABLE>
<CAPTION>
WORLDCOM SEC FILINGS (FILE NO. 0-11238,
FORMERLY RESURGENS' FILE NO. 1-10415) PERIOD
- ------------------------------------------ -------------------------------------------------
<S> <C>
Annual Report on Form 10-K................ Year ended December 31, 1996
Quarterly Reports on Form 10-Q............ Quarters ended March 31, 1997, June 30, 1997 and
September 30, 1997
Current Reports on Form 8-K............... Dated August 25, 1996 (filed August 26, 1996 and
as amended on Forms 8-K/A filed November 4,
1996), December 31, 1996 (filed January 15,
1997), March 18, 1997 (filed March 24, 1997),
March 26, 1997 (filed April 2, 1997), May 22,
1997 (filed June 6, 1997), June 30, 1997 (filed
July 7, 1997), August 5, 1997 (filed August 5,
1997), August 8, 1997 (filed August 11, 1997),
August 22, 1997 (filed August 25, 1997), August
28, 1997 (filed September 10, 1997), September 7,
1997 (filed September 17, 1997), October 1, 1997
(filed October 2, 1997), October 3, 1997 (filed
October 3, 1997), October 9, 1997 (filed October
10, 1997), October 10, 1997 (filed October 14,
1997), October 14, 1997 (filed October 14, 1997),
October 15, 1997 (filed October 16, 1997),
October 16, 1997 (filed October 17, 1997),
October 23, 1997 (filed October 23, 1997),
October 31, 1997 (filed November 3, 1997) and
November 9, 1997 (filed November 12, 1997)
Registration Statements................... Dated December 12, 1989 on Form 8-A of Resurgens,
setting forth a description of WorldCom's
(formerly "Resurgens' ") Common Stock (as updated
by the descriptions set forth in WorldCom's
Registration Statement on Form S-4, as declared
effective by the SEC on November 14, 1996 (File
No. 333-16015) under the captions "Description of
WorldCom Capital Stock" and "Comparative Rights
of Shareholders"), dated August 26, 1996 on Form
8-A of WorldCom, setting forth a description of
WorldCom's Preferred Stock Purchase Rights (as
updated by WorldCom's Current Report on Form 8-K
dated May 22, 1997 (filed June 6, 1997)) and
dated November 13, 1996 on Form 8-A of WorldCom,
setting forth descriptions of the WorldCom Series
A Preferred Stock, the WorldCom Series B
Preferred Stock and the WorldCom Depositary
Shares
MCI SEC FILINGS (FILE NO.0-6547)
- ------------------------------------------ PERIOD
-------------------------------------------------
Annual Report on Form 10-K................ Year ended December 31, 1996, as amended
Quarterly Reports on Form 10-Q............ Quarters ended March 31, 1997, June 30, 1997 and
September 30, 1997
Current Reports on Form 8-K............... Dated February 10, 1997, July 14, 1997, August
26, 1997 and November 12, 1997, as amended
</TABLE>
MCI and WorldCom incorporate by reference additional documents that either
company may file with the SEC between the date of this Joint Proxy
Statement/Prospectus and the dates of the Special Meetings. These include
periodic reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form
10-Q and Current Reports on Form 8-K, as well as proxy statements.
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MCI has supplied all information contained or incorporated by reference in
the Joint Proxy Statement/Prospectus relating to MCI, and WorldCom has supplied
all such information relating to WorldCom.
If you are a stockholder, MCI or WorldCom may have sent you some of the
documents incorporated by reference, but you can obtain any of them through MCI
or WorldCom, as the case may be, or the SEC or the SEC's Internet World Wide Web
site described above. Documents incorporated by reference are available from the
companies without charge, excluding all exhibits unless specifically
incorporated by reference as exhibit in this Joint Proxy Statement/Prospectus.
Stockholders may obtain documents incorporated by reference in this Joint Proxy
Statement/Prospectus by requesting them in writing or by telephone from the
appropriate company at the following addresses:
WORLDCOM, INC.
515 EAST AMITE STREET
JACKSON, MS 39201
(601) 360-8600
MCI COMMUNICATIONS CORPORATION
1801 PENNSYLVANIA AVENUE N.W.
WASHINGTON, D.C. 20006
(202) 887-2967
If you would like to request documents from either company, please do so by
[ ] to receive them before your Special Meeting. If you
request any incorporated documents from us we will mail them to you by
first-class mail, or other equally prompt means, within one business day of
receipt of your request.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS TO VOTE YOUR SHARES AT YOUR
SPECIAL MEETING. MCI AND WORLDCOM HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS. THIS JOINT PROXY STATEMENT/PROSPECTUS IS DATED
[ ]. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN
THE JOINT PROXY STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THAT
DATE, AND NEITHER THE MAILING OF THIS JOINT PROXY STATEMENT/PROSPECTUS TO
STOCKHOLDERS NOR THE ISSUANCE OF WORLDCOM COMMON STOCK IN THE MCI/WORLDCOM
MERGER SHALL CREATE ANY IMPLICATION TO THE CONTRARY.
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ANNEX I
AGREEMENT AND PLAN OF MERGER
DATED AS OF NOVEMBER 9, 1997
AMONG
WORLDCOM, INC.
TC INVESTMENTS CORP.
AND
MCI COMMUNICATIONS CORPORATION
<PAGE> 142
TABLE OF CONTENTS
ARTICLE I
<TABLE>
<S> <C> <C> <C>
THE MERGER............................................................................... 1
1.1 The Merger....................................................................... 1
1.2 Closing.......................................................................... 2
1.3 Effective Time................................................................... 2
1.4 Effects of the Merger............................................................ 2
1.5 Certificate of Incorporation..................................................... 2
1.6 By-Laws.......................................................................... 2
1.7 Officers and Directors of Surviving Corporation.................................. 2
1.8 Effect on Capital Stock.......................................................... 2
ARTICLE II
EXCHANGE OF CERTIFICATES............................................................. 3
2.1 Exchange Fund.................................................................... 3
2.2 Exchange Procedures.............................................................. 3
2.3 Distributions with Respect to Unexchanged Shares................................. 4
2.4 No Further Ownership Rights in MCI Common Stock.................................. 4
2.5 No Fractional Shares of WorldCom Common Stock.................................... 4
2.6 Termination of Exchange Fund..................................................... 4
2.7 No Liability..................................................................... 5
2.8 Investment of the Exchange Fund.................................................. 5
2.9 Lost Certificates................................................................ 5
2.10 Withholding Rights............................................................... 5
2.11 Further Assurances............................................................... 5
2.12 Stock Transfer Books............................................................. 5
ARTICLE III
REPRESENTATIONS AND WARRANTIES....................................................... 5
3.1 Representations and Warranties of MCI............................................ 5
(a) Organization, Standing and Power........................................... 5
(b) Capital Structure.......................................................... 6
(c) Authority; No Conflicts.................................................... 6
(d) Reports and Financial Statements........................................... 7
(e) Information Supplied....................................................... 8
(f) Vote Required.............................................................. 8
(g) Rights Agreement........................................................... 8
(h) Brokers or Finders......................................................... 8
(i) Opinions of Financial Advisors............................................. 8
(j) Affiliate Letter........................................................... 8
3.2 Representations and Warranties of WorldCom....................................... 9
(a) Organization, Standing and Power........................................... 9
(b) Capital Structure.......................................................... 9
(c) Authority; No Conflicts.................................................... 10
(d) Reports and Financial Statements........................................... 10
(e) Information Supplied....................................................... 10
</TABLE>
I-i
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<TABLE>
<S> <C> <C> <C>
(f) Absence of Certain Changes or Events....................................... 11
(g) Vote Required.............................................................. 11
(h) Brokers or Finders......................................................... 11
(i) Affiliate Letter........................................................... 11
3.3 Representations and Warranties of WorldCom and Merger Sub........................ 11
(a) Organization and Corporate Power........................................... 11
(b) Corporate Authorization.................................................... 11
(c) Non-Contravention.......................................................... 12
(d) No Business Activities..................................................... 12
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS............................................ 12
4.1 Covenants of MCI................................................................. 12
(a) Ordinary Course............................................................ 12
(b) Dividends; Changes in Share Capital........................................ 12
(c) Issuance of Securities..................................................... 13
(d) Governing Documents........................................................ 13
(e) No Acquisitions............................................................ 13
(f) No Dispositions............................................................ 13
(g) Indebtedness............................................................... 13
(h) Tax-Free Qualification..................................................... 13
(i) Other Actions.............................................................. 13
(j) Accounting Methods; Income Tax Elections................................... 13
(k) MCI Rights Agreement....................................................... 14
4.2 Covenants of WorldCom............................................................ 14
(a) Ordinary Course............................................................ 14
(b) Dividends; Changes in Share Capital........................................ 14
(c) Issuance of Securities..................................................... 14
(d) Governing Documents........................................................ 15
(e) No Acquisitions............................................................ 15
(f) No Dispositions............................................................ 15
(g) Indebtedness............................................................... 15
(h) Tax-Free Qualification..................................................... 15
(i) Other Actions.............................................................. 15
(j) Accounting Methods; Income Tax Elections................................... 15
(k) Acquisition Proposals...................................................... 15
(l) WorldCom Rights Agreement.................................................. 16
4.3 Advice of Changes; Governmental Filings.......................................... 16
4.4 Transition Planning.............................................................. 16
4.5 Control of Other Party's Business................................................ 16
ARTICLE V
ADDITIONAL AGREEMENTS................................................................ 16
5.1 Preparation of Proxy Statement; MCI Stockholders Meeting......................... 16
5.2 WorldCom Board of Directors; Officers; Headquarters; MCI Name.................... 17
5.3 Access to Information............................................................ 18
5.4 Best Efforts..................................................................... 18
5.5 Acquisition Proposals............................................................ 19
5.6 [Intentionally Omitted].......................................................... 20
5.7 Stock Options and Other Stock Plans; Employee Benefits Matters................... 20
</TABLE>
I-ii
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<TABLE>
<S> <C> <C> <C>
5.8 Fees and Expenses................................................................ 20
5.9 Directors' and Officers' Insurance............................................... 20
5.10 Rights Agreement................................................................. 20
5.11 Public Announcements............................................................. 20
5.12 Accountants' Letters............................................................. 21
5.13 Listing of Shares of WorldCom Common Stock....................................... 21
5.14 Voting Trust..................................................................... 21
ARTICLE VI
CONDITIONS PRECEDENT................................................................. 21
6.1 Conditions to Each Party's Obligation to Effect the Merger....................... 21
(a) Stockholder Approval....................................................... 21
(b) No Injunctions or Restraints, Illegality................................... 21
(c) FCC and Public Utility Commission Approvals................................ 21
(d) HSR Act.................................................................... 21
(e) EU Antitrust............................................................... 21
(f) NASDAQ Listing............................................................. 21
(g) Effectiveness of the Form S-4.............................................. 21
6.2 Additional Conditions to Obligations of WorldCom and Merger Sub.................. 22
(a) Representations and Warranties............................................. 22
(b) Performance of Obligations of MCI.......................................... 22
(c) Tax Opinion................................................................ 22
6.3 Additional Conditions to Obligations of MCI...................................... 22
(a) Representations and Warranties............................................. 22
(b) Performance of Obligations of WorldCom..................................... 22
(c) Tax Opinion................................................................ 22
(d) No Material Adverse Change................................................. 22
ARTICLE VII
TERMINATION AND AMENDMENT............................................................ 23
7.1 Termination...................................................................... 23
7.2 Effect of Termination............................................................ 24
7.3 Payment by WorldCom.............................................................. 24
7.4 Amendment........................................................................ 24
7.5 Extension; Waiver................................................................ 24
ARTICLE VIII
GENERAL PROVISIONS................................................................... 25
8.1 Non-Survival of Representations, Warranties and Agreements....................... 25
8.2 Notices.......................................................................... 25
8.3 Interpretation................................................................... 26
8.4 Counterparts..................................................................... 26
8.5 Entire Agreement; No Third Party Beneficiaries................................... 26
8.6 Governing Law.................................................................... 26
8.7 Severability..................................................................... 26
8.8 Assignment....................................................................... 26
8.9 Submission to Jurisdiction; Waivers.............................................. 26
8.10 Enforcement...................................................................... 27
8.11 Definitions...................................................................... 27
8.12 Other Agreements................................................................. 28
</TABLE>
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LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT TITLE
- -------------------- ---------------------------------------------------------------
<C> <S> <C>
5.2(a) -- Reconstitution of the Board of Directors of WorldCom
5.7 -- Stock Options and Other Stock-Based Plans; Employee Benefit
Matters
6.2(c)(1) -- Form of WorldCom Tax Opinion
6.2(c)(2) -- Form of MCI Tax Opinion
6.2(c)(3) -- Form of WorldCom Representations Letter
6.2(c)(4) -- Form of MCI Representations Letter
</TABLE>
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GLOSSARY DEFINED TERMS
<TABLE>
<CAPTION>
LOCATION OF
DEFINITION DEFINITION
- ------------------------------------------------------------------------------- -------------
<S> <C>
Acquisition Proposal........................................................... sec. 5.5
Affiliate Agreement............................................................ sec. 3.1(j)
Agreement...................................................................... Preamble
Benefit Plans.................................................................. sec. 8.11(i)
Blue Sky Laws.................................................................. sec. 3.1(c)(iii)
Board of Directors............................................................. sec. 8.11(a)
BT............................................................................. Recitals
BT Agreement................................................................... Recitals
BT Inducement Fee.............................................................. Recitals
BT Merger Agreement............................................................ Recitals
Business Day................................................................... sec. 8.11(b)
Certificate.................................................................... sec. 1.8(b)
Class A Common Stock........................................................... Recitals
Class A Common Stock Merger Consideration...................................... sec. 1.8(a)
Closing........................................................................ sec. 1.2
Closing Date................................................................... sec. 1.2
Code........................................................................... Recitals
Communications Act............................................................. sec. 3.1(c)(iii)
Confidentiality Agreement...................................................... sec. 5.3
Delaware Certificate of Merger................................................. sec. 1.3
DGCL........................................................................... sec. 1.1
DOJ............................................................................ sec. 5.4(b)
Effective Time................................................................. sec. 1.3
ERISA.......................................................................... sec. 8.11(i)
ESPP........................................................................... sec. 3.1(b)
Exchange Act................................................................... sec. 3.1(c)(iii)
Exchange Agent................................................................. sec. 2.1
Exchange Fund.................................................................. sec. 2.1
Exchange Ratio................................................................. sec. 1.8(a)
Expenses....................................................................... sec. 5.8
Fairness Opinions.............................................................. sec. 3.1(i)
FCC............................................................................ sec. 3.1(c)(iii)
Form S-4....................................................................... sec. 5.1(a)
Financial Advisors............................................................. sec. 3.1(h)
Governmental Entity............................................................ sec. 3.1(c)(iii)
HSR Act........................................................................ sec. 3.1(c)(iii)
ISUs........................................................................... sec. 3.1(b)
Joint Proxy Statement/Prospectus............................................... sec. 5.1(a)
Material Adverse Effect........................................................ sec. 8.11(c)
MCI............................................................................ Preamble
MCI Affiliate Letter........................................................... sec. 3.1(j)
MCI Capital Stock.............................................................. Recitals
MCI Disclosure Schedule........................................................ sec. 3.1
MCI SEC Reports................................................................ sec. 3.1(d)
MCI Stockholders Meeting....................................................... sec. 5.1(b)
MCI Stock Option Plans......................................................... sec. 3.1(b)(i)
MCI Voting Debt................................................................ sec. 3.1(b)(ii)
Merger......................................................................... Recitals
Merger Consideration........................................................... sec. 1.8(a)
</TABLE>
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<TABLE>
<CAPTION>
LOCATION OF
DEFINITION DEFINITION
- ------------------------------------------------------------------------------- -------------
<S> <C>
Merger Sub..................................................................... Preamble
NASDAQ......................................................................... sec. 1.8(a)
Ordinary Common Stock.......................................................... Recitals
Ordinary Common Stock Merger Consideration..................................... sec. 1.8(a)
Person......................................................................... sec. 8.11(e)
PUCs........................................................................... sec.3.1(c)(iii)
Purchase Rights................................................................ sec. 3.2(b)
Regulation 4064/89............................................................. sec. 3.1(c)(iii)
Regulatory Law................................................................. sec. 5.4(b)
Reimbursement Amount........................................................... sec. 7.2(b)
Required WorldCom Vote......................................................... sec. 3.2(g)
Required Consents.............................................................. sec. 3.1(c)(iii)
Required MCI Votes............................................................. sec. 3.1(f)
Rights......................................................................... sec. 3.1(b)(i)
Rights Agreement............................................................... sec. 3.1(b)(i)
Rule 145....................................................................... sec. 3.1(j)
SAS 72......................................................................... sec. 5.12
SEC............................................................................ sec. 3.1(d)
Securities Act................................................................. sec. 3.1(c)(iii)
Subsidiary..................................................................... sec. 8.11(f)
Superior Proposal.............................................................. sec. 8.11(g)
Surviving Corporation.......................................................... sec. 1.1
Tax............................................................................ sec. 8.11(h)(i)
Taxable........................................................................ sec. 8.11(h)(i)
Taxes.......................................................................... sec. 8.11(h)(i)
Tax Return..................................................................... sec. 8.11(h)(ii)
Termination Date............................................................... sec. 7.1(b)
the other party................................................................ sec. 9.11(d)
U.S. GAAP...................................................................... sec. 3.1(d)
Violation...................................................................... sec. 3.1(c)(ii)
WorldCom....................................................................... Preamble
WorldCom Affiliate Letter...................................................... sec. 3.2(i)
WorldCom Alternative Transaction Fee........................................... sec. 7.2(b)
WorldCom Common Stock.......................................................... Recitals
WorldCom Disclosure Schedule................................................... sec. 3.2
WorldCom Rights Agreement...................................................... sec. 3.2(b)
WorldCom Series A Preferred Stock.............................................. sec. 3.2(b)
WorldCom Series B Preferred Stock.............................................. sec. 3.2(b)
WorldCom Stockholders Meeting.................................................. sec. 5.1(c)
WorldCom Voting Debt........................................................... sec.3.2(b)(ii)
WorldCom SEC Reports........................................................... sec. 3.2(d)
</TABLE>
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AGREEMENT AND PLAN OF MERGER, dated as of November 9, 1997 (this
"Agreement"), among WORLDCOM, INC., a Georgia corporation ("WorldCom"), TC
INVESTMENTS CORP., a Delaware corporation and a direct wholly-owned subsidiary
of WorldCom ("Merger Sub"), and MCI COMMUNICATIONS CORPORATION, a Delaware
corporation ("MCI").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of WorldCom, Merger Sub and MCI
have each determined that the merger of MCI with and into Merger Sub (the
"Merger") is in the best interests of their respective stockholders, and such
Boards of Directors have approved such Merger, upon the terms and subject to the
conditions set forth in this Agreement, pursuant to which (a) each outstanding
share of common stock, par value $.10 per share, of MCI ("Ordinary Common
Stock") issued and outstanding immediately prior to the Effective Time (as
defined in Section 1.3), other than shares owned or held directly or indirectly
by WorldCom or directly by MCI will be converted into the right to receive
shares of common stock, par value $.01 per share of WorldCom ("WorldCom Common
Stock") as set forth in Section 1.8 and (b) each share of Class A common stock,
par value $.10 per share, of MCI ("Class A Common Stock" and, collectively with
the Ordinary Common Stock, the "MCI Common Stock") will be converted into the
right to receive $51 in cash as set forth in Section 1.8;
WHEREAS, WorldCom, Merger Sub and MCI desire to make certain
representations, warranties, covenants and agreements in connection with the
transactions contemplated hereby and also to prescribe various conditions to the
transactions contemplated hereby;
WHEREAS, WorldCom, Merger Sub and MCI intend, by approving resolutions
authorizing this Agreement, to adopt this Agreement as a plan of reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and the regulations promulgated thereunder;
WHEREAS, MCI, British Telecommunications plc, a public limited company
incorporated under the laws of England and Wales ("BT"), and Tadworth
Corporation, a Delaware corporation and a wholly owned subsidiary of BT, have
entered into the Agreement and Plan of Merger dated as of November 3, 1996, as
amended (the "BT Merger Agreement");
WHEREAS, BT, MCI and WorldCom have entered into an agreement dated as of
the date hereof pursuant to which, among other things, BT has consented to and
agreed to support the Merger and the other
transactions contemplated by this Agreement (the "BT Agreement").
WHEREAS, in the BT Agreement, WorldCom has agreed to pay BT $450 million
and expenses not in excess of $15 million (collectively, the "BT Inducement
Fee") in connection with the plan of reorganization in order to induce BT to
waive its rights under, and agree to terminate, the BT Merger Agreement; and
WHEREAS, the BT Merger Agreement has been terminated by MCI and BT by
mutual agreement pursuant to Section 7.1(a) of the BT Merger Agreement.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, and
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the Delaware General Corporation Law (the
"DGCL"), MCI shall be merged with and into Merger Sub at the Effective Time.
Following the Merger, the separate corporate existence of MCI shall cease and
Merger Sub shall continue as the surviving corporation (the "Surviving
Corporation") under the name "MCI Communications Corporation".
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1.2 Closing. The closing of the Merger (the "Closing") will take place on
the fifth Business Day after the satisfaction or waiver (subject to applicable
law) of the conditions (excluding conditions that, by their terms, cannot be
satisfied until the Closing Date) set forth in Article VI (the "Closing Date"),
unless another time or date is agreed to in writing by the parties hereto. The
Closing shall be held at the offices of Simpson Thacher & Bartlett, 425
Lexington Avenue, New York, New York, 10017, unless another place is agreed to
in writing by the parties hereto.
1.3 Effective Time. As soon as practicable following the Closing, the
parties shall (i) file a certificate of merger (the "Delaware Certificate of
Merger") in such form as is required by and executed in accordance with the
relevant provisions of the DGCL and (ii) make all other filings or recordings
required under the DGCL. The Merger shall become effective at such time as the
Delaware Certificate of Merger is duly filed with the Delaware Secretary of
State or at such subsequent time as WorldCom and MCI shall agree and be
specified in the Delaware Certificate of Merger (the date and time the Merger
becomes effective being the "Effective Time").
1.4 Effects of the Merger. At and after the Effective Time, the Merger will
have the effects set forth in the DGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all the property, rights,
privileges, powers and franchises of MCI and Merger Sub shall be vested in the
Surviving Corporation, and all debts, liabilities and duties of MCI and Merger
Sub shall become the debts, liabilities and duties of the Surviving Corporation.
1.5 Certificate of Incorporation. The certificate of incorporation of
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
certificate of incorporation of the Surviving Corporation, until thereafter
changed or amended as provided therein or by applicable law, except that Article
I of the Certificate of Incorporation of the Surviving Corporation shall be
amended to read in its entirety as follows: "The name of this Corporation is
'MCI Communications Corporation' ".
1.6 By-Laws. The by-laws of Merger Sub as in effect at the Effective Time
shall be the by-laws of the Surviving Corporation until thereafter changed or
amended as provided therein or by applicable law.
1.7 Officers and Directors of Surviving Corporation. The officers of MCI as
of the Effective Time shall be the officers of the Surviving Corporation, until
the earlier of their resignation or removal or otherwise ceasing to be an
officer or until their respective successors are duly elected and qualified, as
the case may be. The directors of Merger Sub as of the Effective Time shall be
the directors of the Surviving Corporation until the earlier of their
resignation or removal or otherwise ceasing to be a director or until their
respective successors are duly elected and qualified.
1.8 Effect on Capital Stock. (a) At the Effective Time by virtue of the
Merger and without any action on the part of the holder thereof, (i) each share
of Ordinary Common Stock issued and outstanding immediately prior to the
Effective Time (other than shares of Ordinary Common Stock owned by WorldCom or
Merger Sub or held by MCI, all of which shall be canceled as provided in Section
1.8(c)) shall be converted into the right to receive that number of shares of
WorldCom Common Stock equal to the Exchange Ratio (as defined below) (the
"Ordinary Common Stock Merger Consideration") and (ii) each share of Class A
Common Stock issued and outstanding immediately prior to the Effective Time
(other than shares of Class A Common Stock owned by WorldCom or Merger Sub or
held by MCI, all of which shall be canceled as provided in Section 1.8(c)) shall
be converted into the right to receive $51 in cash, without interest thereon
(the "Class A Common Stock Merger Consideration", and, collectively with the
Ordinary Common Stock Merger Consideration, the "Merger Consideration").
"Exchange Ratio" means the quotient (rounded to the nearest 1/10,000) determined
by dividing $51.00 by the average of the high and low sales prices of WorldCom
Common Stock as reported on The Nasdaq National Market ("NASDAQ") on each of the
twenty consecutive trading days ending with the third trading day immediately
preceding the Effective Time (the "Measurement Period"); provided, that the
Exchange Ratio shall not be less than 1.2439 or greater than 1.7586.
(b) As a result of the Merger and without any action on the part of the
holders thereof, at the Effective Time, all shares of MCI Common Stock shall
cease to be outstanding and shall be canceled and retired and
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shall cease to exist, and each holder of a certificate which immediately prior
to the Effective Time represented any such shares of MCI Common Stock (a
"Certificate") (other than Merger Sub, WorldCom and MCI) shall thereafter cease
to have any rights with respect to such shares of MCI Common Stock, except the
right to receive the applicable Merger Consideration in accordance with Article
II upon the surrender of such certificate.
(c) Each share of MCI Common Stock issued and owned or held by WorldCom,
Merger Sub or MCI at the Effective Time shall, by virtue of the Merger, cease to
be outstanding and shall be canceled and retired and no stock of WorldCom or
other consideration shall be delivered in exchange therefor.
(d) Each share of common stock, par value $.01 per share, of Merger Sub
issued and outstanding immediately prior to the Effective Time, shall remain
issued, outstanding and unchanged as validly issued, fully paid and
nonassessable shares of common stock, par value $.01 per share, of the Surviving
Corporation as of the Effective Time.
ARTICLE II
EXCHANGE OF CERTIFICATES
2.1 Exchange Fund. Prior to the Effective Time, WorldCom shall appoint The
Bank of New York, or another commercial bank or trust company having net capital
of not less than $100,000,000, to act as exchange agent hereunder for the
purpose of exchanging Certificates for the Merger Consideration (the "Exchange
Agent"). At or prior to the Effective Time, WorldCom shall deposit with the
Exchange Agent, in trust for the benefit of holders of shares of MCI Common
Stock, certificates representing the WorldCom Common Stock issuable pursuant to
Section 1.8 in exchange for outstanding shares of Ordinary Common Stock and cash
in the amount required to be exchanged for Class A Common Stock in the Merger
pursuant to Section 1.8. WorldCom agrees to make available to the Exchange Agent
from time to time as needed, cash sufficient to pay cash in lieu of fractional
shares pursuant to Section 2.5 and any dividends and other distributions
pursuant to Section 2.3. Any cash and certificates of WorldCom Common Stock
deposited with the Exchange Agent shall hereinafter be referred to as the
"Exchange Fund".
2.2 Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Surviving Corporation shall cause the Exchange Agent to mail
to each holder of a Certificate (i) a letter of transmittal which shall specify
that delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon delivery of the Certificates to the Exchange Agent, and
which letter shall be in customary form and have such other provisions as
WorldCom may reasonably specify and (ii) instructions for effecting the
surrender of such Certificates in exchange for the applicable Merger
Consideration. Upon surrender of a Certificate to the Exchange Agent together
with such letter of transmittal, duly executed and completed in accordance with
the instructions thereto, and such other documents as may reasonably be required
by the Exchange Agent, the holder of such Certificate, if it is a Certificate
for Ordinary Common Stock shall be entitled to receive in exchange therefor (A)
one or more shares of WorldCom Common Stock representing, in the aggregate, the
whole number of shares that such holder has the right to receive pursuant to
Section 1.8 (after taking into account all shares of MCI Common Stock then held
by such holder) and (B) a check in the amount equal to the cash that such holder
has the right to receive pursuant to the provisions of this Article II,
including cash in lieu of any fractional shares of WorldCom Common Stock
pursuant to Section 2.5, or if it is a Certificate for Class A Common Stock, a
check in the amount equal to the cash that such holder has the right to receive
pursuant to the provisions of this Article II, and in each case the Certificate
so surrendered shall forthwith be canceled. No interest will be paid or will
accrue on any cash payable pursuant to Section 1.8, Section 2.3 or Section 2.5.
In the event of a transfer of ownership of MCI Common Stock which is not
registered in the transfer records of MCI, one or more shares of WorldCom Common
Stock evidencing, in the aggregate, the proper number of shares of WorldCom
Common Stock, a check in the proper amount of cash in lieu of any fractional
shares of WorldCom Common Stock pursuant to Section 2.5 and any dividends or
other distributions to which such holder is entitled pursuant to Section 2.3,
may be issued with respect to such MCI Common Stock to such a transferee if the
Certificate representing such shares of MCI Common Stock is
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presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid.
2.3 Distributions with Respect to Unexchanged Shares. No dividends or
other distributions declared or made with respect to shares of WorldCom Common
Stock with a record date after the Effective Time shall be paid to the holder of
any unsurrendered Certificate with respect to the shares of WorldCom Common
Stock that such holder would be entitled to receive upon surrender of such
Certificate and no cash payment in lieu of fractional shares of WorldCom Common
Stock shall be paid to any such holder pursuant to Section 2.5 until such holder
shall surrender such Certificate in accordance with Section 2.2. Subject to the
effect of applicable laws, following surrender of any such Certificate, there
shall be paid to such holder of shares of WorldCom Common Stock issuable in
exchange therefor, without interest, (a) promptly after the time of such
surrender, the amount of any cash payable in lieu of fractional shares of
WorldCom Common Stock to which such holder is entitled pursuant to Section 2.5
and the amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of WorldCom
Common Stock, and (b) at the appropriate payment date, the amount of dividends
or other distributions with a record date after the Effective Time but prior to
such surrender and a payment date subsequent to such surrender payable with
respect to such shares of WorldCom Common Stock.
2.4 No Further Ownership Rights in MCI Common Stock. All shares of
WorldCom Common Stock issued and cash paid upon conversion of shares of MCI
Common Stock in accordance with the terms of Article I and this Article II
(including any cash paid pursuant to Section 2.3 or 2.5) shall be deemed to have
been issued or paid in full satisfaction of all rights pertaining to the shares
of MCI Common Stock.
2.5 No Fractional Shares of WorldCom Common Stock. (a) No certificates or
scrip or shares of WorldCom Common Stock representing fractional shares of
WorldCom Common Stock shall be issued upon the surrender for exchange of
Certificates and such fractional share interests will not entitle the owner
thereof to vote or to have any rights of a shareholder of WorldCom or a holder
of shares of WorldCom Common Stock.
(b) Notwithstanding any other provision of this Agreement, each holder of
shares of MCI Common Stock exchanged pursuant to the Merger who would otherwise
have been entitled to receive a fraction of a share of WorldCom Common Stock
(after taking into account all Certificates delivered by such holder) shall
receive, in lieu thereof, cash (without interest) in an amount equal to the
product of (i) such fractional part of a share of WorldCom Common Stock
multiplied by (ii) the last sales price per share of WorldCom Common Stock
quoted on NASDAQ on the Closing Date. As promptly as practicable after the
determination of the amount of cash, if any, to be paid to holders of fractional
interests, the Exchange Agent shall so notify WorldCom, and WorldCom shall cause
the Surviving Corporation to deposit such amount with the Exchange Agent and
shall cause the Exchange Agent to forward payments to such holders of fractional
interests subject to and in accordance with the terms hereof.
2.6 Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of Certificates for twelve months after the
Effective Time shall be delivered to the Surviving Corporation or otherwise on
the instruction of the Surviving Corporation, and any holders of the
Certificates who have not theretofore complied with this Article II shall
thereafter look only to the Surviving Corporation and WorldCom for the Merger
Consideration with respect to the shares of MCI Common Stock formerly
represented thereby to which such holders are entitled pursuant to Section 1.8
and Section 2.2, any cash in lieu of fractional shares of WorldCom Common Stock
to which such holders are entitled pursuant to Section 2.5 and any dividends or
distributions with respect to shares of WorldCom Common Stock to which such
holders are entitled pursuant to Section 2.3. Any such portion of the Exchange
Fund remaining unclaimed by holders of shares of MCI Common Stock five years
after the Effective Time (or such earlier date immediately prior to such time as
such amounts would otherwise escheat to or become property of any Governmental
Entity (as defined in Section 3.1(c)(iii))) shall, to the extent permitted by
law, become the property of the Surviving Corporation free and clear of any
claims or interest of any Person previously entitled thereto.
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2.7 No Liability. None of WorldCom, Merger Sub, MCI, the Surviving
Corporation or the Exchange Agent shall be liable to any Person in respect of
any Merger Consideration from the Exchange Fund delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
2.8 Investment of the Exchange Fund. The Exchange Agent shall invest any
cash included in the Exchange Fund as directed by the Surviving Corporation on a
daily basis. Any interest and other income resulting from such investments shall
promptly be paid to the Surviving Corporation.
2.9 Lost Certificates. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such Person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
that may be made against it with respect to such Certificate, the Exchange Agent
will deliver in exchange for such lost, stolen or destroyed Certificate the
applicable Merger Consideration with respect to the shares of MCI Common Stock
formerly represented thereby, any cash in lieu of fractional shares of WorldCom
Common Stock, and unpaid dividends and distributions on shares of WorldCom
Common Stock deliverable in respect thereof, pursuant to this Agreement.
2.10 Withholding Rights. Each of the Surviving Corporation and WorldCom
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of MCI Common Stock
such amounts as it is required to deduct and withhold with respect to the making
of such payment under the Code and the rules and regulations promulgated
thereunder, or any provision of state, local or foreign tax law. To the extent
that amounts are so withheld by the Surviving Corporation or WorldCom, as the
case may be, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the shares of MCI Common Stock in
respect of which such deduction and withholding was made by the Surviving
Corporation or WorldCom, as the case may be.
2.11 Further Assurances. At and after the Effective Time, the officers and
directors of the Surviving Corporation will be authorized to execute and
deliver, in the name and on behalf of MCI or Merger Sub, any deeds, bills of
sale, assignments or assurances and to take and do, in the name and on behalf of
MCI or Merger Sub, any other actions and things to vest, perfect or confirm of
record or otherwise in the Surviving Corporation any and all right, title and
interest in, to and under any of the rights, properties or assets acquired or to
be acquired by the Surviving Corporation as a result of, or in connection with,
the Merger.
2.12 Stock Transfer Books. At the close of business, New York City time,
on the day the Effective Time occurs, the stock transfer books of MCI shall be
closed and there shall be no further registration of transfers of shares of MCI
Common Stock thereafter on the records of MCI. From and after the Effective
Time, the holders of Certificates shall cease to have any rights with respect to
such shares of MCI Common Stock formerly represented thereby, except as
otherwise provided herein or by law. On or after the Effective Time, any
Certificates presented to the Exchange Agent or WorldCom for any reason shall be
converted into the Merger Consideration with respect to the shares of MCI Common
Stock formerly represented thereby, any cash in lieu of fractional shares of
WorldCom Common Stock to which the holders thereof are entitled pursuant to
Section 2.5 and any dividends or other distributions to which the holders
thereof are entitled pursuant to Section 2.3.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of MCI. Except as set forth in the MCI
Disclosure Schedule delivered by MCI to WorldCom prior to the execution of this
Agreement (the "MCI Disclosure Schedule") (each section of which qualifies the
correspondingly numbered representation and warranty or covenant to the extent
specified therein), MCI represents and warrants to WorldCom as follows:
(a) Organization, Standing and Power. Each of MCI and each of its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or
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organization, has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted
and is duly qualified and in good standing to do business in each
jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification necessary other than in
such jurisdictions where the failure so to qualify would not, either
individually or in the aggregate, have a Material Adverse Effect (as
defined in Section 8.11(c)) on MCI. The copies of the certificate of
incorporation and by-laws of MCI which were previously furnished to
WorldCom are true, complete and correct copies of such documents as in
effect on the date of this Agreement.
(b) Capital Structure. (i) As of October 31, 1997, the authorized
capital stock of MCI consisted of (A) 2,000,000,000 shares of Ordinary
Common Stock, of which 565,301,683 shares were outstanding and (B)
500,000,000 shares of Class A Common Stock, of which 135,998,932 shares
were outstanding and (C) 50,000,000 shares of preferred stock, of which
10,000,000 shares of Series E Junior Participating Preferred Stock have
been designated and reserved for issuance upon exercise of the rights (the
"Rights") distributed to the holders of MCI Common Stock pursuant to the
Rights Agreement dated as of September 30, 1994 between MCI and Mellon
Bank, N.A., as rights agent, as amended (the "Rights Agreement"). Since
October 31, 1997 to the date of this Agreement, there have been no
issuances of shares of the capital stock of MCI or any other securities of
MCI other than issuances of shares (and accompanying Rights) pursuant to
options or rights outstanding as of October 31, 1997 under the Benefit
Plans (as defined in Section 8.11(i)) of MCI. All issued and outstanding
shares of the capital stock of MCI are duly authorized, validly issued,
fully paid and nonassessable, and no class of capital stock (other than
Class A Common Stock) is entitled to preemptive rights. There were
outstanding as of October 31, 1997 no options, warrants or other rights to
acquire capital stock from MCI other than (v) the Rights, (w) options
representing in the aggregate the right to purchase 75,119,367 shares of
MCI Common Stock under MCI's 1989 Stock Option Plan, MCI's 1988 Directors'
Stock Option Plan and MCI's 1979 Stock Option Plan (collectively, the "MCI
Stock Option Plans"), (x) rights to purchase an aggregate of 11,876,569
shares of MCI Common Stock under the MCI 1990 Stock Purchase Plan (the
"ESPP"), (y) incentive stock units ("ISUs") representing the right to
receive 5,484,883 shares of MCI Common Stock under MCI's 1989 Stock Option
Plan and (z) rights to purchase an aggregate of 4,482,722 shares of MCI
Common Stock under MCI's 401(k) Plan. Other than the associated Rights
issued with the shares issued as described above, no options or warrants or
other rights to acquire capital stock from MCI have been issued or granted
since October 31, 1997 to the date of this Agreement.
(ii) As of the date of this Agreement, no bonds, debentures, notes or
other indebtedness of MCI having the right to vote on any matters on which
stockholders may vote ("MCI Voting Debt") are issued or outstanding.
(iii) Except as otherwise set forth in this Section 3.1(b) and as
contemplated by Section 5.7, as of the date of this Agreement, there are no
securities, options, warrants, calls, rights, commitments, agreements,
arrangements or undertakings of any kind to which MCI or any of its
Subsidiaries is a party or by which any of them is bound obligating MCI or
any of its Subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock or other voting
securities of MCI or any of its Subsidiaries or obligating MCI or any of
its Subsidiaries to issue, grant, extend or enter into any such security,
option, warrant, call, right, commitment, agreement, arrangement or
undertaking. As of the date of this Agreement, there are no outstanding
obligations of MCI or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any shares of capital stock of MCI or any of its
Subsidiaries.
(c) Authority; No Conflicts. (i) MCI has all requisite corporate power
and authority to enter into this Agreement and to consummate the
transactions contemplated hereby, subject in the case of the consummation
of the Merger to the adoption of this Agreement by the Required MCI Votes
(as defined in Section 3.1(f)). The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of MCI,
subject in the case of the consummation of the Merger to the adoption of
this Agreement by the Required MCI Votes. This Agreement has been duly
executed and delivered by MCI and constitutes a valid and binding agreement
of MCI, enforceable against it in accordance with its terms, except as such
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enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and similar laws relating to or affecting creditors generally,
by general equity principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law) or by an implied covenant
of good faith and fair dealing.
(ii) The execution and delivery of this Agreement does not or will
not, as the case may be, and the consummation of the Merger and the other
transactions contemplated hereby will not, conflict with, or result in any
violation of, or constitute a default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, amendment,
cancellation or acceleration of any obligation or the loss of a material
benefit under, or the creation of a lien, pledge, security interest, charge
or other encumbrance on any assets (any such conflict, violation, default,
right of termination, amendment, cancellation or acceleration, loss or
creation, a "Violation") pursuant to: (A) any provision of the certificate
of incorporation or by-laws of MCI or any Subsidiary of MCI, or (B) except
as would not have a Material Adverse Effect on MCI and, subject to
obtaining or making the consents, approvals, orders, authorizations,
registrations, declarations and filings referred to in paragraph (iii)
below, any loan or credit agreement, note, mortgage, bond, indenture,
lease, benefit plan or other agreement, obligation, instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to MCI or any Subsidiary of MCI or
their respective properties or assets.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, any supranational, national,
state, municipal or local government, any instrumentality, subdivision,
court, administrative agency or commission or other authority thereof, or
any quasi-governmental or private body exercising any regulatory, taxing,
importing or other governmental or quasi-governmental authority, including
the European Union (a "Governmental Entity"), is required by or with
respect to MCI or any Subsidiary of MCI in connection with the execution
and delivery of this Agreement by MCI or the consummation of the Merger and
the other transactions contemplated hereby, except for those required under
or in relation to (A) the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), and Council Regulation (EEC) No. 4064/89
("Regulation 4064/89"), (B) the Communications Act of 1934, as amended (the
"Communications Act"), and any rules, regulations, practices and policies
promulgated by the Federal Communications Commission ("FCC"), (C) state
securities or "blue sky" laws (the "Blue Sky Laws"), (D) the Securities Act
of 1933, as amended (the "Securities Act"), (E) the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), (F) the DGCL with respect to the
filing of the Delaware Certificate of Merger, (G) laws, rules, regulations,
practices and orders of any state public service commissions ("PUCs"),
foreign telecommunications regulatory agencies or similar state or foreign
regulatory bodies, (H) rules and regulations of NASDAQ, (I) antitrust or
other competition laws of other jurisdictions, and (J) such consents,
approvals, orders, authorizations, registrations, declarations and filings
the failure of which to make or obtain would not have a Material Adverse
Effect on MCI. Consents, approvals, orders, authorizations, registrations,
declarations and filings required under or in relation to any of the
foregoing clauses (A) through (I) are hereinafter referred to as "Required
Consents."
(d) Reports and Financial Statements. MCI has filed all required
reports, schedules, forms, statements and other documents required to be
filed by it with the Securities and Exchange Commission (the "SEC") since
January 1, 1996 (collectively, including all exhibits thereto, the "MCI SEC
Reports"). No Subsidiary of MCI is required to file any form, report or
other document with the SEC. None of the MCI SEC Reports, as of their
respective dates (and, if amended or superseded by a filing prior to the
date of this Agreement or the Closing Date, then on the date of such
filing), contained or will contain any untrue statement of a material fact
or omitted or will omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Each of the
financial statements (including the related notes) included in the MCI SEC
Reports presents fairly, in all material respects, the consolidated
financial position and consolidated results of operations and cash flows of
MCI and its Subsidiaries as of the respective dates or for the respective
periods set forth therein, all in conformity with United States generally
accepted accounting principles ("U.S. GAAP") consistently applied during
the periods involved except as
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otherwise noted therein, and subject, in the case of the unaudited interim
financial statements, to normal and recurring year-end adjustments that
have not been and are not expected to be material in amount. All of such
MCI SEC Reports, as of their respective dates (and as of the date of any
amendment to the respective MCI SEC Report), complied as to form in all
material respects with the applicable requirements of the Securities Act
and the Exchange Act and the rules and regulations promulgated thereunder.
(e) Information Supplied. (i) None of the information supplied or to
be supplied by MCI for inclusion or incorporation by reference in (A) the
registration statement on Form S-4 (as defined in Section 5.1) to be filed
with the SEC by WorldCom in connection with the issuance of the WorldCom
Common Stock in the Merger will, at the time the Form S-4 is filed with the
SEC, at any time it is amended or supplemented or at the time it becomes
effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and (B)
the Joint Proxy Statement/Prospectus (as defined in Section 5.1) included
in the Form S-4 related to the MCI Stockholders Meeting and the WorldCom
Stockholders Meeting (each, as defined in Section 5.1) and the WorldCom
Common Stock to be issued in the Merger will, on the date it is first
mailed to MCI stockholders or WorldCom Stockholders or at the time of the
MCI Stockholders Meeting or the WorldCom Stockholders Meeting, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(ii) Notwithstanding the foregoing provisions of this Section 3.1(e),
no representation or warranty is made by MCI with respect to statements
made or incorporated by reference in the Form S-4 or the Joint Proxy
Statement/Prospectus based on information supplied by WorldCom for
inclusion or incorporation by reference therein.
(f) Vote Required. The affirmative vote of the holders of a majority
of the outstanding shares of Ordinary Common Stock and Class A Common Stock
voting together as a single class and, if the Effective Time occurs prior
to October l, 1998, the affirmative vote of the holders of a majority of
the outstanding shares of Class A Common Stock voting separately as a
class, in either case to approve the Merger (the "Required MCI Votes"), are
the only votes of the holders of any class or series of MCI capital stock
necessary to adopt this Agreement and approve the transactions contemplated
hereby.
(g) Rights Agreement. The Rights Agreement has been amended so as to
provide that neither WorldCom nor Merger Sub will become an "Acquiring
Person," and that no "Shares Acquisition Date" or "Distribution Date" (as
such terms are defined in the Rights Agreement) will occur, as a result of
the approval, execution or delivery of this Agreement or the consummation
of the transactions contemplated hereby.
(h) Brokers or Finders. No agent, broker, investment banker, financial
advisor or other firm or Person is or will be entitled to any broker's or
finder's fee or any other similar commission or fee in connection with any
of the transactions contemplated by this Agreement, except Lazard Freres &
Co. LLC and Lehman Brothers Inc. (collectively, the "Financial Advisors"),
whose fees and expenses will be paid by MCI in accordance with MCI's
agreement with such firms, based upon arrangements made by or on behalf of
MCI and previously disclosed to WorldCom.
(i) Opinions of Financial Advisors. MCI has received the opinion of
each of the Financial Advisors, dated the date of this Agreement, to the
effect that, as of such date, the Merger Consideration is fair, from a
financial point of view, to the holders of Ordinary Common Stock (the
"Fairness Opinions"), a copy of each of which opinions have been made
available to WorldCom.
(j) Affiliate Letter. On or prior to the date of the MCI Stockholder
Meeting, MCI will deliver to WorldCom a letter (the "MCI Affiliate Letter")
identifying all persons who are "affiliates" of MCI for purposes of Rule
145 under the Securities Act ("Rule 145"). On or prior to the Closing Date,
MCI will deliver on behalf of each person identified as an "affiliate" in
the MCI Affiliate Letter (other than BT) a
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written agreement (an "Affiliate Agreement") in connection with
restrictions on affiliates under Rule 145.
3.2 Representations and Warranties of WorldCom. Except as set forth in the
WorldCom Disclosure Schedule delivered by WorldCom to MCI prior to the execution
of this Agreement (the "WorldCom Disclosure Schedule") (each section of which
qualifies the correspondingly numbered representation and warranty or covenant
to the extent specified therein), WorldCom represents and warrants to MCI as
follows:
(a) Organization, Standing and Power. Each of WorldCom and each of its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or
organization, has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted
and is duly qualified and in good standing to do business in each
jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification necessary other than in
such jurisdictions where the failure so to qualify or to be in good
standing would not, either individually or in the aggregate, have a
Material Adverse Effect on WorldCom. The copies of the certificate of
incorporation and by-laws of WorldCom which were previously furnished to
MCI are true, complete and correct copies of such documents as in effect on
the date of this Agreement.
(b) Capital Structure. (i) As of November 5, 1997, the authorized
capital stock of WorldCom consisted of (A) 2,500,000,000 shares of WorldCom
Common Stock of which 908,380,987 shares were outstanding and (B)
50,000,000 shares of Preferred Stock, par value $.01 per share, of which
(1) 94,992 shares have been designated Series A 8% Cumulative Convertible
Preferred Stock ("WorldCom Series A Preferred Stock"), of which 94,992
shares were outstanding, (2) 15,000,000 shares have been designated Series
B Preferred Stock ("WorldCom Series B Preferred Stock"), of which
12,441,817 shares were outstanding and (3) 2,500,000 shares have been
designated Series 3 Junior Participating Preferred Stock and reserved for
issuance upon exercise of the rights (the "Purchase Rights") distributed to
the holders of WorldCom Common Stock pursuant to the Rights Agreement dated
as of August 25, 1996 between WorldCom and Bank of New York, as rights
agent (the "WorldCom Rights Agreement"). Since November 5, 1997 to the date
of this Agreement, there have been no issuances of shares of the capital
stock of WorldCom or any other securities of WorldCom other than issuances
of shares pursuant to options or rights outstanding as of November 5, 1997
under the Benefit Plans (as defined in Section 8.11(h)) of WorldCom. All
issued and outstanding shares of the capital stock of WorldCom are duly
authorized, validly issued, fully paid and nonassessable, and no class of
capital stock is entitled to preemptive rights. There were outstanding as
of November 5, 1997 no options, warrants or other rights to acquire capital
stock from WorldCom other than pursuant to WorldCom's pending acquisitions
as of the date hereof. No options or warrants or other rights to acquire
capital stock from WorldCom have been issued or granted since November 5,
1997 to the date of this Agreement.
(ii) As of the date of this Agreement, no bonds, debentures, notes or
other indebtedness of WorldCom having the right to vote on any matters on
which stockholders may vote ("WorldCom Voting Debt") are issued or
outstanding.
(iii) Except as otherwise set forth in this Section 3.2(b), as of the
date of this Agreement, there are no securities, options, warrants, calls,
rights, commitments, agreements, arrangements or undertakings of any kind
to which WorldCom or any of its Subsidiaries is a party or by which any of
them is bound obligating WorldCom or any of its Subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock or other voting securities of WorldCom or any of
its Subsidiaries or obligating WorldCom or any of its Subsidiaries to
issue, grant, extend or enter into any such security, option, warrant,
call, right, commitment, agreement, arrangement or undertaking. As of the
date of this Agreement, there are no outstanding obligations of WorldCom or
any of its Subsidiaries to repurchase, redeem or otherwise acquire any
shares of capital stock of WorldCom or any of its Subsidiaries.
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(c) Authority; No Conflicts. (i) WorldCom has all requisite corporate
power and authority to enter into this Agreement and, subject to the
adoption of this Agreement by the Required WorldCom Vote (as defined in
Section 3.2(g)), to issue the shares of WorldCom Common Stock to be issued
in the Merger (the "Share Issuance"). The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of
WorldCom, subject to the approval by the stockholders of WorldCom of the
Share Issuance and the affirmative vote of a majority of the outstanding
voting power of the WorldCom Stock (as defined in Section 3.2(g)) to amend
the Certificate of Incorporation of WorldCom to change its name as set
forth in Section 5.2. This Agreement has been duly executed and delivered
by WorldCom and constitutes a valid and binding agreement of WorldCom,
enforceable against it in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and similar laws relating to or affecting creditors generally,
by general equity principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law) or by an implied covenant
of good faith and fair dealing.
(ii) The execution and delivery of this Agreement does not or will
not, as the case may be, and the consummation of the Merger and the other
transactions contemplated hereby will not, conflict with, or result in a
Violation pursuant to: (A) any provision of the certificate of
incorporation or by-laws of WorldCom or any Subsidiary of WorldCom, (B)
except as would not have a Material Adverse Effect on WorldCom and, subject
to obtaining or making the consents, approvals, orders, authorizations,
registrations, declarations and filings referred to in paragraph (iii)
below, any loan or credit agreement, note, mortgage, bond, indenture,
lease, benefit plan or other agreement, obligation, instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to WorldCom or any Subsidiary of
WorldCom or their respective properties or assets.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is
required by or with respect to WorldCom or any Subsidiary of WorldCom in
connection with the execution and delivery of this Agreement by WorldCom or
the consummation of the Merger and the other transactions contemplated
hereby, except for the Required Consents and such consents, approvals,
orders, authorizations, registrations, declarations and filings the failure
of which to make or obtain would not have a Material Adverse Effect on
WorldCom.
(d) Reports and Financial Statements. WorldCom has filed all required
reports, schedules, forms, statements and other documents required to be
filed by it with the SEC since January 1, 1996 (collectively, including all
exhibits thereto, the "WorldCom SEC Reports"). No Subsidiary of WorldCom is
required to file any form, report or other document with the SEC. None of
the WorldCom SEC Reports, as of their respective dates (and, if amended or
superseded by a filing prior to the date of this Agreement or the Closing
Date, then on the date of such filing), contained or will contain any
untrue statement of a material fact or omitted or will omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading. Each of the financial statements (including the
related notes) included in the WorldCom SEC Reports presents fairly, in all
material respects, the consolidated financial position and consolidated
results of operations and cash flows of WorldCom and its Subsidiaries as of
the respective dates or for the respective periods set forth therein, all
in conformity with U.S. GAAP consistently applied during the periods
involved except as otherwise noted therein, and subject, in the case of the
unaudited interim financial statements, to normal and recurring year-end
adjustments that have not been and are not expected to be material in
amount. All of such WorldCom SEC Reports, as of their respective dates (and
as of the date of any amendment to the respective WorldCom SEC Report),
complied as to form in all material respects with the applicable
requirements of the Securities Act and the Exchange Act and the rules and
regulations promulgated thereunder.
(e) Information Supplied. (i) None of the information supplied or to
be supplied by WorldCom for inclusion or incorporation by reference in (A)
the Form S-4 will, at the time the Form S-4 is filed with the SEC, at any
time it is amended or supplemented or at the time it becomes effective
under the Securities Act, contain any untrue statement of a material fact
or omit to state any material fact required
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to be stated therein or necessary to make the statements therein not
misleading, and (B) the Joint Proxy Statement/Prospectus will, on the date
it is first mailed to MCI stockholders or WorldCom Stockholders or at the
time of the MCI Stockholders Meeting or the WorldCom Stockholders Meeting,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The Form S-4 and the Joint Proxy Statement/Prospectus
will comply as to form in all material respects with the requirements of
the Exchange Act and the Securities Act and the rules and regulations of
the SEC thereunder.
(ii) Notwithstanding the foregoing provisions of this Section 3.2(e),
no representation or warranty is made by WorldCom with respect to
statements made or incorporated by reference in the Form S-4 or the Joint
Proxy Statement/Prospectus based on information supplied by MCI for
inclusion or incorporation by reference therein.
(f) Absence of Certain Changes or Events. Except as disclosed in the
WorldCom SEC Reports filed prior to the date of this Agreement, since
December 31, 1996 until the date hereof, WorldCom and its Subsidiaries have
not incurred any material liability, except in the ordinary course of
business consistent with past practice, nor has there been any change in
the business, financial condition or results of operations of WorldCom or
any of its Subsidiaries or any event involving WorldCom or any of its
Subsidiaries which has had, or is reasonably likely to have, a Material
Adverse Effect on WorldCom.
(g) Vote Required. The affirmative vote of holders of shares of
WorldCom Common Stock, WorldCom Series A Preferred Stock and WorldCom
Series B Preferred Stock (collectively, "WorldCom Stock") representing a
majority of the total votes cast at a meeting of the holders of outstanding
shares of WorldCom Stock all voting together as a single class (the
"Required WorldCom Vote"), is the only vote of the holders of any class or
series of WorldCom capital stock necessary to approve the Share Issuance.
The affirmative vote of holders of a majority of the outstanding voting
power of the shares of WorldCom Stock, voting together as a single class
(the "Charter Amendment Vote"), is the only vote of holders of any class or
series of WorldCom capital stock necessary to approve the amendment to
WorldCom's Certificate of Incorporation set forth in Section 5.2 (the
"Charter Amendment").
(h) Brokers or Finders. No agent, broker, investment banker, financial
advisor or other firm or Person is or will be entitled to any broker's or
finder's fee or any other similar commission or fee in connection with any
of the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of WorldCom, except Salomon Brothers Inc, whose fees
and expenses will be paid by WorldCom in accordance with WorldCom's
agreement with such firm based upon arrangements made by or on behalf of
WorldCom and previously disclosed to MCI.
(i) Affiliate Letter. On or prior to the date of the WorldCom
Stockholder Meeting, WorldCom will deliver to MCI a letter (the "WorldCom
Affiliate Letter") identifying all persons who are "affiliates" of WorldCom
for purpose of Rule 145. On or prior to the Closing Date, WorldCom will
deliver on behalf of each person identified as an "affiliate" in the
WorldCom Affiliate Letter an Affiliate Agreement in connection with
restrictions on affiliates under Rule 145.
3.3 Representations and Warranties of WorldCom and Merger Sub. WorldCom
and Merger Sub represent and warrant to MCI as follows:
(a) Organization and Corporate Power. Merger Sub is a corporation duly
incorporated, validly existing and in good standing under the laws of
Delaware. Merger Sub is a direct wholly-owned subsidiary of WorldCom.
(b) Corporate Authorization. Merger Sub has all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance
by Merger Sub of this Agreement and the consummation by Merger Sub of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Merger Sub. This Agreement has been duly
executed and delivered by Merger Sub and constitutes a
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valid and binding agreement of Merger Sub, enforceable against it in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and other similar laws
relating to or affecting creditors generally, by general equity principles
(regardless or whether such enforceability is considered in a proceeding in
equity or at law) or by an implied covenant of good faith and fair dealing.
(c) Non-Contravention. The execution, delivery and performance by
Merger Sub of this Agreement and the consummation by Merger Sub of the
transactions contemplated hereby do not and will not contravene or conflict
with the certificate of incorporation or by-laws of Merger Sub.
(d) No Business Activities. Merger Sub has not conducted any
activities other than in connection with the organization of Merger Sub,
the purchase of Ordinary Common Stock in open-market transactions, the
negotiation and execution of this Agreement and the consummation of the
transactions contemplated hereby. Merger Sub has no Subsidiaries.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1 Covenants of MCI. During the period from the date of this Agreement
and continuing until the Effective Time, MCI agrees as to itself and its
Subsidiaries that (except as expressly contemplated or permitted by this
Agreement or as otherwise indicated on the MCI Disclosure Schedule or as
required by a Governmental Entity of competent jurisdiction or to the extent
that WorldCom shall otherwise consent in writing):
(a) Ordinary Course. (i) MCI and its Subsidiaries shall carry on their
respective businesses in the usual, regular and ordinary course in all
material respects, in substantially the same manner as heretofore
conducted, and shall use all reasonable efforts to preserve intact their
present lines of business, maintain their rights and franchises and
preserve their relationships with customers, suppliers and others having
business dealings with them to the end that their ongoing businesses shall
not be impaired in any material respect at the Effective Time; provided,
however, that no action by MCI or its Subsidiaries with respect to matters
specifically addressed by any other provision of this Section 4.1 shall be
deemed a breach of this Section 4.1(a)(i) unless such action would
constitute a breach of one or more of such other provisions.
(ii) MCI shall not, and shall not permit any of its Subsidiaries to,
(A) enter into any new material line of business or (B) incur or commit to
any capital expenditures other than capital expenditures incurred or
committed to in the ordinary course of business consistent with past
practice and which, together with all such expenditures incurred or
committed to during any fiscal year, are not in excess of 105% of the
aggregate amounts set forth in Section 4.1(a) of the MCI Disclosure
Schedule.
(b) Dividends; Changes in Share Capital. MCI shall not, and shall not
permit any of its Subsidiaries to, and shall not propose to, (i) declare or
pay any dividends on or make other distributions in respect of any of its
capital stock, except (A) MCI may continue the declaration and payment of
regular semiannual cash dividends not in excess of $0.025 per share of MCI
Common Stock, in each case with usual record and payment dates for such
dividends in accordance with MCI's past practice and (B) dividends by
wholly owned Subsidiaries of MCI, (ii) split, combine or reclassify any of
its capital stock or issue or authorize or propose the issuance of any
other securities in respect of, in lieu of or in substitution for, shares
of its capital stock, except for any such transaction by a wholly owned
Subsidiary of MCI which remains a wholly owned Subsidiary after
consummation of such transaction, or (iii) repurchase, redeem or otherwise
acquire any shares of its capital stock or any securities convertible into
or exercisable for any shares of its capital stock except for the purchase
from time to time by MCI of MCI Common Stock (and the associated Rights) in
the ordinary course of business consistent with past practice in connection
with the MCI Benefit Plans.
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(c) Issuance of Securities. Except as set forth in Section 5.7, MCI
shall not, and shall not permit any of its Subsidiaries to, issue, deliver
or sell, or authorize or propose the issuance, delivery or sale of, any
shares of its capital stock of any class, any MCI Voting Debt or any
securities convertible into or exercisable for, or any rights, warrants or
options to acquire, any such shares or MCI Voting Debt, or enter into any
agreement with respect to any of the foregoing, other than (i) the issuance
of MCI Common Stock (and the associated Rights) upon the exercise of stock
options or in connection with other stock-based benefits plans outstanding
on the date hereof in accordance with their present terms, (ii) issuances
by a wholly owned Subsidiary of MCI of capital stock to such Subsidiary's
parent, (iii) issuances in accordance with the Rights Agreement or (iv)
issuances of shares, options, rights or other awards and amendments to
equity-related awards, in the ordinary course of business and consistent
with past practice pursuant to the MCI Benefit Plans.
(d) Governing Documents. Except to the extent required to comply with
their respective obligations hereunder, required by law or required by the
rules and regulations of NASDAQ, MCI and its material Subsidiaries shall
not amend, in the case of Subsidiaries, in any material respect, or propose
to amend their respective certificates of incorporation, by-laws or other
governing documents.
(e) No Acquisitions. Other than acquisitions in existing or related
lines of business of MCI the fair market value of the total consideration
(including the value of indebtedness or other liability acquired or
assumed) for which does not exceed $325 million in the aggregate, MCI shall
not, and shall not permit any of its Subsidiaries to, acquire or agree to
acquire by merging or consolidating with, or by purchasing a substantial
equity interest in or a substantial portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof or otherwise acquire or
agree to acquire any assets (other than the acquisition of assets used in
the operations of the business of MCI and its Subsidiaries in the ordinary
course); provided, however, that the foregoing shall not prohibit (x)
internal reorganizations or consolidations involving existing Subsidiaries
of MCI or (y) the creation of new Subsidiaries of MCI organized to conduct
or continue activities otherwise permitted by this Agreement.
(f) No Dispositions. Other than (i) internal reorganizations or
consolidations involving existing Subsidiaries of MCI, (ii) dispositions
referred to in MCI SEC Reports filed prior to the date of this Agreement
and (iii) as may be required by or in conformance with law or regulation in
order to permit or facilitate the consummation of the transactions
contemplated hereby, MCI shall not, and shall not permit any Subsidiary of
MCI to, sell, lease, encumber or otherwise dispose of, or agree to sell,
lease, encumber or otherwise dispose of, any of its assets (including
capital stock of Subsidiaries of MCI) which are material, individually or
in the aggregate, to MCI.
(g) Indebtedness. MCI shall not, and shall not permit any of its
Subsidiaries to, (i) make any loans, advances or capital contributions to,
or investments in, any other Person, other than by MCI or a Subsidiary of
MCI to or in MCI or any Subsidiary of MCI or (ii) pay, discharge or satisfy
any claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than indebtedness, issuances of
debt securities, guarantees, loans, advances, capital contributions,
investments, payments, discharges or satisfactions incurred or committed to
in the ordinary course of business consistent with past practice.
(h) Tax-Free Qualification. MCI shall not, and shall not permit any of
its Subsidiaries to, take any action that would prevent or impede the
Merger from qualifying as a reorganization under Section 368 of the Code.
(i) Other Actions. MCI shall not, and shall not permit any of its
Subsidiaries to, take any action that would, or that could reasonably be
expected to, result in, except as otherwise permitted by Section 5.5, any
of the conditions to the Merger set forth in Article VI not being
satisfied.
(j) Accounting Methods; Income Tax Elections. Except as disclosed in
MCI SEC Reports filed prior to the date of this Agreement, or as required
by a Governmental Entity, MCI shall not change its methods of accounting in
effect at December 31, 1996, except as required by changes in U.S. GAAP as
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concurred in by MCI's independent auditors. MCI shall not (i) change its
fiscal year or (ii) make any material Tax election, other than in the
ordinary course of business consistent with past practice, without
consultation with WorldCom.
(k) MCI Rights Agreement. Except as provided in Section 5.10, MCI
shall not amend, modify or waive any provision of the MCI Rights Agreement,
and shall not take any action to redeem the Rights or render the Rights
inapplicable to any transaction, other than to permit another transaction
that the MCI Board has determined is a Superior Proposal, to be consummated
no earlier than December 31, 1998.
4.2 Covenants of WorldCom. During the period from the date of this
Agreement and continuing until the Effective Time, WorldCom agrees as to itself
and its Subsidiaries that (except as expressly contemplated or permitted by this
Agreement or as otherwise indicated on the WorldCom Disclosure Schedule or as
required by a Governmental Entity of competent jurisdiction or to the extent
that MCI shall otherwise consent in writing):
(a) Ordinary Course. (i) WorldCom and its Subsidiaries shall carry on
their respective businesses in the usual, regular and ordinary course in
all material respects, in substantially the same manner as heretofore
conducted, and shall use all reasonable efforts to preserve intact their
present lines of business, maintain their rights and franchises and
preserve their relationships with customers, suppliers and others having
business dealings with them to the end that their ongoing businesses shall
not be impaired in any material respect at the Effective Time; provided,
however, that no action by WorldCom or its Subsidiaries with respect to
matters specifically addressed by any other provisions of this Section 4.2
shall be deemed a breach of this Section 4.2(a)(i) unless such action would
constitute a breach of one or more of such other provisions.
(ii) WorldCom shall not, and shall not permit any of its Subsidiaries
to, (A) enter into any new material line of business (other than
incidentally as part of a larger acquisition within an existing line of
business) or (B) incur or commit to any capital expenditures other than
capital expenditures incurred or committed to in the ordinary course of
business consistent with past practice.
(b) Dividends; Changes in Share Capital. WorldCom shall not, and shall
not permit any of its Subsidiaries to, and shall not propose to, (i)
declare or pay any dividends on or make other distributions in respect of
any of its capital stock, except (A) WorldCom may continue the declaration
and payment of regular quarterly cash dividends in amounts consistent with
past practice (including increases in such amounts consistent with past
practice) and (B) dividends by wholly owned Subsidiaries of WorldCom, (ii)
split, combine or reclassify any of its capital stock or issue or authorize
or propose the issuance of any other securities in respect of, in lieu of
or in substitution for, shares of its capital stock, except for any such
transaction by a wholly owned Subsidiary of WorldCom which remains a wholly
owned Subsidiary after consummation of such transaction, (iii) repurchase,
redeem or otherwise acquire any shares of its capital stock or any
securities convertible into or exercisable for any shares of its capital
stock except for the purchase from time to time by WorldCom of WorldCom
Common Stock in the ordinary course of business consistent with past
practice in connection with share options, share incentive schemes, profit
sharing schemes or other benefit plans of WorldCom or repurchases of shares
of WorldCom Common Stock in open market or privately negotiated
transactions other than during the Measurement Period.
(c) Issuance of Securities. WorldCom shall not, and shall not permit
any of its Subsidiaries to, issue, deliver or sell, or authorize or propose
the issuance, delivery or sale of, any shares of its capital stock of any
class, any WorldCom Voting Debt or any securities convertible into or
exercisable for, or any rights, warrants or options to acquire, any such
shares or WorldCom Voting Debt, or enter into any agreement with respect to
any of the foregoing, other than (i) the issuance of WorldCom Common Stock
upon the exercise of stock options, (ii) issuances by a wholly owned
Subsidiary of WorldCom of capital stock to such Subsidiary's parent or
another wholly owned Subsidiary of WorldCom, (iii) issuances of options,
awards, and amendments to equity-related awards pursuant to WorldCom
benefit plans as in effect from time to time, (iv) issuances in accordance
with the WorldCom Rights Agreement or
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(v) issuances in respect of any acquisitions by WorldCom or its
subsidiaries that are currently pending ("WorldCom Pending Acquisitions")
on the date hereof or are permitted pursuant to Section 4.2(e).
(d) Governing Documents. Except to the extent required to comply with
their respective obligations hereunder, required by law or required by the
rules and regulations of NASDAQ, WorldCom and its material Subsidiaries
shall not amend, in the case of Subsidiaries, in any material respect, or
propose to amend their respective certificates of incorporation, by-laws or
other governing documents.
(e) No Acquisitions. Other than acquisitions in existing or related
lines of business of WorldCom the fair market value of the total
consideration (including the value of indebtedness or other liability
acquired or assumed) for which does not exceed $525 million in the
aggregate and other than WorldCom Pending Acquisitions, WorldCom, shall
not, and shall not permit any of its Subsidiaries to, acquire or agree to
acquire by merging or consolidating with, or by purchasing a substantial
equity interest in or a substantial portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof or otherwise acquire or
agree to acquire any assets (other than the acquisition of assets used in
the ordinary course); provided, however, that the foregoing shall not
prohibit (x) internal reorganizations or consolidations involving existing
Subsidiaries of WorldCom or (y) the creation of new Subsidiaries of
WorldCom organized to conduct or continue activities otherwise permitted by
this Agreement.
(f) No Dispositions. Other than (i) internal reorganizations or
consolidations involving existing Subsidiaries of WorldCom, (ii)
dispositions referred to in WorldCom SEC Reports filed prior to the date of
this Agreement and (iii) as may be required by or in conformance with law
or regulation in order to permit or facilitate the consummation of the
transactions contemplated hereby, WorldCom shall not, and shall not permit
any Subsidiary of WorldCom to, sell, lease, encumber or otherwise dispose
of, any of its assets (including capital stock of Subsidiaries of WorldCom)
which are material, individually or in the aggregate, to WorldCom.
(g) Indebtedness. WorldCom shall not, and shall not permit any of its
Subsidiaries to, (i) make any loans, advances or capital contributions to,
or investments in, any other Person, other than by WorldCom or a Subsidiary
of WorldCom to or in WorldCom or any Subsidiary of WorldCom or (ii) pay,
discharge or satisfy any claims, liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than
indebtedness, issuances of debt securities, guarantees, loans, advances,
capital contributions, investments, payments, discharges or satisfactions
incurred or committed to in the ordinary course of business consistent with
past practice.
(h) Tax-Free Qualification. WorldCom shall not, and shall not permit
any of its Subsidiaries to, take any action that would prevent or impede
the Merger from qualifying as a reorganization under Section 368 of the
Code.
(i) Other Actions. WorldCom shall not, and shall not permit any of
its Subsidiaries to, take any action that would, or that could reasonably
be expected to, result in any of the conditions to the Merger set forth in
Article VI not being satisfied.
(j) Accounting Methods; Income Tax Elections. Except as disclosed in
WorldCom SEC Reports filed prior to the date of this Agreement, or as
required by a Governmental Entity, WorldCom shall not change its methods of
accounting in effect at December 31, 1996, except as required by changes in
U.S. GAAP as concurred in by WorldCom's independent auditors. WorldCom
shall not (i) change its fiscal year or (ii) make any material Tax
election, other than in the ordinary course of business consistent with
past practice, without consultation with MCI.
(k) Acquisition Proposals. WorldCom shall not, and shall not permit
any of its Subsidiaries to, enter into any agreement with respect to or
consummate any transaction contemplated by an Acquisition Proposal (as
defined in Section 5.5).
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(l) WorldCom Rights Agreement. WorldCom shall not amend, modify or
waive any provision of the WorldCom Rights Agreement and shall not take any
action to redeem the WorldCom Rights or render the WorldCom Rights
inapplicable to any transaction.
4.3 Advice of Changes; Governmental Filings. Each party shall (a) confer
on a regular and frequent basis with the other and (b) report (to the extent
permitted by law or regulation or any applicable confidentiality agreement) on
operational matters. MCI and WorldCom shall file all reports required to be
filed by each of them with the SEC (and all other Governmental Entities) between
the date of this Agreement and the Effective Time and shall (to the extent
permitted by law or regulation or any applicable confidentiality agreement)
deliver to the other party copies of all such reports, announcements and
publications promptly after the same are filed. Subject to applicable laws
relating to the exchange of information, each of MCI and WorldCom shall have the
right to review in advance, and will consult with the other with respect to, all
the information relating to the other party and each of their respective
Subsidiaries, which appears in any filings, announcements or publications made
with, or written materials submitted to, any third party or any Governmental
Entity in connection with the transactions contemplated by this Agreement. In
exercising the foregoing right, each of the parties hereto agrees to act
reasonably and as promptly as practicable. Each party agrees that, to the extent
practicable and as timely as practicable, it will consult with, and provide all
appropriate and necessary assistance to, the other party with respect to the
obtaining of all permits, consents, approvals and authorizations of all third
parties and Governmental Entities necessary or advisable to consummate the
transactions contemplated by this Agreement and each party will keep the other
party apprised of the status of matters relating to completion of the
transactions contemplated hereby.
4.4 Transition Planning. Bernard J. Ebbers, as Chief Executive Officer of
WorldCom, and Gerald H. Taylor, as Chief Executive Officer of MCI, jointly shall
be responsible for coordinating all aspects of transition planning and
implementation relating to the Merger and the other transactions contemplated
hereby. If either such person ceases to be Chief Executive Officer of his
company for any reason, such person's successor shall assume his predecessor's
responsibilities under this Section 4.4. During the period between the date of
this Agreement and the Effective Time, Messrs. Ebbers and Taylor jointly shall
(i) examine various alternatives regarding the manner in which to best organize
and manage the businesses of WorldCom and MCI after the Effective Time and (ii)
coordinate policies and strategies with respect to regulatory authorities and
bodies, in all cases subject to applicable law and regulation.
4.5 Control of Other Party's Business. Nothing contained in this Agreement
shall give MCI, directly or indirectly, the right to control or direct
WorldCom's operations prior to the Effective Time. Nothing contained in this
Agreement shall give WorldCom, directly or indirectly, the right to control or
direct MCI's operations prior to the Effective Time. Prior to the Effective
Time, each of MCI and WorldCom shall exercise, consistent with the terms and
conditions of this Agreement, complete control and supervision over its
respective operations.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Preparation of Proxy Statement; MCI Stockholders Meeting. (a) As
promptly as practicable following the date hereof, WorldCom shall, in
cooperation with MCI, prepare and file with the SEC preliminary proxy materials
which shall constitute the Joint Proxy Statement/Prospectus (such proxy
statement/prospectus, and any amendments or supplements thereto, the "Joint
Proxy Statement/Prospectus") and an amendment to its existing registration
statement on Form S-4 with respect to the issuance of WorldCom Common Stock in
the Merger (the "Form S-4"). The Joint Proxy Statement/Prospectus will be
included in the Form S-4 as WorldCom's prospectus. The Form S-4 and the Joint
Proxy Statement/ Prospectus shall comply as to form in all material respects
with the applicable provisions of the Securities Act and the Exchange Act and
the rules and regulations thereunder. Each of WorldCom and MCI shall use all
reasonable efforts to have the Form S-4 cleared by the SEC as promptly as
practicable after filing with the SEC and to keep the Form S-4 effective as long
as is necessary to consummate the Merger. WorldCom shall,
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as promptly as practicable after receipt thereof, provide copies of any written
comments received from the SEC with respect to the Joint Proxy
Statement/Prospectus to MCI and advise MCI of any oral comments with respect to
the Proxy Statement/Prospectus received from the SEC. WorldCom agrees that none
of the information supplied or to be supplied by WorldCom for inclusion or
incorporation by reference in the Joint Proxy Statement/Prospectus and each
amendment or supplement thereto, at the time of mailing thereof and at the time
of the MCI Stockholders Meeting or the WorldCom Stockholders Meeting, will
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. MCI
agrees that none of the information supplied or to be supplied by MCI for
inclusion or incorporation by reference in the Joint Proxy Statement/Prospectus
and each amendment or supplement thereto, at the time of mailing thereof and at
the time of the MCI Stockholders Meeting or the WorldCom Stockholders Meeting,
will contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. For
purposes of the foregoing, it is understood and agreed that information
concerning or related to WorldCom and the WorldCom Stockholders Meeting will be
deemed to have been supplied by WorldCom and information concerning or related
to MCI and the MCI Stockholders Meeting shall be deemed to have been supplied by
MCI. WorldCom will provide MCI with a reasonable opportunity to review and
comment on any amendment or supplement to the Joint Proxy Statement/Prospectus
prior to filing such with the SEC, and will provide MCI with a copy of all such
filings made with the SEC. No amendment or supplement to the information
supplied by MCI for inclusion in the Joint Proxy Statement/Prospectus shall be
made without the approval of MCI, which approval shall not be unreasonably
withheld or delayed.
(b) MCI shall, as promptly as practicable following the execution of this
Agreement, duly call, give notice of, convene and hold a meeting of its
stockholders (the "MCI Stockholders Meeting") for the purpose of obtaining the
Required MCI Votes with respect to the transactions contemplated by this
Agreement, shall take all lawful action to solicit the adoption of this
Agreement by the Required MCI Votes and the Board of Directors of MCI shall
recommend adoption of this Agreement by the stockholders of MCI. Without
limiting the generality of the foregoing but subject to its rights pursuant to
Sections 5.5 and 7.1(f), MCI agrees that its obligations pursuant to the first
sentence of this Section 5.1(b) shall not be affected by the commencement,
public proposal, public disclosure or communication to MCI of any Acquisition
Proposal.
(c) WorldCom shall, as promptly as practicable following the execution of
this Agreement, duly call, give notice of, convene and hold a meeting of its
stockholders (the "WorldCom Stockholders Meeting") for the purpose of obtaining
the Required WorldCom Vote and the Charter Amendment Vote, shall take all lawful
action to solicit the approval of the Share Issuance and the Charter Amendment
by the Required WorldCom Vote and the Charter Amendment Vote and the Board of
Directors of WorldCom shall recommend approval of the transactions contemplated
by this Agreement by the stockholders of WorldCom.
5.2 WorldCom Board of Directors; Officers; Headquarters; MCI Name. (a)
WorldCom shall take all necessary action to reconstitute the Board of Directors
of WorldCom as of the Effective Time in accordance with Exhibit 5.2(a) hereto.
(b) WorldCom shall take all necessary action to cause Bert C. Roberts, Jr.
to be appointed Chairman of WorldCom as of the Effective Time.
(c) WorldCom shall take all action necessary to cause the senior
management of WorldCom to be as previously agreed between the parties.
(d) As of the Effective Time, WorldCom shall be headquartered in Jackson,
Mississippi and the Surviving Corporation shall be headquartered in Washington
D.C.
(e) [Intentionally Omitted]
(f) WorldCom shall take all action necessary to amend its Certificate of
Incorporation as of the Effective Time to change its name to "MCI WorldCom".
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5.3 Access to Information. Upon reasonable notice, MCI shall (and shall
cause its Subsidiaries to) afford to the officers, employees, accountants,
counsel, financial advisors and other representatives of WorldCom reasonable
access during normal business hours, during the period prior to the Effective
Time, to all its properties, books, contracts, commitments and records and,
during such period, MCI shall (and shall cause its Subsidiaries to) furnish
promptly to WorldCom (a) a copy of each report, schedule, registration statement
and other document filed, published, announced or received by it during such
period pursuant to the requirements of Federal or state securities laws, as
applicable (other than reports or documents which such party is not permitted to
disclose under applicable law), and (b) consistent with its legal obligations,
all other information concerning its business, properties and personnel as such
other party may reasonably request; provided, however, that MCI may restrict the
foregoing access to the extent that (i) a Governmental Entity requires MCI or
any of its Subsidiaries to restrict access to any properties or information
reasonably related to any such contract on the basis of applicable laws and
regulations with respect to national security matters or (ii) any law, treaty,
rule or regulation of any Governmental Entity applicable to MCI requires MCI or
its Subsidiaries to restrict access to any properties or information. The
parties will hold any such information which is non-public in confidence to the
extent required by, and in accordance with, the provisions of the letter dated
October 16, 1997 between MCI and WorldCom (the "Confidentiality Agreement"). Any
investigation by WorldCom or MCI shall not affect the representations and
warranties of MCI or WorldCom, as the case may be.
5.4 Best Efforts. (a) Subject to the terms and conditions of this
Agreement, each party will use its best efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate the Merger and the
other transactions contemplated by this Agreement as soon as practicable after
the date hereof. In furtherance and not in limitation of the foregoing, each
party hereto agrees to make, to the extent it has not already done so, an
appropriate filing of a Notification and Report Form pursuant to the HSR Act
with respect to the transactions contemplated hereby as promptly as practicable
and in any event within five business days of the date hereof and to supply as
promptly as practicable any additional information and documentary material that
may be requested pursuant to the HSR Act and to take all other actions necessary
to cause the expiration or termination of the applicable waiting periods under
the HSR Act as soon as practicable.
(b) Each of WorldCom and MCI shall, in connection with the efforts
referenced in Section 5.4(a) to obtain all requisite approvals and
authorizations for the transactions contemplated by this Merger Agreement under
the HSR Act or any other Regulatory Law (as defined below), use its best efforts
to (i) cooperate in all respects with each other in connection with any filing
or submission and in connection with any investigation or other inquiry,
including any proceeding initiated by a private party; (ii) promptly inform the
other party of any communication received by such party from, or given by such
party to, the FCC, PUCs, the Antitrust Division of the Department of Justice
(the "DOJ") or any other Governmental Entity and of any material communication
received or given in connection with any proceeding by a private party, in each
case regarding any of the transactions contemplated hereby, and (iii) permit the
other party to review any communication given by it to, and consult with each
other in advance of any meeting or conference with, the FCC, PUCs, the DOJ or
any such other Governmental Entity or, in connection with any proceeding by a
private party, with any other Person, and to the extent permitted by the FCC,
PUCs, the DOJ or such other applicable Governmental Entity or other Person, give
the other party the opportunity to attend and participate in such meetings and
conferences. For purposes of this Agreement, "Regulatory Law" means the Sherman
Act, as amended, the Clayton Act, as amended, the HSR Act, the Federal Trade
Commission Act, as amended, the Federal Communications Act, as amended, and all
other federal, state and foreign, if any, statutes, rules, regulations, orders,
decrees, administrative and judicial doctrines and other laws that are designed
or intended to prohibit, restrict or regulate actions having the purpose or
effect of monopolization or restraint of trade or lessening of competition,
whether in the communications industry or otherwise through merger or
acquisition.
(c) In furtherance and not in limitation of the covenants of the parties
contained in Sections 5.4(a) and 5.4(b), if any administrative or judicial
action or proceeding, including any proceeding by a private party, is instituted
(or threatened to be instituted) challenging any transaction contemplated by
this Agreement as violative of any Regulatory Law, each of WorldCom and MCI
shall cooperate in all respects with each other
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and use its respective best efforts to contest and resist any such action or
proceeding and to have vacated, lifted, reversed or overturned any decree,
judgment, injunction or other order, whether temporary, preliminary or
permanent, that is in effect and that prohibits, prevents or restricts
consummation of the transactions contemplated by this Agreement. Notwithstanding
the foregoing or any other provision of this Agreement, nothing in this Section
5.4 shall limit a party's right to terminate this Agreement pursuant to Section
7.1(b) or 7.1(c) so long as such party has up to then complied in all respects
with its obligations under this Section 5.4.
(d) If any objections are asserted with respect to the transactions
contemplated hereby under any Regulatory Law or if any suit is instituted by any
Governmental Entity or any private party challenging any of the transactions
contemplated hereby as violative of any Regulatory Law, each of WorldCom and MCI
shall use its best efforts to resolve any such objections or challenge as such
Governmental Entity or private party may have to such transactions under such
Regulatory Law so as to permit consummation of the transactions contemplated by
this Agreement.
(e) Each of WorldCom, Merger Sub and MCI shall use its best efforts to
cause the Merger to qualify and will not (both before and after consummation of
the Merger) take any actions which to its knowledge could reasonably be expected
to prevent the Merger from qualifying, as a reorganization under the provisions
of Section 368 of the Code.
5.5 Acquisition Proposals. Each of WorldCom and MCI agrees that neither it
nor any of its Subsidiaries nor any of the officers and directors of it or its
Subsidiaries shall, and that it shall direct and use its best efforts to cause
its and its Subsidiaries' employees, agents and representatives (including any
investment banker, attorney or accountant retained by it or any of its
Subsidiaries) not to, directly or indirectly, initiate, solicit, encourage or
otherwise facilitate (including by way of furnishing information) any inquiries
or the making of any proposal or offer with respect to a merger, reorganization,
share exchange, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving, or any purchase or
sale of all or any significant portion of the assets or 10% or more of the
equity securities of, it or any of its Subsidiaries that, in any such case,
could reasonably be expected to interfere with the completion of the Merger or
the other transactions contemplated by this Agreement (any such proposal or
offer being hereinafter referred to as an "Acquisition Proposal"). Each of
WorldCom and MCI further agrees that neither it nor any of its Subsidiaries nor
any of the officers and directors of it or its Subsidiaries shall, and that it
shall direct and use its best efforts to cause its and its Subsidiaries'
employees, agents and representatives (including any investment banker, attorney
or accountant retained by it or any of its Subsidiaries) not to, directly or
indirectly, have any discussion with or provide any confidential information or
data to any Person relating to an Acquisition Proposal, or engage in any
negotiations concerning an Acquisition Proposal, or otherwise facilitate any
effort or attempt to make or implement an Acquisition Proposal or accept an
Acquisition Proposal. Notwithstanding the foregoing, MCI or its Board of
Directors shall be permitted to (A) to the extent applicable, comply with Rule
14e-2(a) promulgated under the Exchange Act with regard to an Acquisition
Proposal, (B) in response to an unsolicited bona fide written Acquisition
Proposal by any Person, recommend such an unsolicited bona fide written
Acquisition Proposal to the stockholders of MCI, or withdraw or modify in any
adverse manner its approval or recommendation of this Agreement or (C) engage in
any discussions or negotiations with, or provide any information to, any Person
in response to an unsolicited bona fide written Acquisition Proposal by any such
Person, if and only to the extent that, in any such case as is referred to in
clause (B) or (C), (i) the MCI Stockholders Meeting shall not have occurred,
(ii) the Board of Directors of MCI concludes in good faith that such Acquisition
Proposal (x) in the case of clause (B) above would, if consummated, constitute a
Superior Proposal or (y) in the case of clause (C) above could reasonably be
expected to constitute a Superior Proposal, (iii) prior to providing any
information or data to any Person in connection with an Acquisition Proposal by
any such Person, the MCI Board of Directors receives from such Person an
executed confidentiality agreement on terms substantially similar to those
contained in the Confidentiality Agreement and (iv) prior to providing any
information or data to any Person or entering into discussions or negotiations
with any Person, the Board of Directors of MCI notifies WorldCom immediately of
such inquiries, proposals or offers received by, any such information requested
from, or any such discussions or negotiations sought to be initiated or
continued with, any of its representatives indicating, in connection with such
notice, the name of such Person and the material terms and
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conditions of any proposals or offers. MCI agrees that it will keep WorldCom
informed, on a current basis, of the status and terms of any such proposals or
offers and the status of any such discussions or negotiations. Each of WorldCom
and MCI agrees that it will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any Acquisition Proposal. Each of WorldCom and MCI
agrees that it will take the necessary steps to promptly inform the individuals
or entities referred to in the first sentence of this Section 5.5 of the
obligations undertaken in this Section 5.5. Nothing in this Section 5.5 shall
(x) permit either WorldCom or MCI to terminate this Agreement (except as
specifically provided in Article VII hereof) or (y) affect any other obligation
of MCI or WorldCom under this Agreement.
5.6 [Intentionally Omitted]
5.7 Stock Options and Other Stock Plans; Employee Benefits Matters. MCI
and WorldCom will agree to provisions with respect to MCI's stock options and
other stock plans and treatment of MCI's officers and employees as set forth in
Exhibit 5.7 hereto.
5.8 Fees and Expenses. Whether or not the Merger is consummated, all
Expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such Expenses, except
(a) if the Merger is consummated, the Surviving Corporation shall pay, or cause
to be paid, any and all property or transfer taxes imposed on MCI or its
Subsidiaries and any real property transfer tax imposed on any holder of shares
of capital stock of MCI resulting from the Merger, (b) Expenses incurred in
connection with the filing, printing and mailing of the Joint Proxy
Statement/Prospectus, which shall be shared equally by WorldCom and MCI and (c)
as provided in Section 7.2. As used in this Agreement, "Expenses" includes all
out-of-pocket expenses (including, without limitation, all fees and expenses of
counsel, accountants, investment bankers, experts and consultants to a party
hereto and its affiliates) incurred by a party or on its behalf in connection
with or related to the authorization, preparation, negotiation, execution and
performance of this Agreement and the transactions contemplated hereby,
including the preparation, printing, filing and mailing of the Joint Proxy
Statement/Prospectus and the solicitation of stockholder approvals and all other
matters related to the transactions contemplated hereby.
5.9 Directors' and Officers' Insurance. The Surviving Corporation shall
cause to be maintained in effect in its certificate of incorporation and by-laws
(i) for a period of six years after the Effective Time, the current provisions
regarding elimination of liability of directors and indemnification of officers,
directors and employees contained in the certificate of incorporation and
by-laws of MCI and (ii) for a period of six years, the current policies of
directors' and officers' liability insurance and fiduciary liability insurance
maintained by MCI (provided that the Surviving Corporation may substitute
therefor policies of at least the same coverage and amounts containing terms and
conditions which are, in the aggregate, no less advantageous to the insured)
with respect to claims arising from facts or events that occurred on or before
the Effective Time; provided, however, that in no event shall the Surviving
Corporation be required to expend in any one year an amount in excess of 200% of
the annual premiums currently paid by MCI for such insurance; and, provided,
further, that if the annual premiums of such insurance coverage exceed such
amount, the Surviving Corporation shall be obligated to obtain a policy with the
greatest coverage available for a cost not exceeding such amount.
5.10 Rights Agreement. The Board of Directors of MCI shall take all
further action (in addition to that referred to in Section 3.1(g)) necessary
(including redeeming the Rights immediately prior to the Effective Time or
amending the Rights Agreement) in order to render the Rights inapplicable to the
Merger and the other transactions contemplated by this Agreement.
5.11 Public Announcements. MCI and WorldCom shall use all reasonable
efforts to develop a joint communications plan and each party shall use all
reasonable efforts (i) to ensure that all press releases and other public
statements with respect to the transactions contemplated hereby shall be
consistent with such joint communications plan, and (ii) unless otherwise
required by applicable law or by obligations pursuant to any listing agreement
with or rules of any securities exchange, to consult with each other before
issuing any press release or otherwise making any public statement with respect
to this Agreement or the transactions contemplated hereby.
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5.12 Accountants' Letters. Upon reasonable notice from the other, MCI and
WorldCom shall use their respective reasonable best efforts to cause Price
Waterhouse LLP and Arthur Andersen LLP, respectively, to deliver to WorldCom or
MCI, as the case may be, a letter, dated within two business days of the
Effective Time of the Form S-4 covering such matters as are requested by
WorldCom or MCI, as the case may be, and as are customarily addressed in
accountant's "comfort" letters. In connection with WorldCom's efforts to obtain
such letter, if requested by Arthur Andersen LLP, MCI shall provide a
representation letter to Arthur Andersen LLP complying with the statement on
Auditing Standards No. 72 ("SAS 72"), if then required. In connection with MCI's
efforts to obtain such letter, if requested by Price Waterhouse LLP, WorldCom
shall provide a representation letter to Price Waterhouse LLP complying with SAS
72, if then required.
5.13 Listing of Shares of WorldCom Common Stock. WorldCom shall use its
best efforts to cause the shares of WorldCom Common Stock to be issued in the
Merger to be approved for quotation, upon official notice of issuance, on
NASDAQ.
5.14 Voting Trust. If at any time prior to the MCI Stockholders Meeting a
third party shall make an unsolicited tender or exchange offer to acquire
control of MCI, which offer is not recommended by MCI's Board of Directors, then
WorldCom and MCI will use their reasonable best efforts to consummate the
transactions contemplated hereby by implementing a "voting trust" or similar
structure permitting consummation of the transactions contemplated hereby prior
to the receipt of final FCC and PUC approvals.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
obligations of MCI, WorldCom and Merger Sub to effect the Merger are subject to
the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Stockholder Approval. (i) MCI shall have obtained the Required MCI
Votes in connection with the adoption of this Agreement by the stockholders
of MCI and (ii) WorldCom shall have obtained the Required WorldCom Vote in
connection with the approval of the Share Issuance by the stockholders of
WorldCom.
(b) No Injunctions or Restraints, Illegality. No Laws shall have been
adopted or promulgated, and no temporary restraining order, preliminary or
permanent injunction or other order issued by a court or other Governmental
Entity of competent jurisdiction shall be in effect, having the effect of
making the Merger illegal or otherwise prohibiting consummation of the
Merger; provided, however, that the provisions of this Section 6.1(b) shall
not be available to any party whose failure to fulfill its obligations
pursuant to Section 5.4 shall have been the cause of, or shall have
resulted in, such order or injunction.
(c) FCC and Public Utility Commission Approvals. All approvals for the
Merger from the FCC and from the PUCs shall have been obtained other than
those the failure of which to be obtained would not reasonably be expected
to have individually or in the aggregate a Material Adverse Effect on
WorldCom and its Subsidiaries (including the Surviving Corporation).
(d) HSR Act. The waiting period (and any extension thereof) applicable
to the Merger under the HSR Act shall have been terminated or shall have
expired.
(e) EU Antitrust. WorldCom and MCI shall have received in respect of
the Merger and any matters arising therefrom: confirmation by way of a
decision from the Commission of the European Union under Regulation 4064.89
(with or without the initiation of proceedings under Article 6(1)(c)
thereof) that the Merger and any matters arising therefrom are compatible
with the common market.
(f) NASDAQ Listing. The shares of WorldCom Common Stock to be issued
in the Merger shall have been approved upon official notice of issuance for
quotation on NASDAQ.
(g) Effectiveness of the Form S-4. The Form S-4 shall have been
declared effective by the SEC under the Securities Act. No stop order
suspending the effectiveness of the Form S-4 shall have been
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issued by the SEC and no proceedings for that purpose shall have been
initiated or threatened by the SEC.
6.2 Additional Conditions to Obligations of WorldCom and Merger Sub. The
obligations of WorldCom and Merger Sub to effect the Merger are subject to the
satisfaction of, or waiver by WorldCom, on or prior to the Closing Date of the
following conditions:
(a) Representations and Warranties. Each of the representations and
warranties of MCI set forth in this Agreement that is qualified as to
materiality shall have been true and correct on the date of this Agreement,
and each of the representations and warranties of MCI that is not so
qualified shall have been true and correct in all material respects on the
date of this Agreement, and WorldCom shall have received a certificate of
the chief executive officer and the chief financial officer of MCI to such
effect.
(b) Performance of Obligations of MCI. MCI shall have performed or
complied with all agreements and covenants required to be performed by it
under this Agreement at or prior to the Closing Date that are qualified as
to materiality and shall have performed or complied in all material
respects with all other agreements and covenants required to be performed
by it under this Agreement at or prior to the Closing Date that are not so
qualified as to materiality, and WorldCom shall have received a certificate
of the chief executive officer and the chief financial officer of MCI to
such effect.
(c) Tax Opinion. WorldCom shall have received from Cravath, Swaine &
Moore, counsel to WorldCom, on the Closing Date, a written opinion dated as
of such date substantially in the form of Exhibit 6.2(c)(1). In rendering
such opinion, counsel to WorldCom shall be entitled to rely upon
representations of officers of WorldCom and MCI substantially in the form
of Exhibits 6.2(c)(3) and 6.2(c)(4).
6.3 Additional Conditions to Obligations of MCI. The obligations of MCI to
effect the Merger are subject to the satisfaction of, or waiver by MCI, on or
prior to the Closing Date of the following additional conditions:
(a) Representations and Warranties. Each of the representations and
warranties of WorldCom and Merger Sub set forth in this Agreement that is
qualified as to materiality shall have been true and correct on the date of
this Agreement, and each of the representations and warranties of each of
WorldCom and Merger Sub that is not so qualified shall have been true and
correct in all material respects on the date of this Agreement, and MCI
shall have received a certificate of the chief executive officer and the
chief financial officer of WorldCom to such effect.
(b) Performance of Obligations of WorldCom. WorldCom shall have
performed or complied with all agreements and covenants required to be
performed by it under this Agreement at or prior to the Closing Date that
are qualified as to materiality and shall have performed or complied in all
material respects with all agreements and covenants required to be
performed by it under this Agreement at or prior to the Closing Date that
are not so qualified as to materiality, and MCI shall have received a
certificate of the chief executive officer and the chief financial officer
of WorldCom to such effect.
(c) Tax Opinion. MCI shall have received from Simpson Thacher &
Bartlett, counsel to MCI, on the Closing Date, a written opinion dated as
of such date substantially in the form of Exhibit 6.2(c)(2). In rendering
such opinion, counsel to MCI shall be entitled to rely upon representations
of officers of WorldCom and MCI substantially in the form of Exhibits
6.2(c)(3) and 6.2(c)(4).
(d) No Material Adverse Change. Since the date of this Agreement,
WorldCom and its Subsidiaries shall not have incurred any material
liability, except in the ordinary course of business consistent with past
practice, nor shall there have been any adverse change, circumstance or
effect that, individually or in the aggregate with all other adverse
changes, circumstances and effects, is or is reasonably likely to be
materially adverse to the business, financial condition or results of
operations of WorldCom and its Subsidiaries taken as a whole, other than
any change, circumstance or effect relating to (i) the economy or
securities markets in general or (ii) the industries in which WorldCom or
MCI operate and not specifically relating to WorldCom or MCI.
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ARTICLE VII
TERMINATION AND AMENDMENT
7.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, by action taken or authorized by the Board of Directors of the
terminating party or parties, and except as provided below, whether before or
after approval of the matters presented in connection with the Merger by the
stockholders of MCI or WorldCom:
(a) By mutual written consent of WorldCom and MCI, by action of their
respective Boards of Directors;
(b) By either MCI or WorldCom if the Effective Time shall not have
occurred on or before December 31, 1998 (the "Termination Date"); provided,
however, that the right to terminate this Agreement under this Section
7.1(b) shall not be available to any party whose failure to fulfill any
obligation under this Agreement (including without limitation Section 5.4)
has to any extent been the cause of, or resulted in, the failure of the
Effective Time to occur on or before the Termination Date;
(c) By either MCI or WorldCom if (x) any Governmental Entity (i) shall
have issued an order, decree or ruling or taken any other action (which the
parties shall have used their best efforts to resist, resolve or lift, as
applicable, in accordance with Section 5.4) permanently restraining,
enjoining or otherwise prohibiting the transactions contemplated by this
Agreement, and such order, decree, ruling or other action shall have become
final and nonappealable or (ii) shall have failed to issue an order, decree
or ruling or to take any other action (which order, decree, ruling or other
action the parties shall have used their best efforts to obtain, in
accordance with Section 5.4), in each case (i) and (ii) which is necessary
to fulfill the conditions set forth in subsections 6.1(c), (d) and (e), as
applicable, and such denial of a request to issue such order, decree,
ruling or take such other action shall have become final and nonappealable;
provided, however, that the right to terminate this Agreement under this
Section 7.1(c) shall not be available to any party whose failure to comply
with Section 5.4 has to any extent been the cause of such action or
inaction;
(d) By either MCI or WorldCom if the approval by the stockholders of
MCI or of WorldCom required for the consummation of the Merger shall not
have been obtained by reason of the failure to obtain the Required MCI
Votes or the Required WorldCom Vote, as the case may be, at a duly held
meeting of stockholders of MCI or WorldCom, as the case may be, or at any
adjournment thereof;
(e) By WorldCom if the Board of Directors of MCI, prior to the MCI
Stockholders Meeting (i) shall withdraw or modify in any adverse manner its
approval or recommendation of this Agreement pursuant to Section 5.5, (ii)
shall approve or recommend a Superior Proposal pursuant to Section 5.5 or
(iii) shall resolve to take any of the actions specified in clauses (i) or
(ii) above; or
(f) By MCI at any time prior to the MCI Stockholders Meeting, upon two
Business Days' prior notice to WorldCom, if the Board of Directors of MCI
shall approve a Superior Proposal; provided, however, that (i) MCI shall
have complied with Section 5.5, (ii) the Board of Directors of MCI shall
have concluded in good faith, after giving effect to all concessions which
may be offered by WorldCom pursuant to clause (iii) below, on the basis of
the advice of its financial advisors and outside counsel, that such
proposal is a Superior Proposal and (iii) prior to any such termination,
MCI shall, and shall cause its financial and legal advisors to, negotiate
with WorldCom to make such adjustments in the terms and conditions of this
Agreement as would enable WorldCom to proceed with the transactions
contemplated hereby; provided, however, that it shall be a condition to
termination by MCI pursuant to this Section 7.1(f) that MCI shall have made
the payment of the WorldCom Alternative Transaction Fee to WorldCom
required by Section 7.2(b).
Notwithstanding anything else contained in this Agreement, the right to
terminate this Agreement under this Section 7.1 shall not be available to any
party (a) that is in material breach of its obligations hereunder or (b) whose
failure to fulfill its obligations or to comply with its covenants under this
Agreement has been the cause of, or resulted in, the failure to satisfy any
condition to the obligations of either party hereunder.
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7.2 Effect of Termination. (a) In the event of termination of this
Agreement by either MCI or WorldCom as provided in Section 7.1, this Agreement
shall forthwith become void and there shall be no liability or obligation on the
part of WorldCom or MCI or their respective officers or directors except with
respect to Section 3.1(h), Section 3.2(h), Section 4.1(k), the second sentence
of Section 5.3, Section 5.8, this Section 7.2 and Article VIII.
(b) WorldCom and MCI agree that (i) if MCI shall terminate this Agreement
pursuant to Section 7.1(f) or (ii) if (x) MCI or WorldCom shall terminate this
Agreement pursuant to Section 7.1(d) due to the failure of MCI's stockholders to
approve and adopt this Agreement or WorldCom shall terminate this Agreement
pursuant to Section 7.1(e), (y) at the time of the event giving rise to such
termination there shall exist an Acquisition Proposal with respect to MCI and
(z) within 12 months of the termination of this Agreement, MCI enters into a
definitive agreement with any third party with respect to an Acquisition
Proposal or an Acquisition Proposal is consummated, then MCI shall pay to
WorldCom an amount equal to $750 million (the "WorldCom Alternative Transaction
Fee") and shall reimburse WorldCom for the amount of the BT Inducement Fee paid
to BT (such amount, the "Reimbursement Amount").
(c) The WorldCom Alternative Transaction Fee and the Reimbursement Amount
required to be paid pursuant to Section 7.2(b)(i) shall be made prior to, and
shall be a pre-condition to the effectiveness of termination of this Agreement
pursuant to such Section. Any other payment required to be made pursuant to
Section 7.2(b) shall be made to WorldCom not later than two Business Days after
the entering into of a definitive agreement with respect to, or the consummation
of, an Acquisition Proposal, as applicable. All payments under this Section 7.2
and under Section 7.3 shall be made by wire transfer of immediately available
funds to an account designated by the party entitled to receive payment.
7.3 Payment by WorldCom. WorldCom and MCI agree that if (a) this Agreement
shall be terminated pursuant to (i) Section 7.1(b) and any of the conditions to
the Merger set forth in Section 6.1(b), 6.1(c), 6.1(d), 6.1(e), 6.3(a), 6.3(b)
or 6.3(d) has not been satisfied, (ii) Section 7.1(c), or (iii) Section 7.1(d)
solely as a result of the Required WorldCom Vote not being obtained at a duly
called WorldCom Stockholders Meeting or (b) notwithstanding the satisfaction of
all the conditions set forth in Sections 6.1 and 6.2 and the satisfaction or
waiver by MCI of all the conditions set forth in Section 6.3, WorldCom is not
willing to consummate the Merger, then, unless (1) MCI shall not have complied
with Section 5.4 or (2) MCI shall have breached its representations or
warranties or its agreements or covenants hereunder such that either of the
conditions to the Merger set forth in Section 6.2(a) or 6.2(b) has not been
satisfied, WorldCom shall pay to MCI an amount in cash equal to $1.635 billion.
The payment required to be made pursuant to this Section 7.3 shall be made not
later than two Business Days after the date of such termination or such willful
failure of WorldCom to close. Notwithstanding anything in this Agreement
(including Section 8.10) to the contrary, the payment of any amount pursuant to
this Section 7.3 (other than pursuant to Section 7.3(a)(i), if due to the
failure of the conditions set forth in Section 6.3(a) or 6.3(b), or Section
7.3(b)) shall constitute liquidated damages in full and complete satisfaction
of, and shall be MCI's sole and exclusive remedy for, any loss, liability,
damage or claim arising out of or in connection with any such termination of
this Agreement or the facts and circumstances resulting in such termination or
otherwise related thereto or otherwise arising out of or in connection with this
Agreement.
7.4 Amendment. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors, at any time
before or after approval of the matters presented in connection with the Merger
by the stockholders of MCI and WorldCom, but, after any such approval, no
amendment shall be made which by law or in accordance with the rules of any
relevant stock exchange requires further approval by such stockholders without
such further approval. This Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties hereto.
7.5 Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part
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of a party hereto to any such extension or waiver shall be valid only if set
forth in a written instrument signed on behalf of such party. The failure of any
party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of those rights.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-Survival of Representations, Warranties and Agreements. None of
the representations, warranties, covenants and other agreements in this
Agreement or in any instrument delivered pursuant to this Agreement, including
any rights arising out of any breach of such representations, warranties,
covenants and other agreements, shall survive the Effective Time, except for
those covenants and agreements contained herein and therein that by their terms
apply or are to be performed in whole or in part after the Effective Time and
this Article VIII. Nothing in this Section 8.1 shall relieve any party for any
breach of any representation, warranty, covenant or other agreement in this
Agreement occurring prior to termination.
8.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed duly given (a) on the date of delivery if delivered
personally, or by telecopy or telefacsimile, upon confirmation of receipt, (b)
on the first Business Day following the date of dispatch if delivered by a
recognized next-day courier service, or (c) on the tenth Business Day following
the date of mailing if delivered by registered or certified mail, return receipt
requested, postage prepaid. All notices hereunder shall be delivered as set
forth below, or pursuant to such other instructions as may be designated in
writing by the party to receive such notice:
(a) if to WorldCom or Merger Sub, to
WorldCom, Inc.
10777 Sunset Office Drive
Suite 330
St. Louis, MO 63127
Attention: P. Bruce Borghardt, Esq.
General Counsel
Corporate Development
Facsimile No.: 314-909-4101
with a copy to
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Attention: Allen Finkelson, Esq.
Robert A. Kindler, Esq.
Facsimile No.: 212-474-3700
(b) if to MCI to
MCI Communications Corporation
1801 Pennsylvania Avenue, NW
Washington, D.C. 20006
Attention: Michael Salsbury, Esq.
Executive Vice President
and General Counsel
Facsimile No.: 202-887-3353
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with a copy to
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Richard I. Beattie, Esq.
Philip T. Ruegger III, Esq.
Facsimile No.: 212-455-2502
8.3 Interpretation. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The table of
contents, glossary of defined terms and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation".
8.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that both
parties need not sign the same counterpart.
8.5 Entire Agreement; No Third Party Beneficiaries. (a) This Agreement and
the BT Agreement (and the agreement referred to in Section 5.2(c)) constitute
the entire agreement and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof,
other than the Confidentiality Agreement, which shall survive the execution and
delivery of this Agreement.
(b) This Agreement shall be binding upon and inure solely to the benefit of
each party hereto, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other Person any right, benefit or remedy
of any nature whatsoever under or by reason of this Agreement, other than
Section 5.9 (which is intended to be for the benefit of the Persons covered
thereby and may be enforced by such Persons).
8.6 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware.
8.7 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any law or public policy, all
other terms and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner in order that the
transactions contemplated hereby are consummated as originally contemplated to
the greatest extent possible.
8.8 Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto, in whole
or in part (whether by operation of law or otherwise), without the prior written
consent of the other party, and any attempt to make any such assignment without
such consent shall be null and void, except that Merger Sub may assign, in its
sole discretion, any or all of its rights, interests and obligations under this
Agreement to any direct wholly owned Subsidiary of WorldCom without the consent
of MCI, but no such assignment shall relieve Merger Sub of any of its
obligations under this Agreement. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.
8.9 Submission to Jurisdiction; Waivers. Each of WorldCom and MCI
irrevocably agrees that any legal action or proceeding with respect to this
Agreement or for recognition and enforcement of any judgment in respect hereof
brought by the other party hereto or its successors or assigns may be brought
and determined in the Chancery or other Courts of the State of Delaware, and
each of WorldCom and MCI hereby irrevocably
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submits with regard to any such action or proceeding for itself and in respect
to its property, generally and unconditionally, to the nonexclusive jurisdiction
of the aforesaid courts. Each of WorldCom and MCI hereby irrevocably waives, and
agrees not to assert, by way of motion, as a defense, counterclaim or otherwise,
in any action or proceeding with respect to this Agreement, (a) the defense of
sovereign immunity, (b) any claim that it is not personally subject to the
jurisdiction of the above-named courts for any reason other than the failure to
serve process in accordance with this Section 8.9, (c) that it or its property
is exempt or immune from jurisdiction of any such court or from any legal
process commenced in such courts (whether through service of notice, attachment
prior to judgment, attachment in aid of execution of judgment, execution of
judgment or otherwise), and (d) to the fullest extent permitted by applicable
law, that (i) the suit, action or proceeding in any such court is brought in an
inconvenient forum, (ii) the venue of such suit, action or proceeding is
improper and (iii) this Agreement, or the subject matter hereof, may not be
enforced in or by such courts.
8.10 Enforcement. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms. It is accordingly agreed that the parties
shall be entitled to specific performance of the terms hereof, this being in
addition to any other remedy to which they are entitled at law or in equity.
8.11 Definitions. As used in this Agreement:
(a) "Board of Directors" means the Board of Directors of any specified
Person and any committees thereof.
(b) "Business Day" means any day on which banks are not required or
authorized to close in the City of New York.
(c) "Material Adverse Effect" means, with respect to any entity, any
adverse change, circumstance or effect that, individually or in the
aggregate with all other adverse changes, circumstances and effects, is or
is reasonably likely to be materially adverse to the business, financial
condition or results of operations of such entity and its Subsidiaries
taken as a whole, other than any change, circumstance or effect relating to
(i) the economy or securities markets in general or (ii) the industries in
which WorldCom or MCI operate and not specifically relating to WorldCom or
MCI.
(d) "the other party" means, with respect to MCI, WorldCom and means,
with respect to WorldCom, MCI.
(e) "Person" means an individual, corporation, limited liability
company, partnership, association, trust, unincorporated organization,
other entity or group (as defined in the Exchange Act).
(f) "Subsidiary" when used with respect to any party means any
corporation or other organization, whether incorporated or unincorporated,
(i) of which such party or any other Subsidiary of such party is a general
partner (excluding partnerships, the general partnership interests of which
held by such party or any Subsidiary of such party do not have a majority
of the voting interests in such partnership) or (ii) at least a majority of
the securities or other interests of which having by their terms ordinary
voting power to elect a majority of the Board of Directors or others
performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such party or
by any one or more of its Subsidiaries, or by such party and one or more of
its Subsidiaries.
(g) "Superior Proposal" means a bona fide written Acquisition Proposal
which the Board of Directors of MCI concludes in good faith (after
consultation with its financial advisors and legal counsel), taking into
account all legal, financial, regulatory and other aspects of the proposal
and the Person making the proposal, (i) would, if consummated, result in a
transaction that is more favorable to MCI's stockholders (in their
capacities as stockholders), from a financial point of view, than the
transactions contemplated by this Agreement and (ii) is reasonably capable
of being completed (provided that for purposes of this definition the term
Acquisition Proposal shall have the meaning assigned to such term in
Section 5.5 except that the reference to "10%" in the definition of
"Acquisition Proposal" shall be deemed to be a reference to "50%" and
"Acquisition Proposal" shall only be deemed
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to refer to a transaction involving MCI, or with respect to assets
(including the shares of any Subsidiary of MCI) of MCI and its
Subsidiaries, taken as a whole, and not any of its Subsidiaries alone).
(h) "Benefit Plans" means, with respect to any Person, each employee
benefit plan, program, arrangement and contract (including, without
limitation, any "employee benefit plan," as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") and
any bonus, deferred compensation, stock bonus, stock purchase, restricted
stock, stock option, employment, termination, stay agreement or bonus,
change in control and severance plan, program, arrangement and contract)
all of the foregoing in effect on the date of this Agreement, to which such
Person is a party, which is maintained or contributed to by such Person, or
with respect to which such Person could incur material liability under
Section 4069, 4201 or 4212(c) of ERISA.
8.12 Other Agreements. The parties hereto acknowledge and agree that,
except as otherwise expressly set forth in this Agreement, the rights and
obligations of MCI and WorldCom under any other agreement between the
parties shall not be affected by any provision of this Agreement.
IN WITNESS WHEREOF, WorldCom, MCI and Merger Sub have caused this Agreement
to be signed by their respective officers thereunto duly authorized, all as of
November 9, 1997.
WORLDCOM, INC.
By: /s/ BERNARD J. EBBERS
----------------------------------
Name: Bernard J. Ebbers
Title: President and Chief
Executive Officer
TC INVESTMENTS CORP.
By: /s/ BERNARD J. EBBERS
----------------------------------
Name: Bernard J. Ebbers
Title: President and Chief
Executive Officer
MCI COMMUNICATIONS CORPORATION
By: /s/ BERT C. ROBERTS, JR.
----------------------------------
Name: Bert C. Roberts, Jr.
Title: Chairman
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EXHIBIT 5.2(a) TO
THE MERGER AGREEMENT
RECONSTITUTION OF THE BOARD OF DIRECTORS OF WORLDCOM
The Board of Directors of WorldCom, as of the Effective Time, shall consist
of fifteen members, eight of whom shall be designated by WorldCom from among the
directors of WorldCom, five of whom shall be designated by MCI from among the
directors of MCI and two of whom shall be directors designated by WorldCom from
among pending acquisitions of WorldCom; provided that the persons designated by
each party shall be reasonably acceptable to the other party.
<PAGE> 177
EXHIBIT 5.7
OUTLINE OF EMPLOYEE BENEFIT PROVISIONS
1. All outstanding equity awards, including all ISUs, all restricted stock
and all option grants will continue to vest (and be paid out) or become
exercisable, as the case may be, in accordance with their current terms and will
not be further accelerated in any way; provided, however, that if the Merger is
not a pooling transaction, all such equity grants that have not otherwise
previously lapsed or been forfeited shall vest upon the closing of the Merger.
Upon the Effective Time, any outstanding equity awards will be converted into
shares (and options, as the case may be) of the Parent on identical terms.
Specifically:
On or prior to the Effective Time, MCI shall take all action necessary
to cause each option to purchase shares of MCI Common Stock (each, an "MCI
Stock Option") that was granted pursuant to the MCI Stock Option Plans
prior to the Effective Time and which remains outstanding immediately prior
to the Effective Time to be converted, at the Effective Time, into an
option to acquire, on the same terms and conditions as were applicable
under the MCI Stock Option, that number of shares of Parent's common stock
determined by multiplying the number of shares of MCI Common Stock subject
to such MCI Stock Option by the Exchange Ratio, rounded, if necessary, up
to the nearest whole share of Parent's common stock, at a price per share
equal to the per-share exercise price specified in such MCI Stock Option
divided by the Exchange Ratio; provided however, that in the case of any
MCI Stock Option to which section 421 of the Code applies by reason of its
qualification under section 422 of the Code, the option price, the number
of shares subject to such option and the terms and conditions of exercise
of such option shall be determined in a manner consistent with the
requirements of section 424(a) of the Code. In addition, all unvested and
unpaid MCI restricted stock and ISUs shall be converted to the number of
shares of Parent common stock or ISUs determined by multiplying such shares
of restricted stock and ISUs by the Exchange Ratio.
2. The employment agreements covering the Senior Executives of MCI will be
revised to:
a. eliminate the limitations on severance pay in the event of a "Final
Year Constructive Termination," as defined in such contracts; and
b. add minimum bonus provisions to the contracts under which each
executive's annual bonuses could not be less than the average annual bonus
earned by the executive in respect of 1994, 1995 and 1996.
3. The term of MCI's "Executive Severance Policy" will be extended to the
third anniversary of the signing of this Agreement except for those provisions
that would affect the equity rights of a participant in such Policy, to the
extent necessary to preserve pooling.
4. A cash retention award pool of up to $320 million will be created to
provide retention incentives for MCI employees, as determined by the MCI
Compensation Committee as soon as practicable hereafter. The schedule of payment
of such incentives will be subject to the approval of Parent, which will not be
unreasonably withheld; and Parent will be informed as to the other aspects of
the incentives.
5. In addition, awards under the "Management Employee Bonus Program", the
"Other Employee Bonus Program" and the "Retention Bonus Pool" currently
maintained by MCI will be payable not earlier than:
50% on December 1, 1997; and
50% on December 1, 1998;
provided, however that upon the closing date of any transaction, involving the
sale or other disposition of a majority of MCI's stock or assets, any such
amounts that have not yet been paid will be accelerated and paid out.
6. Executives not covered by employment contracts or the Executive
Severance Policy will participate in a new severance program with a severance
formula based on the guidelines currently used for executive severance but in
any event shall not receive less than they would have received under paragraph 7
below. (See Appendix A).
7. All other employees below the levels set forth in 6. above will receive
severance of three weeks per year of service if terminated in connection with
Merger.
<PAGE> 178
ANNEX II
AGREEMENT dated as of November 9, 1997, among BRITISH TELECOMMUNICATIONS
PLC, a public limited company incorporated under the laws of England and Wales
("BT"), MCI COMMUNICATIONS CORP., a Delaware corporation ("MCI"), and WORLDCOM,
a Georgia corporation ("WorldCom").
WHEREAS, BT, MCI and Tadworth Corporation, a Delaware corporation and a
wholly owned subsidiary of BT ("BT Merger Sub"), are parties to an Agreement and
Plan of Merger, dated as of November 3, 1996 (as amended by the Amendment
Agreement thereto dated as of February 14, 1997 and Amendment Agreement No. 2
thereto dated as of August 21, 1997, the "BT/MCI Merger Agreement") (capitalized
terms used but not defined herein shall have the meanings set forth in the
BT/MCI Merger Agreement), providing for the merger of MCI with and into BT
Merger Sub;
WHEREAS, MCI, WorldCom and a wholly owned subsidiary of WorldCom ("WorldCom
Merger Sub") propose to enter into an Agreement and Plan of Merger (the
"WorldCom/MCI Merger Agreement") providing for the merger of MCI with and into
WorldCom Merger Sub (the "WorldCom/MCI Merger"), upon the terms and subject to
the conditions of the WorldCom/MCI Merger Agreement; and
WHEREAS, as of the date hereof BT owns the number of shares of Class A
Common Stock, par value $.10 per share, of MCI ("MCI Class A Common Stock") set
forth on Schedule I attached hereto (the "Subject Shares").
NOW, THEREFORE, and in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties hereto agree
as follows:
1. Representations and Warranties. (a) Each party represents and warrants
that such party has all requisite power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by such party.
This Agreement has been duly executed and delivered by such party and
constitutes a valid and binding obligation of such party enforceable against
such party in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium and similar laws
relating to or affecting creditors generally, by general equity principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law) or by an implied covenant of good faith and fair dealing. The
execution and delivery of this Agreement does not or will not, as the case may
be, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or constitute a default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, amendment, cancelation or acceleration of any obligation or the
loss of a material benefit under, or the creation of a lien, pledge, security
interest, charge or other encumbrance on any assets pursuant to: (A) any
provision of the certificate of incorporation or by-laws of such party or any
subsidiary of such party or (B) except as would not have a material adverse
effect on such party, any loan or credit agreement, note, mortgage, bond,
indenture, lease, benefit plan or other agreement, obligation, instrument,
permit, concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to such party or any subsidiary of such
party or their respective properties or assets. No consent, approval, order or
authorization of, or registration, declaration or filing with, any
supranational, national, state, municipal or local government, any
instrumentality, subdivision, court, administrative agency or commission or
other authority thereof, or any quasi-governmental or private body exercising
any regulatory, taxing, importing or other governmental or quasi-governmental
authority, including the European Union, is required by or with respect to such
party or any subsidiary of such party in connection with the execution and
delivery of this Agreement by such party or the consummation by such party of
the transactions contemplated hereby.
(b) BT hereby represents and warrants that BT (or a wholly owned subsidiary
of BT) is the record and beneficial owner of, and has good and marketable title
to, the Subject Shares.
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<PAGE> 179
2. Termination of BT/MCI Merger Agreement. BT and MCI hereby agree that the
BT/MCI Merger Agreement shall be, and hereby is, terminated, effective
immediately.
3. Fees. (a) The Alternative Transaction Fee of $450,000,000 and BT's
Expenses in an amount up to $15,000,000 will be paid to BT promptly by WorldCom
in immediately available funds by 5 p.m. on Wednesday, November 12.
(b) In the event WorldCom is required to make a payment to MCI pursuant to
Section 7.3 of the WorldCom/MCI Merger Agreement (a "Section 7.3 Payment"),
WorldCom shall pay to BT $250,000,000 on the date WorldCom is required to make
the Section 7.3 Payment.
4. Covenants of BT. Until the termination of this Agreement in accordance
with Section 11, BT agrees as follows:
(a) BT hereby consents to, and at any meeting of stockholders of MCI
called to vote thereon, BT agrees to vote (or cause to be voted) the
Subject Shares (and each class thereof) in favor of, the WorldCom/MCI
Merger, the adoption by MCI of the WorldCom/MCI Merger Agreement and the
approval of the other transactions contemplated by the WorldCom/MCI Merger
Agreement.
(b) At any meeting of stockholders of MCI or at any adjournment
thereof or in any other circumstances upon which BT's vote, consent or
other approval is sought, BT shall vote (or cause to be voted) the Subject
Shares against (i) any merger agreement or merger (other than the
WorldCom/MCI Merger Agreement and the WorldCom/MCI Merger), consolidation,
combination, sale of substantial assets, reorganization, recapitalization,
dissolution, liquidation or winding up of or by MCI or any other MCI
acquisition or (ii) any amendment of the MCI Certificate of Incorporation
or Bylaws or other proposal or transaction involving MCI, or any of its
subsidiaries, which amendment or other proposal or transactions would in
any manner impede, frustrate, prevent or nullify the WorldCom/MCI Merger,
the WorldCom/MCI Merger Agreement or any of the other transactions
contemplated by the WorldCom/MCI Merger Agreement.
(c) BT shall not (i) transfer (which term shall include, without
limitation, for the purposes of this Agreement, any sale, gift, pledge or
other disposition), or consent to any transfer of, any or all of the
Subject Shares or any interest therein, except pursuant to the WorldCom/MCI
Merger, (ii) enter into any contract, option or other agreement,
arrangement or understanding with respect to any or all of the Subject
Shares or any interest therein, (iii) grant any proxy, power-of-attorney or
other authorization in or with respect to the Subject Shares, except for
this Agreement or (iv) deposit the Subject Shares into a voting trust or
enter into a voting agreement or arrangement with respect to the Subject
Shares; provided, however, that notwithstanding anything to the contrary in
this Agreement, the record owner of the Subject Shares may be any wholly
owned subsidiary of BT and BT shall cause any such subsidiary to perform
all the obligations of BT under this Agreement that require performance by
the record owner of the Subject Shares.
(d) BT hereby waives any rights of appraisal, or rights to dissent
from the WorldCom/MCI Merger, that it may have.
(e) During the term of this Agreement, BT shall not nor shall it
authorize or permit any officer, director, partner, employee or agent or
any investment banker, attorney or other advisor or representative of BT
to, directly or indirectly, (i) solicit, initiate or encourage the
submission of any Acquisition Proposal (other than with respect to the
WorldCom/MCI Merger) or (ii) participate in any discussions or negotiations
regarding, or furnish to any person any information with respect to, or
take any other action to facilitate any inquiries or the making of any
proposal that constitutes or may be reasonably be expected to lead to, any
Acquisition Proposal (other than with respect to the WorldCom/MCI Merger).
(f) Until after the WorldCom/MCI Merger is consummated or the
WorldCom/MCI Merger Agreement is terminated, BT shall use all reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to
be done, and to assist and cooperate with the other parties in doing, all
things necessary, proper or advisable to consummate and make effective, in
the most expeditious manner practicable, the
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WorldCom/MCI Merger and the other transactions contemplated by the
WorldCom/MCI Merger Agreement. Without limiting the generality of the
foregoing, BT shall use all reasonable efforts to assist WorldCom and MCI
in obtaining all requisite approvals under Council Regulations (EEC) No.
406/89 and the Communications Act of 1934, as amended; provided, however,
that BT shall not be required to take any position that would be
inconsistent with, or adversely affect, the interests of BT's other
businesses.
5. Modifications to Concert Joint Venture Agreement and Investment
Agreement. (a) WorldCom, MCI and BT hereby agree that the Modified Joint Venture
Agreement among BT, Moorgate (Twelve) Limited ("BTH"), MCI, MCI Ventures
Corporation ("Ventures"; together with BTH, the "Shareholders") and Concert
Communications Company ("Concert") (the "Joint Venture Agreement") and the
related agreements entered into thereunder shall be appropriately modified,
effective as of the consummation of the purchase of the joint venture interest
described in Section 5(b) hereof (the "Purchase Date") to reflect the provisions
set forth on Exhibit A hereto. It is understood and agreed that the parties
hereto may engage in discussions and negotiations with other parties about the
matters covered by the Joint Venture Agreement and the related agreements
(including reaching agreement with other parties with respect to distribution
arrangements not inconsistent with Exhibit A to become effective immediately
after the Purchase Date) prior to the Purchase Date with respect to possible
arrangements to become effective subsequent to, and subject to the occurrence
of, the Purchase Date.
(b) WorldCom, MCI and BT hereby agree that BT shall cause BTH to exercise
the call option set forth in Clause 30.1 of the Joint Venture Agreement
immediately following the occurrence of the Effective Time. The parties shall
commence discussions following the date hereof and shall attempt in good faith
to reach agreement as promptly as practicable as to the Relevant Price for
purposes of the exercise of such call option.
(c) WorldCom and MCI hereby agree to waive the provisions of Section 9.12
of the Amended and Restated Investment Agreement, dated as of January 31, 1994
(the "Investment Agreement"), between BT and MCI and the provisions of Clause 18
of the Joint Venture Agreement to the extent necessary to permit BT to engage in
discussions and negotiations with, and enter into agreement with, third parties
for business combinations, commercial alliances or other business ventures which
might otherwise be restricted by or result in any loss of rights pursuant to
such provisions so long as the consummation of any such transaction is
conditioned upon the consummation of the WorldCom/MCI Merger.
(d) BT and MCI hereby agrees that, upon the termination of the WorldCom/MCI
Merger Agreement, Section 5.01 of the Investment Agreement shall automatically
be amended, without any further action by either BT or MCI, to delete Section
5.01(a) and to reletter the remaining subsections and to delete the phrase "From
and including the fourth anniversary of the Closing Date" at the beginning of
the subsection that was Section 5.01(b) prior to such amendment and to
capitalize the word "so" that will then be first word of such subsection.
(e) BT and WorldCom will undertake in good faith to negotiate a transition
agreement in accordance with Exhibit B.
6. Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned, in whole or in part, by operation of
law or otherwise, by any party without the prior written consent of the other
parties, except that any of the parties hereto may assign all of any of its
rights and obligations hereunder to any affiliate of such party, provided that
no such assignment shall relieve the assigning party of its obligations
hereunder if such assignee does not perform such obligations. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit of
and be enforceable by the parties and their respective successors and assigns.
7. Litigation. WorldCom shall promptly withdraw its complaint in the matter
entitled WorldCom, Inc. and TC Investments Corp. against MCI Communications
Corporation et al. and BT shall promptly withdraw the answer to such complaint
filed by it.
8. Merger Consideration. WorldCom and MCI shall not amend the WorldCom/MCI
Merger Agreement to increase the consideration payable to holders of shares of
common stock, par value $.10 per share, of
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MCI unless the consideration to be paid in respect of the shares of MCI Class A
Common Stock shall increased in such amendment by a like amount per share.
9. References to BT. WorldCom and MCI each hereby agree that any
description of or reference to BT in any proxy materials, registration
statements or other disclosure document to be filed with the Securities and
Exchange Commission or to be sent to securityholders of either WorldCom or MCI
shall be reasonably acceptable to BT and its counsel and that BT and its counsel
shall be given an opportunity to review each such description or reference and
to make suggestions with respect thereto a reasonable amount of time prior to
the earlier of (i) the time such document is sent to stockholders and (ii) the
time such document is filed with the Securities and Exchange Commission. BT
shall not unreasonably withhold or delay its determination that such
descriptions or references are reasonably acceptable.
10. Amendments to WorldCom/MCI Merger Agreement. WorldCom and MCI shall not
amend the WorldCom/MCI Merger Agreement in a manner that adversely affects the
interests of BT.
11. Termination. This Agreement shall terminate, and the provisions hereof
shall be of no further force or effect, upon the earliest to occur of (a) the
Effective Time, (b) the termination of the WorldCom/MCI Merger Agreement
pursuant to Section 7.1(a), 7.1(c) or 7.1(d) (but only with respect to the
failure to obtain the Required Parent Vote) or (c) the later to occur of (x)
September 30, 1998 or (y) termination of the WorldCom/MCI Merger Agreement
pursuant to Section 7.1(b), 7.1(d) (but only with respect to failure to obtain
the Required MCI Votes), 7.1(e) or 7.1(f). The provisions of Sections 3, 5,
6(b), 11 and 12 shall survive the termination of this Agreement.
12. General Provisions. (a) Amendments. This Agreement may not be amended
except by an instrument in writing signed by each of the parties hereto.
(b) Notices. All notices and other communications hereunder shall be in
writing and shall be deemed duly given (a) on the date of personal delivery or,
if delivered by telecopy or telefacsimile, upon confirmation of receipt, (b) on
the first business day following the date of dispatch if delivered by a
recognized next-day courier service, or (c) on the tenth business day following
the date of mailing if delivered by registered or certified mail, return receipt
requested, postage prepaid. All notices hereunder shall be delivered as set
forth below, or pursuant to such other instructions as may be designated in
writing by the party to receive such notice:
a. if to BT, to
British Telecommunications plc
BT Centre
81 Newgate Street
Attention: Colin R. Green
Secretary and Chief Legal Advisor
Facsimile No.: 011-44-171-6135
with copies to
Shearman & Sterling
199 Bishopsgate
London EC2M 3TY
England
Attention: W. Jeffrey Lawrence
Facsimile No.: 011-44-171-920-9020
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<PAGE> 182
b. if to MCI, to
MCI Communications Corporation
1801 Pennsylvania Avenue, NW
Washington, D.C. 20006
Attention: Michael Salsbury, Esq.
Executive Vice President
and General Counsel
Facsimile No.: (202) 887-3353
with copies to
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Philip T. Ruegger III, Esq.
Facsimile No.: (212) 455-2502
c. if to WorldCom, to
WorldCom, Inc.
10777 Sunset Office Drive
Suite 330
St. Louis, MO 63127
Attention: P. Bruce Borghardt, Esq.
General Counsel
Corporate Development
Facsimile No.: (314) 909-4101
with copies to
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Attention: Allen Finkelson, Esq.
Robert A. Kindler, Esq.
Facsimile No.: (212) 474-3700
(c) Interpretation. When a reference is made in this Agreement to a Section
or Schedule, such reference shall be to a Section of or Schedule to this
Agreement unless otherwise indicated. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Wherever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation".
(d) Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more of the counterparts have been signed by
each of the parties and delivered to the other parties.
(e) Entire Agreement; No Third-Party Beneficiaries. This Agreement
(including the documents and instruments referred to herein) (i) constitutes the
entire agreement, and supersedes all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof
and (ii) is not intended to confer upon any person other than the parties hereto
any rights or remedies hereunder.
(f) Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.
13. Enforcement. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court
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<PAGE> 183
of the United States located in the State of Delaware or in a Delaware state
court, this being in addition to any other remedy to which they are entitled at
law or in equity. In addition, each of the parties hereto (i) consents to submit
itself to the personal jurisdiction of any court of the United States located in
the State of Delaware or any Delaware state court in the event any dispute
arises out of this Agreement or any of the transactions contemplated by this
Agreement, (ii) agrees that it will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court, (iii)
agrees that such party will not bring any action relating to this Agreement or
the transactions contemplated by this Agreement in any court other than a court
of the United States located in the State of Delaware or a Delaware state court
and (iv) waives any right to trial by jury with respect to any claim or
proceeding related to or arising out of this Agreement or any of the
transactions contemplated hereby.
14. Public Announcements. BT, WorldCom and MCI shall use all reasonable
efforts to develop a joint communications plan and each party shall use all
reasonable efforts (i) to ensure that all press releases and other public
statements with respect to the transactions contemplated hereby shall be
consistent with such joint communications plan, and (ii) unless otherwise
required by applicable law or by obligations pursuant to any listing agreement
with or rules of any securities exchange, to consult with each other before
issuing any press release or otherwise making any public statement with respect
to this Agreement or the transactions contemplated hereby.
15. Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible to the fullest extent
permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
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<PAGE> 184
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their authorized signatories, all as of the date first written above.
BRITISH TELECOMMUNICATIONS
public limited company
By: /s/ COLIN R. GREEN
----------------------------------
Name: Colin R. Green
Title: Secretary and Chief
Legal Advisor
MCI COMMUNICATIONS CORPORATION
By: /s/ BERT C. ROBERTS, JR.
----------------------------------
Name: Bert C. Roberts, Jr.
Title: Chairman
WORLDCOM, INC.
By: /s/ BERNARD J. EBBERS
----------------------------------
Name: Bernard J. Ebbers
Title: President and Chief
Executive Officer
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<PAGE> 185
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF SHARES
----------------
<S> <C>
MCI Class A Common Stock..................................................... 135,998,932
</TABLE>
<PAGE> 186
EXHIBIT A
- -- The exclusive distribution rights set forth in the Joint Venture Agreement
and the Distribution Agreements shall be terminated.
- -- Concert shall continue to provide services to MCI on a nonexclusive basis to
customers based in the United States for a period of five years from the
Purchase Date in accordance with the terms of the MCI Distribution Agreement.
This is intended to enable MCI to continue to provide services to existing
customers under the terms of its contractual obligations and to enter into
new contractual obligations with new customers and existing customers
provided that the term of such obligations does not extend beyond the fifth
anniversary of the Purchase Date.
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<PAGE> 187
EXHIBIT B
CONCEPT:
BT and WorldCom will undertake in good faith to negotiate a transition
agreement. The intent is for there to be an agreement that would go into effect
upon the consummation of the purchase by BT of MCI's joint venture interest in
Concert pursuant to BT's call option.
PURPOSE:
- To provide for a professional exit from the existing Concert arrangements
while satisfying the requirements of BT's and MCI's customers before and
during the exit.
- To agree the requirements (financial, operational, technical) of making
Concert more self standing and better able to support customer and
distributor requirements
- To give BT and customers comfort that during the pendency of the merger
and the post merger period underlying components and services necessary
to provide Concert service which are sourced from MCI are available on
commercially reasonably terms despite the change in circumstances.
STRUCTURE:
A three-step process to achieve the purpose is contemplated under which the
parties would in good faith review and consider:
- What assets currently used by MCI in servicing certain obligations to
Concert should be sold to Concert.
- What assets which are used to support MCI's non-Concert operations might
be either duplicated or equitably shared.
- What certain MCI/BT relationships might also be modified, e.g. Card.
- How MCI's role as a master distributor should be amended so as to allow
Concert to be in direct privity with MCI's subdistributors.
- How service contracts with MCI which do not contain service levels should
be recast so that both Concert and MCI could be more certain as to their
respective rights and obligations.
MCI/WorldCom will be reimbursed on an after-tax basis for all costs
incurred and assets transferred in connection with the foregoing.
Notwithstanding anything to the contrary herein, MCI/WorldCom shall not be
required to take any action that could reasonably be expected to materially
adversely affect its business, customer relationships or the benefits
anticipated to result from the merger.
TIMING:
- Negotiations to be completed in 180 days post execution of the Agreement
- The agreements would not take effect until the consummation of the
purchase by BT of MCI's joint venture interest in Concert pursuant to
BT's call option.
- If the Agreement is not executed in 180 days despite the parties' good
faith efforts, (i) the nonexclusive distributorship referred to in
Exhibit A shall have a term of two (rather than five) years and (ii) the
transition arrangements in the Services Agreement will be extended from
12 to 18 months for Concert.
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<PAGE> 188
ANNEX III
Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
212-783-7000
November 9, 1997
Board of Directors
WorldCom, Inc.
515 East Amite Street
Jackson, Mississippi
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to WorldCom, Inc. ("Parent"), of the consideration to be paid by Parent in
connection with the proposed business combination between Parent and MCI
Communications Corporation (the "Company") pursuant to an Agreement and Plan of
Merger (the "Agreement"), dated as of November 9, 1997, among Parent, TC
Investments Corp. ("Sub"), a wholly owned subsidiary of Parent, and the Company.
Under the Agreement, Sub will merge (the "Merger") with the Company, whereupon
(a) each share of common stock, par value $0.10 per share, of the Company
("Company Ordinary Common Stock"), issued and outstanding immediately prior to
the Merger (other than shares of Company Ordinary Common Stock owned by Parent
or Sub or held by the Company) will be converted into the right to receive that
number of shares of common stock, par value $0.01 per share, of Parent ("Parent
Common Stock") equal to the Exchange Ratio (as defined below) and (b) each share
of Class A common stock, par value $0.10 per share, of the Company ("Company
Class A Common Stock") issued and outstanding immediately prior to the Merger
(other than shares of Company Class A Common Stock owned by Parent or Sub or
held by the Company) will be converted into the right to receive $51 in cash,
without interest (the "Class A Consideration"). The Exchange Ratio will be the
result of dividing $51 by the average of the high and low sales prices for
Parent Common Stock for the 20 trading days ending with the third trading day
immediately prior to the closing of the Merger, provided that the Exchange Ratio
shall not be more than 1.7586 or less than 1.2439.
In connection with rendering our opinion, we have reviewed certain publicly
available information concerning Parent and the Company and certain other
financial information concerning Parent and the Company, including financial
forecasts and estimates of synergies, that were provided to us by Parent and the
Company, respectively. We have discussed the business operations and financial
conditions of Parent and the Company as well as other matters we believe
relevant to our inquiry, including matters relating to the obtaining of
regulatory approvals for the Merger, with certain officers and employees of
Parent and the Company, respectively. We have also considered such other
information, financial studies, analyses, investigations and financial, economic
and market criteria that we deemed relevant.
In our review and analysis and in arriving at our opinion, we have assumed and
relied upon the accuracy and completeness of the financial and other information
(including information relating to the obtaining of regulatory approvals for the
Merger) reviewed by us, and we have not assumed any responsibility for
independent verification of such information. With respect to the financial
forecasts of Parent and the Company, we have assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the respective managements of Parent or the Company as to the
future financial performance of Parent or the Company, respectively, and we
express no opinion with respect to such forecasts or the assumptions on which
they are based. We have assumed that the estimates of synergies have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the management of Parent, and we express no opinion with
respect to such estimates or the assumptions on which they are based. We have
not made or obtained or assumed any responsibility for making or obtaining any
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<PAGE> 189
independent valuations or appraisals of any of the assets (including properties
and facilities) or liabilities of Parent or the Company.
Our opinion is necessarily based upon conditions as they exist and can be
evaluated on the date hereof. Our opinion as expressed below does not imply any
conclusion as to the likely trading range for the Parent Common Stock following
the consummation of the Merger which may vary depending upon, among other
factors, changes in interest rates, dividend rates, market conditions, general
economic conditions and other factors that generally influence the price of
securities. Our opinion does not address Parent's underlying business decision
to effect the Merger, nor does it address Parent's decision as to financing the
Merger. Our opinion is directed only to the fairness, from a financial point of
view, of the Exchange Ratio and the Class A Consideration, taken as a whole, to
Parent and does not constitute a recommendation concerning how holders of Parent
Common Stock should vote with respect to the transactions contemplated by the
Agreement. In rendering our opinion, we have assumed that in the course of
obtaining the necessary regulatory approvals for the Merger no restrictions will
be imposed that would have a material adverse effect on the contemplated
benefits of the Merger to Parent following the Merger.
We have acted as financial advisor to the Board of Directors of Parent in
connection with the Merger and will receive a fee for our services, part of
which is contingent upon consummation of the Merger. In the ordinary course of
business, we (including our current and future affiliates) may actively trade
the securities of Parent and the Company for our own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities. Also, we have previously rendered investment
banking and financial advisory services to Parent for which we have received
customary compensation.
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the Exchange Ratio and the Class A Consideration, taken as a whole, is
fair to Parent from a financial point of view.
Very truly yours,
SALOMON BROTHERS INC
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ANNEX IV
November 9, 1997
The Board of Directors
MCI Communications Corporation
1801 Pennsylvania Avenue
Washington, D.C. 20006
Dear Members of the Board:
We understand that WorldCom, Inc. ("WorldCom"), TC Investments Corp. ("Merger
Sub"), a wholly-owned subsidiary of WorldCom, and MCI Communications Corporation
("MCI") have entered into an Agreement and Plan of Merger, dated as of November
9, 1997 (the "Agreement"), pursuant to which MCI will merge with and into Merger
Sub (the "Merger"). Pursuant to the Agreement, upon consummation of the Merger,
each issued and outstanding share of common stock, par value $0.10 per share
("MCI Common Shares"), of MCI (other than shares owned by WorldCom, Merger Sub
or MCI) will be converted into the right to receive such number of shares of
common stock, par value $0.01 per share ("WorldCom Shares"), of WorldCom equal
to the Exchange Ratio (as defined below) (the "Consideration"). The "Exchange
Ratio" means the quotient (rounded to the nearest 1/10,000th) determined by
dividing $51.00 by the average of the high and low sales prices of the WorldCom
Shares as reported on The Nasdaq National Market on each of the twenty
consecutive trading days ending with the third trading day immediately preceding
the Effective Time (as defined in the Agreement); provided, that the Exchange
Ratio shall not be less than 1.2439 or greater than 1.7586. In addition,
pursuant to the Agreement, each issued and outstanding share of Class A common
stock, par value $0.10 per share (the "MCI Class A Shares"), of MCI (other than
shares owned by WorldCom, Merger Sub or MCI) will be converted into the right to
receive $51.00 in cash, without interest thereon (the "Class A Consideration").
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of MCI Common Shares (other than British Telecommunications
plc ("British Telecom") and WorldCom) of the Consideration. In connection with
this opinion we have:
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<S> <C>
(i) Reviewed the financial terms and conditions of the Agreement and the BT Agreement (as
defined in the Agreement);
(ii) Analyzed certain historical business and financial information relating to MCI and
WorldCom;
(iii) Reviewed various financial forecasts and other data provided to us by MCI and
WorldCom relating to their respective businesses;
(iv) Reviewed various financial forecasts and other data provided to us by WorldCom
relating to its acquisition of Brooks Fiber, Inc., CompuServe Corporation and ANS
Communications, Inc. and related transactions (collectively, the "Pending
Transactions");
(v) Participated in discussions with members of the senior managements of MCI and
WorldCom with respect to the business and prospects of MCI and WorldCom, the
strategic objectives of each and the possible benefits which might be realized
following the Merger;
(vi) Reviewed the agreement (the "BT Investment Agreement") pursuant to which British
Telecom acquired its shares of MCI which, among other things, gave British Telecom
the right to proportionate representation on the MCI Board of Directors, preemptive
rights with respect to the issuance of additional shares of common stock of MCI and
to investor protections with respect to certain corporate actions of MCI, including
the right to consent to future business combinations of MCI until September 30, 1998;
(vii) Reviewed the financial terms and conditions of the BT Merger Agreement (as defined in
the Agreement);
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<TABLE>
<S> <C>
(viii) Reviewed certain financial terms and conditions of GTE Corporation's proposal to
acquire the Company;
(ix) Reviewed public information with respect to certain other companies in lines of
business we believe to be generally comparable to those of MCI and WorldCom;
(x) Reviewed the financial terms of certain business combinations involving companies in
lines of business we believe to be generally comparable to those of MCI and WorldCom,
and in other industries generally;
(xi) Reviewed the historical stock prices and trading volumes of the MCI Common Shares and
WorldCom Shares;
(xii) Held discussions with your attorneys and accountants concerning the results of their
due diligence procedures in connection with the Merger; and
(xiii) Conducted such other financial studies, analyses and investigations as we deemed
appropriate.
</TABLE>
We have relied upon the accuracy and completeness of the foregoing information,
and have not assumed any responsibility for any independent verification of such
information or any independent valuation or appraisal of any of the assets or
liabilities of MCI or WorldCom (including the assets to be acquired and the
liabilities to be assumed by WorldCom in the Pending Transactions). With respect
to financial forecasts, including therein the synergies projected by MCI to be
realized by the combined company from the Merger, we have assumed that they have
been reasonably prepared on bases reflecting the best currently available
estimates and judgments of management of MCI and WorldCom as to the future
financial performance of MCI and WorldCom, respectively. However, in rendering
our opinion, we have relied on the financial forecasts of WorldCom provided by
WorldCom management and modified with the approval of MCI management and have
assumed that such adjusted forecasts have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of MCI
management. We assume no responsibility for and express no view as to such
forecasts or the assumptions on which they are based.
Our opinion is directed only to the fairness of the Consideration to be received
by the holders of MCI Common Shares (other than British Telecom or WorldCom) in
the Merger pursuant to the Agreement from a financial point of view. In
addition, our opinion does not address the fairness to the MCI shareholders of
the Class A Consideration to be received by the holders of MCI Class A Shares.
Further, our opinion is necessarily based on accounting standards, economic,
monetary, market and other conditions as in effect on, and the information made
available to us as of, the date hereof. You have not authorized us to solicit,
and we have not solicited, any indications of interest or proposals from third
parties with respect to a purchase of all or part of MCI's business.
In rendering our opinion, we have assumed the Merger will be consummated on the
terms described in the Agreement and that the transactions contemplated by the
BT Agreement will be consummated on the terms described therein, without any
waiver of any material terms or conditions by MCI or the obtaining of any
further consents or approvals under the Class A Shares or the BT Investment
Agreement, that obtaining the necessary regulatory approvals for the Merger will
not have a material adverse effect on WorldCom or on the trading of WorldCom
Shares and that the synergies projected by MCI to be realized by the combined
company from the Merger are realized substantially in accordance with such
projections, both as to the financial effect and timing thereof. Also, we have
assumed that all of the Pending Transactions will be consummated in accordance
with their respective terms, without any waiver or modification of any material
terms or conditions relating there to. In addition, we are not expressing any
opinion as to the prices at which WorldCom Shares may trade following the date
of this opinion.
We are acting as financial advisor to MCI in connection with the Merger and will
receive a fee for our services, a substantial portion of which is contingent
upon the consummation of the Merger. We have in the past provided, and are
currently providing, investment banking services to MCI for which we have
received customary fees.
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Our engagement and the opinion expressed herein are for the benefit of the MCI
Board of Directors and our opinion is rendered in connection with its
consideration of the Merger. This opinion is not intended to and does not
constitute a recommendation to any shareholder of MCI as to whether such holder
should vote to approve the Merger and the transactions contemplated by the
Agreement. It is understood that, except for inclusion of this letter in its
entirety in a proxy statement from MCI to its security holders, this letter may
not be disclosed or otherwise referred to without our prior written consent,
except as may otherwise be required by law or by a court of competent
jurisdiction.
Based on and subject to the foregoing, we are of the opinion that, as of the
date hereof, the Consideration is fair to the holders of MCI Common Shares
(other than British Telecom or WorldCom) from a financial point of view.
Very truly yours,
LAZARD FRERES & CO. LLC
By
/s/ J. ROBERT LOVEJOY
------------------------------------
J. Robert Lovejoy
Managing Director
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ANNEX V
LEHMAN BROTHERS
November 9, 1997
Board of Directors
MCI Communications Corporation
1801 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
Members of the Board:
We understand that MCI Communications Corporation ("MCI" or the "Company")
and WorldCom, Inc. ("WorldCom") intend to enter into an Agreement and Plan of
Merger, to be dated as of November 9, 1997 (the "Merger Agreement"), pursuant to
which MCI will merge with TC Investments Corp. ("Merger Sub"), a newly-formed,
wholly-owned subsidiary of WorldCom (the "Proposed Transaction"), and each
outstanding share of the Company's common stock (the "Common Shares") held by
stockholders of the Company other than British Telecommunications plc ("BT"),
WorldCom, Merger Sub or MCI (such stockholders, the "Public Stockholders") will
be exchanged for the number of shares of WorldCom's common stock ("WorldCom
Shares") equal to the Exchange Ratio (as defined below). The "Exchange Ratio"
means the quotient (rounded to the nearest 1/10,000) determined by dividing
$51.00 by the average high and low sales prices of the WorldCom Shares as
reported on The Nasdaq National Market on each of the twenty consecutive trading
days ending on the third trading day immediately preceding the Effective Time
(as defined in the Merger Agreement); provided that the Exchange Ratio shall not
be less than 1.2439 or greater than 1.7586. We understand that, pursuant to the
Merger Agreement, each outstanding share of the Company's Class A common stock
(the "Class A Shares"), other than Class A Shares owned by WorldCom, Merger Sub
or MCI, will be exchanged for $51.00 in cash, without interest thereon, and that
WorldCom will pay up to $465 million to BT in connection with the termination of
the proposed merger of the Company with a wholly-owned subsidiary of BT, as set
forth in an Agreement and Plan of Merger dated as of November 3, 1996 by and
among BT, the Company and Tadworth Corporation (as amended, the "BT Merger
Agreement"). The terms and conditions of the Proposed Transaction are set forth
in more detail in the Merger Agreement.
We have been requested by the Board of Directors of the Company to render
our opinion with respect to the fairness, from a financial point of view, to the
Public Stockholders of the consideration to be offered to the Public
Stockholders for the Common Shares in the Proposed Transaction. We have not been
requested to opine as to, and our opinion does not in any manner address, the
Company's underlying business decision to proceed with or effect the Proposed
Transaction or the fairness to the stockholders of MCI of the consideration to
be offered for the Class A Shares in the Proposed Transaction.
In arriving at our opinion, we reviewed and analyzed: (1) the Merger
Agreement and the BT Agreement (as defined in the Merger Agreement) and the
specific terms of the Proposed Transaction, (2) publicly available information
concerning the Company that we believe to be relevant to our analysis, (3)
WorldCom's Form S-4 and Preliminary Proxy Statement filed on October 1, 1997 in
connection with WorldCom's proposed acquisition of the Company and such other
publicly available information concerning WorldCom that we believe to be
relevant to our analysis, (4) financial and operating information with respect
to the business, operations and prospects of the Company furnished to us by the
Company, (5) financial and operating information with respect to the business,
operations and prospects of WorldCom (including WorldCom's pending acquisition
of CompuServe Corporation, ANS Communications, Inc. and Brooks Fiber Properties,
Inc. and related transactions (collectively, the "Pending WorldCom
Transactions")) furnished to us by WorldCom, (6) a trading history of the
Company's common stock from November 6, 1992 to the
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present and a comparison of that trading history with those of other companies
that we deemed relevant, (7) a trading history of WorldCom's common stock from
November 6, 1992 to the present and a comparison of that trading history with
those of other companies that we deemed relevant, (8) a comparison of the
historical financial results and present financial condition of the Company with
those of other companies that we deemed relevant, (9) a comparison of the
historical financial results and present financial condition of WorldCom with
those of other companies that we deemed relevant, (10) a comparison of the
financial terms of the Proposed Transaction with the financial terms of certain
other transactions that we deemed relevant, (11) the financial terms of the
proposed merger of the Company with a wholly-owned subsidiary of BT pursuant to
the BT Merger Agreement, and (12) certain financial terms of the proposal by GTE
Corporation to acquire the Company. In addition, we have had discussions with
the management of the Company and the management of WorldCom concerning their
respective businesses, operations, assets, financial conditions and prospects
and the cost savings, operating synergies and strategic benefits expected to
result from a combination of the businesses of the Company and WorldCom, and
have undertaken such other studies, analyses and investigations as we deemed
appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy
and completeness of the financial and other information used by us without
assuming any responsibility for independent verification of such information and
have further relied upon the assurances of management of the Company that they
are not aware of any facts or circumstances that would make such information
inaccurate or misleading. With respect to the financial projections of the
Company and WorldCom and the cost savings, operating synergies and strategic
benefits expected to result from the combination of the businesses of MCI and
WorldCom (the "Projected Synergies"), upon advice of the Company we have assumed
that such projections have been reasonably prepared on a basis reflecting the
best currently available estimates and judgments of the management of the
Company as to the future financial performance of the Company and the Projected
Synergies, and of the management of WorldCom as to the future financial
performance of WorldCom and the Projected Synergies, and that with respect to
the projections prepared by the Company, that the Company will perform, and the
Projected Synergies will be realized, substantially in accordance with such
projections. However, with respect to the projections for WorldCom and the
Projected Synergies prepared by WorldCom, for purposes of our analysis, we also
have considered an adjusted set of projections for WorldCom and the Projected
Synergies based upon more conservative assumptions and estimates. We have
discussed these adjusted projections with the management of the Company and they
have agreed with the appropriateness of the use of such adjusted projections in
performing our analysis. In addition, upon advice of the Company, we have
assumed that all of the Pending WorldCom Transactions will be consummated in
accordance with their respective terms, without any waivers or modifications of
any material terms or conditions relating thereto, and we have included the
impact of the Proposed WorldCom Transactions on WorldCom in performing our
analysis. In rendering our opinion, we have assumed that the Proposed
Transaction will be consummated on the terms described in the Merger Agreement
and that the transactions contemplated by the BT Agreement will be consummated
on the terms described therein, without any waiver of any material terms or
conditions by MCI or the obtaining of any further consents or approvals from BT,
and that obtaining the necessary regulatory approvals for the Proposed
Transaction will not have a material adverse effect on WorldCom. In arriving at
our opinion, we have not conducted a physical inspection of the properties and
facilities of the Company or WorldCom and have not made or obtained any
evaluations or appraisals of the assets or liabilities of the Company or
WorldCom (including the assets to be acquired and the liabilities to be assumed
by WorldCom in the Pending WorldCom Transactions). In addition, you have not
authorized us to solicit, and we have not solicited, any indications of interest
or proposals from third parties with respect to a purchase of all or a part of
the Company's business. We also have not been requested to and do not express
any opinion as to the prices at which WorldCom Shares may trade at any time
prior to or following the consummation of the Proposed Transaction. Our opinion
necessarily is based upon market, economic and other conditions as they exist
on, and can be evaluated as of, the date of this letter.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the consideration to be
offered to the Public Stockholders for the Common Shares in the Proposed
Transaction is fair to the Public Stockholders.
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We have acted as financial advisor to the Company in connection with the
Proposed Transaction and will receive a fee for our services, a substantial
portion of which is contingent upon the consummation of an acquisition or a
restructuring of the Company. In addition, the Company has agreed to indemnify
us for certain liabilities that may arise out of the rendering of this opinion.
We also have performed various investment banking services for the Company in
the past and have received customary fees for such services. In the ordinary
course of our business, we actively trade in the debt and equity securities of
the Company and WorldCom for our own account and for the accounts of our
customers and, accordingly, may at any time hold a significant long or short
position in such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company and is rendered to the Board of Directors in connection with its
consideration of the Proposed Transaction. This opinion is not intended to be
and does not constitute a recommendation to any stockholder of the Company as to
how such stockholder should vote with respect to the Proposed Transaction.
Very truly yours,
LEHMAN BROTHERS
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PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 14-2-202(b)(4) of the Georgia Business Corporation Code (the
"Georgia Code") provides that a corporation's articles of incorporation may
include a provision that eliminates or limits the personal liability of
directors for monetary damages to the corporation or its shareholders for breach
of their duty of care and other duties as directors; provided, however, that the
Section does not permit a corporation to eliminate or limit the liability of a
director for appropriating, in violation of his duties, any business opportunity
of the corporation, engaging in intentional misconduct or a knowing violation of
law, obtaining an improper personal benefit, or voting for or assenting to an
unlawful distribution (whether as a dividend, stock repurchase or redemption, or
otherwise) as provided in Section 14-2-832 of the Georgia Code. Section
14-2-202(b)(4) also does not eliminate or limit the rights of WorldCom or any
shareholder to seek an injunction or other nonmonetary relief in the event of a
breach of a director's duty to the corporation and its shareholders.
Additionally, Section 14-2-202(b)(4) applies only to claims against a director
arising out of his role as a director, and does not relieve a director from
liability arising from his role as an officer or in any other capacity.
The provisions of Article Ten of WorldCom's Second Amended and Restated
Articles of Incorporation are similar in all substantive respects to those
contained in Section 14-2-202(b)(4) of the Georgia Code as outlined above.
Article Ten further provides that the liability of directors of WorldCom shall
be limited to the fullest extent permitted by amendments to Georgia law.
Sections 14-2-850 to 14-2-859, inclusive, of the Georgia Code govern the
indemnification of directors, officers, employees, and agents. Section 14-2-851
of the Georgia Code permits indemnification of a director of WorldCom for
liability incurred by him in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (including, subject to certain limitations, civil actions brought
as derivative actions by or in the right of WorldCom) in which he is made a
party by reason of being a director of WorldCom and for directors who, at the
request of WorldCom, act as directors, officers, partners, trustees, employees
or agents of another foreign or domestic corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise. The Section permits
indemnification if the director acted in a manner he believed in good faith to
be in or not opposed to the best interest of WorldCom and, in addition, in
criminal proceedings, if he had no reasonable cause to believe his conduct was
unlawful. If the required standard of conduct is met, indemnification may
include judgments, settlements, penalties, fines or reasonable expenses
(including attorneys' fees) incurred with respect to a proceeding. However, if
the director is adjudged liable to WorldCom in a derivative action or on the
basis that personal benefit was improperly received by him, the director is not
entitled to indemnification by the corporation; provided that the director may
be entitled to indemnification for reasonable expenses as determined by a court
in accordance with the provisions of Section 14-2-854, or unless WorldCom's
Second Amended and Restated Articles of Incorporation or Bylaws, or a contract
or resolutions approved by WorldCom's shareholders pursuant to Section 14-2-856,
authorizes indemnification. Section 14-2-852 of the Georgia Code provides that
unless limited by the articles of incorporation, directors who are successful
with respect to any claim brought against them, which claim is brought because
they are or were directors of WorldCom, are entitled to mandatory
indemnification against reasonable expenses incurred in connection therewith.
Conversely, if the charges made in any action are sustained, the determination
of whether the required standard of conduct has been met will be made, in
accordance with the provisions of Section 14-2-855 of the Georgia Code, as
follows: (i) by the majority vote of a quorum of the members of the board of
directors not a party to such action at that time, (ii) if a quorum cannot be
obtained, by a committee thereof duly designated by the board of directors,
consisting of two or more directors not a party to such action at that time,
(iii) by duly selected special legal counsel, or (iv) by the shareholders, but,
in such event, the shares owned by or voted under the control of directors who
are at the time parties to the proceeding may not be voted.
Section 14-2-857 of the Georgia Code provides that an officer of WorldCom
(but not an employee or agent generally) who is not a director has the mandatory
right of indemnification granted to directors under
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Section 14-2-852, as described above. In addition, WorldCom may, as provided by
WorldCom's Second Amended and Restated Articles of Incorporation, Bylaws,
general or specific actions by its board of directors, or by contract, indemnify
and advance expenses to an officer, employee or agent who is not a director to
the extent that such indemnification is consistent with public policy.
The indemnification provisions of Article X of WorldCom's Bylaws and
Article Twelve of WorldCom's Second Amended and Restated Articles of
Incorporation are consistent with the foregoing provisions of the Georgia Code.
However, WorldCom's Second Amended and Restated Articles of Incorporation
prohibit indemnification of a director who did not believe in good faith that
his actions were in, or not contrary to, WorldCom's best interests. WorldCom's
Bylaws extend the indemnification available to officers under the Georgia Code
to employees and agents.
ITEM 21(a). EXHIBITS
See Exhibit Index.
ITEM 21(b). FINANCIAL STATEMENT SCHEDULES
All financial statement schedules of WorldCom and MCI which are required to
be included herein are included in the Annual Report of WorldCom on Form 10-K
for the fiscal year ended December 31, 1996 or the Annual Report on Form 10-K of
MCI for the fiscal year ended December 31, 1996, respectively, which are
incorporated herein by reference.
ITEM 22. UNDERTAKINGS
(1) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrants of expenses incurred or paid by a director, officer
or controlling person of the registrants in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrants will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(2) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act") (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Exchange Act) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(4) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
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(5) The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers and sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that paragraphs 5(a)(i) and 5(a)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
registrant pursuant to Section 13 or 15(d)of the Exchange Act that are
incorporated by reference in the registration statement.
(b) That for the purposes of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial BONA FIDE offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(6) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(7) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (6) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
BONA FIDE offering thereof.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Jackson, State of Mississippi, on November 26, 1997.
WORLDCOM, INC.
By: /s/ SCOTT D. SULLIVAN
----------------------------------
Scott D. Sullivan
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
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<C> <S> <C>
* Director November 26, 1997
- ---------------------------------------------
Carl J. Aycock
* Director November 26, 1997
- ---------------------------------------------
Max E. Bobbitt
* Chairman, President and November 26, 1997
- --------------------------------------------- Chief Executive Officer
Bernard J. Ebbers and Director (Principal
Executive Officer)
* Director November 26, 1997
- ---------------------------------------------
Francesco Galesi
* Director November 26, 1997
- ---------------------------------------------
Richard R. Jaros
* Director November 26, 1997
- ---------------------------------------------
Stiles A. Kellett, Jr.
* Director November 26, 1997
- ---------------------------------------------
David C. McCourt
* Director November 26, 1997
- ---------------------------------------------
John A. Porter
* Vice Chairman of the November 26, 1997
- --------------------------------------------- Board, Chief Operations
John W. Sidgmore Officer and Director
/s/ SCOTT D. SULLIVAN Chief Financial Officer November 26, 1997
- --------------------------------------------- and Director (Principal
Scott D. Sullivan Financial Officer and
Principal Accounting
Officer)
* Director November 26, 1997
- ---------------------------------------------
Lawrence C. Tucker
*By: /s/ Scott D. Sullivan
- ---------------------------------------------
Scott D. Sullivan, Attorney-In-Fact
</TABLE>
II-4
<PAGE> 200
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- -------------------- ------------------------------------------------------------------------
<C> <S>
1.1 -- Letter Agreement dated September 29, 1997, by and between WorldCom,
Inc. ("WorldCom" or the "Company") and Salomon Brothers Inc**
2.1 -- Agreement and Plan of Merger by and among WorldCom, TC Investments
Corp. and MCI Communications Corporation ("MCI") dated as of November
9, 1997 (included as Annex I to the Joint Proxy Statement/Prospectus
which is part of this Registration Statement on Form S-4)*
2.2 -- Agreement and Plan of Merger among WorldCom, BV Acquisition, Inc. and
Brooks Fiber Properties, Inc. dated as of October 1, 1997
(incorporated herein by reference to Exhibit 2.1 to Brooks Fiber
Properties, Inc.'s Current Report on Form 8-K dated October 1, 1997
(filed October 6, 1997) (File 0-28036))*
2.3 -- Agreement by and among British Telecommunications plc, MCI and
WorldCom dated as of November 9, 1997 (included in Annex II to the
Joint Proxy Statement/Prospectus which is a part of this Registration
Statement on Form S-4)
2.4 -- Agreement and Plan of Merger by and among WorldCom, H&R Block, Inc.,
H&R Block Group, Inc., CompuServe Corporation ("CompuServe") and
Walnut Acquisition Company, L.L.C. dated as of September 7, 1997
(incorporated herein by reference to Exhibit 2.1 to the Company's
Current Report on Form 8-K dated September 7, 1997 (filed September
17, 1997) (File 0-11258))*
2.5 -- Stockholders Agreement by and among H&R Block, Inc., H&R Block Group,
Inc., and the Company dated as of September 7, 1997 (incorporated
herein by reference to Exhibit 2.2 to the Company's Current Report on
Form 8-K dated September 7, 1997 (filed September 17, 1997) (File
0-11258))
2.6 -- Standstill Agreement by and among WorldCom, H&R Block, Inc., H&R
Block Group, Inc. and WorldCom dated as of September 7, 1997
(incorporated herein by reference to Exhibit 2.3 to the Company's
Current Report on Form 8-K dated September 7, 1997 (filed September
17, 1997) (File 0-11258))
2.7 -- Purchase and Sale Agreement by and among America Online, Inc., ANS
Communications, Inc. and WorldCom dated as of September 7, 1997
(incorporated herein by reference to Exhibit 2.4 to the Company's
Current Report on Form 8-K dated September 7, 1997 (filed September
17, 1997) (File 0-11258))*
4.1 -- Second Amended and Restated Articles of Incorporation of WorldCom
(including preferred stock designations) as of December 31, 1996
(incorporated herein by reference to Exhibit 3.1 to the Company's
Current Report on Form 8-K, dated December 31, 1996 (File No.
0-11258))
4.2 -- Restated Bylaws of WorldCom (incorporated herein by reference to
Exhibit 4.2 to WorldCom's Annual Report on Form 10-K (File No.
0-11258) for the year ended December 31, 1996)
4.3 -- Deposit Agreement between WorldCom, The Bank of New York and the
holders from to time of the Depositary Shares representing 1/100 of a
share of WorldCom Series A Preferred Stock (the "WorldCom Depositary
Shares") (incorporated herein by reference to Exhibit 4.5 to
WorldCom's Registration Statement on Form S-4 (File No. 333-16015))
4.4 -- Form of certificate representing WorldCom Depositary Shares (attached
as Exhibit A to the Deposit Agreement filed as Exhibit 4.3 hereto)
</TABLE>
II-5
<PAGE> 201
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- -------------------- ------------------------------------------------------------------------
<C> <S>
4.5 -- Rights Agreement dated as of August 25, 1996 between WorldCom and The
Bank of New York, which includes the form of Certificate of
Designations, setting forth the terms of the Series 3 Junior
Participating Preferred Stock, par value $.01 per share, as Exhibit
A, the form of Rights Certificate as Exhibit B and the Summary of
Preferred Stock Purchase Rights as Exhibit C (incorporated herein by
reference to Exhibit 4 to the Current Report on Form 8-K dated August
26, 1996 (as amended) filed by WorldCom with the Securities and
Exchange Commission on August 26, 1996 (File No. 0-11258)
4.6 -- Amendment No. 1 To Rights Agreement dated as of May 22, 1997 by and
between the Company and The Bank of New York, as Rights Agent
(incorporated herein by reference to Exhibit 4.2 to the Company's
Current Report on Form 8-K dated May 22, 1997 (filed June 6, 1997)
(File No. 0-11258)
4.7 -- Form of 7.55% Senior Note due 2004 (incorporated herein by reference
to Exhibit 4.1 to the Company's Current Report on Form 8-K dated
March 26, 1997 (File No. 0-11258))
4.8 -- Form of 7.75% Senior Note due 2007 (incorporated herein by reference
to Exhibit 4.2 to the Company's Current Report on Form 8-K dated
March 26, 1997 (File No. 0-11258))
4.9 -- Form of 7.75% Senior Note due 2027 (incorporated herein by reference
to Exhibit 4.3 to the Company's Current Report on Form 8-K dated
March 26, 1997 (File No. 0-11258))
4.10 -- Senior Indenture dated March 1, 1997 by and between WorldCom, Inc.
and Mellon Bank, N.A., as trustee (incorporated herein by reference
to Exhibit 4.6 to the Company's Form 10-Q for the period ended March
31, 1997 (File No. 0-11258))
4.11 -- Form of First Supplemental Indenture of WorldCom to Mellon Bank, N.A.
relating to 9 3/8% Notes Due 2004 and 8 7/8% Senior Notes Due 2006
(including form of 9 3/8% Senior Note Due 2004 attached as Exhibit A
thereto and form of 8 7/8% Senior Note Due 2006 attached as Exhibit B
thereto) (incorporated herein by reference to Exhibit 4.9 to the
Company's Registration Statement on Form S-4 (Registration No.
333-27345))
4.12 -- Facility A Revolving Credit Agreement among WorldCom, Inc.,
NationsBank of Texas, N.A. (Managing Agent and Administrative Agent),
Bank of America NT & SA, Bank of Montreal, The Bank of New York, The
Bank of Nova Scotia, Bank of Tokyo-Mitsubishi Trust Company, Barclays
Bank PLC, Canadian Imperial Bank of Commerce, The Chase Manhattan
Bank, Citibank, N.A., Credit Lyonnais New York Branch, First Union
National Bank, Fleet National Bank, The Industrial Bank of Japan,
Limited, Atlanta Agency, Morgan Guaranty Trust Company of New York,
Royal Bank of Canada, and Toronto Dominion (Texas), Inc. (Agents) and
the Lenders named therein (Facility A Lenders), dated as of July 3,
1997 (incorporated herein by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K dated June 30, 1997 (File No.
0-11258))
</TABLE>
II-6
<PAGE> 202
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- -------------------- ------------------------------------------------------------------------
<C> <S>
4.13 -- Facility B Revolving Credit and Term Loan Agreement among WorldCom,
Inc., NationsBank of Texas, N.A. (Managing Agent and Administrative
Agent), Bank of America NT & SA, Bank of Montreal, The Bank of New
York, The Bank of Nova Scotia, Bank of Tokyo-Mitsubishi Trust
Company, Barclays Bank PLC, Canadian Imperial Bank of Commerce, The
Chase Manhattan Bank, Citibank, N.A., Credit Lyonnais New York
Branch, First Union National Bank, Fleet National Bank, The
Industrial Bank of Japan, Limited, Atlanta Agency, Morgan Guaranty
Trust Company of New York, Royal Bank of Canada, and Toronto Dominion
(Texas), Inc. (Agents) and the Lenders named therein (Facility B
Lenders), dated as of July 3, 1997 (incorporated herein by reference
to Exhibit 10.2 to the Company's Current Report on Form 8-K dated
June 30, 1997 (File No. 0-11258))
5.1 -- Validity Opinion of WorldCom Counsel**
8.1 -- Tax Opinion of Cravath, Swaine & Moore**
8.2 -- Tax Opinion of Simpson Thacher & Bartlett**
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Coopers & Lybrand LLP
23.3 -- Consent of Arthur Andersen LLP
23.4 -- Consent of Arthur Andersen LLP
23.5 -- Consent of Price Waterhouse LLP
23.6 -- Consent of Cravath, Swaine & Moore (included in Exhibit 8.1)
23.7 -- Consent of Simpson Thacher & Bartlett (included in Exhibit 8.2)
23.8 -- Consent of WorldCom Counsel (included in Exhibit 5.1)
23.9 -- Consent of Salomon Brothers Inc
23.10 -- Consent of Lazard Freres & Co. LLC
23.11 -- Consent of Lehman Brothers Inc.
24.1 -- Power of Attorney (included in Signature Page)
99.1 -- Form of WorldCom Proxy Card**
99.2 -- Form of MCI Proxy Card**
</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.
** To be filed by amendment.
II-7
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement on Form S-4, of our report dated
February 26, 1997, included in WorldCom, Inc.'s Form 10-K for the year ended
December 31, 1996 and to all references to our Firm included in this
registration statement.
ARTHUR ANDERSEN LLP
Jackson, Mississippi,
November 24, 1997.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement
on Amendment No. 1 to Form S-4 (File No. 333-36901) of WorldCom, Inc. of our
report dated February 14, 1996, on our audits of the consolidated financial
statements of MFS Communications Company, Inc. as of December 31, 1995 and for
the years ended December 31, 1995 and 1994 which report is included in MFS
Communications Company's Annual Report on Form 10-K, and of our report dated
February 14, 1996 on our audits of the consolidated financial statements of MFS
Communications Company, Inc. as of December 31, 1995 and 1994 and for the three
years in the period ended December 31, 1995 which report is included in
WorldCom, Inc.'s Current Report on Form 8-K/A dated August 25, 1996 (as amended
on November 4, 1996). We also consent to the reference to our firm under the
caption "Experts".
COOPERS & LYBRAND L.L.P.
Omaha, Nebraska
November 24, 1997.
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement on Form S-4, of our reports dated
February 20, 1997, included in MFS Communications Company, Inc.'s Form 10-K for
the year ended December 31, 1996 and to all references to our Firm included in
this registration statement.
ARTHUR ANDERSEN LLP
Omaha, Nebraska,
November 24, 1997.
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement on Form S-4, of our report dated
January 31, 1996, on the Consolidated Financial Statements of UUNET
Technologies, Inc. included in WorldCom, Inc.'s Current Report on Form 8-K dated
August 25, 1996, as amended by Form 8-K/A filed on November 4, 1996, and to all
references to our Firm included in this registration statement.
ARTHUR ANDERSEN LLP
Washington, D.C.,
November 24, 1997.
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of WorldCom, Inc.
of our report dated January 27, 1997, which appears on page 30 of MCI
Communications Corporation's ("MCI") 1996 Annual Report to Stockholders, on
MCI's Current Report on Form 8-K dated February 10, 1997 ("Current Report"). We
also consent to the incorporation by reference of our report on the Financial
Statement Schedule, which is included as Exhibit 99(c) to the Current Report. We
also consent to the reference to us under the heading "Experts" in such
Prospectus.
PRICE WATERHOUSE LLP
[Date]
Washington, D.C.
<PAGE> 1
EXHIBIT 23.9
CONSENT OF SALOMON BROTHERS INC
We hereby consent to the use of our name and to the description of our
opinion letter, dated November 9, 1997, under the caption "The MCI/WorldCom
Merger; Opinion of WorldCom's Financial Advisor" in, and to the inclusion of
such opinion letter as Annex III to, the Joint Proxy Statement/Prospectus of
WorldCom, Inc. and MCI Communications Corporation, which Joint Proxy
Statement/Prospectus is part of the Registration Statement on Form S-4 (File
Number 333-36901 of WorldCom, Inc. By giving such consent, we do not thereby
admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "expert" as used in, or that we come
within the category of persons whose consent is required under, the Securities
Act of 1933, as amended, or the rules and regulations of the Securities and
Exchange Commission promulgated thereunder.
SALOMON BROTHERS INC
New York, New York
November 26, 1997
<PAGE> 1
EXHIBIT 23.10
CONSENT OF LAZARD FRERES & CO. LLC
We hereby consent to the use of our name and to the description of our
opinion letter, dated November 9, 1997, under the captions "Proxy
Statement/Prospectus Summary -- Fairness Opinions" and "Cautionary Statement
Regarding Forward-Looking Statements" and "Risk Factors -- Risks Related to the
MCI/WorldCom Merger -- The Effect of Stock Price Fluctuations on the
Consideration to be Received by the Holders of MCI Capital Stock in the
MCI/WorldCom Merger; Opinions of Financial Advisors Not Updated" and "The
MCI/WorldCom Merger -- Background of the Merger" and "-- Opinions of MCI's
Financial Advisors" in, and to the inclusion of such opinion letter as Annex IV
to, the Joint Proxy Statement/Prospectus of WorldCom, Inc. and MCI
Communications Corporation, which Joint Proxy Statement/Prospectus is part of
the Amendment No. 1 to Form S-4 (File Number 333-36901) of WorldCom Inc. By
giving such consent, we do not thereby admit that we are experts with respect to
any part of such Registration Statement within the meaning of the term "expert"
as used in, or that we come within the category of persons whose consent is
required under, the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
LAZARD FRERES & CO. LLC
/s/ J. ROBERT LOVEJOY
--------------------------------------
J. Robert Lovejoy
Managing Director
New York, New York
November 26, 1997
<PAGE> 1
EXHIBIT 23.11
CONSENT OF LEHMAN BROTHERS
We hereby consent to the use of our name and to the description of our
opinion letter, dated November 9, 1997, under the captions "Proxy
Statement/Prospectus Summary -- Fairness Opinions" and "Cautionary Statement
Regarding Forward-Looking Statements" and "Risk Factors -- Risks Related to the
MCI/ WorldCom Merger -- The Effect of Stock Price Fluctuations on the
Consideration to be Received by the Holders of MCI Capital Stock in the
MCI/WorldCom Merger; Opinions of Financial Advisors Not Updated" and "The
MCI/WorldCom Merger -- Background of the Merger" and "-- Opinions of MCI's
Financial Advisors" in, and to the inclusion of such opinion letter as Annex V
to, the Joint Proxy Statement/ Prospectus of WorldCom, Inc. and MCI
Communications Corporation, which Joint Proxy Statement/Prospectus is part of
the Amendment No. 1 to Form S-4 (File Number 333-36901) of WorldCom, Inc. By
giving such consent, we do not thereby admit that we are experts with respect to
any part of such Registration Statement within the meaning of the term "expert"
as used in, or that we come within the category of persons whose consent is
required under, the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
LEHMAN BROTHERS
/s/ PAUL G. PARKER
--------------------------------------
Paul G. Parker
Senior Vice President
New York, New York
November 26, 1997
