<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 14, 1997
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.
<PAGE>
Rule 424(a)
File No. 333-36901
PROSPECTUS
OFFER TO EXCHANGE EACH OUTSTANDING SHARE OF COMMON STOCK
(INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS)
OF
MCI COMMUNICATIONS CORPORATION
FOR
$41.50 OF COMMON STOCK
(SUBJECT TO ADJUSTMENT)
OF
[LOGO]
WorldCom, Inc., a Georgia corporation ("WorldCom"), hereby offers, upon the
terms and subject to the conditions set forth in this Prospectus (the
"Prospectus") and the accompanying Letter of Transmittal (collectively, the
"Offer"), to exchange shares of common stock, par value $.01 per share, of
WorldCom (the "WorldCom Common Stock") for each outstanding share (each, a
"Share") of common stock, par value $.10 per share (the "MCI Common Stock"), of
MCI Communications Corporation, a Delaware corporation ("MCI") (including the
shares of MCI Common Stock into which the outstanding shares of Class A common
stock, par value $.10 per share, of MCI (the "Class A Common Stock") would be
automatically converted in accordance with the provisions of MCI's Restated
Certificate of Incorporation upon the tender of such shares pursuant to the
Offer), together with the associated preferred stock purchase rights (each a
"Right" and, collectively, the "Rights") issued pursuant to a Rights Agreement,
dated as of September 30, 1994, between MCI and Mellon Bank, N.A., as Rights
Agent, as amended (the "MCI Rights Agreement"), validly tendered on or prior to
the Expiration Date and not properly withdrawn. The holder of each Share validly
tendered on or prior to the Expiration Date and not properly withdrawn will be
entitled to receive that number of shares of WorldCom Common Stock equal to the
Exchange Ratio. "Exchange Ratio" means the quotient (rounded to the nearest
1/10,000) determined by dividing $41.50 by the average of the high and low sales
prices of WorldCom Common Stock as reported on The Nasdaq National Market (the
"WorldCom Average Price") on each of the twenty consecutive trading days ending
with the third trading day immediately preceding the Expiration Date; provided,
that the Exchange Ratio shall not be less than 1.0375 nor greater than 1.2206.
Accordingly, each Share will be exchanged for WorldCom Common Stock having a
market value of $41.50 if the WorldCom Average Price is between $40.00 and
$34.00. If the WorldCom Average Price is greater than $40.00, each Share will be
exchanged for WorldCom Common Stock having a market value of more than $41.50
and, conversely, if the WorldCom Average Price is less than $34.00, each Share
will be exchanged for WorldCom Common Stock having a market value of less than
$41.50 . Cash will be paid in lieu of any fractional shares of WorldCom Common
Stock. On , the closing price of WorldCom Common Stock as reported
on The Nasdaq National Market was $ . Based on a WorldCom Average Price equal
to that amount, each Share would be exchanged for WorldCom Common Stock having a
market value of $ . The actual WorldCom Average Price and Exchange Ratio will
be calculated as of the third trading day immediately prior to the Expiration
Date, as described above, and a press release will be issued announcing the
actual Exchange Ratio prior to the opening of the second trading day prior to
the Expiration Date (as it may be extended from time to time). Unless the
context otherwise requires and unless the Rights are redeemed, invalidated or
inapplicable to the acquisition of Shares pursuant to the Offer and the Merger
(as hereinafter defined), all references to the Shares shall include the
associated Rights.
(COVER PAGE CONTINUES)
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 11:59 P.M., NEW YORK CITY TIME,
ON , 1997, UNLESS THE OFFER IS EXTENDED (THE "EXPIRATION DATE").
TENDERS OF SHARES MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DEALER MANAGER FOR THE OFFER IS:
- ----------------------------------------------
SALOMON BROTHERS INC
- ---------------------------------------------------------
The date of this Prospectus is , 1997.
<PAGE>
(COVER PAGE CONTINUED)
WORLDCOM'S OBLIGATION TO EXCHANGE SHARES OF WORLDCOM COMMON STOCK FOR SHARES
PURSUANT TO THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (I) THERE BEING
VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE A NUMBER OF
SHARES THAT WILL CONSTITUTE AT LEAST A MAJORITY OF THE TOTAL NUMBER OF
OUTSTANDING SHARES ON A FULLY DILUTED BASIS (I.E., AS THOUGH ALL OPTIONS OR
OTHER SECURITIES CONVERTIBLE INTO OR EXERCISABLE OR EXCHANGEABLE FOR SHARES
(INCLUDING THE CLASS A COMMON STOCK OF MCI), OTHER THAN THE RIGHTS, HAD BEEN SO
CONVERTED, EXERCISED OR EXCHANGED) AS OF THE DATE THE SHARES ARE ACCEPTED FOR
EXCHANGE BY WORLDCOM PURSUANT TO THE OFFER (THE "MINIMUM TENDER CONDITION"),
(II) APPROVAL OF THE ISSUANCE OF SHARES OF THE WORLDCOM COMMON STOCK PURSUANT TO
THE OFFER AND OF THE MERGER BY THE VOTE OF THE HOLDERS OF SHARES OF WORLDCOM
CAPITAL STOCK REPRESENTING A MAJORITY OF THE TOTAL VOTES CAST ON SUCH PROPOSAL,
VOTING AS A SINGLE CLASS, AT A MEETING OF SUCH HOLDERS (THE "WORLDCOM
SHAREHOLDER APPROVAL CONDITION"), (III) THE STOCKHOLDERS OF MCI HAVING
DISAPPROVED THE AGREEMENT AND PLAN OF MERGER DATED AS OF NOVEMBER 3, 1996
BETWEEN MCI, BRITISH TELECOMMUNICATIONS PLC ("BT") AND A WHOLLY-OWNED SUBSIDIARY
OF BT, AS AMENDED (THE "BT/MCI MERGER AGREEMENT CONDITION"), AT THE SPECIAL
MEETING OF STOCKHOLDERS OF MCI TO BE CALLED TO CONSIDER THE REVISED BT
ACQUISITION PROPOSAL (AS HEREINAFTER DEFINED), (IV) WORLDCOM BEING SATISFIED IN
ITS SOLE DISCRETION THAT THE RIGHTS ARE INVALID OR ARE NOT APPLICABLE TO THE
ACQUISITION OF THE SHARES PURSUANT TO THE OFFER AND THE MERGER (THE "RIGHTS PLAN
CONDITION"), (V) THE RECEIPT OF APPROVAL FROM THE FEDERAL COMMUNICATIONS
COMMISSION (THE "FCC") TO THE INTERIM TRANSFER OF CONTROL OF MCI TO AN
INDEPENDENT VOTING TRUSTEE IN ACCORDANCE WITH THE FCC'S POLICY STATEMENT ON
TENDER OFFERS AND PROXY CONTESTS (THE "VOTING TRUST CONDITION"), (VI) THE
EXPIRATION OR TERMINATION OF ANY WAITING PERIOD UNDER THE HART-SCOTT-RODINO
ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED ("HSR ACT"), APPLICABLE TO THE
ACQUISITION OF SHARES PURSUANT TO THE OFFER AND THE MERGER AND THE RECEIPT OF
ALL REQUISITE FOREIGN ANTITRUST APPROVALS (THE "ANTITRUST CONDITION") AND (VII)
THE OTHER CONDITIONS TO THE OFFER DESCRIBED UNDER "CONDITIONS OF THE OFFER." SEE
"CONDITIONS OF THE OFFER."
THIS PROSPECTUS AND THE OFFER MADE HEREBY DO NOT CONSTITUTE A SOLICITATION OF
ANY PROXIES. ANY SUCH SOLICITATIONS WILL BE MADE ONLY PURSUANT TO SEPARATE PROXY
MATERIALS COMPLYING WITH THE REQUIREMENTS OF SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. THIS PROSPECTUS CONTAINS CERTAIN ANALYSES AND
STATEMENTS WITH RESPECT TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND
BUSINESS OF WORLDCOM FOLLOWING THE CONSUMMATION OF THE OFFER AND THE MERGER,
INCLUDING STATEMENTS RELATING TO THE COST SAVINGS AND OTHER SYNERGIES THAT MAY
BE REALIZED FROM THE MERGER. SEE "PROSPECTUS SUMMARY--COMPARISON OF THE
PROPOSALS," "BACKGROUND OF THE OFFER--THE WORLDCOM OFFER" AND "BACKGROUND OF THE
OFFER--COMPARISON OF THE PROPOSALS." SUCH ANALYSES AND STATEMENTS INCLUDE
FORWARD-LOOKING STATEMENTS WITH RESPECT TO, AMONG OTHER THINGS: (1) EXPECTED
COST SAVINGS AND OTHER SYNERGIES FROM THE MERGER; (2) REGULATORY TREATMENT; (3)
FUTURE BUSINESS DECISIONS; AND (4) OTHER UNCERTAINTIES, WHICH STATEMENTS, THOUGH
CONSIDERED REASONABLE BY WORLDCOM, ARE SUBJECT TO UNCERTAINTIES AND INVOLVE
MATTERS THAT ARE BEYOND WORLDCOM'S CONTROL AND DIFFICULT TO PREDICT. SEE
"CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS." FURTHER INFORMATION
ON OTHER FACTORS WHICH COULD AFFECT THE FINANCIAL RESULTS OF WORLDCOM AFTER THE
MERGER IS INCLUDED IN THE FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION
INCORPORATED BY REFERENCE HEREIN.
IMPORTANT
Any stockholder desiring to tender all or any portion of his or her Shares
and the associated Rights should either (a) complete and sign the Letter of
Transmittal or a facsimile copy thereof in accordance with the instructions in
the Letter of Transmittal, and mail or deliver the Letter of Transmittal or such
facsimile and any other required documents to IBJ Schroder Bank & Trust Company
(the "Exchange Agent") and either deliver the certificates for such Shares and
Rights to the Exchange Agent along with the Letter of Transmittal, deliver such
Shares and Rights pursuant to the procedures for book-entry transfer set forth
herein or comply with the guaranteed delivery procedures set forth below or (b)
request
ii
<PAGE>
his or her broker, dealer, commercial bank, trust company or other nominee to
effect the transaction for him or her. A stockholder having Shares and Rights
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee must contact such broker, dealer, commercial bank, trust company
or other nominee if he or she desires to tender such Shares and Rights.
Stockholders will be required to tender one Right for each Share tendered in
order to effect a valid tender of Shares, unless the Rights Plan Condition has
been satisfied or waived. Unless the MCI Distribution Date (as defined herein)
occurs, a tender of Shares will constitute a tender of the associated Rights.
Questions and requests for assistance may be directed to the Information
Agent or to the Dealer Manager at their respective addresses and telephone
numbers set forth on the back cover of this Prospectus. Requests for additional
copies of this Prospectus and the Letter of Transmittal may be directed to the
Information Agent or to brokers, dealers, commercial banks or trust companies.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY WORLDCOM OR SALOMON BROTHERS INC (THE "DEALER MANAGER"). THE OFFER IS NOT
BEING MADE TO, NOR WILL TENDERS BE ACCEPTED FROM OR ON BEHALF OF, HOLDERS OF
SHARES IN ANY JURISDICTION IN WHICH THE MAKING OR ACCEPTANCE THEREOF WOULD NOT
BE IN COMPLIANCE WITH THE LAWS OF SUCH JURISDICTION. HOWEVER, WORLDCOM MAY, IN
ITS SOLE DISCRETION, TAKE SUCH ACTION AS IT MAY DEEM NECESSARY TO MAKE THE OFFER
IN ANY SUCH JURISDICTION AND EXTEND THE OFFER TO HOLDERS OF SHARES IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY EXCHANGE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCE, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF WORLDCOM OR MCI SINCE THE DATE AS OF WHICH
INFORMATION IS FURNISHED OR SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OR A SOLICITATION IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Index Of Defined Terms................. iv
Available Information.................. vi
Incorporation Of Certain Documents By
Reference............................ vi
MCI Information........................ vii
Prospectus Summary..................... 1
Cautionary Statement Regarding Forward-
Looking Statements................... 22
Background Of The Offer................ 22
The Offer.............................. 30
Conditions Of The Offer................ 39
Purpose Of The Offer; The Merger....... 45
Certain Federal Income Tax
Consequences......................... 47
Effect Of Offer On Market For Shares;
Registration Under The Exchange
Act.................................. 49
Regulatory Filings and Approvals....... 51
Fees And Expenses...................... 52
Accounting Treatment................... 53
Trading Market......................... 53
Material Contacts Between MCI And
WorldCom............................. 53
Pro Forma Financial Information........ 55
Information Regarding MCI.............. 71
Information Regarding WorldCom......... 71
Description Of WorldCom Capital
Stock................................ 77
Comparative Rights Of Shareholders..... 85
Market Prices And Dividends............ 94
Legal Matters.......................... 95
Experts................................ 95
Directors And Executive Officers Of
WorldCom............................. 96
</TABLE>
iii
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
"Acquisition Transaction"............. 52
"ADS"................................. 2
"Agent's Message"..................... 35
"ANS"................................. 6
"Antitrust Condition"................. ii
"AOL"................................. 6
"AOL Purchase and Sale Agreement"..... 6
"Associate"........................... 94
"ATC Merger".......................... 19
"BFP"................................. 5
"BFP Merger Agreement"................ 5
"Block"............................... 6
"Book-Entry Confirmation"............. 35
"Book-Entry Transfer Facilities"...... 34
"BT".................................. 1
"BT/MCI Merger Agreement"............. 2
"BT/MCI Merger Agreement Condition"... ii
"BT Sub".............................. 2
"Business Combination"................ 12
"business day"........................ 33
"Business Transaction"................ 93
"Call Price".......................... 78
"Class A Common Stock"................ 3
"CNS"................................. 6
"Code"................................ 7
"Commission".......................... vi
"CompuServe".......................... 6
"CompuServe Merger"................... 6
"CompuServe Merger Agreement"......... 6
"Concert"............................. 2
"Continuing Directors"................ 92
"Dealer Manager"...................... iii
"Deposit Agreement"................... 81
"Depositary".......................... 81
"Depositary Receipts"................. 81
"DGCL"................................ 15
"Disqualified Holder"................. 91
"DOJ"................................. 2
"Eligible Institution"................ 35
"Exchange Act"........................ vi
"Exchange Agent"...................... 16
"Exchange Ratio"...................... 11
"Expiration Date"..................... 12
"Extraordinary Cash Dividend"......... 80
"fair price".......................... 92
"FCC"................................. 2
"Fidelity"............................ 74
"FTC"................................. 42
"GBCC"................................ 16
"HSR Act"............................. ii
"IDB"................................. 19
"IDB Merger".......................... 19
"ILECs"............................... 5
"Information Agent"................... 52
"Initial Redemption Date"............. 78
"Interested Stockholder".............. 91
"ISPs"................................ 5
"IXCs"................................ 5
"Letter Agreement".................... 52
"MCI"................................. 1
"MCI 1996 Form 10-K".................. vii
"MCI Acquiring Person"................ 31
"MCI By-laws"......................... 85
"MCI Common Stock".................... 2
"MCI Distribution Date"............... 32
"MCI Disclosure Schedule"............. 44
"MCI Limited Representations"......... 44
"MCI Rights Agreement"................ 3
"Mandatory Conversion Date"........... 78
"Merger".............................. 10
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
"Metromedia".......................... 19
"MFS"................................. vii
"MFS Merger".......................... 18
"Minimum Tender Condition"............ ii
"NASD"................................ vi
"Notification Form"................... 43
"Offer"............................... 2
"Offer Conditions".................... 39
"Original BT Acquisition Proposal".... 2
"Original BT/MCI Merger Agreement".... 2
"Original BT/MCI Proxy Statement/
Prospectus"......................... vii
"PKS"................................. 97
"Policy Statement".................... 4
"PoPs"................................ 7
"preferred securities"................ 20
"Preferred Shares".................... 40
"Prospectus".......................... i
"PUC"................................. 2
"Purchase Price"...................... 40
"Redemption Price".................... 40
"Registration Statement".............. vi
"Related Person"...................... 93
"Resurgens"........................... vi
"Revised BT Acquisition Proposal"..... 2
"Right"............................... 3
"Rights".............................. 3
"Rights Delivery Period".............. 36
"Rights Plan Condition"............... ii
"Salomon"............................. 52
"Securities Act"...................... vi
"Share"............................... 2
"short-form merger"................... 15
"STA"................................. 41
"State Applications".................. 51
"Step I Transfer"..................... 4
"Step II Transfer".................... 41
"Stock Acquisition Date".............. 83
"Subdivision"......................... 81
"The 1818 Funds"...................... 76
"Telecom Act"......................... 10
"Trust"............................... 20
"Trust Stock"......................... 41
"U.S. Holders"........................ 48
"UUNET"............................... 6
"UUNET Acquisition"................... 68
"Voting Preferred Stock".............. 79
"Voting Trust"........................ 2
"Voting Trust Condition".............. ii
"Voting Trustee"...................... 4
"WorldCom"............................ 1
"WorldCom 1996 Form 10-K"............. vi
"WorldCom Acquiring Person"........... 82
"WorldCom Articles"................... 16
"WorldCom Average Price".............. 11
"WorldCom Bylaws"..................... 16
"WorldCom Common Stock"............... 2
"WorldCom Depositary Shares".......... 15
"WorldCom Distribution Date".......... 82
"WorldCom Right"...................... 82
"WorldCom Rights Agreement"........... 77
"WorldCom Series 3 Preferred Stock"... 82
"WorldCom Series A Preferred Stock"... vi
"WorldCom Series B Preferred Stock"... 15
"WorldCom Shareholder Approval
Condition".......................... ii
"WorldCom Sub"........................ 6
</TABLE>
v
<PAGE>
AVAILABLE INFORMATION
Each of WorldCom and MCI is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by each of WorldCom and MCI may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the Commission's regional offices located at Northeast
Regional Office, Seven World Trade Center, Suite 1300, New York, New York 10048
and Midwest Regional Office, Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such materials can also be obtained
from the Public Reference Section of the Commission, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a Web site that contains reports, proxy and information statements and
other materials that are filed through the Commission's Electronic Data
Gathering, Analysis and Retrieval (EDGAR) system. This Web site can be accessed
at http://www.sec.gov. Shares of WorldCom's Common Stock, depositary shares
representing WorldCom's Series A 8% Cumulative Convertible Preferred Stock (the
"WorldCom Series A Preferred Stock"), and the MCI Common Stock are included on
The Nasdaq Stock Market and the reports, proxy statements and other information
filed by WorldCom and MCI also can be inspected at the offices of the National
Association of Securities Dealers, Inc. (the "NASD"), at 1735 K Street, N.W.,
Washington, D.C. 20006.
This Prospectus constitutes a part of a registration statement on Form S-4
(together with all amendments and exhibits thereto, the "Registration
Statement") filed by WorldCom with the Commission under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the WorldCom Common
Stock offered hereby. This Prospectus does not contain all the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. Reference is made
to such Registration Statement and to the exhibits thereto for further
information with respect to WorldCom, WorldCom Common Stock, MCI and the Shares.
Statements contained herein concerning the provisions of certain documents are
not necessarily complete, and in each instance reference is made to the copy of
such document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission for a more complete description of the matter
involved. Each such statement is qualified in its entirety by such reference.
Not later than the date of commencement of the Offer, WorldCom will file
with the Commission a statement on Schedule 14D-1 pursuant to Rule 14d-3 under
the Exchange Act furnishing certain information with respect to the Offer. Such
Schedule and any amendments thereto should be available for inspection and
copying as set forth above (except that such Schedules and any amendments
thereto will not be available at the regional offices of the Commission).
Pursuant to Rule 409 promulgated under the Securities Act, and Rule 12b-21
promulgated under the Exchange Act, WorldCom will request that MCI and its
independent public accountants, Price Waterhouse LLP, provide to WorldCom the
information required for complete disclosure concerning the business,
operations, financial condition and management of MCI. WorldCom will provide any
and all information that it receives from MCI or Price Waterhouse LLP prior to
the expiration of the Offer and that WorldCom deems material, reliable and
appropriate in a subsequently prepared amendment or supplement hereto.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by WorldCom (formerly
Resurgens Communications Group, Inc. ("Resurgens")) under File No. 0-11258
(formerly File No. 1-10415) and by MCI under File No. 0-6457 pursuant to the
Exchange Act are incorporated herein by reference:
(a) (1) WorldCom's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (the "WorldCom 1996 Form 10-K");
(2) WorldCom's Quarterly Reports on Form 10-Q for the quarters ended
March 31 and June 30, 1997;
(3) WorldCom's Current Reports on Form 8-K dated August 25, 1996
(filed August 26, 1996 and as amended on Forms 8-K/A filed November 4, 1996
and November 20, 1996), December 31, 1996 (filed January 15, 1997), March
18, 1997 (filed March 24, 1997), March 26, 1997 (filed April 2, 1997), June
30, 1997 (filed July 7, 1997), August 5, 1997 (filed August 5, 1997), August
8, 1997 (filed
vi
<PAGE>
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) and October 10, 1997 (filed
October 14, 1997);
(4) the description of WorldCom's (formerly Resurgens') Common Stock
as contained in Item 1 of Resurgens' Registration Statement on Form 8-A
dated December 12, 1989, as updated by the descriptions contained in
WorldCom's Registration Statement on Form S-4 (File No. 333-16015), as
declared effective by the Commission on November 14, 1996, which includes
the Joint Proxy Statement/Prospectus dated November 14, 1996 with respect to
WorldCom's Special Meeting of Shareholders held on December 20, 1996, under
the following captions: "Description of WorldCom Capital Stock" and
"Comparative Rights of Shareholders;"
(5) the description of WorldCom's Preferred Stock Purchase Rights
contained in WorldCom's Registration Statement on Form 8-A dated August 26,
1996, as updated by WorldCom's Current Report on Form 8-K dated May 22, 1997
(filed June 6, 1997);
(6) the descriptions of the WorldCom Series A Preferred Stock, the
WorldCom Series B Convertible Preferred Stock and the WorldCom Depositary
Shares contained in WorldCom's Registration Statements on Form 8-A dated
November 13, 1996; and
(7) MFS Communications Company, Inc. ("MFS") Annual Report on Form
10-K for the year ended December 31, 1996 (File No. 33-72594 (formerly File
No. 0-21594)).
(b) (1) MCI's Annual Report on Form 10-K for the year ended December 31,
1996 (the "MCI 1996 Form 10-K");
(2) MCI's Quarterly Reports on Form 10-Q for the quarters ended March
31 and June 30, 1997;
(3) MCI's Current Reports on Form 8-K dated November 5, 1996, July
10, 1997 and August 26, 1997; and
(4) MCI's Proxy Statement on Schedule 14A dated March 3, 1997 (the
"Original BT/MCI Proxy Statement/Prospectus") and filed with the Commission
on March 7, 1997.
All documents filed by WorldCom and MCI with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
hereof and prior to the termination of the offering of any securities offered
hereby shall be deemed to be incorporated by reference into this Prospectus and
to be a part hereof from the date of filing of such documents. See "Available
Information." Any statement contained herein, or in a document incorporated or
deemed to be incorporated herein by reference, shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document incorporated or
deemed to be incorporated herein by reference, which statement is also
incorporated herein by reference, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. COPIES OF THESE DOCUMENTS (EXCLUDING EXHIBITS
UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO THE
INFORMATION INCORPORATED HEREIN) WILL BE PROVIDED BY FIRST CLASS MAIL WITHOUT
CHARGE TO EACH PERSON TO WHOM THIS PROSPECTUS IS DELIVERED UPON WRITTEN OR ORAL
REQUEST BY SUCH PERSON TO WORLDCOM, 515 EAST AMITE STREET, JACKSON, MISSISSIPPI
39201-2702, ATTENTION: STEPHANIE Q. SCOTT, DIRECTOR OF FINANCIAL REPORTING
(TELEPHONE: (601)360-8600). IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS,
ANY REQUEST SHOULD BE MADE BY , 1997.
MCI INFORMATION
While WorldCom has included herein information concerning MCI insofar as it
is known or reasonably available to WorldCom, MCI is not affiliated with
WorldCom and MCI has not yet permitted access by WorldCom to MCI's books and
records. Therefore, information concerning MCI that has not been made public is
not available to WorldCom. Although WorldCom has no knowledge that would
indicate that statements relating to MCI contained or incorporated by reference
in this Prospectus in reliance upon publicly available information are
inaccurate or incomplete, WorldCom was not involved in the preparation of such
information and statements and, for the foregoing reasons, is not in a position
to verify any such information or statements.
vii
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN
ITS ENTIRETY BY, AND SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED
DESCRIPTIONS AND FINANCIAL INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING THE NOTES THERETO) INCLUDED AND INCORPORATED BY REFERENCE IN THIS
PROSPECTUS. IN PARTICULAR, MCI STOCKHOLDERS SHOULD CAREFULLY CONSIDER THE
INFORMATION SET FORTH UNDER "CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS." AS USED IN THIS PROSPECTUS, THE TERM "WORLDCOM" REFERS TO WORLDCOM,
INC. AND, UNLESS THE CONTEXT OTHERWISE REQUIRES, ITS SUBSIDIARIES, AND THE TERM
"MCI" REFERS TO MCI COMMUNICATIONS CORPORATION AND, UNLESS THE CONTEXT OTHERWISE
REQUIRES, ITS SUBSIDIARIES.
WORLDCOM
WorldCom, Inc. ("WorldCom") is one of the largest telecommunications
companies in the United States, serving local, long distance and Internet
customers domestically and internationally. WorldCom provides telecommunications
services to business, government, telecommunications companies and consumer
customers, through its network of fiber optic cables, digital microwave, and
fixed and transportable satellite earth stations.
WorldCom is one of the first major facilities-based telecommunications
companies with the capability to provide businesses with high quality local,
long distance, Internet, data and international communications services over its
global networks. With service to points throughout the nation and the world,
WorldCom provides telecommunications products and services including: switched
and dedicated long distance and local products, 800 services, calling cards,
domestic and international private lines, broadband data services, debit cards,
conference calling, advanced billing systems, enhanced fax and data connections,
high speed data communications, facilities management, local access to long
distance companies, local access to ATM-based backbone service and
interconnection via Network Access Points to Internet service providers.
WorldCom's principal executive offices are located at 515 East Amite Street,
Jackson, Mississippi 39201-2702, and its telephone number is (601) 360-8600. See
"Information Regarding WorldCom."
MCI
The following information concerning MCI Communications Corporation ("MCI")
is derived from the MCI 1996 Form 10-K:
MCI is one of the world's leading providers of communication services. It is
the second largest carrier of long-distance telecommunication services in the
United States and the third largest carrier of international long-distance
telecommunication services in the world.
MCI provides a broad range of communication services, including
long-distance telecommunications services, local and wireless services,
Internet/Intranet services and information technology and outsourcing services.
The provision of long-distance telecommunication services is MCI's core
business. Long-distance communication 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. During each of the last three years, more than
90% of MCI's operating revenues and operating income were derived from its core
business.
MCI has its principal executive offices at 1801 Pennsylvania Avenue, N.W.,
Washington, D.C. 20006 (telephone number (202) 872-1600). See "Information
Regarding MCI."
BACKGROUND OF THE OFFER
THE ORIGINAL BT ACQUISITION PROPOSAL. The following information concerning
MCI and British Telecommunications plc ("BT") has been derived from information
filed by them with the Commission.
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BT acquired a 20% ownership interest in MCI in 1994, and the companies
subsequently created a joint venture known as Concert Communications Company to
provide global communications services. 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"), under which the stockholders of MCI and of
BT would become the owners of a combined company, to be known as Concert plc
("Concert"). In the transaction, each share (each, a "Share") of common stock,
par value $.10 per share, of MCI (the "MCI Common Stock") would have been
converted into the equivalent of 0.54 Concert American Depositary Shares
("ADSs") plus $6.00 cash (the "Original BT Acquisition Proposal"). For more
information about the Original BT Acquisition Proposal, see the Original BT/MCI
Proxy Statement/Prospectus. The Original BT Acquisition Proposal 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 Federal Communications Commission (the "FCC") on
August 21, 1997.
THE REVISED BT ACQUISITION PROPOSAL. On July 10, 1997, MCI announced that
previously-unanticipated material charges for 1997 could be incurred in its
local communications business. Following this announcement, MCI and BT conducted
a joint management review and subsequently announced, on August 22, 1997,
revised terms for the BT acquisition of MCI (the "Revised BT Acquisition
Proposal") and an amendment to the Original BT/MCI Merger Agreement (as so
amended, the "BT/MCI Merger Agreement") pursuant to which each outstanding Share
would be converted into the equivalent of 0.375 Concert ADSs plus a cash payment
of $7.75. As of the close of business on , 1997, the market valuation
of the Revised BT Acquisition Proposal was $ per Share (without reduction to
give effect to the expected 1998 dividends payable to BT shareholders (L2($
based on the exchange rates prevailing on , 1997)) that would not
be payable to holders of Shares).
THE WORLDCOM OFFER. On October 1, 1997, WorldCom announced its intention to
offer to exchange shares of common stock, par value $.01 per share, of WorldCom
(the "WorldCom Common Stock") for each outstanding share of MCI Common Stock
(the "Offer"). In a publicly-released letter to Bert C. Roberts, Jr., the
Chairman and Chief Executive Officer of MCI, describing the Offer, Bernard J.
Ebbers, the President and Chief Executive Officer of WorldCom, noted that the
Offer represented a 41% premium to MCI's closing stock price on September 30,
1997 and that the Offer was valued at approximately $30 billion--a premium of $9
billion to the market's valuation of the Revised BT Acquisition Proposal as of
September 30, 1997. Mr. Ebbers described WorldCom's intention to establish a
voting trust (the "Voting Trust") that would permit WorldCom to consummate the
exchange offer prior to receipt of final FCC and state public utility commission
("PUC") approvals. Mr. Ebbers noted that clearances by U.S. and other antitrust
authorities are the only regulatory conditions to the Offer other than FCC
approval of the Voting Trust and that WorldCom was confident that it would
obtain such clearances not later than the first quarter of 1998. Mr. Ebbers
stated that WorldCom expected that MCI's management would be an important part
of the combined company and that WorldCom would welcome members of MCI's Board
to its Board. Mr. Ebbers stated that WorldCom was prepared to meet promptly with
MCI and BT to achieve a negotiated transaction. Mr. Ebbers indicated WorldCom's
willingness to enter into a merger agreement between WorldCom and MCI with terms
substantially similar to the existing BT/MCI Merger Agreement, including the
absence of a material adverse change condition and the requirement that WorldCom
pay a $750 million termination fee if WorldCom's shareholders fail to approve
the issuance of WorldCom Common Stock in the Merger. Mr. Ebbers stated that
WorldCom also believes that a negotiated transaction could be structured to be
accounted for as a pooling of interests (assuming that the transaction were
structured as a single-step merger, that the approval of not less than 90% of
the holders of MCI Common Stock and Class A Common Stock (I.E., BT) were
obtained, and that MCI otherwise qualifies as a company that may participate in
a pooling of interests transaction). Mr. Ebbers stated that WorldCom also
believes that such a negotiated pooling transaction would be even more
beneficial to the stockholders of MCI, BT and WorldCom than the Offer because it
would be expected to be more accretive to WorldCom's earnings per share than the
Offer. Although cash flows from operations would not differ between purchase
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versus pooling treatment, under pooling of interests treatment, earnings per
share would improve due to the elimination of the amortization associated with
the intangible assets that would otherwise be recorded under the purchase
method.
As part of the October 1, 1997 announcement, WorldCom also stated that it
would be filing preliminary proxy solicitation materials with the Commission for
use in soliciting proxies from stockholders of MCI against approval of the
Revised BT Acquisition Proposal. This Prospectus and the Offer made hereby do
not constitute a solicitation of any proxies from holders of MCI Common Stock.
Any such solicitation will be made only pursuant to separate proxy materials
complying with the requirements of Section 14(a) of the Exchange Act. See
"Background of the Offer."
CONDITIONS OF THE OFFER
WorldCom's obligation to exchange shares of WorldCom Common Stock for Shares
pursuant to the Offer is conditioned upon the satisfaction or waiver, as
applicable, of the following conditions and the other conditions described under
"Conditions of the Offer."
MINIMUM TENDER CONDITION. The Offer is conditioned upon, among other
things, there being validly tendered and not withdrawn prior to the Expiration
Date (as hereinafter defined) a number of Shares which will constitute at least
a majority of the total number of outstanding Shares on a fully diluted basis
(i.e., as though all options or other securities convertible into or exercisable
or exchangeable for Shares (including the Class A common stock, par value $.10
per share, of MCI (the "Class A Common Stock")), other than the preferred stock
purchase rights (each a "Right" and, collectively, the "Rights") issued pursuant
to a Rights Agreement, dated as of September 30, 1994, between MCI and Mellon
Bank, N.A., as Rights Agent, as amended (the "MCI Rights Agreement"), had been
so converted, exercised or exchanged) as of the date the Shares are accepted for
exchange by WorldCom pursuant to the Offer. Based upon MCI's Current Report on
Form 8-K dated August 26, 1997, as of August 19, 1997, there were 558,420,209
shares of MCI Common Stock outstanding and 135,998,932 shares of Class A Common
Stock outstanding, 80,543,486 shares of MCI Common Stock reserved for issuance
pursuant to MCI stock option plans and 5,570,012 shares of MCI Common Stock
reserved for issuance under incentive stock units. Based on the foregoing, and
assuming no options, warrants, rights or other securities convertible into or
exercisable or exchangeable for Shares were issued or granted after August 19,
1997, WorldCom believes that the Minimum Tender Condition would be satisfied if
at least an aggregate of 390,265,718 Shares are validly tendered pursuant to the
Offer and not withdrawn. WorldCom reserves the right (but shall not be
obligated), subject to the rules and regulations of the Commission, to waive or
amend the Minimum Tender Condition and to purchase fewer than such number of
Shares as would satisfy the Minimum Tender Condition pursuant to the Offer. In
the event of such waiver or amendment, the Offer shall expire no sooner than ten
business days after announcement thereof.
WORLDCOM SHAREHOLDER APPROVAL CONDITION. The Offer is conditioned upon,
among other things, approval of the issuance of shares of WorldCom Common Stock
pursuant to the Offer and the Merger by the vote of the holders of shares of
WorldCom capital stock representing a majority of the total votes cast on such
proposal, voting as a single class, at a meeting of such holders.
BT/MCI MERGER AGREEMENT CONDITION. The Offer is conditioned upon, among
other things, the stockholders of MCI having disapproved the BT/MCI Merger
Agreement (as amended) at the special meeting of stockholders of MCI to be
called to consider the Revised BT Acquisition Proposal.
RIGHTS PLAN CONDITION. The Offer is conditioned upon, among other things,
WorldCom being satisfied in its sole discretion that the Rights are invalid or
are not applicable to the acquisition of the Shares pursuant to the Offer and
the Merger. In order to satisfy the Rights Plan Condition, WorldCom has
requested that MCI amend the Rights Agreement to make the Rights inapplicable to
the Offer and the Merger. WorldCom believes that, given that the BT/MCI Merger
Agreement constitutes a sale of control
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of MCI, it would constitute a breach of the fiduciary duties of the MCI Board
for the MCI Board to fail to do so and thereby fail to obtain the highest
possible price. In addition, WorldCom has commenced litigation in the Delaware
Court of Chancery seeking, among other things, preliminary and permanent
injunctive relief requiring MCI and its directors to amend the Rights Agreement
to make the Rights inapplicable to the Offer.
VOTING TRUST CONDITION. The Offer is conditioned on, among other things,
the receipt of approval from the FCC to the interim transfer of control of MCI
(the "Step I Transfer") to an independent voting trustee (the "Voting Trustee")
in accordance with the FCC's Policy Statement on Tender Offers and Proxy
Contests (the "Policy Statement"). The approval of the FCC and of certain state
regulatory agencies, as well as other regulatory approvals, is required prior to
the transfer of control of MCI to WorldCom. In order to permit the Offer to be
consummated promptly consistent with regulatory requirements, WorldCom will
establish the Voting Trust to hold the Shares to be acquired by WorldCom
pursuant to the Offer. The Voting Trust will be established pursuant to existing
FCC procedures designed to permit a tender offer to proceed pending the FCC's
final approval of the application for transfer of control to the offeror.
Pursuant to the Voting Trust, a trustee will hold the Shares acquired pursuant
to the Offer until such time as the FCC has granted authority to permit WorldCom
to obtain control of MCI and all other regulatory approvals that WorldCom deems
necessary to consummate the Offer have been obtained, whereupon the trustee will
transfer the Shares to WorldCom or vote the Shares in favor of the Merger. While
WorldCom cannot predict whether the use of the Voting Trust procedure in
connection with the Offer will be satisfactory to, and not be challenged by, any
of the state regulatory agencies, WorldCom believes that, while there is no
controlling precedent, there are strong constitutional and statutory bases for
utilizing a Voting Trust prior to final approval by such agencies.
ANTITRUST CONDITION. The Offer is conditioned on, among other things, the
expiration or termination of any waiting period under the HSR Act applicable to
the acquisition of Shares pursuant to the Offer and the Merger and the receipt
of all requisite foreign antitrust approvals.
See "Conditions of the Offer" and "Regulatory Filings and Approvals."
TERMINATION AND TERMINATION FEE PROVISIONS OF THE BT/MCI MERGER AGREEMENT
In connection with the Revised BT Acquisition Proposal, the termination
provisions of the BT/MCI Merger Agreement were amended to provide that the
BT/MCI Merger Agreement can be terminated (a) by mutual written consent of BT
and MCI, (b) by either MCI or BT if the effective time of the merger provided
for thereunder has not occurred by December 31, 1997 (extendable to April 30,
1998 under certain circumstances), (c) by either MCI or BT if any governmental
entity has issued an order or taken any other action prohibiting the transaction
or has failed to issue an order that is required to permit the transaction, (d)
by either MCI or BT if the approval of the stockholders of MCI or of BT required
for the consummation of the merger provided for thereunder (or in the case of
BT, the issuance of Concert ADSs) is not obtained, (e) by either MCI or BT if
the Board of Directors of the other party withdraws its recommendation of the
BT/MCI Merger Agreement, fails to reaffirm its recommendation on request or
approves any acquisition (other than by the other party) prior to the applicable
stockholders meeting, (f) by either MCI or BT if, as a result of a Superior
Proposal (as defined in the BT/MCI Merger Agreement), such party determines in
good faith that its fiduciary obligations under applicable law require that the
Superior Proposal be accepted or (g) by either MCI or BT if the other party is
in breach of the BT/ MCI Merger Agreement.
MCI would be required to pay BT a termination fee of $450 million plus
expenses of up to $15 million if (x) BT terminates the BT/MCI Merger Agreement
pursuant to the provision described in clause (e) above while an Acquisition
Proposal (as defined in the BT/MCI Merger Agreement) is pending or (y) if MCI
terminates the BT/MCI Merger Agreement pursuant to the provision described in
clause (f) above. Although MCI could be required to pay BT the termination fee
plus expenses described above if, in
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response to the Offer, MCI were to change, withdraw or fail to reaffirm its
recommendation of the BT/ MCI Merger Agreement or approve a transaction with
WorldCom, or if MCI were to terminate the BT/ MCI Merger Agreement on the
grounds that the Offer constitutes a Superior Proposal that the MCI Board
determines it is required to accept, UNDER THE TERMS OF THE BT/MCI MERGER
AGREEMENT AS AMENDED, MCI WOULD NOT BE REQUIRED TO PAY A TERMINATION FEE IF THE
BT/MCI MERGER AGREEMENT IS TERMINATED BECAUSE APPROVAL OF THE STOCKHOLDERS OF
MCI OF THE REVISED BT ACQUISITION PROPOSAL HAS NOT BEEN OBTAINED AT THE SPECIAL
MEETING OF STOCKHOLDERS OF MCI TO BE HELD ON , 1997 (SO LONG AS THE
MCI BOARD HAD NOT MADE A DETERMINATION THAT THE OFFER CONSTITUTES A SUPERIOR
PROPOSAL OR CHANGED, WITHDRAWN OR FAILED TO REAFFIRM ITS RECOMMENDATION OF THE
BT/MCI MERGER AGREEMENT). As described under "Background of the
Offer--Litigation," WorldCom has commenced litigation in the Delaware Court of
Chancery seeking, among other things, an order enjoining the enforcement of the
termination fee provisions of the BT/MCI Merger Agreement. See "Background of
the Offer--Termination and Termination Fee Provisions of the BT/MCI Merger
Agreement."
RECENT DEVELOPMENTS WITH RESPECT TO WORLDCOM
BFP ACQUISITION
On October 1, 1997, WorldCom announced that it had entered into an Agreement
and Plan of Merger (the "BFP Merger Agreement") with Brooks Fiber Properties,
Inc., a Delaware corporation ("BFP"), under which WorldCom would acquire BFP
through a merger of a subsidiary of WorldCom into BFP. Each outstanding share of
BFP common stock would be converted into the right to receive 1.65 shares of
WorldCom Common Stock, subject to adjustment as provided in the BFP Merger
Agreement. The transaction has been structured to qualify as a pooling of
interests. Consummation of the BFP merger is subject to the satisfaction of
certain conditions, including the expiration or termination of any applicable
waiting periods 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 stockholders of BFP. The closing of the BFP merger is expected to
occur as soon as practicable after satisfaction of the conditions set forth in
the BFP Merger Agreement.
The following information concerning BFP has been prepared on the basis of
information filed by BFP with the Commission.
BFP, founded in 1993, is a leading facilities-based provider of competitive
local telecommunications services in selected markets within the United States.
BFP competes with incumbent local exchange carriers ("ILECs") by providing high
quality, integrated local telecommunications services over fiber optic digital
networks to meet the voice, data and video transmission needs of its customers.
BFP's customers are principally inter-exchange carriers ("IXCs"), Internet
service providers ("ISPs"), wireless carriers, telecommunications-intensive
business, government, and institutional end users, and residential customers.
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
existing systems and expanding service offerings. As of June 30, 1997, BFP had
networks in operation or under construction in a total of 44 U.S. cities, and
planned to expand its network operations to have systems in operation or under
construction in a total of 50 cities by the end of 1998. As of June 30, 1997,
BFP had a total of 22 digital telephone switches installed serving a total of 26
of its operating networks. BFP plans to offer local dial tone, switched access
termination and origination services, centrex and desktop products in all of its
operating networks. BFP is also expanding its capabilities to provide enhanced
services such as high speed video transport, frame relay and ATM-based
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packet transport services and Internet access products. BFP is currently
offering such services in certain markets and expects to offer such services in
all of its currently operating networks by the end of 1997.
The Offer is not conditioned upon the consummation of the BFP merger, and
the BFP merger is not conditioned upon the consummation of the Offer.
COMPUSERVE ACQUISITION
On September 7, 1997, WorldCom entered into an Agreement and Plan of Merger
(the "CompuServe Merger Agreement") with H&R Block, Inc. ("Block"), H&R Block
Group, Inc., a wholly-owned subsidiary of Block, CompuServe Corporation
("CompuServe") and a wholly-owned acquisition subsidiary of WorldCom ("WorldCom
Sub"). Pursuant to the CompuServe Merger Agreement, WorldCom would acquire
CompuServe through a merger of WorldCom Sub with and into CompuServe (the
"CompuServe Merger") in accordance with the laws of the State of Delaware and
the provisions of the CompuServe Merger Agreement. Pursuant to the CompuServe
Merger Agreement, each of the CompuServe Common Shares (as defined in the
CompuServe Merger Agreement) will be converted into the right to receive 0.40625
of a share of WorldCom Common Stock, subject to adjustment as provided in the
CompuServe Merger Agreement. Consummation of the CompuServe Merger is subject to
the satisfaction of certain conditions, including, among others, the expiration
or termination of any applicable waiting periods under the HSR Act and any
foreign competition law or similar law, the receipt of other required regulatory
approvals and the absence of certain material adverse changes. Consummation of
the CompuServe Merger is also subject to the approval and adoption of the
CompuServe Merger Agreement by the requisite number of CompuServe Common Shares.
Block has agreed to vote all of the shares directly or indirectly owned by it in
favor of approval of the CompuServe Merger Agreement, which number of shares is
sufficient to approve the CompuServe Merger Agreement and the CompuServe Merger.
The closing of the CompuServe Merger is expected to occur as soon as practicable
after the satisfaction of all the conditions set forth in the CompuServe Merger
Agreement.
The Offer is not conditioned upon the consummation of the CompuServe Merger,
and the CompuServe Merger is not conditioned upon the consummation of the Offer.
AOL PURCHASE AND SALE AGREEMENT
On September 7, 1997, WorldCom also entered into a Purchase and Sale
Agreement by and among WorldCom, America Online, Inc. ("AOL") and ANS
Communications, Inc. ("ANS"), a wholly-owned subsidiary of AOL (the "AOL
Purchase and Sale Agreement"), pursuant to which WorldCom agreed to (a) transfer
to AOL the on-line services business of CompuServe, which it will acquire as a
result of the CompuServe Merger Agreement, and $175 million in cash, subject to
certain adjustments; and (b) acquire all outstanding shares of ANS. Consummation
of the AOL Purchase and Sale Agreement is subject to the satisfaction of certain
conditions, including, among others, the expiration or termination of any
applicable waiting periods under the HSR Act and any foreign competition law or
similar law, the receipt of other required regulatory approvals, and the absence
of certain adverse changes. Consummation of the AOL Purchase and Sale Agreement
is also subject to the consummation of the CompuServe Merger.
ON-LINE SERVICES BUSINESS
The on-line services business of ANS to be acquired under the Purchase and
Sale Agreement, as well as the CompuServe Network Services business ("CNS") to
be acquired under the CompuServe Merger Agreement, are expected to be combined
with the business of UUNET Technologies, Inc. ("UUNET"), a wholly-owned
subsidiary of WorldCom.
UUNET is a leading worldwide provider of a comprehensive range of Internet
access options, applications, and consulting services to businesses,
professionals and on-line services providers, providing both dedicated and
dial-up access and other applications and services which include Web server
hosting and integration services, client software and security products,
training and network integration and
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consulting services. UUNET is the world's largest provider of Internet services,
with over 1,000 Points of Presence ("PoPs") throughout the United States and in
Canada, Europe and the Asia-Pacific region.
According to CompuServe's Annual Report on Form 10-K for the fiscal year
ending April 30, 1997, CNS provides virtual private networking, Internet,
Intranet and Extranet services plus groupware application and Web hosting
services to corporate clients around the world. In addition to providing network
connectivity and Internet access for CompuServe's CSi and SPRYNET services, CNS
offers dial and dedicated connectivity solutions that allow corporate customers'
dispersed users to gain secure, seamless access to IP-based applications as well
as proprietary systems. At the end of fiscal year 1997 CNS had a client base of
1,200 corporate customers.
According to AOL's Annual Report on Form 10-K for the fiscal year ending
June 30, 1997, ANS designs, develops and operates high performance wide-area
networks for business, research, education and governmental organizations. The
ANS backbone, built on the proprietary expertise developed by ANS as the
principal architect of the National Science Foundation Backbone Network Service,
was the first and remains one of the largest and fastest public TCP/IP data
networks in the world. Through this network, ANS delivers Internet, Intranet and
virtual private data networks services to enterprises.
For more information concerning these recent developments regarding
WorldCom, see "Information Regarding WorldCom--Recent Developments."
COMPARISON OF THE PROPOSALS
PURCHASE PRICE. The Offer provides a significant premium to the market
value of the Revised BT Acquisition Proposal.
IMPLIED PURCHASE PRICE PER SHARE*
<TABLE>
<CAPTION>
<S> <C> <C> <C>
REVISED BT
DATE THE OFFER ACQUISITION PROPOSAL DIFFERENTIAL
<S> <C> <C> <C>
, 1997 $ $ $
</TABLE>
* Based on the closing price per share of WorldCom Common Stock and BT ADSs,
as the case may be, on , 1997, plus in the case of the
Revised BT Acquisition Proposal, $7.75 in cash. The value of BT ADSs has
not been reduced to give effect to the expected 1998 dividends payable to
BT shareholders (L2($ based on the exchange rates prevailing on
, 1997)) that would not be received by holders of Shares. The
relative market values of the Offer and the Revised BT Acquisition Proposal
may vary based on changes in the market values of WorldCom Common Stock and
BT ADSs.
FEDERAL INCOME TAX CONSEQUENCES. The Offer is structured to be tax-free to
holders of Shares, while the Revised BT Acquisition Proposal would result in
holders of Shares being taxed on gain from the exchange to the extent of the
cash received. In the opinion of Bryan Cave LLP, special counsel to WorldCom,
exchanges of Shares for WorldCom Common Stock pursuant to the Offer and the
Merger, as described below, should be treated for federal income tax purposes as
exchanges pursuant to a plan of reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code").
Consequently, no gain or loss should be recognized by holders of Shares upon
such exchanges, except with respect to the receipt of cash in lieu of fractional
shares of WorldCom Common Stock. See "Certain Federal Income Tax Consequences."
According to the Original BT/MCI Proxy Statement/Prospectus, a MCI
stockholder exchanging Shares for Concert ADSs and cash would realize gain
measured by the excess, if any, of (i) the sum of the amount in cash and the
fair market value of the Concert ADSs received over (ii) such stockholder's tax
basis in the Shares, which realized gain will be taxable to the extent of the
cash received. ACCORDINGLY, EVEN IF THE MARKET VALUE OF THE REVISED BT
ACQUISITION PROPOSAL WERE EQUAL TO THE MARKET VALUE OF THE OFFER, MCI
STOCKHOLDERS WOULD RETAIN MORE VALUE UNDER THE OFFER BECAUSE OF ITS TAX-FREE
NATURE.
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VALUE OF COMBINED COMPANY'S STOCK FOLLOWING THE TRANSACTION. As noted
above, the Offer provides a substantial premium to holders of Shares compared to
the Revised BT Acquisition Proposal. However, MCI stockholders should also
consider the prospects of the combined company that would result from each
proposed transaction in assessing the likely value of each prospective combined
company's stock after a combination with MCI. WorldCom believes that MCI
stockholders would be better positioned to realize higher returns in the future
through ownership of a WorldCom/MCI combined entity than through ownership of a
BT/MCI combined entity. The Offer and the Merger are expected to be accretive to
WorldCom's earnings by as much as 22% in the first year after closing with
synergies of approximately $2.5 billion in the first year, growing to
approximately $5 billion in the fifth year. These synergies are expected to
result from better utilization of the combined network and other operational
savings. Because WorldCom has already established extensive domestic local
network facilities, a WorldCom combination with MCI is expected to achieve
significantly higher synergies than possible under the Revised BT Acquisition
Proposal. See "--Synergies" and "Cautionary Statement Regarding Forward-Looking
Statements" below.
Historical returns realized by WorldCom shareholders (which are not
necessarily indicative of future results) over the past decade have exceeded
those realized by investors in all other U.S. telecommunications companies.
WorldCom has provided investors with a total compound annual return of 55.8%,
compared to 4.3% for MCI and 9.4% for BT, since the beginning of 1990. As
described below under "Strategic Fit," both MCI and WorldCom stockholders are
expected to benefit from the opportunity to own an entrepreneurial
telecommunications operator with a proven track record of shareholder value
creation.
According to the Original BT/MCI Proxy Statement/Prospectus, in considering
the Original BT Acquisition Proposal, the MCI Board considered concerns
expressed by members of MCI's management that BT's earnings forecasts indicated
slow to moderate growth and that BT had been losing market share and could
continue to do so in light of the new competitive environments in the U.K. and
Europe. According to the Original BT/MCI Proxy Statement/Prospectus, in
determining to approve the Original BT Acquisition Proposal despite these
concerns, the MCI Board relied in part upon "the anticipated benefits to be
received by the MCI stockholders in the proposed merger" (a consideration that
MCI stockholders may now want to reevaluate given the significantly lower value
of the Revised BT Acquisition Proposal as compared to the Original BT
Acquisition Proposal) and the MCI Board's view at the time that it was unlikely
that MCI would be able to "negotiate a combination with another company on terms
superior to the proposed Merger with BT." Given the reduced value of the Revised
BT Acquisition Proposal as compared to the Original BT Acquisition Proposal and
the availability of the Offer--a merger proposal with a market value
significantly in excess of the market value of the Revised BT Acquisition
Proposal--as an alternative, WorldCom believes that MCI's original rationale for
combining with an entity whose future growth may be slow to moderate no longer
applies.
The Offer would permit MCI's stockholders to participate in the future
results of the combined WorldCom/MCI entity with an approximately 45% ownership
position in the combined entity (based on certain assumptions), while under the
Revised BT Acquisition Proposal stockholders of MCI would only own about 25% of
the combined entity. See "The Offer-General."
SYNERGIES. WorldCom believes that MCI stockholders, as well as MCI's
customers, employees and the communities it serves, would realize benefits from
the Offer and the Merger that are greater than the benefits that would be
realized if MCI either remains an independent entity or is acquired by BT.
WorldCom believes such greater benefits would be realized through the following
operational and structural synergies:
- Operational cost savings. Operational cost savings are expected to be
realized primarily in four areas: avoided costs in MCI local activities;
reduced sales, general and administrative costs in the
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<PAGE>
combined company's domestic operations; reduced domestic network costs;
and reduced network costs associated with terminating international
traffic.
-- AVOIDED COSTS IN MCI'S LOCAL ACTIVITIES. As a result of WorldCom's
existing extensive local network and operations, the combined company
will be able to execute MCI's plans to expand in the local market at a
lower cost than MCI would be able to on a standalone basis. The
combined company will avoid the need to duplicate certain sales,
marketing and administrative functions and will enjoy reduced network
costs resulting from the more rapid transfer of traffic to the combined
company's network facilities.
-- REDUCED SALES AND ADMINISTRATIVE COSTS IN THE COMBINED COMPANY'S
DOMESTIC OPERATIONS. The increased scale of activities in the combined
company's operations will result in opportunities to reduce costs by
avoiding expenditures on duplicative activities, greater purchasing
power and the adoption of best practices in cost containment across the
entire company.
-- REDUCED DOMESTIC NETWORK COSTS. As a result of WorldCom's existing
extensive local network, the combined company will carry an increased
proportion of its domestic traffic on its own local network facilities
resulting in a reduction in leased line costs and access costs
associated with switched traffic. By combining WorldCom's and MCI's
traffic, a reduction in variable network costs such as in-WATS,
out-WATS and directory services are expected as a result of the
combined company's greater purchasing power.
-- REDUCED COST OF TERMINATING INTERNATIONAL TRAFFIC. MCI currently
enjoys more extensive settlement agreements for international traffic
than does WorldCom. The combined company will benefit from terminating
traffic on its facilities. In addition, as a result of WorldCom's
construction of transatlantic facilities and network facilities in
Europe, the combined company will be able to lower MCI's average costs
of terminating certain traffic in Europe.
Taking into account the costs expected to be incurred in achieving these
potential operational savings and the time required to implement plans to
lower costs, aggregate pre-tax operational costs savings (including
avoided sales and administrative expenses and network costs in MCI's local
activities, reduced sales and administrative expenses in the combined
domestic operations excluding local activities, savings in domestic fixed
and variable network costs, and reduced costs in terminating certain
international traffic of the combined company, but excluding interest and
depreciation savings) of between $2.0 billion and $2.7 billion are
expected in 1999 and between $4.0 billion and $4.6 billion in 2002.
- Capital expenditure savings. Capital expenditure savings are expected to
be realized primarily in two areas: the combined company's domestic long
distance network activities and the combined company's local network
buildout. Capital expenditures relating to the combined company's long
distance activities will be reduced primarily as a result of avoided
duplicative fixed capital expenses and the cost benefits realized from
increased purchasing power. Capital expenditures relating to the combined
company's local activities will be reduced primarily as a result of
avoided duplicative capital expenditures.
Taking into account the costs expected to be incurred in achieving these
potential capital expenditure savings and the time required to implement
plans to lower capital expenditures, aggregate capital expenditure savings
(including avoided duplicative local capital spending and savings in
domestic long distance capital costs) between $1.0 billion and $1.5
billion are expected in 1999 and between $1.5 billion and $1.6 billion in
2002.
- Revenue benefits. WorldCom expects that the combined company will benefit
from greater revenues than the two companies would enjoy on a standalone
basis. This increase in revenues is expected to result primarily from a
reduction in customer attrition and from cross-selling a broader
9
<PAGE>
range of products and services. Although WorldCom believes that the
potential revenue benefits are substantial, no attempt has been made to
quantify these potential benefits.
WorldCom has a track record of successfully integrating acquisitions and has
completed more than forty transactions over the past five years. The expertise
WorldCom has gained from these transactions is expected to assist WorldCom and
MCI in realizing the potential merger benefits. WorldCom's analyses of these
potential savings and benefits were based on publicly available information
(including documents filed with the Commission by MCI and other
telecommunications companies and industry reports from the FCC and certain
industry consultants), analysts' forecasts and WorldCom's knowledge of the
telecommunications industry. See "Cautionary Statement Regarding Forward-Looking
Statements."
STRATEGIC FIT. The combination of MCI and WorldCom will accelerate
competition--especially in local markets--by creating a company with the
capital, marketing abilities and state-of-the-art network to compete against the
incumbent network carriers, domestically and abroad.
Unlike BT, WorldCom is already a seasoned competitor in the U.S. local
market. WorldCom has an established presence in 52 local markets that will
expand to 86 markets following the BFP merger. WorldCom's local network would
both accelerate MCI's local strategy and result in significant savings for the
combined company. Creating a stronger competitor in the local market helps
fulfill the intent of the Telecommunications Act of 1996 (the "Telecom Act").
Moreover, WorldCom believes that its extensive local network would solve the
widely recognized local market entry problem facing MCI.
Combining WorldCom's pan-European fiber network in 12 cities in Europe with
MCI's international operations will create a leading alternative provider of
telecommunications services in key markets abroad. WorldCom and MCI will bring
complementary skills to compete in rapidly deregulating global markets.
TIMING CONSIDERATIONS. The Offer is currently scheduled to expire on
; however, it is WorldCom's current intention to extend the Offer from
time to time as necessary until all conditions to the Offer have been satisfied
or waived. WorldCom expects that the WorldCom Shareholder Approval Condition
will be satisfied by (the date by which it expects to hold a special
meeting of its shareholders to approve the issuance of shares of WorldCom Common
Stock pursuant to the Offer and Merger) and that the other conditions to the
Offer could be satisfied not later than the first quarter of 1998.
With respect to FCC and state PUC approval, WorldCom will establish the
Voting Trust to facilitate the transaction. As a result, WorldCom believes that
it will be able to consummate the Offer prior to receipt of final FCC and state
PUC approvals and that, accordingly, it could be in a position to consummate the
Offer not later than the first quarter of 1998. See "Conditions of the Offer."
Given that BT and MCI must recirculate proxy materials to MCI stockholders
reflecting the Revised BT Acquisition Proposal and schedule a second
stockholders meeting, any acquisition of MCI by BT could not be consummated
prior to the latter half of the fourth quarter of 1997, at the earliest.
Accordingly, WorldCom does not believe that the Revised BT Acquisition Proposal
offers any significant advantage over the Offer in terms of timing of
completion. While BT does have the ability under the terms of its Class A Common
Stock to veto any second-step merger between a subsidiary of WorldCom and MCI
(the "Merger") until October 1998, BT's consent is not required in order for
WorldCom to consummate the Offer. Since the Offer can be consummated without the
need of any consent from BT and since the Offer is being made for all
outstanding Shares, the ability of BT to block a second-step merger until
October 1998 need not delay the receipt of WorldCom Common Stock by any holder
of Shares.
THE OFFER
GENERAL. WorldCom hereby offers, upon the terms and subject to the
conditions of the Offer, to exchange shares of WorldCom Common Stock for each
outstanding Share (including the Shares into which
10
<PAGE>
the outstanding shares of Class A Common Stock would be automatically converted
in accordance with the provisions of MCI's Restated Certificate of Incorporation
upon the tender of such shares pursuant to the Offer) validly tendered on or
prior to the Expiration Date and not withdrawn. The holder of each Share validly
tendered on or prior to the Expiration Date and not properly withdrawn will be
entitled to receive that number of shares of WorldCom Common Stock equal to the
Exchange Ratio. "Exchange Ratio" means the quotient (rounded to the nearest
1/10,000) determined by dividing $41.50 by the average of the high and low sales
prices of WorldCom Common Stock as reported on The Nasdaq National Market (the
"WorldCom Average Price") on each of the twenty consecutive trading days ending
with the third trading day immediately preceding the Expiration Date; provided,
that the Exchange Ratio shall not be less than 1.0375 nor greater than 1.2206.
Accordingly, each Share will be exchanged for WorldCom Common Stock having a
market value of $41.50 if the WorldCom Average Price is between $40.00 and
$34.00. If the WorldCom Average Price is greater than $40.00, each Share will be
exchanged for WorldCom Common Stock having a market value of more than $41.50
and, conversely, if the WorldCom Average Price is less than $34.00, each Share
will be exchanged for WorldCom Common Stock having a market value of less than
$41.50. Cash will be paid in lieu of any fractional shares of WorldCom Common
Stock. On , the closing price of WorldCom Common Stock as reported on
The Nasdaq National Market was $ . Based on a WorldCom Average Price
equal to that amount, each Share would be exchanged for WorldCom Common Stock
having a market value of $ . The following chart sets forth a range of
possible WorldCom Average Prices and the corresponding Exchange Ratios and
values to holders of Shares. The WorldCom Average Prices set forth below are for
illustrative purposes only. There can be no assurance that the actual WorldCom
Average Price will be in the range set forth below.
VALUE OF THE OFFER AND THE MERGER
AT SELECTED WORLDCOM AVERAGE PRICES
<TABLE>
<CAPTION>
WORLDCOM VALUE TO
AVERAGE EXCHANGE HOLDERS OF
PRICE RATIO SHARES
- ----------- ----------- -----------
<S> <C> <C>
$32.00 1.2206 $ 39.06
32.50 1.2206 39.67
33.00 1.2206 40.28
33.50 1.2206 40.89
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
34.00 1.2206 41.50
34.50 1.2029 41.50
35.00 1.1857 41.50
35.50 1.1690 41.50
36.00 1.1528 41.50
36.50 1.1370 41.50
37.00 1.1216 41.50
37.50 1.1067 41.50
38.00 1.0921 41.50
38.50 1.0779 41.50
39.00 1.0641 41.50
39.50 1.0506 41.50
40.00 1.0375 41.50
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
40.50 1.0375 42.02
41.50 1.0375 42.54
41.50 1.0375 43.06
42.00 1.0375 43.58
</TABLE>
11
<PAGE>
The actual WorldCom Average Price and Exchange Ratio will be calculated as
of the third trading day immediately prior to the Expiration Date, as described
above, and a press release will be issued announcing the actual Exchange Ratio
prior to the opening of the second trading day prior to the Expiration Date (as
it may be extended from time to time). The term "Expiration Date" shall mean
11:59 p.m., New York City time, on , 1997 unless and until WorldCom
extends the period of time for which the Offer is open, in which event the term
"Expiration Date" shall mean the latest date and time at which the Offer, as so
extended by WorldCom, shall expire. See "The Offer--General."
Stockholders will be required to tender one Right for each Share tendered in
order to effect a valid tender of Shares, unless the Rights Plan Condition has
been satisfied or waived. Unless the MCI Distribution Date occurs, a tender of
Shares will constitute a tender of the associated Rights.
The purpose of the Offer is for WorldCom to obtain control of, and
ultimately the entire common equity interest in, MCI. WorldCom will, as soon as
practicable after consummation of the Offer, merge one of its wholly-owned
subsidiaries with and into MCI. Pursuant to the Merger, each outstanding Share
(except for Shares held in the treasury of MCI) would be converted into the
right to receive a number of shares of WorldCom Common Stock equal to the
Exchange Ratio. Pursuant to the Restated Certificate of Incorporation of MCI,
the consent of the holders of a majority of the shares of the Class A Common
Stock is required for any "Business Combination" involving MCI (which, as
defined, would include the Merger but would not include the exchange of shares
pursuant to the Offer) to be effected prior to October 1998. As of the date
hereof, WorldCom believes that all of the Class A Common Stock is held by BT.
Accordingly, the consent of BT would be required in order to effect the Merger
prior to October 1998. It is WorldCom's current intention to consummate the
Offer as soon as the conditions to the Offer are satisfied and to consummate the
Merger in October 1998, or earlier if the consent of BT is obtained. See
"Purpose of the Offer; the Merger."
WorldCom's obligation to exchange shares of WorldCom Common Stock for Shares
pursuant to the Offer is conditioned upon satisfaction or waiver, as applicable,
of the Minimum Tender Condition, the WorldCom Shareholder Approval Condition,
the Rights Plan Condition, the BT/MCI Merger Agreement Condition, the Voting
Trust Condition and the Antitrust Condition (in each case as defined on the
inside cover page of this Prospectus) and the other conditions to the Offer. See
"Conditions of the Offer."
EXTENSION, TERMINATION AND AMENDMENT. WorldCom expressly reserves the right
(but will not be obligated), in its sole discretion, at any time or from time to
time, and regardless of whether any of the events set forth in "Conditions of
the Offer" shall have occurred or shall have been determined by WorldCom to have
occurred, (a) to extend the period of time during which the Offer is open by
giving oral or written notice of such extension to the Exchange Agent, which
extension must be announced no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date, and (b) to
amend the Offer in any respect (including, without limitation, by decreasing or
increasing the consideration offered therein to holders of Shares and/or by
decreasing the number of Shares being sought in the Offer) by giving oral or
written notice of such amendment to the Exchange Agent. The rights reserved by
WorldCom in this paragraph are in addition to WorldCom's right to terminate the
Offer as described in "The Offer--Extension, Termination and Amendment." There
can be no assurance that WorldCom will exercise its right to extend the Offer.
However, it is WorldCom's current intention to extend the Offer until all
conditions have been satisfied or waived. See "The Offer--Extension, Termination
and Amendment." During any such extension, all Shares previously tendered and
not withdrawn will remain subject to the Offer, subject to the right of a
tendering stockholder to withdraw his or her Shares. See "The Offer--Withdrawal
Rights."
EXCHANGE OF CERTIFICATES; DELIVERY OF WORLDCOM COMMON STOCK. Upon the terms
and subject to the conditions of the Offer (including, if the Offer is extended
or amended, the terms and conditions of any such extension or amendment),
WorldCom will accept for exchange, and will exchange, Shares validly
12
<PAGE>
tendered and not properly withdrawn as promptly as practicable after the
Expiration Date. See "The Offer-- Exchange of Certificates; Delivery of WorldCom
Common Stock."
WITHDRAWAL RIGHTS. Tenders of Shares made pursuant to the Offer are
irrevocable, except that Shares tendered pursuant to the Offer may be withdrawn
at any time prior to the Expiration Date, and, unless theretofore accepted for
exchange and exchanged by WorldCom for shares of WorldCom Common Stock pursuant
to the Offer, may also be withdrawn at any time after , 1997. See
"The Offer-- Withdrawal Rights."
PROCEDURE FOR TENDERING SHARES. For an MCI stockholder to validly tender
Shares pursuant to the Offer, (i) a properly completed and duly executed Letter
of Transmittal (or manually executed facsimile thereof), together with any
required signature guarantees, or an Agent's Message (as hereinafter defined) in
connection with a book-entry transfer, and any other required documents, must be
transmitted to and received by the Exchange Agent at one of its addresses set
forth on the back cover of this Prospectus and either certificates for tendered
Shares must be received by the Exchange Agent at such address or such Shares
must be tendered pursuant to the procedures for book-entry tender set forth
under "The Offer-- Procedure for Tendering" (and a confirmation of receipt of
such tender received), in each case prior to the Expiration Date, or (ii) such
MCI stockholder must comply with the guaranteed delivery procedure set forth
under "The Offer--Procedure for Tendering." As noted above, stockholders will be
required to tender one Right for each Share tendered in order to effect a valid
tender of Shares, unless the Rights Plan Condition has been satisfied or waived.
Unless the MCI Distribution Date occurs, a tender of Shares will constitute a
tender of the associated Rights.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES AND ALL OTHER REQUIRED
DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT
THE OPTION AND RISK OF THE TENDERING STOCKHOLDER, AND THE DELIVERY WILL BE
DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF DELIVERY IS BY
MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY
DELIVERY.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. In the opinion of Bryan Cave LLP,
special counsel for WorldCom, the exchange of Shares for WorldCom Common Stock
pursuant to the Offer and the Merger should be treated for federal income tax
purposes as an exchange pursuant to a plan of reorganization within the meaning
of Section 368(a) of the Code. Consequently, no gain or loss should be
recognized by holders of Shares upon such exchange except with respect to the
receipt of cash in lieu of fractional shares of WorldCom Common Stock. This
opinion is based on Bryan Cave LLP's view that the Offer and the Merger should
be treated as a single transaction and on certain assumptions, including that
(a) the continuity of shareholder interest requirement applicable to corporate
reorganizations (which requires a continuing equity interest in WorldCom by
holders owning a significant percentage of the Shares prior to the consummation
of the Offer) will be satisfied, taking into account holders that exercise
dissenters' rights, if any, (b) WorldCom (either directly or through a
wholly-owned subsidiary) will continue MCI's historic business or will use a
significant portion of MCI's historic business assets in a business, (c) since
the Merger will be with a wholly-owned subsidiary of WorldCom, MCI, as the
survivor, will continue to hold substantially all of its assets and WorldCom
will have no plan to liquidate or merge MCI into any other entity, to dispose of
its stock or to cause it to make distributions that would result in it ceasing
to hold substantially all of its assets and (d) the Offer and the Merger will
generally be consummated as contemplated by this Prospectus.
In rendering such opinion, Bryan Cave LLP has further assumed that the
Merger will in fact be consummated no later than promptly after the September
30, 1998 expiration of the requirement for BT's approval under the MCI Restated
Certificate of Incorporation. A significant delay in the consummation of the
Merger would substantially increase the risk that the Offer will not qualify as
part of a reorganization
13
<PAGE>
within the meaning of Section 368(a) of the Code, and if the Merger does not
occur the Offer will not be part of a reorganization. See "Cautionary Statement
Regarding Forward-Looking Statements."
Assuming that the Merger qualifies as a reorganization under the Code, no
gain or loss will be recognized by WorldCom or MCI as a result of the Offer and
the Merger.
If the Offer and the Merger together qualify as a reorganization within the
meaning of Section 368(a) of the Code, no gain or loss will be recognized by a
U.S. Holder (as defined under "Certain Federal Income Tax Consequences"), except
with respect to cash received by a U.S. Holder in lieu of a fractional share of
WorldCom Common Stock.
If the Merger is not consummated, or if the Merger is consummated but the
exchange of Shares pursuant to the Offer is treated as a separate transaction
for federal income tax purposes, an exchange pursuant to the Offer will be a
taxable transaction for federal income tax purposes. In that case, each U.S.
Holder exchanging Shares for shares of WorldCom Common Stock pursuant to the
Offer will recognize gain or loss for federal income tax purposes measured by
the difference between such U.S. Holder's adjusted basis in the Shares exchanged
and the sum of the fair market value of WorldCom Common Stock and any cash
received by such U.S. Holder in lieu of a fractional share of WorldCom Common
Stock.
If the exchange of Shares pursuant to the Offer is a taxable transaction,
the Merger itself will continue to be considered a reorganization within the
meaning of Section 368(a) of the Code if the assumptions set forth in the
opening paragraph of this section are generally satisfied. In that event, a U.S.
Holder receiving WorldCom Common Stock in the Merger would be subject to the
rules concerning reorganizations described above with respect to such WorldCom
Common Stock, but not with respect to any WorldCom Common Stock received by such
U.S. Holder pursuant to the Offer.
All stockholders should carefully read the discussion under "Certain Federal
Income Tax Consequences" and are urged to consult with their own tax advisors.
ACCOUNTING TREATMENT. If the Offer and the Merger are consummated on the
terms described in this Prospectus, then the Offer and the Merger will be
treated as a purchase for financial reporting purposes. Accordingly, the
aggregate Offer and Merger consideration will be allocated to the assets and
liabilities of MCI based on their estimated fair value. Any excess of cost over
the fair value of net tangible assets of MCI acquired will be recorded as
in-process research and development, goodwill and other intangible assets.
WorldCom expects that goodwill and other intangible assets will be amortized
over periods not to exceed 40 years. However, WorldCom has expressed its
willingness to meet promptly with MCI and BT to achieve a negotiated transaction
that WorldCom believes could be structured as a pooling of interests (assuming
that the transaction were structured as a single-step merger, that the approval
of not less than 90% of the holders of MCI Common Stock and Class A Common Stock
(I.E., BT) were obtained, and that MCI otherwise qualifies as a company that may
participate in a pooling of interests transaction). See "Accounting Treatment."
EFFECT OF OFFER ON MARKET FOR SHARES; REGISTRATION UNDER THE EXCHANGE
ACT. The exchange of Shares pursuant to the Offer will reduce the number of
holders of Shares and the number of Shares that might otherwise trade publicly
and, depending upon the number of Shares so purchased, could adversely affect
the liquidity and market value of the remaining Shares held by the public.
The Shares are included and principally traded on The Nasdaq Stock Market.
Depending upon the number of Shares acquired pursuant to the Offer, following
consummation of the Offer, the Shares may no longer meet the requirements of
Nasdaq for continued inclusion in The Nasdaq National Market and the Shares may
no longer constitute "margin securities" for the purposes of the Federal Reserve
Board's margin regulations, in which event the Shares would be ineligible as
collateral for margin loans made by brokers. See "Effect of Offer on Market for
Shares; Registration Under the Exchange Act."
APPRAISAL RIGHTS. Holders of Shares do not have appraisal rights as a
result of the Offer. However, in the event the Merger is consummated, and if, on
the date fixed to determine stockholders entitled to vote
14
<PAGE>
on the Merger, the MCI Common Stock is no longer listed on a national securities
exchange or Nasdaq or a similar market, or if the Merger is effected pursuant to
Section 253 of the Delaware General Corporation Law ("DGCL") (a "short-form
merger"), holders of the MCI Common Stock also will have appraisal rights under
Section 262 of the DGCL. Additionally, in the event the Merger is consummated,
under current Delaware law holders of Class A Common Stock will have appraisal
rights pursuant to Section 262 of the DGCL because the Class A Common Stock does
not meet the public trading requirement described in Section 262. See "Purpose
of The Offer; The Merger."
LITIGATION
On October 1, 1997, WorldCom filed a complaint in the Delaware Court of
Chancery against MCI, the members of the MCI Board, BT and BT Sub. The complaint
seeks, among other things, (i) preliminary and permanent injunctive relief
enjoining MCI and its directors from breaching their fiduciary duty to their
stockholders by entering into or consummating the Revised BT Acquisition
Proposal without giving MCI's stockholders an opportunity to accept the Offer
and enjoining BT and BT Sub from aiding and abetting that breach, (ii)
preliminary and permanent injunctive relief enjoining MCI and its directors from
conducting any stockholder vote on the Revised BT Acquisition Proposal that
differs procedurally from the stockholder votes contemplated by the BT/MCI
Merger Agreement (prior to any amendments thereto) and enjoining BT and BT Sub
from aiding and abetting the same, (iii) preliminary and permanent injunctive
relief requiring MCI and the defendant directors to take all steps necessary to
amend the Rights to make them inapplicable to the Offer, (iv) preliminary and
permanent injunctive relief preventing MCI from otherwise taking actions that
impede or delay the Offer, (v) preliminary and permanent injunctive relief
enjoining defendants from enforcing the termination fee provisions of the BT/MCI
Merger Agreement and (vi) an order declaring that the Offer does not constitute
tortious interference with, or any other business-related tort in connection
with, the proposed acquisition of MCI by BT. See "Background of the
Offer--Litigation."
DESCRIPTION OF WORLDCOM CAPITAL STOCK
The authorized capital stock of WorldCom consists of 2,500,000,000 shares of
WorldCom 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 Convertible Preferred
Stock (the "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 Series A Depositary Shares (the "WorldCom
Depositary Shares"). Each WorldCom Depositary Share represents a one-hundredth
interest in a share of WorldCom Series A Preferred Stock.
Holders of shares of WorldCom Common Stock issued and outstanding are
entitled to one vote per share on all matters voted on by the holders of common
stock generally, and do not have cumulative voting rights. 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 a 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 is voted by The Bank of New York in
accordance with instructions received from the holders of WorldCom Depositary
Shares. Consequently, holders of WorldCom Depositary Shares are entitled to
direct The Bank of New York with respect to one-tenth of a vote per WorldCom
Depositary Share. Holders of WorldCom Series A Preferred Stock and WorldCom
Series B Preferred Stock do not have cumulative voting rights.
For additional information concerning the capital stock of WorldCom, see
"Description of WorldCom Capital Stock."
15
<PAGE>
COMPARISON OF SHAREHOLDER RIGHTS
The rights of MCI stockholders currently are governed by Delaware law,
including the DGCL, the MCI Restated Certificate of Incorporation and the MCI
By-laws. Upon consummation of the Offer, tendering stockholders will become
shareholders of WorldCom, which is a Georgia corporation, and their rights as
shareholders will be governed by Georgia law, including the Georgia Business
Corporation Code ("GBCC"), the WorldCom articles of incorporation ("WorldCom
Articles") and the bylaws of WorldCom ("WorldCom Bylaws"). See "Comparative
Rights of Shareholders."
MARKET PRICES
The following table sets forth (A) the closing market price per share of
WorldCom Common Stock on The Nasdaq National Market, (B) the market price per
share of MCI Common Stock on The Nasdaq National Market and (C) the pro forma
equivalent per Share assuming the exchange of such Share for WorldCom Common
Stock at an assumed Exchange Ratio, in each case on (i) September 30, 1997, the
last trading day before public announcement of WorldCom's intention to make the
Offer, and (ii) , 1997, the last trading day prior to the date of
this Prospectus. See "Market Prices and Dividends."
<TABLE>
<CAPTION>
MCI
WORLDCOM MCI PRO FORMA
STOCK PRICE STOCK PRICE EQUIVALENT(1)
----------- ----------- -------------
<S> <C> <C> <C>
September 30, 1997........................................................ $ 35.38 $ 29.38 $ 41.50
, 1997......................................................... $ $ $
</TABLE>
- ------------------------
(1) Represents the consideration that would be received per Share based on the
closing price of WorldCom Common Stock on September 30, 1997, resulting in
an assumed Exchange Ratio of 1.1731. The actual Exchange Ratio may vary as
described above.
Stockholders are urged to obtain current market information for WorldCom
Common Stock and MCI Common Stock. No assurance can be given as to market prices
of WorldCom Common Stock or MCI Common Stock at the Expiration Date. Because the
Exchange Ratio will not be less than 1.0375 (if the WorldCom Average Price is
more than $40) or more than 1.2206 (if the WorldCom Average Price is less than
$34), if the WorldCom Average Price is less than $34 or more than $40, the
market value of the shares of WorldCom Common Stock that holders of Shares will
receive upon consummation of the Offer may vary from the market value of shares
of WorldCom Common Stock that holders of Shares would receive if the Offer were
consummated on the date of this Prospectus.
THE EXCHANGE AGENT
IBJ Schroder Bank & Trust Company has been appointed exchange agent (the
"Exchange Agent") in connection with the Offer. Duly executed Letters of
Transmittal (or manually executed facsimile copies thereof), together with any
required signature guarantees, or an Agent's Message in connection with a
book-entry transfer, and certificates for Shares should be sent by each
tendering MCI stockholder or his or her broker, dealer, bank or other nominee to
the Exchange Agent at the addresses set forth on the back cover of this
Prospectus.
REQUEST FOR ASSISTANCE AND ADDITIONAL COPIES
Requests for information or assistance concerning the Offer may be directed
to the Dealer Manager or the Information Agent at their respective addresses set
forth on the back cover of this Prospectus. Requests for additional copies of
this Prospectus and the Letter of Transmittal should be directed to the
Information Agent.
16
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Prospective investors should carefully consider certain factors relating to
an investment in the WorldCom Common Stock. See "Cautionary Statement Regarding
Forward-Looking Statements" on page 22.
COMPARATIVE PER SHARE DATA
The following table sets forth certain per share data of WorldCom and MCI on
historical, pro forma combined and pro forma equivalent bases. This table should
be read in conjunction with the historical financial statements and notes
thereto contained in the WorldCom 1996 Form 10-K and the MCI 1996 Form 10-K,
both of which are incorporated by reference herein (but which, in the case of
MCI, are not covered by the report of MCI's independent accountants for purposes
of this Prospectus), and in conjunction with the unaudited pro forma combined
financial information appearing elsewhere in this Prospectus. This information
should be read in conjunction with and is qualified in its entirety by the
historical and pro forma condensed financial statements and related notes
thereto. See "Pro Forma Financial Information."
Pro forma combined per share data reflects the historical results of
WorldCom and MCI on a combined basis as if the Offer and the Merger had occurred
for the periods indicated. If the Offer and the Merger are consummated on the
terms described in this Prospectus, then the Offer and the Merger will be
treated as a purchase for financial accounting purposes. However, WorldCom has
expressed its willingness to meet promptly with MCI and BT to achieve a
negotiated transaction that WorldCom believes could be structured as a pooling
of interests. See "--The Offer--Accounting Treatment." Accordingly, the pro
forma combined per share data has been prepared to reflect the basis of
accounting for the Merger as both a purchase and a pooling of interests and is
based on a preliminary determination and allocation of the total purchase price
and the assumptions set forth under "Pro Forma Financial Information." The pro
forma amounts in the table below are presented for informational purposes and
are not necessarily indicative of the financial position or results of
operations of the combined company that would actually have occurred had the
Offer and the Merger been consummated as of the dates or for the periods
presented. The pro forma amounts are also not necessarily indicative of the
future financial position or future results of operations of the combined
company. In particular, WorldCom expects to achieve significant synergies as a
result of the Offer and the Merger. See "Background of the Offer--Comparison of
the Proposals."
17
<PAGE>
<TABLE>
<CAPTION>
PURCHASE
------------------------------------------------------------------
WORLDCOM/MCI 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 $ 24.06 $ 28.22
June 30, 1997.................................... 13.47 16.40 24.11 28.28
Cash dividends per common share:
Year ended December 31, 1996..................... -- 0.05 -- --
Six months ended June 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 0.08 0.09
Six months ended June 30, 1997................. 0.13 0.82 0.26 0.31
Fully Diluted:
Year ended December 31, 1996(3)................ (5.50) 1.72 0.08 0.09
Six months ended June 30, 1997................. 0.13 0.81 0.26 0.31
</TABLE>
<TABLE>
<CAPTION>
POOLING
------------------------------------------------------------------
WORLDCOM/MCI 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 $ 13.30 $ 15.60
June 30, 1997.................................... 13.47 16.40 13.49 15.83
Cash dividends per common share:
Year ended December 31, 1994..................... -- 0.05 -- --
Year ended December 31, 1995..................... -- 0.05 -- --
Year ended December 31, 1996..................... -- 0.05 -- --
Six months ended June 30, 1996................... -- 0.025 -- --
Six months ended June 30, 1997................... -- 0.025 -- --
Income (loss) per common share from continuing
operations (after preferred dividend
requirement):
Primary:
Year ended December 31, 1994................... (0.48) 1.32 0.62 0.73
Year ended December 31, 1995................... 0.64 0.80 0.65 0.76
Year ended December 31, 1996(3)................ (5.50) 1.73 0.35 0.41
Six months ended June 30, 1996................. (0.41) 0.85 0.36 0.42
Six months ended June 30, 1997................. 0.13 0.82 0.39 0.46
Fully Diluted:
Year ended December 31, 1994................... (0.48) 1.32 0.61 0.72
Year ended December 31, 1995................... 0.64 0.79 0.64 0.75
Year ended December 31, 1996(3)................ (5.50) 1.72 0.35 0.41
Six months ended June 30, 1996................. (0.41) 0.85 0.36 0.42
Six months ended June 30, 1997................. 0.13 0.81 0.39 0.46
</TABLE>
- ------------------------------
(1) See "Selected Pro Forma Financial Information."
(2) The MCI pro forma equivalent represents the WorldCom/MCI pro forma combined
book value, dividends and income (loss) per common share multiplied by an
assumed Exchange Ratio of 1.1731. The actual Exchange Ratio may vary as
described herein.
(3) In December 1996, WorldCom acquired MFS in a transaction accounted for as a
purchase (the "MFS Merger"). WorldCom's results for 1996 include a $2.14
billion charge for in-process research and development related to the MFS
Merger. The charge was based upon a valuation analysis of the technologies
of MFS' worldwide information system, the Internet network expansion system
of UUNET, and certain other identified research and development projects
purchased in the MFS Merger. Additionally, 1996 results include other
after-tax charges of $121.0 million for employee severance, employee
compensation charges, alignment charges, and costs to exit unfavorable
telecommunications contracts and $343.5 million after-tax write-down of
operating assets within WorldCom's non-core businesses. On a pre-tax basis,
these charges totaled $600.1 million.
18
<PAGE>
SELECTED FINANCIAL DATA
The summary below sets forth selected historical financial data and selected
unaudited pro forma financial data. This financial data should be read in
conjunction with the historical financial statements and notes thereto contained
in the WorldCom 1996 Form 10-K and MCI 1996 Form 10-K, both incorporated by
reference herein (but which, in the case of MCI, are not covered by the report
of MCI's independent accountants for purposes of this Prospectus), and in
conjunction with the unaudited pro forma financial information and related notes
appearing elsewhere in this Prospectus. See "Pro Forma Financial Information."
SELECTED HISTORICAL FINANCIAL DATA OF WORLDCOM. The selected historical
financial data of WorldCom set forth below has been derived from financial
statements of WorldCom as they appeared in WorldCom's Annual Reports on Form
10-K filed with the Commission for each of the five fiscal years in the period
ended December 31, 1996 and WorldCom's Quarterly Reports on Form 10-Q for the
periods ending June 30, 1997 and June 30, 1996.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------------------- ------------
1996 1995 1994 1993 1992 1997
------------ ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
(THOUSANDS, EXCEPT PER SHARE DATA)
WORLDCOM--HISTORICAL
Revenues.................................... $ 4,485,130 $ 3,696,345 $ 2,245,663 $ 1,474,257 $ 948,060 $ 3,447,323
Income (loss) from continuing operations
(after preferred dividend requirement):
Total..................................... (2,189,804) 233,080 (151,779) 112,638 6,232 115,050
Per common share:
Primary................................. (5.50) 0.64 (0.48) 0.41 0.03 0.13
Fully diluted........................... (5.50) 0.64 (0.48) 0.40 0.03 0.13
Dividends per common share.................. -- -- -- -- -- --
Total assets................................ 19,861,977 6,656,629 3,441,474 3,236,718 1,241,278 20,244,585
Long-term debt.............................. 4,803,581 3,391,598 794,001 730,023 448,496 5,056,514
Shareholders' investment.................... 12,959,976 2,187,681 1,827,410 1,911,800 478,823 13,176,696
<CAPTION>
1996
-----------
<S> <C>
WORLDCOM--HISTORICAL
Revenues.................................... $ 2,107,598
Income (loss) from continuing operations
(after preferred dividend requirement):
Total..................................... (157,721)
Per common share:
Primary................................. (0.41)
Fully diluted........................... (0.41)
Dividends per common share.................. --
Total assets................................ 6,673,252
Long-term debt.............................. 3,346,596
Shareholders' investment.................... 2,096,050
</TABLE>
- ------------------------
(1) On December 31, 1996, WorldCom completed the MFS Merger. The MFS Merger was
accounted for as a purchase; accordingly, the operating results for MFS are
reflected from the date of acquisition.
(2) WorldCom's results for 1996 include a $2.14 billion charge for in-process
research and development related to the MFS Merger. The charge was based
upon a valuation analysis of the technologies of MFS' worldwide information
system, the Internet network expansion system of UUNET, and certain other
identified research and development projects purchased in the MFS Merger.
Additionally, 1996 results include other after-tax charges of $121.0 million
for employee severance, employee compensation charges, alignment charges,
and costs to exit unfavorable telecommunications contracts and $343.5
million after-tax write-down of operating assets within WorldCom's non-core
businesses. On a pre-tax basis, these charges totaled $600.1 million.
(3) In 1995, Metromedia Company ("Metromedia") converted its Series 1 Preferred
Stock into WorldCom Common Stock, exercised warrants to acquire WorldCom
Common Stock and immediately sold its position of 61,699,096 shares of
WorldCom Common Stock in a public offering. In connection with the preferred
stock conversion, WorldCom made a non-recurring payment of $15.0 million to
Metromedia, representing a discount to the minimum nominal dividends that
would have been payable on the Series 1 Preferred Stock prior to the
September 15, 1996 optional call date of approximately $26.6 million (which
amount includes an annual dividend requirement of $24.5 million plus accrued
dividends to such call date).
(4) As a result of the acquisitions of IDB Communications Group, Inc. ("IDB") in
1994 (the "IDB Merger") and of Advanced Telecommunications Corporation in
1992 (the "ATC Merger"), WorldCom initiated plans to reorganize and
restructure its management and operational organization and facilities to
eliminate duplicate personnel, physical facilities and service capacity, to
abandon certain products and marketing activities, and to take further
advantage of the synergies available to the combined entities. Also, during
the fourth quarter of 1993, plans were approved to reduce IDB's cost
structure and to improve productivity. Accordingly, in 1994, 1993 and 1992,
WorldCom charged to operations the estimated costs of such reorganization
and restructuring activities, including employee severance, physical
facility abandonment and duplicate service capacity. These costs totaled
$43.7 million in 1994, $5.9 million in 1993 and $79.8 million in 1992. Also,
during 1994 and 1992, WorldCom incurred direct merger costs of $15.0 million
and $7.3 million, respectively, related to the IDB Merger (in 1994) and the
ATC Merger (in 1992). These costs include professional fees, proxy
solicitation costs, travel and related expenses and certain other direct
costs attributable to these mergers.
(5) Long-term debt as of December 31, 1995 includes $1.1 billion under
WorldCom's previous credit facilities which were classified as a current
maturity on the December 31, 1995 balance sheet. On July 3, 1997, WorldCom
replaced its $3.75 billion revolving credit facility with a $3.75 billion
Facility A Revolving Credit Agreement and a $1.25 billion Facility B
Revolving Credit and Term Loan Agreement.
19
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF MCI. The selected historical
financial data of MCI set forth below has been derived from the financial
statements of MCI as they appeared in MCI's Annual Reports on Form 10-K filed
with the Commission for each of the five fiscal years in the period ended
December 31, 1996 and MCI's Quarterly Reports on Form 10-Q for the periods
ending June 30, 1997 and June 30, 1996.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------------------------------- ------------
1996 1995 1994 1993 1992 1997
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
(THOUSANDS, EXCEPT PER SHARE DATA)
MCI--HISTORICAL
Revenues............................... $ 18,494,000 $ 15,265,000 $ 13,338,000 $ 11,921,000 $ 10,562,000 $ 9,726,000
Income from continuing operations
(after preferred dividend
requirement):
Total................................ 1,202,000 548,000 794,000 626,000 589,000 575,000
Per common share:
Primary............................ 1.73 0.80 1.32 1.12 1.11 0.82
Fully diluted...................... 1.72 0.79 1.32 1.11 1.10 0.81
Dividends per common share............. 0.05 0.05 0.05 0.05 0.05 0.025
Total assets........................... 22,978,000 19,301,000 16,366,000 11,276,000 9,678,000 24,251,000
Long-term debt......................... 4,798,000 3,444,000 2,997,000 2,366,000 3,432,000 3,259,000
Stockholders' equity................... 10,661,000 9,602,000 9,004,000 4,713,000 3,150,000 11,350,000
<CAPTION>
1996
------------
<S> <C>
MCI--HISTORICAL
Revenues............................... $ 9,056,000
Income from continuing operations
(after preferred dividend
requirement):
Total................................ 595,000
Per common share:
Primary............................ 0.85
Fully diluted...................... 0.85
Dividends per common share............. 0.025
Total assets........................... 21,019,000
Long-term debt......................... 3,468,000
Stockholders' equity................... 10,111,000
</TABLE>
- ------------------------
(1) In May 1996, MCI Capital I, a wholly-owned Delaware statutory business trust
("Trust"), issued $750 million aggregate principal amount of 8% Cumulative
Quarterly Income Preferred Securities, Series A ("preferred securities") due
June 30, 2026. The Trust exists for the sole purpose of issuing the
preferred securities and investing the proceeds in MCI's 8% Junior
Subordinated Deferrable Interest Debentures, Series A due June 30, 2026.
(2) In September and November 1995, MCI acquired all of the outstanding shares
of common stock of Nationwide Cellular Service, Inc. and SHL Systemhouse
Inc., respectively. These acquisitions were accounted for as purchases;
accordingly, the net assets and results of operations of the acquired
companies are included in the information above since their respective
acquisition dates.
(3) In 1994, BT completed the purchase of 136 million shares of 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 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 Class A Common Stock. This investment is included in MCI's
stockholders' equity.
20
<PAGE>
SELECTED PRO FORMA FINANCIAL INFORMATION
The following selected pro forma financial information combines the
consolidated balance sheets and income statements of WorldCom and MCI as if the
Offer and the Merger had occurred for the periods indicated. If the Offer and
the Merger are consummated on the terms described in this Prospectus, then the
Offer and the Merger will be treated as a purchase for financial accounting
purposes. However, WorldCom has expressed its willingness to meet promptly with
MCI and BT to achieve a negotiated transaction that WorldCom believes could be
structured as a pooling of interests. See "--The Offer-- Accounting Treatment."
Accordingly, the selected pro forma financial information reflects the basis of
accounting for the Offer and the Merger as both a purchase and a pooling of
interests based on the assumptions described under "Pro Forma Financial
Information." This information should be read in conjunction with and is
qualified in its entirety by the consolidated financial statements and
accompanying notes of WorldCom and MCI included in the documents described under
"Incorporation of Certain Documents by Reference" (but which, in the case of
MCI, are not covered by the reports of MCI's independent accountants for
purposes of this Prospectus) and the pro forma combined financial statements and
accompanying discussion and notes set forth under "Pro Forma Financial
Information." The pro forma amounts in the table below are presented for
informational purposes and are not necessarily indicative of the financial
position or the results of operations of the combined company that would have
actually occurred had the Offer and the Merger been consummated as of the dates
or for the periods presented. The pro forma amounts are also not necessarily
indicative of the financial position or future results of operations of the
combined company. In particular, WorldCom expects to achieve significant
synergies as a result of the Offer and the Merger. See "Background of the
Offer--Comparison of the Proposals." No adjustment has been included in the pro
forma amounts for the anticipated synergies or in respect of the possible
acquisitions by WorldCom of CompuServe and BFP. See "Pro Forma Financial
Information."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------------------- -------------------------
1996 1995 1994 1993 1992 1997 1996
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
) (THOUSANDS, EXCEPT PER SHARE DATA
PRO FORMA COMBINED -- PURCHASE
Revenues........................ $23,711,223 N/A N/A N/A N/A $12,993,323 N/A
Income from continuing
operations (after preferred
dividend requirement):
Total......................... 133,184 N/A N/A N/A N/A 458,989 N/A
Per common share:
Primary..................... 0.08 N/A N/A N/A N/A 0.26 N/A
Fully diluted............... 0.08 N/A N/A N/A N/A 0.26 N/A
Dividends per common share...... -- N/A N/A N/A N/A -- N/A
Total assets.................... 61,324,871 N/A N/A N/A N/A 62,980,479 N/A
Long-term debt.................. 9,601,581 N/A N/A N/A N/A 8,315,514 N/A
Shareholders' equity............ 42,105,870 N/A N/A N/A N/A 43,011,590 N/A
PRO FORMA COMBINED -- POOLING
Revenues........................ $23,711,223 $18,721,345 $15,403,663 $13,295,257 $11,444,060 $12,993,323 $10,983,598
Income from continuing
operations (after preferred
dividend requirement):
Total......................... 595,306 781,080 642,221 738,638 595,232 690,050 437,279
Per common share:
Primary..................... 0.35 0.65 0.62 0.79 0.70 0.39 0.36
Fully diluted............... 0.35 0.64 0.61 0.78 0.70 0.39 0.36
Dividends per common share...... -- -- -- -- -- -- --
Total assets.................... 42,839,977 25,957,629 19,807,474 14,512,718 10,919,278 44,495,585 27,692,252
Long-term debt.................. 9,601,581 6,835,598 3,791,001 3,096,023 3,880,496 8,315,514 6,814,596
Shareholders' equity............ 23,620,976 11,789,681 10,831,410 6,624,800 3,628,823 24,526,696 12,207,050
</TABLE>
21
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in "Prospectus Summary--Comparison of the
Proposals," "Prospectus Summary--Certain Federal Income Tax Consequences,"
"Certain Federal Income Tax Consequences," and "--Selected Pro Forma Financial
Information," "Background of the Offer--The WorldCom Offer" and "Background of
the Offer--Comparison of the Proposals," including any forecasts, projections
and descriptions of anticipated synergies referred to therein, and certain
statements incorporated by reference from documents filed with the Commission by
WorldCom and MCI, including any statements contained herein or therein regarding
the development or possible 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 and the
effects of the Offer and the Merger, any statements preceded by, followed by or
that include the words "believes," "expects," "anticipates," or similar
expressions, and other statements contained or incorporated by reference herein
regarding matters that are not historical facts, are or may constitute
forward-looking statements (as such term is defined in the Private Securities
Litigation Reform Act of 1995). Because such statements are subject to risks and
uncertainties, actual results may differ materially from those expressed or
implied by such forward-looking statements. All subsequent written and oral
forward-looking statements attributable to WorldCom or persons acting on its
behalf are expressly qualified in their entirety by the cautionary statements
set forth or referred to above in this paragraph. Investors are cautioned not to
place undue reliance on such statements, which speak only as of the date hereof.
WorldCom undertakes no obligation to release publicly any revisions to these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
BACKGROUND OF THE OFFER
THE ORIGINAL BT ACQUISITION PROPOSAL. According to the Original BT/MCI
Proxy Statement/Prospectus, BT acquired a 20% ownership interest in MCI in 1994,
and the companies subsequently created a joint venture known as Concert
Communications Company to provide global communications services. On November 3,
1996, MCI entered into the Original BT/MCI Merger Agreement, under which the
stockholders of MCI and of BT would become the owners of a combined company, to
be known as Concert plc. In the transaction, each share of MCI Common Stock
would have been converted into the equivalent of 0.54 Concert ADSs plus $6.00
cash. For more information about the Original BT Acquisition Proposal, see the
Original BT/MCI Proxy Statement/Prospectus. The Original BT Acquisition Proposal
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 DOJ on July 7, 1997, and the
acquisition was approved by the FCC on August 21, 1997.
THE REVISED BT ACQUISITION PROPOSAL. On July 10, 1997, MCI announced that
previously unanticipated material charges for 1997 could be incurred in its
local communications business. Following this announcement, MCI and BT conducted
a joint management review and subsequently announced, on August 22, 1997, the
Revised BT Acquisition Proposal pursuant to which each outstanding share of MCI
Common Stock would be converted in the proposed acquisition into the equivalent
of 0.375 Concert ADSs plus a cash payment of $7.75. As of the close of business
on , 1997, the market valuation of the Revised BT Acquisition Proposal
was $ per Share (without reduction to give effect to the expected 1998
dividends payable to BT shareholders (L2($ based on the exchange rates
prevailing on , 1997)) that would not be payable to holders of Shares).
THE WORLDCOM OFFER. On October 1, 1997, Bernard J. Ebbers, the President
and Chief Executive Officer of WorldCom, sent the following letter to Bert C.
Roberts, Jr., the Chairman and Chief Executive Officer of MCI.
22
<PAGE>
October 1, 1997
Mr. Bert C. Roberts, Jr.
Chairman and Chief Executive Officer
MCI Communications Corporation
1801 Pennsylvania Avenue, NW
Washington, DC 20006-3606
Dear Mr. Roberts:
I am writing to inform you that this morning WorldCom is publicly announcing
that it will be commencing an offer to acquire all the outstanding shares of MCI
for $41.50 of WorldCom common stock per MCI share. The actual number of shares
of WorldCom common stock to be exchanged for each MCI share in the exchange
offer will be determined by dividing $41.50 by the 20-day average of the high
and low sales prices for WorldCom common stock prior to the closing of the
exchange offer, but will not be less than 1.0375 shares (if WorldCom's average
stock price exceeds $40) or more than 1.2206 shares (if WorldCom's average stock
price is less than $34).
Our offer represents a 41% premium to MCI's closing stock price on September
30, 1997. The transaction is valued at approximately $30 billion--a premium of
$9 billion to the market's current valuation of the proposed acquisition of MCI
by British Telecom. The transaction will be accounted for as a purchase and will
be tax-free to MCI's stockholders.
The transaction is expected to be accretive to WorldCom's earnings by as
much as 22% in the first year after closing with synergies of approximately $2.5
billion in the first year, growing to approximately $5 billion in the fifth
year. These synergies are anticipated to result from better utilization of the
combined network and other operational savings. Because WorldCom has already
established extensive domestic local network facilities, a WorldCom combination
with MCI will achieve significantly higher synergies than possible in British
Telecom's acquisition of MCI.
WorldCom and MCI share similar legacies: pioneering the introduction of
competition to the telecommunications marketplace and histories of innovation,
agility and growth. Indeed, these two companies are the paradigm for the
American entrepreneurial spirit--we have both forged significant inroads into
industries long dominated by giants, and have been among the first to offer
consumers a choice of providers for local, long distance, data, and other
services. Combined, we will accelerate competition--especially in local
markets--by creating a company with the capital, marketing abilities and
state-of-the-art networks to compete more effectively against the incumbent
network carriers, domestically and abroad.
Unlike British Telecom, WorldCom is already a seasoned competitor in the
U.S. local market with an established presence in 52 local markets. WorldCom's
local network both accelerates MCI's local strategy and results in significant
savings for the combined company. WorldCom's announcement today of the Brooks
Fiber Properties acquisition significantly increases the number of WorldCom
local facilities and further reinforces WorldCom's opportunity for synergies in
the WorldCom-MCI combination. Creating a stronger competitor in the local market
helps fulfill the intent of the Telecommunications Act of 1996.
Combining WorldCom's pan-European fiber network in 12 European cities with
MCI's international operations will create a leading alternative provider of
telecommunications services in key markets abroad. WorldCom and MCI will bring
complementary skills to compete in rapidly deregulating global markets.
MCI's stockholders will benefit from the opportunity to own an
entrepreneurial telecommunications operator with a proven track record of
shareholder value creation. MCI's stockholders will not only achieve a higher
valuation today but will also be better positioned to realize higher returns in
the future through ownership in the combined company. Historical returns
realized by WorldCom's stockholders over
23
<PAGE>
the past decade have exceeded those realized by investors in all other U.S.
telecommunications companies. Since the end of 1989, WorldCom has provided
investors with a total compound annual return of 55.8% compared to 4.3% for MCI
and 9.4% for British Telecom. Our proposal will result in MCI's stockholders
owning approximately 45% of the combined company--while under the proposed
acquisition of MCI by British Telecom, your stockholders would only own
approximately 25% of the combined company.
WorldCom has a proven track record of successfully integrating acquisitions
and has completed more than 40 transactions over the past five years. These
transactions have been accomplished smoothly with minimal disruption to the
employee base. As in our other significant business combinations, we expect that
MCI's management would be an important part of the combined company and we would
welcome members of MCI's Board to our Board.
Our exchange offer can be closed promptly without the need for any consent
from British Telecom. The roadmap to a timely completion of WorldCom's exchange
offer includes the following:
ESTABLISH VOTING TRUST. WorldCom will establish a voting trust, which we
expect will be approved by the Federal Communications Commission (FCC)
within a matter of weeks, that will permit the exchange offer to be
consummated prior to receiving final approvals from the FCC and state Public
Utility Commissions (PUCs). We are submitting the applicable FCC filings
today and will file with all PUCs shortly.
OBTAIN ANTITRUST CLEARANCE. Clearances by the U.S. and other antitrust
authorities are the only regulatory conditions to the exchange offer, other
than FCC approval of a voting trust. We are filing with the U.S. antitrust
authorities today and will be filing with other authorities shortly. We are
confident that we will obtain clearance no later than the first quarter of
1998.
AMEND RIGHTS PLAN. We request that you amend your Rights Plan to permit
MCI's stockholders to participate in the exchange offer. We know MCI has the
ability to do this.
SOLICIT STOCKHOLDER APPROVALS. We will be filing materials with the
Securities and Exchange Commission (SEC) promptly to solicit votes of MCI's
stockholders against the proposed acquisition of MCI by British Telecom and
to obtain the approval of WorldCom's stockholders for the issuance of
WorldCom common stock in the exchange offer. To obtain the approval of
WorldCom's stockholders, WorldCom needs to obtain only the favorable vote of
a majority of the shares voting (which is the same stockholder vote that
British Telecom is required to obtain). We are highly confident that our
stockholders will approve this transaction.
MODEL OTHER OFFER CONDITIONS TO BRITISH TELECOM'S. We have structured the
other conditions to our offer to be substantially the same as those
contained in your agreement with British Telecom. In particular, we have not
conditioned our offer on the absence of a material adverse change on MCI's
results of operations or financial condition.
We are confident that the WorldCom exchange offer can be completed no later
than the first quarter of 1998. Since British Telecom's acquisition of MCI
cannot be closed until the end of 1997, at the earliest, and because of the need
for SEC clearance and stockholders meetings, our exchange offer can close on
essentially the same timetable as the proposed acquisition by British Telecom.
We will consummate a second-step merger between MCI and a subsidiary of WorldCom
at the same per share consideration as that provided for in the WorldCom
exchange offer as soon as possible following consummation of the exchange offer.
This merger could be completed without British Telecom's consent on October 1,
1998, when British Telecom's class vote expires.
As you are aware, if MCI's stockholders reject the British Telecom
acquisition, your agreement with British Telecom permits you to avoid paying
British Telecom a $450 million termination fee even if there is a subsequent
transaction with WorldCom. Even though our offer and merger can close without
British Telecom's consent, as outlined above, we believe it is in the best
interests of all parties to come to a three-
24
<PAGE>
way negotiated agreement providing for the merger of WorldCom and MCI. We
believe that a negotiated merger transaction (as opposed to our exchange offer)
could be structured to be accounted for as a pooling-of-interests, which would
be even more beneficial to the stockholders of MCI, British Telecom and WorldCom
than the purchase transaction proposed.
You should understand that in connection with any negotiated transaction, we
would enter into a merger agreement with terms substantially similar to the
existing British Telecom-MCI acquisition agreement, including no material
adverse change condition and payment of a $750 million termination fee if
WorldCom's stockholders fail to approve the WorldCom-MCI merger.
We believe that our proposed transaction is in the best interests of the
stockholders of MCI. MCI's stockholders would receive a substantial premium and
significantly more upside potential in a combination with WorldCom. We look
forward to meeting with you and would welcome the opportunity to present our
offer directly to you and your Board.
Sincerely,
/s/ [Bernard J. Ebbers]
Mr. Bernard J. Ebbers
President and Chief Executive Officer
WorldCom, Inc.
cc: MCI Board of Directors
TERMINATION AND TERMINATION FEE PROVISIONS OF THE BT/MCI MERGER
AGREEMENT. In connection with the Revised BT Acquisition Proposal, the
termination provisions of the BT/MCI Merger Agreement were amended to provide
that the BT/MCI Merger Agreement can be terminated (a) by mutual written consent
of BT and MCI, (b) by either MCI or BT if the effective time of the merger
provided for thereunder has not occurred by December 31, 1997 (extendable to
April 30, 1998 under certain circumstances), (c) by either MCI or BT if any
governmental entity has issued an order or taken any other action prohibiting
the transaction or has failed to issue an order that is required to permit the
transaction, (d) by either MCI or BT if the approval of the stockholders of MCI
or of BT required for the consummation of the merger provided for thereunder
(or, in the case of BT, the issuance of BT ADSs) is not obtained, (e) by either
MCI or BT if the Board of Directors of the other party withdraws its
recommendation of the BT/MCI Merger Agreement, fails to reaffirm its
recommendation on request or approves any acquisition (other than by the other
party) prior to the applicable stockholders meeting, (f) by either MCI or BT if,
as a result of a Superior Proposal (as defined in the BT/MCI Merger Agreement),
such party determines in good faith that its fiduciary obligations under
applicable law require that the Superior Proposal be accepted or (g) by either
MCI or BT if the other party is in breach of the BT/MCI Merger Agreement.
MCI would be required to pay BT a termination fee of $450 million plus
expenses of up to $15 million if (x) BT terminates the BT/MCI Merger Agreement
pursuant to the provision described in clause (e) above while an Acquisition
Proposal (as defined in the BT/MCI Merger Agreement) is pending or (y) if MCI
terminates the BT/MCI Merger Agreement pursuant to the provision described in
clause (f) above. Although MCI could be required to pay BT the termination fee
plus expenses described above if, in response to the Offer, MCI were to change,
withdraw or fail to reaffirm its recommendation of the BT/ MCI Merger Agreement
or approve a transaction with WorldCom, or if MCI were to terminate the BT/ MCI
Merger Agreement on the grounds that the Offer constitutes a Superior Proposal
that the MCI Board determines it is required to accept, UNDER THE TERMS OF THE
BT/MCI MERGER AGREEMENT AS AMENDED, MCI WOULD NOT BE REQUIRED TO PAY A
TERMINATION FEE IF THE BT/MCI MERGER AGREEMENT IS TERMINATED BECAUSE APPROVAL OF
STOCKHOLDERS OF MCI OF THE REVISED BT ACQUISITION PROPOSAL HAS NOT BEEN OBTAINED
AT THE SPECIAL MEETING OF STOCKHOLDERS OF MCI TO BE HELD ON , 1997
(SO LONG AS THE MCI BOARD HAD NOT
25
<PAGE>
MADE A DETERMINATION THAT THE OFFER CONSTITUTES A SUPERIOR PROPOSAL OR CHANGED,
WITHDRAWN OR FAILED TO REAFFIRM ITS RECOMMENDATION OF THE BT/MCI MERGER
AGREEMENT). As described under "--Litigation," WorldCom has commenced litigation
in the Delaware Court of Chancery seeking, among other things, an order
enjoining the enforcement of the termination fee provisions of the BT/MCI Merger
Agreement.
COMPARISON OF THE PROPOSALS
PURCHASE PRICE. The Offer provides a significant premium to the market
value of the Revised BT Acquisition Proposal.
IMPLIED PURCHASE PRICE PER SHARE*
<TABLE>
<CAPTION>
<S> <C> <C> <C>
REVISED BT
ACQUISITION
DATE THE OFFER PROPOSAL DIFFERENTIAL
<S> <C> <C> <C>
, 1997 $ $ $
</TABLE>
* Based on the closing price per share of WorldCom Common Stock and BT ADSs,
as the case may be, on , 1997, plus, in the case of the Revised BT
Acquisition Proposal, $7.75 in cash. The value of the BT ADSs has not been
reduced to give effect to the expected 1998 dividends payable to BT
shareholders (L2($ based on the exchange rates prevailing on ,
1997)) that would not be received by holders of Shares. The relative market
values of the Offer and the Revised BT Acquisition Proposal may vary based
on changes in the market values of WorldCom Common Stock and BT ADSs.
FEDERAL INCOME TAX CONSEQUENCES. The Offer is structured to be tax-free to
holders of Shares, while the Revised BT Acquisition Proposal would result in
holders of Shares being taxed on gain from the exchange to the extent of the
cash received. In the opinion of Bryan Cave LLP, special counsel to WorldCom,
exchanges of Shares for WorldCom Common Stock pursuant to the Offer and the
Merger, as described below, should be treated for federal income tax purposes as
exchanges pursuant to a plan of reorganization within the meaning the Code.
Consequently, no gain or loss should be recognized by holders of Shares upon
such exchanges, except with respect to the receipt of cash in lieu of fractional
shares of WorldCom Common Stock. See "Certain Federal Income Tax Consequences."
According to the Original BT/MCI Proxy Statement/Prospectus, a MCI
stockholder exchanging Shares for Concert ADSs and cash would realize gain
measured by the excess, if any, of (i) the sum of the amount in cash and the
fair market value of the Concert ADSs received over (ii) such stockholder's tax
basis in the Shares, which realized gain will be taxable to the extent of the
cash received. ACCORDINGLY, EVEN IF THE MARKET VALUE OF THE REVISED BT
ACQUISITION PROPOSAL WERE EQUAL TO THE MARKET VALUE OF THE OFFER, MCI
STOCKHOLDERS WOULD RETAIN MORE VALUE UNDER THE OFFER BECAUSE OF ITS TAX-FREE
NATURE.
VALUE OF COMBINED COMPANY'S STOCK FOLLOWING THE TRANSACTION. As noted
above, the Offer provides a substantial premium to holders of Shares in relation
to the Revised BT Acquisition Proposal. However, MCI stockholders should also
consider the prospects of the combined company that would result from each
proposed transaction in assessing the likely value of each prospective combined
company's stock after a combination with MCI. WorldCom believes that MCI
stockholders would be better positioned to realize higher returns in the future
through ownership of a WorldCom/MCI combined entity than through ownership of a
BT/MCI combined entity. The Offer and the Merger are expected to be accretive to
WorldCom's earnings by as much as 22% in the first year after closing with
synergies of approximately $2.5 billion in the first year, growing to
approximately $5 billion in the fifth year. These synergies are expected to
result from better utilization of the combined network and other operational
savings. Because WorldCom has already established extensive domestic local
network facilities, a WorldCom combination with MCI is expected to achieve
significantly higher synergies than possible under the Revised BT Acquisition
Proposal. See "-Synergies" and "Cautionary Statement Regarding Forward-Looking
Statements" below.
26
<PAGE>
Historical returns realized by WorldCom shareholders (which are not
necessarily indicative of future results) over the past decade have exceeded
those realized by investors in all other U.S. telecommunications companies.
WorldCom has provided investors with a total compound annual return of 55.8%,
compared to 4.3% for MCI and 9.4% for BT, since the beginning of 1990. As
described below under "Strategic Fit," both MCI and WorldCom stockholders are
expected to benefit from the opportunity to own an entrepreneurial
telecommunications operator with a proven track record of shareholder value
creation.
According to the Original BT/MCI Proxy Statement/Prospectus, in considering
the Original BT Acquisition Proposal, the MCI Board considered concerns
expressed by members of MCI's management that BT's earnings forecasts indicated
slow to moderate growth and that BT had been losing market share and could
continue to do so in light of the new competitive environments in the U.K. and
Europe. According to the Original BT/MCI Proxy Statement/Prospectus, in
determining to approve the Original BT Acquisition Proposal despite these
concerns, the MCI Board relied in part upon "the anticipated benefits to be
received by the MCI stockholders in the proposed merger" (a consideration that
MCI stockholders may now want to reevaluate given the significantly lower value
of the Revised BT Acquisition Proposal as compared to the Original BT
Acquisition Proposal) and the MCI Board's view at the time that it was unlikely
that MCI would be able to "negotiate a combination with another company on terms
superior to the proposed Merger with BT." Given the reduced value of the Revised
BT Acquisition Proposal as compared to the Original BT Acquisition Proposal and
the availability of the Offer--a merger proposal with a market value
significantly in excess of the market value of the Revised BT Acquisition
Proposal--as an alternative, WorldCom believes that the original rationale for
combining with an entity whose future growth may be slow to moderate no longer
applies.
The Offer would permit MCI's stockholders to participate in the future
results of the combined WorldCom/MCI entity with an approximately 45% ownership
position in the combined entity (based on certain assumptions), while under the
Revised BT Acquisition Proposal stockholders of MCI would only own about 25% of
the combined entity. See "The Offer--General."
SYNERGIES. WorldCom believes that MCI stockholders, as well as MCI's
customers, employees and the communities it serves, would realize benefits from
the Offer and the Merger that are greater than the benefits that would be
realized if MCI either remains an independent entity or is acquired by BT.
WorldCom believes such greater benefits would be realized through the following
operational and structural synergies:
- Operational cost savings. Operational cost savings are expected to be
realized primarily in four areas: avoided costs in MCI local activities;
reduced sales, general and administrative costs in the combined company's
domestic operations; reduced domestic network costs; and reduced network
costs associated with terminating international traffic.
-- AVOIDED COSTS IN MCI'S LOCAL ACTIVITIES. As a result of WorldCom's
existing extensive local network and operations, the combined company
will be able to execute MCI's plans to expand in the local market at a
lower cost than MCI would be able to on a standalone basis. The combined
company will avoid the need to duplicate certain sales, marketing and
administrative functions and will enjoy reduced network costs resulting
from the more rapid transfer to traffic to the combined company's network
facilities.
-- REDUCED SALES AND ADMINISTRATIVE COSTS IN THE COMBINED COMPANY'S
DOMESTIC OPERATIONS. The increased scale of activities in the combined
company's operations will result in opportunities to reduce costs by
avoiding expenditures on duplicative activities, greater purchasing power
and the adoption of best practices in cost containment across the entire
company.
-- REDUCED DOMESTIC NETWORK COSTS. As a result of WorldCom's existing
extensive local network, the combined company will carry an increased
proportion of its domestic traffic on its own local
27
<PAGE>
network facilities resulting in a reduction in leased line costs and
access costs associated with switched traffic. By combining WorldCom's
and MCI's traffic, a reduction in variable network costs such as in-WATS,
out-WATS and directory services are expected as a result of the combined
company's greater purchasing power.
-- REDUCED COSTS OF TERMINATING INTERNATIONAL TRAFFIC. MCI currently
enjoys more extensive settlement agreements for international traffic
than does WorldCom. The combined company will benefit from terminating
traffic on its facilities. In addition, as a result of WorldCom's
construction of transatlantic facilities and network facilities in
Europe, the combined company will be able to lower MCI's average costs of
terminating certain traffic in Europe.
Taking into account the costs expected to be incurred in achieving these
potential operational savings and the time required to implement plans to
lower costs, aggregate pre-tax operational costs savings (including avoided
sales and administrative expenses and network costs in MCI's local
activities, reduced sales and administrative expenses in the combined
domestic operations excluding local activities, savings in domestic fixed
and variable network costs, and reduced costs in terminating certain
international traffic of the combined company, but excluding interest and
depreciation savings) of between $2.0 billion and $2.7 billion are expected
in 1999 and between $4.0 billion and $4.6 billion in 2002.
- Capital expenditure savings. Capital expenditure savings are expected to
be realized primarily in two areas: the combined company's domestic long
distance network activities and the combined company's local network
buildout. Capital expenditures relating to the combined company's long
distance activities will be reduced primarily as a result of avoided
duplicative fixed capital expenses and the cost benefits realized from
increased purchasing power. Capital expenditures relating to the combined
company's local activities will be reduced primarily as a result of
avoided duplicative capital expenditures.
Taking into account the costs expected to be incurred in achieving these
potential capital expenditure savings and the time required to implement
plans to lower capital expenditures, aggregate capital expenditure savings
(including avoided duplicative local capital spending and savings in
domestic long distance capital costs) of between $1.0 billion and $1.5
billion are expected in 1999 and between $1.5 billion and $1.6 billion in
2002.
- Revenue benefits. WorldCom expects than the combined company will benefit
from greater revenues than the two companies would enjoy on a standalone
basis. This increase in revenues is expected to result primarily from a
reduction in customer attrition and from cross-selling a broader range of
products and services. Although WorldCom believes that the potential
revenue benefits are substantial, no attempt has been made to quantify
these potential benefits.
WorldCom has a track record of successfully integrating acquisitions and has
completed more than forty transactions over the past five years. The expertise
WorldCom has gained from these transactions is expected to assist WorldCom and
MCI in realizing the potential merger benefits. WorldCom's analyses of these
potential savings and benefits were based on publicly available information
(including documents filed with the Commission by MCI and other
telecommunications companies and industry reports from the FCC and certain
industry consultants), analysts' forecasts and WorldCom's knowledge of the
telecommunications industry. See "Cautionary Statement Regarding Forward-Looking
Statements."
STRATEGIC FIT. The combination of MCI and WorldCom will accelerate
competition--especially in local markets--by creating a company with the
capital, marketing abilities and state-of-the-art network to compete against the
incumbent network carriers, domestically and abroad.
Unlike BT, WorldCom is already a seasoned competitor in the U.S. local
market. WorldCom has an established presence in 52 markets that will expand to
86 markets following the BFP merger. WorldCom's local network would both
accelerate MCI's local strategy and result in significant savings for the
combined
28
<PAGE>
company. Creating a stronger competitor in the local market helps fulfill the
intent of the Telecom Act. Moreover, WorldCom believes that its extensive local
network would solve the widely recognized local market entry problem facing MCI.
Combining WorldCom's pan-European fiber network in 12 cities in Europe with
MCI's international operations will create a leading alternative provider of
telecommunications services in key markets abroad. WorldCom and MCI will bring
complementary skills to compete in rapidly deregulating global markets.
TIMING CONSIDERATIONS. The Offer is currently scheduled to expire on
; however, it is WorldCom's current intention to extend the Offer from
time to time as necessary until all conditions to the Offer have been satisfied
or waived. WorldCom expects that the WorldCom Shareholder Approval Condition
will be satisfied by (the date by which it expects to hold a special
meeting of its shareholders to approve the issuance of shares of WorldCom Common
Stock pursuant to the Offer and Merger) and that the other conditions to the
Offer could be satisfied not later than the first quarter of 1998.
With respect to FCC and state PUC approval, WorldCom will establish the
Voting Trust to facilitate the transaction. As a result, WorldCom believes that
it will be able to consummate the Offer prior to receipt of final FCC and state
PUC approvals and that, accordingly, it could be in a position to consummate the
Offer not later than the first quarter of 1998. See "Conditions of the Offer."
Given that BT and MCI must recirculate proxy materials to MCI stockholders
reflecting the Revised BT Acquisition Proposal and schedule a second
stockholders meeting, any acquisition of MCI by BT could not be consummated
prior to the latter half of the fourth quarter of 1997, at the earliest.
Accordingly, WorldCom does not believe that the Revised BT Acquisition Proposal
offers any significant advantage over the Offer in terms of timing of
completion. While BT does have the ability under the terms of its Class A Common
Stock to veto the Merger until October 1998, BT's consent is not required in
order for WorldCom to consummate the Offer. Since the Offer can be consummated
without the need of any consent from BT and since the Offer is being made for
all outstanding Shares, the ability of BT to block the Merger until October 1998
need not delay the receipt of WorldCom Common Stock by any holder of Shares.
LITIGATION
On October 1, 1997, WorldCom filed a complaint in the Delaware Court of
Chancery against MCI, the members of the MCI Board, BT and BT Sub. The complaint
seeks, among other things, (i) preliminary and permanent injunctive relief
enjoining MCI and its directors from breaching their fiduciary duty to their
stockholders by entering into or consummating the Revised BT Acquisition
Proposal without giving MCI stockholders an opportunity to accept the Offer and
enjoining BT and BT Sub from aiding and abetting that breach, (ii) preliminary
and permanent injunctive relief enjoining MCI and its directors from conducting
any stockholder vote on the Revised BT Acquisition Proposal that differs
procedurally from the stockholder votes contemplated by the BT/MCI Merger
Agreement (prior to any amendments thereto) and enjoining BT and BT Sub from
aiding and abetting the same, (iii) preliminary and permanent injunctive relief
requiring MCI and the defendant directors to take all steps necessary to amend
the Rights to make them inapplicable to the Offer, (iv) preliminary and
permanent injunctive relief preventing MCI from otherwise taking actions that
impede or delay the Offer, (v) preliminary and permanent injunctive relief
enjoining defendants from enforcing the termination fee provisions of the BT/MCI
Merger Agreement and (vi) an order declaring that the Offer does not constitute
tortious interference with, or any other business-related tort in connection
with, the proposed acquisition of MCI by BT.
29
<PAGE>
THE OFFER
GENERAL
WorldCom hereby offers, upon the terms and subject to the conditions of the
Offer, to exchange shares of WorldCom Common Stock for each outstanding Share
(including the Shares into which the outstanding shares of Class A Common Stock
would be automatically converted in accordance with the provisions of MCI's
Restated Certificate of Incorporation upon the tender of such shares pursuant to
the Offer) validly tendered on or prior to the Expiration Date and not
withdrawn. The holder of each Share validly tendered on or prior to the
Expiration Date and not properly withdrawn will be entitled to receive that
number of shares of WorldCom Common Stock equal to the Exchange Ratio. "Exchange
Ratio" means the quotient (rounded to the nearest 1/10,000) determined by
dividing $41.50 by the average of the high and low sales prices of WorldCom
Common Stock as reported on The Nasdaq National Market (the "WorldCom Average
Price") on each of the twenty consecutive trading days ending with the third
trading day immediately preceding the Expiration Date; provided, that the
Exchange Ratio shall not be less than 1.0375 nor greater than 1.2206.
Accordingly, each Share will be exchanged for WorldCom Common Stock having a
market value of $41.50 if the WorldCom Average Price is between $40.00 and
$34.00. If the WorldCom Average Price is greater than $40.00, each Share will be
exchanged for WorldCom Common Stock having a market value of more than $41.50,
and, conversely, if the WorldCom Average Price is less than $34.00, each Share
will be exchanged for WorldCom Common Stock having a market value of less than
$41.50. Cash will be paid in lieu of any fractional shares of WorldCom Common
Stock. On , the closing price of WorldCom Common Stock as
reported in The Nasdaq National Market was $ . Based on a WorldCom Average
Price equal to that amount, each Share would be exchanged for WorldCom Common
Stock having a market value of $ . The following chart sets forth a range
of possible WorldCom Average Prices and the corresponding Exchange Ratios and
values to holders of Shares. The WorldCom Average Prices set forth below are for
illustrative purposes only. There can be no assurance that the actual WorldCom
Average Price will be in the range set forth below.
VALUE OF THE OFFER AND THE MERGER
AT SELECTED WORLDCOM AVERAGE PRICES
<TABLE>
<CAPTION>
WORLDCOM VALUE TO
AVERAGE EXCHANGE HOLDERS OF
PRICE RATIO SHARES
- ----------- ----------- -----------
<S> <C> <C>
$32.00 1.2206 $ 39.06
32.50 1.2206 39.67
33.00 1.2206 40.28
33.50 1.2206 40.89
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
34.00 1.2206 41.50
34.50 1.2029 41.50
35.00 1.1857 41.50
35.50 1.1690 41.50
36.00 1.1528 41.50
36.50 1.1370 41.50
37.00 1.1216 41.50
37.50 1.1067 41.50
38.00 1.0921 41.50
38.50 1.0779 41.50
39.00 1.0641 41.50
39.50 1.0506 41.50
40.00 1.0375 41.50
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
40.50 1.0375 42.02
41.00 1.0375 42.54
41.50 1.0375 43.06
42.00 1.0375 43.58
</TABLE>
The actual WorldCom Average Price and Exchange Ratio will be calculated as
of the third trading day immediately prior to the Expiration Date, as described
above, and a press release will be issued
30
<PAGE>
announcing the actual Exchange Ratio prior to the opening of the second trading
day prior to the Expiration Date (as it may be extended from time to time). The
term "Expiration Date" shall mean 11:59 p.m., New York City time, on
, 1997, unless and until WorldCom extends the period of time for
which the Offer is open, in which event the term "Expiration Date" shall mean
the latest time and date at which the Offer, as so extended by WorldCom, shall
expire.
Tendering stockholders will not be obligated to pay any charges or expenses
of the Exchange Agent or any brokerage commissions. Except as set forth in the
Instructions to the Letter of Transmittal, transfer taxes on the exchange of
Shares pursuant to the Offer will be paid by or on behalf of WorldCom.
The purpose of the Offer is for WorldCom to obtain control of, and
ultimately the entire common equity interest in, MCI. WorldCom will, as soon as
practicable after consummation of the Offer, have MCI consummate the Merger in
which each outstanding Share (except for Shares held in the treasury of MCI)
would be converted into the right to receive a number of shares of WorldCom
Common Stock equal to the Exchange Ratio. Pursuant to the Restated Certificate
of Incorporation of MCI, the consent of the holders of a majority of the shares
of the Class A Common Stock is required for any "Business Combination" involving
MCI (which, as defined, would include the Merger but would not include the
exchange of shares pursuant to the Offer) to be effected prior to October 1998.
As of the date hereof, WorldCom believes that all of the Class A Common Stock is
held by BT. Accordingly, the consent of BT would be required in order to effect
the Merger prior to October 1998. It is WorldCom's current intention to
consummate the Offer as soon as the conditions to the Offer are satisfied and to
consummate the Merger in October 1998, or earlier if the consent of BT is
obtained. See "Purpose of the Offer; the Merger" and "Background of the Offer--
Comparison of the Proposals."
If WorldCom obtains all of the Shares pursuant to the Offer and/or if the
Merger is consummated, former MCI stockholders would own approximately 45% of
the outstanding shares of WorldCom Common Stock, based on (i) an assumed
Exchange Ratio of 1.1731 --the Exchange Ratio implied by the closing price of
WorldCom Common Stock on September 30, 1997, the last trading day before the
announcement of WorldCom's intention to make the Offer (the actual Exchange
Ratio may vary as described above; a higher Exchange Ratio (which would result
from a lower WorldCom Average Price) would result in a greater pro forma
ownership and a lower Exchange Ratio (which would result from a higher WorldCom
Average Price) would result in a smaller pro forma ownership), (ii) the number
of outstanding Shares as reported in MCI's Current Report on Form 8-K dated
August 26, 1997 (without giving effect to the possible exercise of outstanding
MCI stock options or the possible issuance of Shares pursuant to outstanding MCI
incentive stock units), including the Shares into which the outstanding shares
of Class A Common Stock would be automatically converted in accordance with the
provisions of MCI's Restated Certificate of Incorporation upon the tender of
such shares pursuant to the Offer and (iii) the number of outstanding shares of
WorldCom Common Stock as of September 30, 1997 (without giving effect to
possible conversion of outstanding shares of WorldCom preferred stock, the
possible exercise of outstanding WorldCom stock options or the issuance of
shares pursuant to the possible acquisitions of CompuServe or BFP). Based on the
foregoing, if WorldCom obtains 51% of the Shares pursuant to the Offer, former
MCI stockholders would own approximately 31% of the outstanding shares of
WorldCom Common Stock.
WorldCom's obligation to exchange shares of WorldCom Common Stock for Shares
pursuant to the Offer is conditioned upon satisfaction or waiver, as applicable,
of the Minimum Tender Condition, the WorldCom Shareholder Approval Condition,
the Rights Plan Condition, the BT/MCI Merger Agreement Condition, the Voting
Trust Condition, the Antitrust Condition and the other conditions to the Offer.
See "Conditions of the Offer."
Prior to the MCI Distribution Date (as defined below) (or earlier redemption
or expiration of the Rights), the Rights are evidenced by the certificates for
the Shares, and the tender by a stockholder of his or her Shares will also
constitute a tender of the associated Rights. No separate payment will be made
by WorldCom for the Rights pursuant to the Offer. Upon the earlier to occur of
(i) 10 days following a public announcement that a person or group of affiliated
or associated persons (an "MCI Acquiring Person") has
31
<PAGE>
acquired beneficial ownership of 10% or more of the outstanding Shares (20.1% or
more of the outstanding Shares in the case of BT) or (ii) 10 business days (or
such later date as may be determined by action of the MCI Board of Directors
prior to such time as any person becomes an MCI Acquiring Person) following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 10% or more of such outstanding Shares (20.1%
or more of the outstanding Shares in the case of BT) (the earlier of such dates
being the "MCI Distribution Date"), the MCI Rights Agreement provides that
separate certificates evidencing the Rights will be mailed to holders of record
of the Shares as of the close of business on the MCI Distribution Date and such
separate Rights certificates alone will evidence the Rights.
If the MCI Distribution Date occurs and separate certificates representing
the Rights are distributed by MCI or the Rights Agent to holders of Shares prior
to the time a holder's Shares are tendered pursuant to the Offer, certificates
representing a number of Rights equal to the number of Shares tendered must be
delivered to the Exchange Agent, or, if available, a book-entry confirmation
received by the Exchange Agent with respect thereto, in order for such Shares to
be validly tendered. If the MCI Distribution Date occurs and separate
certificates representing the Rights are not distributed prior to the time
Shares are tendered pursuant to the Offer, Rights may be tendered prior to a
stockholder receiving the certificates for Rights by use of the guaranteed
delivery procedure described under "-- Procedure for Tendering" below.
According to MCI's Current Report on Form 8-K dated August 26, 1997, as of
August 19, 1997, there were 558,420,209 Shares outstanding, not including
135,998,932 Shares issuable upon conversion of the Class A Common Stock held by
BT. As of the date of this Prospectus, WorldCom and its subsidiaries own 602
Shares.
Requests have been made to MCI for use of a MCI stockholder list and
security position listings for the purpose of communications with MCI
stockholders and disseminating the Offer to holders of Shares. This Prospectus
and the related Letter of Transmittal and other relevant materials will be
mailed to record holders of Shares and will be furnished to brokers, dealers,
commercial banks, trust companies and similar persons whose names, or the names
of whose nominees, appear on the stockholder list or, if applicable, who are
listed as participants in a clearing agency's security position listing for
subsequent transmittal to beneficial owners of Shares by WorldCom following
receipt of such list or listings from MCI.
TIMING OF THE OFFER
The Offer is currently scheduled to expire on ; however, it is
WorldCom's current intention to extend the Offer from time to time as necessary
until all conditions to the Offer have been satisfied or waived. WorldCom
expects that the WorldCom Shareholder Approval Condition will be satisfied by
(the date by which it expects to hold a special meeting of its
shareholders to approve the issuance of shares of WorldCom Common Stock pursuant
to the Offer and Merger) and that the other conditions to the Offer could be
satisfied not later than the first quarter of 1998.
With respect to FCC and state PUC approval, WorldCom will establish the
Voting Trust to facilitate the transaction. As a result, WorldCom believes that
it will be able to consummate the Offer prior to receipt of final FCC and state
PUC approvals and that, accordingly, it could be in a position to consummate the
Offer not later than the first quarter of 1998. See "Conditions of the Offer."
Given that BT and MCI must recirculate proxy materials to MCI stockholders
reflecting the Revised BT Acquisition Proposal and schedule a second
stockholders meeting, any acquisition of MCI by BT could not be consummated
prior to the latter half of the fourth quarter of 1997, at the earliest.
Accordingly, WorldCom does not believe that the Revised BT Acquisition Proposal
offers any significant advantage over the Offer in terms of timing of
completion. While BT does have the ability under the terms of its Class A Common
Stock to veto any second-step merger between a subsidiary of WorldCom and MCI
until October 1998, BT's consent is not required in order for WorldCom to
consummate the Offer. Since the Offer can be consummated without the need of any
consent from BT and since the Offer is being made for all
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outstanding Shares, the ability of BT to block a second-step merger until
October 1998 need not delay the receipt of WorldCom Common Stock by any holder
of Shares.
MCI stockholders are expected to vote on the Revised BT Acquisition Proposal
at a special meeting of stockholders of MCI to be scheduled in the latter half
of the fourth quarter of 1997. Assuming MCI's stockholders disapprove the
Revised BT Acquisition Proposal, the BT/MCI Merger Agreement Condition will then
be satisfied. WorldCom believes that the MCI Board would at that point respect
the vote of MCI's stockholders and remove the existing obstacles to the Offer
and Merger, thereby satisfying the Rights Plan Condition. WorldCom also intends
to pursue its currently pending litigation to satisfy the Rights Plan Condition.
See "Conditions of the Offer--Rights Plan Condition."
EXTENSION, TERMINATION AND AMENDMENT
WorldCom expressly reserves the right (but will not be obligated), in its
sole discretion, at any time or from time to time, to extend the period of time
during which the Offer is to remain open by giving oral or written notice of
such extension to the Exchange Agent, which extension must be announced no later
than 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date. There can be no assurance that WorldCom
will exercise its right to extend the Offer. However, it is WorldCom's current
intention to extend the Offer until all conditions have been satisfied or
waived. During any such extension, all Shares previously tendered and not
withdrawn will remain subject to the Offer, subject to the right of a tendering
stockholder to withdraw his or her Shares. See "--Withdrawal Rights."
Subject to the applicable rules and regulations of the Commission, WorldCom
also reserves the right, in its sole discretion, at any time or from time to
time, (i) to delay acceptance for exchange of, or, regardless of whether such
Shares were theretofore accepted for exchange, exchange of any Shares pursuant
to the Offer, or to terminate the Offer and not accept for exchange, or
exchange, any Shares not theretofore accepted for exchange or exchanged, upon
the failure of any of the conditions of the Offer to be satisfied and (ii) to
waive any condition (other than the WorldCom Shareholder Approval Condition, the
Voting Trust Condition, the Antitrust Condition and the condition relating to
the effectiveness of the Registration Statement) or otherwise amend the Offer in
any respect, by giving oral or written notice of such delay, termination or
amendment to the Exchange Agent and by making a public announcement thereof. Any
such extension, termination, amendment or delay will be followed as promptly as
practicable by public announcement thereof, such announcement in the case of an
extension to be issued no later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date. Subject to
applicable law (including Rules 14d-4(c) and 14d-6(d) under the Exchange Act,
which require that any material change in the information published, sent or
given to MCI stockholders in connection with the Offer be promptly disseminated
to MCI stockholders in a manner reasonably designed to inform MCI stockholders
of such change) and without limiting the manner in which WorldCom may choose to
make any public announcement, WorldCom shall have no obligation to publish,
advertise or otherwise communicate any such public announcement other than by
making a release to the Dow Jones News Service.
WorldCom confirms that if it makes a material change in the terms of the
Offer or the information concerning the Offer, or if it waives a material
condition of the Offer, WorldCom will extend the Offer to the extent required
under the Exchange Act. If, prior to the Expiration Date, WorldCom shall
increase or decrease the percentage of Shares being sought or the consideration
offered to holders of Shares, such increase or decrease shall be applicable to
all holders whose Shares are accepted for exchange pursuant to the Offer, and
if, at the time notice of any such increase or decrease is first published, sent
or given to holders of Shares, the Offer is scheduled to expire at any time
earlier than the tenth business day from and including the date that such notice
is first so published, sent or given, the Offer will be extended until the
expiration of such ten business-day period. For purposes of the Offer, a
"business day" means any day
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other than a Saturday, Sunday or a Federal holiday and consists of the time
period from 12:01 a.m. through 12:00 midnight, New York City time.
EXCHANGE OF CERTIFICATES; DELIVERY OF WORLDCOM COMMON STOCK
Upon the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended, the terms and conditions of any such extension or
amendment), WorldCom will accept for exchange, and will exchange, Shares validly
tendered and not properly withdrawn as promptly as practicable after the
Expiration Date. In addition, subject to applicable rules of the Commission,
WorldCom expressly reserves the right to delay acceptance of or the exchange of
Shares in order to comply with any applicable law. In all cases, exchange of
Shares tendered and accepted for exchange pursuant to the Offer will be made
only after receipt by the Exchange Agent of certificates for such Shares (or a
confirmation of a book-entry transfer of such Shares in the Exchange Agent's
account at The Depository Trust Company, Midwest Securities Trust Company or the
Philadelphia Depository Trust Company (collectively, the "Book-Entry Transfer
Facilities")), a properly completed and duly executed Letter of Transmittal (or
facsimile thereof) and any other required documents.
For purposes of the Offer, WorldCom will be deemed to have accepted for
exchange Shares validly tendered and not withdrawn as, if and when WorldCom
gives oral or written notice to the Exchange Agent of its acceptance of the
tenders of such Shares pursuant to the Offer. Delivery of WorldCom Common Stock
in exchange for Shares pursuant to the Offer and cash in lieu of fractional
shares of WorldCom Common Stock will be made by the Exchange Agent as soon as
practicable after receipt of such notice. The Exchange Agent will act as agent
for tendering MCI stockholders for the purpose of receiving WorldCom Common
Stock and cash to be paid in lieu of fractional shares of WorldCom Common Stock
from WorldCom and transmitting such WorldCom Common Stock and cash to tendering
MCI stockholders. Under no circumstances will interest with respect to
fractional shares be paid by WorldCom by reason of any delay in making such
exchange.
If any tendered Shares are not accepted for exchange pursuant to the terms
and conditions of the Offer for any reason, or if certificates are submitted for
more Shares than are tendered, certificates for such unexchanged Shares will be
returned without expense to the tendering MCI stockholder or, in the case of
Shares tendered by book-entry transfer of such Shares into the Exchange Agent's
account at a Book-Entry Transfer Facility pursuant to the procedures set forth
below under "--Procedure for Tendering," such Shares will be credited to an
account maintained within such Book-Entry Transfer Facility as soon as
practicable following expiration or termination of the Offer.
CASH IN LIEU OF FRACTIONAL SHARES OF WORLDCOM COMMON STOCK
No certificates representing fractional shares of WorldCom Common Stock will
be issued pursuant to the Offer. In lieu thereof, each tendering stockholder who
would otherwise be entitled to a fractional share of WorldCom Common Stock will
receive cash in an amount equal to such fraction (expressed as a decimal and
rounded to the nearest 0.01 of a share) times the closing price for shares of
WorldCom Common Stock on The Nasdaq National Market on the date such
stockholder's Shares are accepted for exchange by WorldCom.
WITHDRAWAL RIGHTS
Tenders of Shares made pursuant to the Offer are irrevocable, except that
Shares tendered pursuant to the Offer may be withdrawn at any time prior to the
Expiration Date, and, unless theretofore accepted for exchange and exchanged by
WorldCom for shares of WorldCom Common Stock pursuant to the Offer, may also be
withdrawn at any time after , 1997.
For a withdrawal to be effective, a written or facsimile transmission notice
of withdrawal must be timely received by the Exchange Agent at the appropriate
addresses set forth on the back cover of this Prospectus, and must specify the
name of the person having tendered the Shares to be withdrawn, the
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number of Shares to be withdrawn and the name of the registered holder if
different from that of the person who tendered such Shares.
The signature(s) on the notice of withdrawal must be guaranteed by a
financial institution (including most banks, savings and loan associations and
brokerage houses) which is a participant in the Securities Transfer Agents
Medallion Program, the New York Stock Exchange Medallion Signature Program or
the Stock Exchange Medallion Program (an "Eligible Institution") unless such
Shares have been tendered for the account of any Eligible Institution. If Shares
have been tendered pursuant to the procedures for book-entry tender as set forth
below under "--Procedure for Tendering," any notice of withdrawal must specify
the name and number of the account at the Book-Entry Transfer Facility to be
credited with the withdrawn Shares and must otherwise comply with such
Book-Entry Transfer Facility's procedures. If certificates have been delivered
or otherwise identified to the Exchange Agent, the name of the registered holder
and the serial numbers of the particular certificates evidencing the Shares
withdrawn must also be furnished to the Exchange Agent as aforesaid prior to the
physical release of such certificates.
All questions as to the form and validity (including time of receipt) of any
notice of withdrawal will be determined by WorldCom, in its sole discretion,
which determination shall be final and binding. Neither WorldCom, the Exchange
Agent, the Information Agent, the Dealer Manager nor any other person will be
under any duty to give notification of any defects or irregularities in any
notice of withdrawal or will incur any liability for failure to give any such
notification. Any Shares properly withdrawn will be deemed not to have been
validly tendered for purposes of the Offer. However, withdrawn Shares may be
retendered by following one of the procedures described under "--Procedure for
Tendering" at any time prior to the Expiration Date.
PROCEDURE FOR TENDERING
For an MCI stockholder to validly tender Shares pursuant to the Offer, (i) a
properly completed and duly executed Letter of Transmittal (or manually executed
facsimile thereof), together with any required signature guarantees, or an
Agent's Message (as hereinafter defined) in connection with a book-entry
transfer, and any other required documents, must be transmitted to and received
by the Exchange Agent at one of its addresses set forth on the back cover of
this Prospectus and either certificates for tendered Shares must be received by
the Exchange Agent at such address or such Shares must be tendered pursuant to
the procedures for book-entry tender set forth below (and a confirmation of
receipt of such tender received (such confirmation, a "Book-Entry
Confirmation")), in each case prior to the Expiration Date, or (ii) such MCI
stockholder must comply with the guaranteed delivery procedure set forth below.
The term "Agent's Message" means a message, transmitted by a Book-Entry
Transfer Facility to, and received by, the Exchange Agent, and forming a part of
a Book-Entry Confirmation, which states that such Book-Entry Transfer Facility
has received an express acknowledgment from the participant in such Book-Entry
Transfer Facility tendering the Shares that such participant has received and
agrees to be bound by the terms of the Letter of Transmittal and that WorldCom
may enforce such agreement against such participant.
Stockholders will be required to tender one Right for each Share tendered in
order to effect a valid tender of Shares, unless the Rights Plan Condition has
been satisfied or waived. Unless the MCI Distribution Date occurs, a tender of
Shares will constitute a tender of the associated Rights. If the MCI
Distribution Date occurs and separate certificates representing the Rights are
distributed by MCI or the Rights Agent to holders of Shares prior to the time a
holder's Shares are tendered pursuant to the Offer, certificates representing a
number of Rights equal to the number of Shares tendered must be delivered to the
Exchange Agent, or, if available, a Book-Entry Confirmation received by the
Exchange Agent with respect thereto, in order for such Shares to be validly
tendered. If the MCI Distribution Date occurs and separate certificates
representing the Rights are not distributed prior to the time Shares are
tendered pursuant to the Offer, Rights may be tendered prior to a stockholder
receiving the certificates for Rights by use of the guaranteed delivery
procedure described below. If Rights certificates are distributed but are
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not available to a stockholder prior to the time Shares are tendered pursuant to
the Offer, a tender of Shares constitutes an agreement by the tendering
stockholder to deliver to the Exchange Agent pursuant to the guaranteed delivery
procedure described below, prior to the expiration of the period to be specified
in the Notice of Guaranteed Delivery and the related Letter of Transmittal for
delivery of Rights certificates or a Book-Entry Confirmation for Rights (the
"Rights Delivery Period"), Rights certificates representing a number of Rights
equal to the number of Shares tendered. If Rights certificates are distributed,
WorldCom will distribute a separate letter of transmittal for such Rights
certificates. If Rights certificates are tendered separately from Shares, then a
properly completed letter of transmittal for Rights certificates (or manually
executed facsimile thereof) must be submitted with respect to such Rights.
WorldCom reserves the right to require that it receive such Rights certificates
(or a Book-Entry Confirmation with respect to such Rights) prior to accepting
Shares for exchange.
Nevertheless, WorldCom will be entitled to accept for exchange Shares
tendered by a stockholder prior to receipt of the Rights certificates required
to be tendered with such Shares or a Book-Entry Confirmation with respect to
such Rights and either (i) subject to complying with applicable rules and
regulations of the Commission, withhold payment for such Shares pending receipt
of the Rights certificates or a Book-Entry Confirmation for such Rights or (ii)
exchange Shares accepted for exchange pending receipt of the Rights certificates
or a Book-Entry Confirmation for such Rights in reliance upon the guaranteed
delivery procedure described below. In addition, after expiration of the Rights
Delivery Period, WorldCom may instead elect to reject as invalid a tender of
Shares with respect to which Rights certificates or a Book-Entry Confirmation
for an equal number of Rights have not been received by the Exchange Agent. Any
determination by WorldCom to make payment for Shares in reliance upon such
guaranteed delivery procedure or, after expiration of the Rights Delivery
Period, to reject a tender as invalid, shall be made, subject to applicable law,
in the sole and absolute discretion of WorldCom.
The Exchange Agent will establish accounts with respect to the Shares at the
Book-Entry Transfer Facilities for purposes of the Offer within two business
days after the date of this Prospectus, and any financial institution that is a
participant in any of the Book-Entry Transfer Facilities' systems may make
book-entry delivery of the Shares by causing such Book-Entry Transfer Facility
to transfer such Shares into the Exchange Agent's account in accordance with
such Book-Entry Transfer Facility's procedure for such transfer. However,
although delivery of Shares may be effected through book-entry at the Book-Entry
Transfer Facilities, the Letter of Transmittal (or facsimile thereof), with any
required signature guarantees, or an Agent's Message in connection with a
book-entry transfer, and any other required documents, must, in any case, be
transmitted to and received by the Exchange Agent at one or more of its
addresses set forth on the back cover of this Prospectus prior to the Expiration
Date, or the guaranteed delivery procedure described below must be complied
with. No assurance can be given, however, that book-entry delivery of Rights
will be available. If book-entry delivery is not available, a tending
stockholder will be required to tender rights by means of delivery of Rights
certificates or pursuant to the guaranteed delivery procedure set forth below.
No signature guarantee is required on the Letter of Transmittal in cases
where (a) the Letter of Transmittal is signed by the registered holder(s) of the
Shares (including any participant in one of the Book-Entry Transfer Facilities
whose name appears on a security position listing as the owner of Shares)
tendered therewith and such holder(s) have not completed the instruction
entitled "Special Issuance Instructions" on the Letter of Transmittal or (b)
such Shares are tendered for the account of an Eligible Institution. Otherwise,
all signatures on the Letter of Transmittal must be guaranteed by an Eligible
Institution. If the certificates for Shares or Rights (if any) are registered in
the name of a person other than the signer of the Letter of Transmittal, or if
certificates for unexchanged Shares or Rights (if any) are to be issued to a
person other than the registered holder(s), the certificates must be endorsed or
accompanied by appropriate stock powers, in either case signed exactly as the
name or names of the registered owner or owners appear on the certificates, with
the signature(s) on the certificates or stock powers guaranteed as aforesaid.
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THE METHOD OF DELIVERY OF SHARE CERTIFICATES AND ALL OTHER REQUIRED
DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT
THE OPTION AND RISK OF THE TENDERING STOCKHOLDER, AND THE DELIVERY WILL BE
DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF DELIVERY IS BY
MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY
DELIVERY.
TO PREVENT BACKUP FEDERAL INCOME TAX WITHHOLDING WITH RESPECT TO CASH
RECEIVED IN LIEU OF FRACTIONAL SHARES OF WORLDCOM COMMON STOCK, A STOCKHOLDER
MUST PROVIDE THE EXCHANGE AGENT WITH HIS OR HER CORRECT TAXPAYER IDENTIFICATION
NUMBER AND CERTIFY WHETHER SUCH STOCKHOLDER IS SUBJECT TO BACKUP WITHHOLDING OF
FEDERAL INCOME TAX BY COMPLETING THE SUBSTITUTE FORM W-9 INCLUDED IN THE LETTER
OF TRANSMITTAL. CERTAIN STOCKHOLDERS (INCLUDING, AMONG OTHERS, ALL CORPORATIONS
AND CERTAIN FOREIGN INDIVIDUALS) ARE NOT SUBJECT TO THESE BACKUP WITHHOLDING AND
REPORTING REQUIREMENTS. IN ORDER FOR A FOREIGN INDIVIDUAL TO QUALIFY AS AN
EXEMPT RECIPIENT, THE STOCKHOLDER MUST SUBMIT A FORM W-8, SIGNED UNDER PENALTIES
OF PERJURY, ATTESTING TO THAT INDIVIDUAL'S EXEMPT STATUS.
If a stockholder desires to tender Shares pursuant to the Offer and such
stockholder's certificates are not immediately available or such stockholder
cannot deliver the certificates and all other required documents to the Exchange
Agent prior to the Expiration Date or such stockholder cannot complete the
procedure for book-entry transfer on a timely basis, such Shares may
nevertheless be tendered, provided that all of the following conditions are
satisfied:
(a) such tenders are made by or through an Eligible Institution;
(b) a properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form made available by WorldCom, is received by the
Exchange Agent as provided below on or prior to the Expiration Date; and
(c) the certificates for all tendered Shares (or a confirmation of a
book-entry transfer of such securities into the Exchange Agent's account at a
Book-Entry Transfer Facility as described above), in proper form for transfer,
together with a properly completed and duly executed Letter of Transmittal (or
facsimile thereof), with any required signature guarantees (or, in the case of a
book-entry transfer, an Agent's Message) and all other documents required by the
Letter of Transmittal are received by the Exchange Agent within three trading
days after the date of execution of such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted by
facsimile transmission or mail to the Exchange Agent and must include a
guarantee by an Eligible Institution in the form set forth in such Notice.
In all cases, exchanges of Shares tendered and accepted for exchange
pursuant to the Offer will be made only after timely receipt by the Exchange
Agent of certificates for Shares (or timely confirmation of a book-entry
transfer of such securities into the Exchange Agent's account at a Book-Entry
Transfer Facility as described above), properly completed and duly executed
Letter(s) of Transmittal (or facsimile(s) thereof), or an Agent's Message in
connection with a book-entry transfer, and any other required documents.
Accordingly, tendering MCI stockholders may receive shares of WorldCom Common
Stock at different times depending upon when certificates for Shares or
confirmations of book-entry transfers of such Shares are actually received by
the Exchange Agent.
By executing a Letter of Transmittal as set forth above, the tendering
stockholder irrevocably appoints designees of WorldCom as such stockholder's
attorneys-in-fact and proxies, each with full power of substitution, to the full
extent of such stockholder's rights with respect to the Shares tendered by such
stockholder and accepted for exchange by WorldCom and with respect to any and
all other Shares and other securities issued or issuable in respect of the
Shares on or after , 1997. Such appointment is effective, and voting
rights will be affected, when and only to the extent that WorldCom
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deposits the shares of WorldCom Common Stock for Shares tendered by such
stockholder with the Exchange Agent. All such proxies shall be considered
coupled with an interest in the tendered Shares and therefore shall not be
revocable. Upon the effectiveness of such appointment, all prior proxies given
by such stockholder will be revoked, and no subsequent proxies may be given
(and, if given, will not be deemed effective). WorldCom's designees will, with
respect to the Shares for which the appointment is effective, be empowered,
among other things, to exercise all voting and other rights of such stockholder
as they, in their sole discretion, deem proper at any annual, special or
adjourned meeting of MCI stockholders, by written consent in lieu of any such
meeting or otherwise. WorldCom reserves the right to require that, in order for
Shares to be deemed validly tendered, immediately upon WorldCom's exchange of
such Shares, WorldCom must be able to exercise full voting rights with respect
to such Shares.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Shares will be determined
by WorldCom, in its sole discretion, which determination shall be final and
binding. WorldCom reserves the absolute right to reject any and all tenders of
Shares determined by it not to be in proper form or the acceptance of or
exchange for which may, in the opinion of WorldCom's counsel, be unlawful.
WorldCom also reserves the absolute right to waive any of the conditions of the
Offer (other than the WorldCom Shareholder Approval Condition, the Voting Trust
Condition, the Antitrust Condition and the condition relating to the
effectiveness of the Registration Statement), or any defect or irregularity in
the tender of any Shares. No tender of Shares will be deemed to have been
validly made until all defects and irregularities in tenders of Shares have been
cured or waived. Neither WorldCom, the Exchange Agent, the Information Agent,
the Dealer Manager nor any other person will be under any duty to give
notification of any defects or irregularities in the tender of any Shares or
will incur any liability for failure to give any such notification. WorldCom's
interpretation of the terms and conditions of the Offer (including the Letter of
Transmittal and instructions thereto) will be final and binding.
The tender of Shares and Rights (if any) pursuant to any of the procedures
described above will constitute a binding agreement between the tendering MCI
stockholder and WorldCom upon the terms and subject to the conditions of the
Offer.
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CONDITIONS OF THE OFFER
Notwithstanding any other provision of the Offer, or any extensions thereof,
and subject to any applicable rules and regulations of the Commission, including
Rule 14e-1(c) under the Exchange Act (relating to WorldCom's obligation to pay
for or return tendered Shares promptly after the termination or withdrawal of
the Offer), WorldCom shall not be required to accept for exchange or exchange
any Shares, may postpone the acceptance for exchange of or exchange for tendered
Shares, and may, in its sole discretion, terminate, extend or amend the Offer as
to any Shares not then exchanged for tender if, at the Expiration Date, any of
the following conditions (the "Offer Conditions") have not been satisfied or
waived, prior to or concurrently with the consummation of the Offer:
MINIMUM TENDER CONDITION
The Offer is conditioned upon, among other things, there being validly
tendered and not withdrawn prior to the Expiration Date a number of Shares which
will constitute at least a majority of the total number of outstanding Shares on
a fully diluted basis (i.e., as though all options or other securities
convertible into or exercisable or exchangeable for Shares (including the Class
A Common Stock), other than the Rights, had been so converted, exercised or
exchanged) as of the date the Shares are accepted for exchange by WorldCom
pursuant to the Offer. Based upon MCI's Current Report on Form 8-K dated August
26, 1997, as of August 19, 1997, there were 558,420,209 shares of MCI Common
Stock outstanding and 135,998,932 shares of Class A Common Stock outstanding,
80,543,486 shares of MCI Common Stock reserved for issuance pursuant to MCI
stock option plans and 5,570,012 shares of MCI Common Stock reserved for
issuance under incentive stock units. Based on the foregoing, and assuming no
options, warrants, rights or other securities convertible into or exercisable or
exchangeable for Shares were issued or granted after August 19, 1997, WorldCom
believes that the Minimum Tender Condition would be satisfied if at least an
aggregate of 390,265,718 Shares are validly tendered pursuant to the Offer and
not withdrawn. WorldCom reserves the right (but shall not be obligated), subject
to the rules and regulations of the Commission, to waive or amend the Minimum
Tender Condition and to purchase fewer than such number of Shares as would
satisfy the Minimum Tender Condition pursuant to the Offer. In the event of such
waiver or amendment, the Offer shall expire no sooner than ten business days
after announcement thereof.
WORLDCOM SHAREHOLDER APPROVAL CONDITION
The Offer is conditioned upon, among other things, approval of the issuance
of shares of WorldCom Common Stock pursuant to the Offer and the Merger by the
vote of the holders of shares of WorldCom capital stock representing a majority
of the total votes cast on such proposal, voting as a single class, at a meeting
of such holders. According to the rules of The Nasdaq National Market,
shareholder approval is required in connection with the acquisition of the stock
of another company if the present or potential issuance of common stock, or
securities convertible into or exercisable for common stock, other than a public
offering for cash, has or will have upon issuance voting power equal to or in
excess of 20% of the voting power outstanding before the issuance of stock or
securities convertible into or exercisable for common stock, or the number of
shares of common stock to be issued is or will be equal to or in excess of 20%
of the number of shares or common stock outstanding before the issuance of the
stock or securities.
BT/MCI MERGER AGREEMENT CONDITION
The Offer is conditioned upon, among other things, the stockholders of MCI
having disapproved the BT/MCI Merger Agreement (as amended) at the special
meeting of stockholders of MCI to be called to consider the Revised BT
Acquisition Proposal.
RIGHTS PLAN CONDITION
The Offer is conditioned upon, among other things, WorldCom being satisfied
in its sole discretion that the Rights are invalid or are not applicable to the
acquisition of the Shares pursuant to the Offer and
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the Merger. In order to satisfy the Rights Plan Condition, WorldCom has
requested that MCI amend the Rights Agreement to make the Rights inapplicable to
the Offer and the Merger. WorldCom believes that, given that the BT/MCI Merger
Agreement constitutes a sale of control of MCI, it would constitute a breach of
the fiduciary duties of the MCI Board for the MCI Board to fail to do so and
thereby fail to obtain the highest possible price. In addition, WorldCom has
commenced litigation in the Delaware Court of Chancery seeking, among other
things, preliminary and permanent injunctive relief requiring MCI and its
directors to amend the Rights Agreement to make the Rights inapplicable to the
Offer.
Set forth below is certain additional information concerning the Rights:
On September 7, 1994, the Board of Directors of MCI declared a dividend of
one Right for each outstanding share of MCI Common Stock and Class A Common
Stock. The terms of the Rights are set forth in the MCI Rights Agreement. The
following description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the MCI Rights Agreement. Each Right
entitles the registered holder to purchase from MCI one one-hundredth of a share
of Series E Junior Participating Preferred Stock, par value $.10 per share (the
"Preferred Shares"), of MCI at a price of $100 per one one-hundredth of a
Preferred Share (the "Purchase Price"), subject to adjustments.
Until the MCI Distribution Date, the Rights will be evidenced, with respect
to any of the Share certificates outstanding as of the Record Date, by such
Share certificate. The Rights are not exercisable until the MCI Distribution
Date. The Rights will expire on September 30, 2004, unless such date is extended
or unless the Rights are earlier redeemed or exchanged by MCI.
In the event that any person or group of affiliated or associated persons
becomes an MCI Acquiring Person, each holder of a Right, other than Rights
beneficially owned by the MCI Acquiring Person (which will thereafter be void),
will thereafter have the right to receive upon exercise of the Right, at the
then current exercise price of the Right, that number of Shares having a market
value of two times the exercise price of the Right.
In the event that, after a person or group has become an MCI Acquiring
Person, MCI is acquired in a merger or other business combination transaction or
50% or more of its consolidated assets or earning power is sold, each holder of
a Right (other than Rights beneficially owned by an MCI Acquiring Person, which
will have become void) will thereafter have the right to receive, upon the
exercise thereof, at the then current exercise price of the Right, that number
of shares of common stock of the person with whom MCI has engaged in the
foregoing transaction which number of shares at the time of such transaction
will have a market value of two times the exercise price of the Right.
At any time prior to the time an MCI Acquiring Person become such, the Board
of Directors of MCI may redeem the Rights in whole, but not in part, at a price
of $.01 per Right (for purposes of this discussion, the "Redemption Price"). The
redemption of the Rights may be made effective at such time, on such basis and
with such conditions as the Board of Directors in its sole discretion may
establish. Immediately upon any redemption of the Rights, the right to exercise
the Rights will terminate and the only right of the holders of Rights will be to
receive the Redemption Price.
For so long as Rights are then redeemable, MCI may, except with respect to
the redemption price, amend the Rights in any manner. After the Rights are no
longer redeemable, MCI may amend the Rights in any manner that does not
adversely affect the interests of holders of the Rights.
VOTING TRUST CONDITION
The Offer is conditioned on, among other things, the receipt of approval
from the FCC to the Step I Transfer in accordance with the FCC's Policy
Statement.
The approval of the FCC, as well as other regulatory approvals, is required
prior to the transfer of control of MCI to WorldCom. In order to permit the
Offer to be consummated promptly without the delay that might otherwise be
occasioned by these approval requirements, WorldCom has established a Voting
Trust to hold the Shares to be acquired by WorldCom pursuant to the Offer. The
Voting Trust has been
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established pursuant to existing FCC procedures which, upon receipt of the Step
I Transfer approval, would permit the Offer to be consummated prior to the FCC's
approval of the transfer of control of MCI to WorldCom. Pursuant to the Voting
Trust Agreement, a Voting Trustee will hold the Shares acquired pursuant to the
Offer until such time as the FCC has granted approval of the transfer of control
of MCI to WorldCom, at which time the Voting Trustee will transfer the Shares to
WorldCom (the "Step II Transfer") or vote the Shares in favor of the Merger.
VOTING TRUST APPROVALS. The Step I Transfer of Shares to the Voting Trustee
is subject to the approval of the FCC. Consistent with the Policy Statement,
WorldCom is seeking Step I Transfer authority from the FCC for the Voting
Trustee to hold a majority of the Shares and has asked that such authority be
granted on an expedited basis pursuant to Special Temporary Authority ("STA").
The Policy Statement permits expedited action with respect to such a Step I
Transfer in the case of a tender offer upon an FCC determination that the
proposed Voting Trustee is qualified, that the Voting Trustee is independent and
effectively insulated from the proposed acquiring company and its owners and
managers, and that the Voting Trust generally comports with FCC requirements.
Upon grant of approval of the Step I Transfer by the FCC, the Offer may be
consummated. See "Regulatory Filings and Approvals."
Although WorldCom has no reason to believe that the FCC would not either
timely grant the STA application to permit expedited consideration or approve
the Step I Transfer, there can be no assurance in this regard. The Step I
Transfer will be subject to public comment, including the filing of oppositions
and objections. WorldCom has structured the Voting Trust Condition in this way
in an effort to comport with the FCC's prior practice with respect to tender
offers for control of radio licensees. There can be no assurance that the FCC
will approve this arrangement as currently structured or that an FCC decision to
approve it would not be challenged in a court appeal.
VOTING TRUST AGREEMENT. In the Voting Trust Agreement, the Voting Trustee
agrees to act as an independent trustee in respect of the Voting Trust. The
Voting Trust Agreement provides that the Voting Trustee will receive reasonable
compensation and customary indemnification from WorldCom and may hire at
WorldCom's expense such independent legal advisors as the Voting Trustee may
deem necessary in the exercise of his reasonable discretion, provided that such
legal advisors shall have no business, financial, familial or other relationship
with WorldCom. Moreover, the Voting Trust Agreement is subject to such
modification as may be required by the FCC or other regulatory agency of
competent jurisdiction. Except as so required, the Voting Trust Agreement may
not be modified or amended without the prior written consent of the Voting
Trustee.
In his capacity as Trustee, the Voting Trustee will, among other things,
vote all the Shares accepted by WorldCom pursuant to the Offer (the "Trust
Stock") in favor of any proposal necessary to effectuate the Offer and the
Merger, and, during the term of the Voting Trust Agreement, against any other
proposed stock exchange, merger, business combination or similar transaction
inconsistent with the Offer. On other matters, the Voting Trustee will vote the
Trust Stock in any manner necessary to elect or appoint himself or his nominees
as members of the Board of Directors of MCI except that the aggregate of all
directors so elected or appointed shall not constitute a majority of the Board
of Directors of MCI (unless and until the appropriate FCC Step II Transfer
approvals have been obtained). The Voting Trustee will vote the Trust Stock in
any manner necessary to replace any director of MCI who resigns, or to remove
and replace any officer or director of MCI opposing, impeding or impairing
effectuation of the Offer, or wasting corporate assets or otherwise acting in a
manner inconsistent with such director's fiduciary responsibilities. In all
other respects, the Voting Trustee will vote the Trust Stock to maintain the
present management and operations of MCI. Pending the termination of the Voting
Trust, the Voting Trustee will pay over to WorldCom all dividends or other
distributions (other than voting securities of MCI), if any, collected or
received by the Voting Trustee with respect to the Trust Stock.
In accordance with FCC requirements, the Voting Trust Agreement provides
that the Voting Trustee shall generally act in the role of a caretaker and shall
be independent of WorldCom. The Voting Trustee may from time to time provide
written reports to WorldCom concerning the implementation of the Offer
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and the management and operations of MCI. WorldCom may not communicate with the
Voting Trustee regarding the operation or management of MCI. WorldCom may,
however, communicate with the Voting Trustee concerning the transfer of the
Trust Stock or other information on the mechanics of implementing the Offer. All
communications between the Voting Trustee and WorldCom must be in writing.
WorldCom is seeking approval of the transactions contemplated by the Offer
by filing such applications and notifications as may be required by the FCC and
state PUCs. Pursuant to the Voting Trust Agreement, the Voting Trustee is to
make or cause to be made such additional regulatory filings and take such
actions related thereto as may be required by the FCC and state PUCs with
respect to the performance by the Voting Trustee of its duties under the Voting
Trust Agreement and the prosecution and consummation of the Offer and the
Merger.
The Voting Trust Agreement also provides that (1) at such time as the FCC
has granted the Step II Transfer approval and such authority has become
effective and the Voting Trustee receives a written certification from WorldCom
that all other regulatory approvals which, if not obtained in connection with
the Offer and the Merger, would have a material adverse effect on WorldCom's
business, operations, assets, liabilities, financial condition or results of
operations, have been obtained or (2) there has been a determination by the
Voting Trustee that such delivery and transfer will not violate the
Communications Act of 1934, as amended, or the rules and regulations of the FCC
or the state PUCs, then the Voting Trustee will either transfer the Trust Stock
to WorldCom or vote the Trust Stock in such a manner to effectuate the Offer and
the Merger as described above.
At the direction of WorldCom, the Voting Trustee shall grant a security
interest to secure loans made by one or more financial institutions to WorldCom,
to the extent the proceeds of such loans are used in connection with the
acquisition of the Trust Stock, by delivery of the Voting Trust Certificates
representing such Trust Stock to such financial institution(s). The Voting
Trustee may execute a hypothecation agreement with respect to such Trust Stock
provided that voting rights for any pledged stock remain with the Voting
Trustee, even in the event of a default by WorldCom on the loans the pledged
stock secures. WorldCom currently anticipates that there will not be any such
loans or hypothecation agreements in connection with the consummation of the
Offer.
Under the Voting Trust Agreement, if (i) an order is issued which is no
longer subject to judicial or administrative review denying the Step II Transfer
Approval, or (ii) WorldCom notifies the Voting Trustee in writing during the
pendency of the regulatory approval process that it desires to sell the Trust
Stock, and the Voting Trustee fails to disapprove such decision to sell, or
(iii) WorldCom notifies the Voting Trustee in writing that it has withdrawn its
applications for regulatory approvals, or (iv) any other circumstances occur
under which the Voting Trustee is required by law to sell the Shares, then the
Voting Trustee, acting for the benefit of WorldCom, shall sell the Trust Stock
as soon as practicable to one or more third parties in such manner as will
maximize the proceeds to WorldCom. All such sales shall be conducted in
compliance with applicable law. The proceeds of the sale will be distributed to
WorldCom, after paying (or reserving for payment thereof) any expenses incurred
under the Voting Trust Agreement. In the event of any such sale of the Trust
Stock by the Voting Trustee, there can be no assurance that such sale would not
have a material adverse effect on WorldCom or the value of the WorldCom Common
Stock.
ANTITRUST CONDITION
The Offer is conditioned on, among other things, the expiration or
termination of any waiting period under the HSR Act applicable to the
acquisition of Shares pursuant to the Offer and the Merger and the receipt of
all requisite foreign antitrust approvals.
Under the HSR Act and the rules that have been promulgated thereunder by the
Federal Trade Commission ("FTC"), certain acquisition transactions may not be
consummated unless certain information has been furnished to the DOJ and the FTC
and certain waiting period requirements have been satisfied. The acquisition of
Shares pursuant to the Offer is subject to the HSR Act.
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WorldCom has filed with the DOJ and the FTC a Hart-Scott-Rodino Notification
and Report Form (the "Notification Form") with respect to the Offer. Under the
applicable provisions of the HSR Act, the purchase of Shares under the Offer
could not be consummated until the expiration of a 30-day waiting period
following the filing of the Notification Form by WorldCom, which will occur on
October 31, 1997, at 11:59 p.m., unless WorldCom receives a request for
additional information or documentary material or the DOJ and the FTC terminate
the waiting period thereto. If, within such 30-day waiting period, either the
DOJ or the FTC requests additional information or material from WorldCom and/or
MCI concerning the Offer, the waiting period will be extended for an additional
20 days after WorldCom has substantially complied with such request. Only one
extension of the waiting period pursuant to a request for additional information
is authorized by the HSR Act. Thereafter, the waiting period may be extended
only by court order or with the consent of WorldCom.
WorldCom will not accept for exchange Shares tendered pursuant to the Offer
unless and until the waiting period requirements imposed by the HSR Act with
respect to the Offer have been satisfied.
Certain foreign countries where WorldCom and/or MCI do business have
antitrust laws that are comparable to the HSR Act. WorldCom intends to make such
filings and notifications under foreign antitrust laws as may be required
(including, if applicable, a filing with the European Commission).
Antitrust enforcement agencies frequently scrutinize under the antitrust
laws transactions such as WorldCom's acquisition of Shares pursuant to the
Offer. At any time before or after WorldCom's acquisition of Shares, any such
agency could take such action under the antitrust laws as it deems necessary or
desirable in the public interest, including seeking to enjoin the acquisition of
Shares pursuant to the Offer or otherwise or seeking divestiture of Shares
acquired by WorldCom or divestiture of substantial assets of WorldCom and/or
MCI. Private parties may also bring legal action under the antitrust laws under
certain circumstances.
Based upon an examination of publicly available information relating to the
businesses in which both WorldCom and MCI are engaged, WorldCom believes that
the Offer will not violate the antitrust laws. Nevertheless, there can be no
assurance that a challenge to the Offer on antitrust grounds will not be made or
that, if such a challenge is made, WorldCom will prevail.
CERTAIN OTHER CONDITIONS OF THE OFFER
Notwithstanding any other provision of the Offer and subject to any
applicable rules and regulations of the Commission, including Rule 14e-1(c)
under the Exchange Act (relating to WorldCom's obligation to pay for or return
tendered Shares promptly after the termination or withdrawal of the Offer),
WorldCom shall not be required to accept for exchange or exchange any Shares,
may postpone the acceptance for exchange of or exchange for tendered Shares, and
may, in its sole discretion, terminate, extend or amend the Offer as to any
Shares not then exchanged for tender if, at the Expiration Date, any of the
Offer Conditions have not been satisfied or waived or if, on or after the date
of this Prospectus and at or prior to the time of exchange of any such Shares
(whether or not any Shares have theretofore been accepted for exchange or
exchanged pursuant to the Offer), any of the following events shall not have
occurred:
(a) The shares of WorldCom Common Stock which shall be issued to the MCI
stockholders in the Offer and the Merger shall have been authorized for
inclusion on The Nasdaq National Market, subject to official notice of issuance.
(b) The Registration Statement shall have become effective under the
Securities Act, and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been initiated or threatened by the Commission.
(c) No order, injunction or decree issued by any court or agency of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Offer and/or the Merger or any of the other transactions
contemplated by this Prospectus shall be in effect.
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(d) Each of the representations and warranties of MCI set forth in the
BT/MCI Merger Agreement that is qualified as to materiality shall have been true
and correct on the date of Amendment Agreement No. 2 to that Agreement and
shall, to the best knowledge of MCI after due inquiry, be true and correct on
and as of the Expiration Date as if made on and as of the Expiration Date (other
than (i) representations and warranties which address matters only as of a
certain date, which shall be true and correct as of such certain date, (ii)
representations and warranties set forth in Section 3.1(j)(i) of the BT/MCI
Merger Agreement, which shall not be untrue or incorrect as of the date of
Amendment Agreement No. 2 as a result of any knowing and intentional or willful
omission from, or misstatement in, the MCI Disclosure Schedule to the BT/MCI
Merger Agreement (the "MCI Disclosure Schedule") by MCI and (iii) the MCI
Limited Representations, which shall be true and correct as of the date of
Amendment Agreement No. 2), 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 Amendment Agreement No. 2 and shall, to the best
knowledge of MCI after due inquiry, be true and correct in all material respects
on and as of the Expiration Date as if made on and as of the Expiration Date
(other than (i) representations and warranties which address matters only as of
a certain date, which shall be true and correct in all material respects as of
such certain date, (ii) representations and warranties set forth in Section
3.1(j)(i) of the BT/MCI Merger Agreement, which shall not be untrue or incorrect
in any material respect as of the date of Amendment Agreement No. 2 as a result
of any knowing and intentional or willful omission from, or misstatement in, the
MCI Disclosure Schedule by MCI and (iii) the MCI Limited Representations, which
shall be true and correct in all material respects as of the date of Amendment
Agreement No. 2). For purposes of this condition, "MCI Limited Representations"
means the representations and warranties contained in Section 3.1(d)(ii),
Section 3.1(f) (other than the last sentence of Section 3.1(f)), Section 3.1(g),
Sections 3.1(h)(iv) and (v), the last sentence of Section 3.1(n)(i), Sections
3.1(o)(iii) and (iv) (other than the representations and warranties set forth in
the first sentence of Section 3.1(o)(iv) confirming that MCI has made available
to BT certain collective bargaining and other union contracts) and Section
3.1(r) of the BT/MCI Merger Agreement.
(e) WorldCom shall have received the opinion of Bryan Cave LLP, special
counsel to WorldCom, confirming that the description of the federal income tax
consequences to holders of the Shares contained under the caption "Certain
Federal Income Tax Consequences" is accurate and complete in all material
respects.
The foregoing Offer Conditions are for the sole benefit of WorldCom and may
be asserted by WorldCom regardless of the circumstances giving rise to any such
conditions (including any action or inaction by WorldCom) or may be waived by
WorldCom in whole or in part. The determination as to whether any condition has
been satisfied shall be in the sole judgment of WorldCom and WorldCom's
determination shall be conclusive and binding. The failure by WorldCom at any
time to exercise any of the foregoing rights shall not be deemed a waiver of any
such right and each such right shall be deemed a continuing right which may be
asserted at any time and from time to time. Notwithstanding the fact that
WorldCom reserves the right to assert the failure of a condition following
acceptance for payment but prior to payment in order to delay payment or cancel
its obligation to exchange properly tendered Shares, WorldCom will either
promptly exchange such Shares or promptly return such Shares.
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PURPOSE OF THE OFFER; THE MERGER
The purpose of the Offer is for WorldCom to obtain control of, and
ultimately the entire common equity interest in, MCI. WorldCom will, as soon as
practicable after consummation of the Offer, consummate the Merger. The Offer,
as the first step in the acquisition of MCI, is intended to facilitate the
acquisition of all Shares. Assuming the conditions to the Offer are satisfied or
waived and WorldCom consummates the Offer, WorldCom could consummate the Merger
without any additional vote of the holders of WorldCom Common Stock or any vote
of MCI stockholders. Pursuant to the Restated Certificate of Incorporation of
MCI, the consent of the holders of a majority of the shares of the Class A
Common Stock is required for any "Business Combination" involving MCI (which, as
defined, would include the Merger but would not include the exchange of shares
pursuant to the Offer) to be effected prior to October 1998. As of the date
hereof, WorldCom believes that all of the Class A Common Stock is held by BT.
Accordingly, the consent of BT would be required in order to effect the Merger
prior to October 1998. It is WorldCom's current intention to consummate the
Offer as soon as the conditions to the Offer are satisfied and to consummate the
Merger in October 1998, or earlier if the consent of BT is obtained.
Holders of Shares do not have appraisal rights as a result of the Offer.
However, in the event the Merger is consummated, and if, on the date fixed to
determine stockholders entitled to vote on the Merger, the MCI Common Stock is
no longer listed on a national securities exchange or designated as a National
Market System security on an interdealer quotation system by the NASD and not
held of record by more than 2,000 holders, or if the Merger is effected pursuant
to a "short-form merger", holders of MCI Common Stock also will have appraisal
rights under Section 262 of the DGCL. Additionally, in the event the Merger is
consummated, under current Delaware law holders of Class A Common Stock will
have appraisal rights pursuant to the provisions of Section 262 of the DGCL
because the Class A Common Stock does not meet the public trading requirements
described in the preceding sentence. Under Section 262, dissenting stockholders
who comply with the applicable statutory procedures will be entitled to receive
a judicial determination of the fair value of their Shares (exclusive of any
element of value arising from the accomplishment or expectation of the Merger)
and to receive payment of such fair value in cash, together with a fair rate of
interest, if any. Any such judicial determination of the fair value of Shares
could be based upon factors other than, or in addition to, the price per Share
to be paid in the Merger or the market value of the Shares. The value so
determined could be more or less than the price per Share to be paid in the
Merger.
Rule 13e-3 of the General Rules and Regulations under the Exchange Act,
which WorldCom does not believe would be applicable to the Merger if the Merger
occurred within one year of consummation of the Offer, would require, among
other things, that certain financial information concerning MCI, and certain
information relating to the fairness of the proposed transaction and the
consideration offered to MCI stockholders therein, be filed with the Commission
and disclosed to MCI stockholders prior to consummation of the Merger.
WorldCom reserves the right to acquire, following the consummation or
termination of the Offer, additional Shares through open-market purchases,
privately negotiated transactions, a tender offer or exchange offer, or
otherwise, upon such terms and at such prices as it shall determine, which may
be more or less favorable than those of the Offer. WorldCom and its affiliates
also reserve the right to dispose of any or all Shares acquired by them pursuant
to the Offer or otherwise, upon such terms and at such prices as they shall
determine.
In connection with the Offer, WorldCom has reviewed, and will continue to
review, on the basis of available information, various possible business
strategies that it might consider in the event that it acquires all or
substantially all of the common equity interest in MCI. Upon the completion of
the Offer, WorldCom intends to elect nominees of its choice to the MCI Board if
it has not already done so.
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WorldCom also intends to conduct a detailed review of MCI and its assets,
corporate structure, capitalization, operations, properties, policies,
management and personnel and consider which changes, if any, would be desirable
in light of the circumstances which then exist. Such strategies could include,
among other things, changes in MCI's business, corporate structure, certificate
of incorporation, bylaws, capitalization, the MCI board of directors or
management, and consideration of disposition of certain assets or lines of
business of MCI. See "Background of the Offer--Comparison of the Proposals."
Except as noted herein, WorldCom does not have any current plans or
proposals that would result in an extraordinary corporate transaction, such as a
merger, reorganization or liquidation, or sale or transfer of a material amount
of assets, involving MCI or any of its subsidiaries, or any material changes in
MCI's corporate structure or business or any change in its management. However,
because WorldCom has not had access to MCI's books and records, one or more such
transactions or changes may be considered after a full review of MCI's
operations is completed.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Bryan Cave LLP, special counsel to WorldCom, the exchange
of Shares for WorldCom Common Stock pursuant to the Offer and the Merger should
be treated for federal income tax purposes as an exchange pursuant to a plan of
reorganization within the meaning of Section 368(a) of the Code. Consequently,
no gain or loss should be recognized by holders of Shares upon such exchange,
except as described below under "Tax Consequences to Holders of Shares if the
Offer and the Merger Qualify as a Reorganization." This opinion is based on
Bryan Cave LLP's view that the Offer and the Merger should be treated as a
single transaction and on certain assumptions, including that (a) the continuity
of shareholder interest requirement applicable to corporate reorganizations
(which requires a continuing equity interest in WorldCom by holders owning a
significant percentage of the Shares prior to the consummation of the Offer)
will be satisfied, taking into account holders that exercise dissenters' rights,
if any, (b) WorldCom (either directly or through a wholly-owned subsidiary) will
continue MCI's historic business or will use a significant portion of MCI's
historic business assets in a business, (c) since the Merger will be with a
wholly-owned subsidiary of WorldCom, MCI, as the survivor, will continue to hold
substantially all of its assets and WorldCom will have no plan to liquidate or
merge MCI into any other entity, to dispose of its stock or to cause it to make
distributions that would result in it ceasing to hold substantially all of its
assets, and (d) the Offer and the Merger will generally be consummated as
contemplated by this Prospectus.
In rendering such opinion, Bryan Cave LLP has further assumed that the
Merger will in fact be consummated no later than promptly after the September
30, 1998 expiration of the requirement for BT's approval under the MCI Restated
Certificate of Incorporation. A significant delay in the consummation of the
Merger would substantially increase the risk that the Offer will not qualify as
part of a reorganization within the meaning of Section 368(a) of the Code, and
if the Merger does not occur the Offer will not be part of a reorganization. See
"Cautionary Statement Regarding Forward-Looking Statements." The consequences of
a failure to so qualify are discussed below under "--Tax Consequences to Holders
of Shares if the Offer Does Not Qualify as Part of a Reorganization."
In deciding whether two steps are part of a single transaction qualifying as
a reorganization, some courts have applied the so-called "binding commitment"
test. Under that test, two steps will be integrated only if, at the time that
the first step is consummated, there is a binding commitment to consummate the
second step. If the "binding commitment" test were applied to the Offer and the
Merger and MCI has not at the time the Offer is consummated entered into an
agreement with WorldCom requiring WorldCom to effect the Merger, the Offer and
the Merger would not be treated as a single transaction, and the Offer would not
qualify as part of a reorganization. Although the matter is not free from doubt,
Bryan Cave LLP does not believe that the "binding commitment" test should be
applied to determine whether the Offer and the Merger should be treated as a
single transaction.
Assuming that the Merger qualifies as a reorganization under the Code, no
gain or loss will be recognized by WorldCom or MCI as a result of the Offer and
the Merger.
This summary does not address any tax consequences of the Offer or the
Merger to U.S. Holders (defined below) who exercise dissenters' rights, if any.
It may not apply to certain classes of taxpayers, including, without limitation,
insurance companies, tax-exempt organizations, financial institutions, dealers
in securities, foreign persons, persons who acquired Shares pursuant to an
exercise of employee stock options or rights or otherwise as compensation and
persons who hold Shares as part of a straddle or conversion transaction. In
addition, this summary does not address state, local or foreign tax consequences
of the Offer or the Merger. Consequently, each holder should consult such
holder's own tax advisor as to the specific tax consequences of the Offer and
the Merger to such holder.
This summary is based on current law and the opinion of Bryan Cave LLP.
Future legislative, judicial or administrative changes or interpretations, which
may be retroactive, could alter or modify the statements set forth herein. The
opinion of Bryan Cave LLP described in this summary is based, among other
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things, on assumptions relating to certain facts and circumstances of, and the
intentions of the parties to, the Offer and the Merger, which assumptions have
been made with the consent of WorldCom. WorldCom will not request any ruling
from the Internal Revenue Service as to the United States federal income tax
consequences of the Offer or the Merger. An opinion of counsel is not binding on
the Internal Revenue Service and the Internal Revenue Service is not precluded
from taking contrary positions.
TAX CONSEQUENCES TO HOLDERS OF SHARES IF THE OFFER AND THE MERGER QUALIFY AS A
REORGANIZATION
If the Offer and the Merger together qualify as a reorganization within the
meaning of Section 368(a) of the Code, the material federal income tax
consequences to holders who are (a) citizens or residents of the United States,
(b) domestic corporations or (c) otherwise subject to United States federal
income tax on a net income basis in respect of the Shares ("U.S. Holders") who
hold Shares as capital assets and who exchange such Shares pursuant to the Offer
or the Merger, or both, will be as follows:
(i) No gain or loss will be recognized by a U.S. Holder on the exchange of
Shares for WorldCom Common Stock, except as described below with respect to cash
received by a U.S. Holder in lieu of a fractional share of WorldCom Common
Stock.
(ii) The aggregate adjusted tax basis of shares of WorldCom Common Stock
received by a U.S. Holder (including any fractional share of WorldCom Common
Stock deemed received and redeemed as described below) will be the same as the
aggregate adjusted tax basis of the Shares exchanged therefor.
(iii) The holding period of shares of WorldCom Common Stock (including the
holding period of any fractional share of WorldCom Common Stock) received by a
U.S. Holder will include the holding period of the Shares exchanged therefor.
(iv) A U.S. Holder of Shares who receives cash in lieu of a fractional share
of WorldCom Common Stock will be treated as having received such fractional
share and then as having received such cash in redemption of such fractional
share. Under Section 302 of the Code, provided that such deemed distribution is
"not essentially equivalent to a dividend" with respect to such U.S. Holder
after giving effect to the constructive ownership rules of the Code, the U.S.
Holder will generally recognize capital gain or loss equal to the difference
between the amount of cash received and the U.S. Holder's adjusted tax basis in
the fractional share interest in WorldCom Common Stock.
In the discussion above concerning the exchange of Shares, references to
Shares also include Rights that have not become exercisable. Bryan Cave LLP
expresses no opinion as to the federal income tax consequences of the surrender
pursuant to the Offer or the Merger of Rights that have become exercisable.
TAX CONSEQUENCES TO HOLDERS OF SHARES IF THE OFFER DOES NOT QUALIFY AS PART OF A
REORGANIZATION
If the Merger is not consummated, or if the Merger is consummated but the
exchange of Shares pursuant to the Offer is treated as a separate transaction
for federal income tax purposes, an exchange pursuant to the Offer will be a
taxable transaction for federal income tax purposes. In that case, each U.S.
Holder exchanging Shares for shares of WorldCom Common Stock pursuant to the
Offer will recognize gain or loss for federal income tax purposes measured by
the difference between such U.S. Holder's adjusted basis in the Shares exchanged
and the sum of the fair market value of WorldCom Common Stock received by such
U.S. Holder pursuant to the Offer and any cash received by such U.S. Holder in
lieu of a fractional share of WorldCom Common Stock.
If the exchange of Shares pursuant to the Offer is a taxable transaction,
the Merger itself will continue to be considered a reorganization within the
meaning of Section 368(a) of the Code if the assumptions set forth in the
opening paragraph of this section are generally satisfied. In that event, a U.S.
Holder receiving WorldCom Common Stock in the Merger would be subject to the
rules concerning reorganizations
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described above with respect to such WorldCom Common Stock, but not with respect
to any WorldCom Common Stock received by such U.S. Holder pursuant to the Offer.
WITHHOLDING
Unless a U.S. Holder complies with certain reporting and/or certification
procedures or is an exempt recipient under applicable provisions of the Code and
Treasury Regulations promulgated thereunder, such holder may be subject to
withholding tax of 31% with respect to any cash payments received pursuant to
the Offer and the Merger. Holders should consult their brokers or the Exchange
Agent to ensure compliance with such procedures. Foreign stockholders should
consult their own tax advisors regarding withholding taxes in general.
EFFECT OF OFFER ON MARKET FOR SHARES; REGISTRATION UNDER THE EXCHANGE ACT
The exchange of Shares pursuant to the Offer will reduce the number of
holders of Shares and the number of Shares that might otherwise trade publicly
and, depending upon the number of Shares so purchased, could adversely affect
the liquidity and market value of the remaining Shares held by the public.
WorldCom believes that the Class A Common Stock is held by only BT and is not
listed or included on any established trading market.
The Shares are included and principally traded on The Nasdaq Stock Market.
Depending upon the number of Shares exchanged pursuant to the Offer, the Shares
may no longer meet the requirements of the National Association of Securities
Dealers, Inc. (the "NASD") for continued inclusion in The Nasdaq National Market
(the top tier market of The Nasdaq Stock Market), which requires that an issuer
have at least 200,000 publicly held shares, held by at least 400 stockholders or
300 stockholders of round lots, with a market value of $1,000,000, and have net
tangible assets of at least either $2,000,000 or $4,000,000, depending on
profitability levels during the issuer's four most recent fiscal years. If these
standards are not met, the Shares might nevertheless continue to be included in
The Nasdaq Stock Market with quotations published in the Nasdaq "additional
list" or in one of the "local lists," but if the number of holders of the Shares
were to fall below 300, or if the number of publicly held Shares were to fall
below 100,000 or there were not at least two registered and active market makers
for the Shares, the NASD's rules provide that the shares would no longer be
"qualified" for Nasdaq Stock Market reporting and The Nasdaq Stock Market would
cease to provide any quotations. Shares held directly or indirectly by
directors, officers or beneficial owners of more than 10% of the Shares are not
considered as being publicly held for this purpose. According to MCI's Form 10-K
for the fiscal year ended December 31, 1996, as of February 14, 1997, there were
approximately 47,472 holders of record of Shares and according to MCI's Current
Report on Form 8-K dated August 26, 1997, as of August 19, 1997, there were
558,420,209 shares of MCI Common Stock outstanding. If, as a result of the
exchange of Shares pursuant to the Offer, the Shares no longer meet the
requirements of the NASD for continued inclusion in The Nasdaq Stock Market, the
market for Shares could be adversely affected.
It is possible that, if the Shares are no longer included on The Nasdaq
National Market, the Shares would be traded on other securities exchanges or in
the over-the-counter market, and that price quotations would be reported by such
exchanges, or through Nasdaq or by other sources. The extent of the public
market for the Shares and the availability of such quotations would, however,
depend upon the number of holders and/or the aggregate market value of the
Shares remaining at such time, the interest in maintaining a market in the
Shares on the part of securities firms, the possible termination of registration
of Shares under the Exchange Act, as described below, and other factors.
The Shares are "margin securities" under the regulations of the Federal
Reserve Board, which has the effect, among other things, of allowing brokers to
extend credit on the collateral of such Shares. Depending on factors similar to
those described above with respect to listing and market quotations, following
consummation of the Offer the Shares may no longer constitute "margin
securities" for the
49
<PAGE>
purposes of the Federal Reserve Board's margin regulations, in which event the
Shares would be ineligible as collateral for margin loans made by brokers. For a
description of the treatment of Shares in the Merger, see "Purpose of the Offer;
the Merger."
The Shares are currently registered under the Exchange Act. Such
registration may be terminated by MCI upon application to the Commission if the
outstanding Shares are not listed on a national securities exchange and if there
are fewer than 300 holders of record of Shares. Termination of registration of
the Shares under the Exchange Act would reduce the information required to be
furnished by MCI to its stockholders and to the Commission and would make
certain provisions of the Exchange Act, such as the short-swing profit recovery
provisions of Section 16(b) and the requirement of furnishing a proxy statement
in connection with stockholders' meetings pursuant to Section 14(a) and the
related requirement of furnishing an annual report to stockholders, no longer
applicable with respect to the Shares. Furthermore, the ability of "affiliates"
of MCI and persons holding "restricted securities" of MCI to dispose of such
securities pursuant to Rule 144 under the Securities Act may be impaired or
eliminated. If registration of the Shares under the Exchange Act were
terminated, the Shares would no longer be eligible for Nasdaq reporting or for
continued inclusion on the Federal Reserve Board's list of "margin securities."
The Rights currently are registered under the Exchange Act, but currently
are attached to the outstanding Shares and Class A Common Stock and are not
separately transferable. If a MCI Distribution Date occurs, the Rights may
become transferable apart from the Shares, unless previously redeemed. If the
Rights are not redeemed or invalidated and WorldCom waives the Rights Plan
Condition, then the foregoing discussion with respect to the effect of the Offer
on the Shares would be similarly applicable to the Rights (although the
continued listing criteria are different).
50
<PAGE>
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 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. Thus, consideration of the application by WorldCom for
FCC approval of the Step II Transfer should be given independent consideration,
without consideration of any possible transfer of control of MCI to BT. FCC
approval is required for both the Step I Transfer to the Voting Trustee, who
would receive an STA to acquire a majority of the Shares pursuant to the Offer,
as well as for the Step II Transfer to permit the transfer of the Shares from
the Voting Trustee to WorldCom. WorldCom is therefore requesting FCC approval
for both stages of a two-step transfer of control of MCI to WorldCom that
contemplates 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 Offer until the Offer is terminated. However, the only condition
to the consummation of the Offer is the FCC approval of the Step I Transfer. See
"Conditions of the Offer--Voting Trust Condition--Voting Trust Approvals."
With respect to the contemplated Step II Transfer of the Trust Stock from
the Voting Trustee to WorldCom, WorldCom is also filing with the FCC an
application under Section 214 of the Communications Act of 1934 and applications
under Title III of the Communications Act of 1934 relating to MCI's radio
licenses requesting authority for a Step II Transfer of control of MCI to
WorldCom following the receipt by the Voting Trustee of sufficient shares of MCI
to give the Voting Trustee control of MCI. WorldCom and its subsidiaries already
hold certain authorizations issued by the FCC, and WorldCom believes it is
likely that the Step II Transfer applications will be granted. However, the Step
II Transfer applications are subject to public comment, petitions to deny, and
informal objections by third parties. Accordingly, there can be no assurance
that the FCC will timely grant the Step II Transfer applications. The Offer is
not conditioned on receipt of approval of the Step II Transfer applications.
STATE REGULATORY TRANSFER APPROVALS. WorldCom is notifying the relevant
state PUCs of the Offer and the Voting Trust Agreement. WorldCom expects to file
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 PUCs do not have specific policies and rules which provide for the use of
two-stage procedures utilizing interim voting trust arrangements to provide for
expedited action in the context of a stock tender offer, and WorldCom cannot
predict whether the use of this procedure will be challenged by any of the state
PUCs. However, WorldCom believes that there are strong constitutional and
statutory bases for utilizing a Voting Trust.
Moreover, the State Applications are subject to public comment and
objections and oppositions of third parties, such as MCI and BT, 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 material State Applications, particularly given
that WorldCom and its subsidiaries also hold authorizations from the state PUCs,
and that most of those authorizations convey the same or similar authority as
the corresponding authorizations held by MCI.
51
<PAGE>
FEES AND EXPENSES
WorldCom has retained MacKenzie Partners, Inc. (the "Information Agent") to
act as Information Agent in connection with the Offer. The Information Agent may
contact holders of Shares by mail, telephone, fax, electronic mail and personal
interviews and may request brokers, dealers and other nominee stockholders to
forward the Offer materials to beneficial owners of Shares. The Information
Agent will be paid a fee of $ for such services, plus reimbursement of
reasonable out-of-pocket expenses, and WorldCom will indemnify the Information
Agent against certain liabilities and expenses in connection with the Offer,
including liabilities under federal securities laws.
Pursuant to a letter agreement dated September 29, 1997 (the "Letter
Agreement"), Salomon Brothers Inc ("Salomon") is providing certain financial
advisory services to WorldCom in connection with the Offer. Under the Letter
Agreement, WorldCom has agreed to pay Salomon for its financial advisory
services (including services as Dealer Manager) in connection with the Offer,
(a) $2.0 million, payable following WorldCom's public announcement of an offer
or proposal to MCI or any of its stockholders to effect the possible acquisition
(by merger, tender offer or otherwise) of MCI by WorldCom or the possible
purchase by WorldCom of all or substantially all of the assets, or more than 50%
of the equity securities, of MCI (an "Acquisition Transaction"); plus (b) an
additional fee of $3.0 million contingent upon the termination of the BT/MCI
Merger Agreement, and abandonment of any and all transactions whereby BT would
acquire control of MCI or its assets, all on or before December 31, 1997; plus
(c) a fee of $2.0 million to be paid if the aforesaid termination and
abandonment has not occurred on or before December 31, 1997 and Salomon is still
performing services under the Letter Agreement; plus (d) an additional fee of
$5.0 million contingent upon execution of a definitive agreement to effect an
Acquisition Transaction; plus (e) a fee of $32.5 million (less any fees paid as
described under clauses (a), (b), (c) and (d)), such fee to be contingent upon
the consummation of an Acquisition Transaction. If in connection with the
termination or abandonment of any proposed Acquisition Transaction, WorldCom
receives a termination fee relating to MCI, Salomon will be entitled to a
portion of the excess of such fee over certain expenses. WorldCom has also
agreed to reimburse Salomon for its reasonable out-of-pocket expenses, including
the reasonable fees and expenses of its legal counsel incurred in connection
with its engagement, and has agreed to indemnify each of Salomon and certain
related persons and entities against certain liabilities and expenses in
connection with Salomon's engagement, including certain liabilities under the
federal securities laws. In connection with Salomon's engagement as financial
advisor, WorldCom anticipates that certain employees of Salomon may communicate
in person, by telephone or otherwise with a limited number of institutions,
brokers or other persons who are MCI stockholders for the purpose of assisting
in the solicitation of proxies from stockholders of MCI against approval and
adoption of the BT/MCI Merger Agreement. Salomon will not receive any fee for,
or in connection with, such solicitation activities by its employees apart from
the fees it is otherwise entitled to receive as described above.
In addition to the fees to be received by Salomon in connection with its
engagement as financial advisor to WorldCom, Salomon has in the past rendered
various investment banking and financial advisory services for WorldCom for
which it has received customary compensation, and may continue to render such
services in the future.
Salomon engages in a full range of investment banking, securities trading,
market-making and brokerage services for institutional and individual clients.
In the ordinary course of its business, Salomon may actively trade the
securities of MCI for its own account and the accounts of its customers and,
accordingly, may at any time hold a long or short position in such securities.
As of , 1997 Salomon held a net long position of approximately
Shares.
WorldCom will pay the Exchange Agent reasonable and customary compensation
for its services in connection with the Offer, plus reimbursement for reasonable
out-of-pocket expenses, and will indemnify the Exchange Agent against certain
liabilities and expenses in connection therewith, including liabilities
52
<PAGE>
under the federal securities laws. WorldCom will not pay any fees or commissions
to any broker or dealer or other person (other than the Dealer Manager and the
Information Agent) for soliciting tenders of Shares pursuant to the Offer.
Brokers, dealers, commercial banks and trust companies will be reimbursed by
WorldCom for customary mailing and handling expenses incurred by them in
forwarding material to their customers.
ACCOUNTING TREATMENT
If the Offer and the Merger are consummated on the terms described in this
Prospectus, then the Offer and the Merger will be treated as a purchase for
financial reporting purposes. Accordingly, the aggregate Offer and Merger
consideration will be allocated to the assets and liabilities of MCI based on
their estimated fair value. Any excess of cost over the fair value of the net
tangible assets of MCI acquired will be recorded as in-process research and
development, goodwill and other intangible assets. WorldCom expects that
goodwill and other intangible assets will be amortized over periods not to
exceed 40 years. A final determination of 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 pro forma financial information appearing
elsewhere in this Prospectus are preliminary and have been made solely for
purposes of developing such pro forma condensed combined financial information.
If the Offer and the Merger are treated as a purchase for financial reporting
purposes, the results of operations of MCI will be included in the WorldCom
consolidated statement of income following the effective time of the Offer, and
the WorldCom financial statements for prior periods will not be restated as a
result of the Merger or related transactions. See "Pro Forma Financial
Information." However, WorldCom has expressed its willingness to meet promptly
with MCI and BT to achieve a negotiated transaction that WorldCom believes could
be structured as a pooling of interests (assuming that the transaction were
structured as a single-step merger, that the approval of the holders of not less
than 90% of MCI Common Stock and Class A Common Stock (I.E., BT) were obtained,
and that MCI otherwise qualifies as a company that may participate in a pooling
of interests transaction).
TRADING MARKET
The WorldCom Common Stock is included on The Nasdaq Stock Market.
Application will be made to include the WorldCom Common Stock to be issued
pursuant to the Offer and the Merger on The Nasdaq Stock Market.
MATERIAL CONTACTS BETWEEN MCI AND WORLDCOM
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 six months ended June 30, 1997, fiscal 1996, fiscal 1995 and fiscal
1994, MCI and its subsidiaries and WorldCom and its subsidiaries have engaged in
transactions aggregating approximately $180.0 million, $418.0 million, $240.0
million and $180.0 million, respectively.
Except as set forth herein, neither WorldCom nor, to the best of its
knowledge, any of the persons listed in Schedule A hereto nor any associate or
majority-owned subsidiary of any of the foregoing, beneficially owns or has a
right to acquire any equity securities of MCI. Except as set forth herein,
neither WorldCom nor, to the best of its knowledge, any of the persons or
entities referred to above, nor any director, executive officer or subsidiary of
any of the foregoing, has effected any transaction in such equity securities
during the past 60 days.
53
<PAGE>
Except as set forth herein, neither WorldCom nor, to the best of its
knowledge, any of the persons listed in Schedule A hereto has any contract,
arrangement, understanding or relationship with any other person with respect to
any securities of MCI, including, but not limited to, any contract, arrangement,
understanding or relationship concerning the transfer or the voting of any such
securities, joint ventures, loan or option arrangements, puts or calls,
guarantees of loans, guarantees against loss or the giving or withholding of
proxies. Except as described herein, there have been no contacts, negotiations
or transactions since January 1, 1994, between WorldCom or its subsidiaries or,
to the best of its knowledge, any of the persons listed in Schedule A hereto, on
the one hand, and MCI or its affiliates, on the other hand, concerning a merger,
consolidation or acquisition, a tender offer or other acquisition of securities,
an election of directors, or a sale or other transfer of a material amount of
assets. Neither WorldCom nor, to the best of its knowledge, any of the persons
listed in Schedule A hereto, has since January 1, 1994 engaged in any
transaction with MCI or any of its executive officers, directors or affiliates
that would require disclosure under the rules and regulations of the Commission
applicable to the Offer, except that an associate of Mr. John A. Porter,
Phillips & Brooks Gladwin, Inc., sells pay phone equipment, installation and
maintenance services to MCI in an annual amount of approximately $200,000.
54
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following pro forma condensed combined financial statements combine the
consolidated balance sheets and income statements of WorldCom and MCI as if the
Offer and the Merger had occurred for the periods indicated. If the Offer and
the Merger are consummated on the terms described in this Prospectus, then the
Offer and the Merger will be treated as a purchase for financial accounting
purposes. However, WorldCom has expressed its willingness to meet promptly with
MCI and BT to achieve a negotiated transaction that WorldCom believes could be
structured as a pooling of interests. See "Accounting Treatment." Accordingly,
the pro forma condensed combined financial statements reflect the basis of
accounting for the Offer and the Merger as both a purchase and a pooling of
interests.
WORLDCOM
PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
(PURCHASE)
The following unaudited Pro Forma Condensed Combined Balance Sheet as of
June 30, 1997 and unaudited Pro Forma Condensed Combined Income Statements for
the six months ended June 30, 1997 and for the year ended December 31, 1996
illustrate the effect of the Offer and the Merger as if the Offer and the Merger
had occurred on June 30, 1997 for the Pro Forma Condensed Combined Balance Sheet
and as of the earliest date presented for the Pro Forma Condensed Combined
Income Statements.
Pursuant to the terms of the Offer and the Merger, each holder of MCI Common
Stock (including the shares of MCI Common Stock into which the outstanding
shares of Class A Common Stock would be automatically converted in accordance
with the provisions of MCI's Restated Certificate of Incorporation upon the
tender of such shares pursuant to the Offer), will be entitled to receive that
number of shares of WorldCom Common Stock equal to the Exchange Ratio. The pro
forma financial statements have been prepared assuming the WorldCom Average
Price to be $35.38 resulting in an assumed Exchange Ratio of 1.1731. The actual
Exchange Ratio may vary as described herein. These pro forma financial
statements are prepared under the assumption that the Offer and the Merger will
be accounted for under the purchase method of accounting.
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 WorldCom Adjusted Historical
Financial Statement 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.
55
<PAGE>
WORLDCOM PRO FORMA CONDENSED COMBINED BALANCE SHEET (1)
(PURCHASE)
AS OF JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
WORLDCOM MCI PRO FORMA PRO FORMA
HISTORICAL (2) HISTORICAL (2) ADJUSTMENTS COMBINED
-------------- -------------- ------------ -----------
<S> <C> <C> <C> <C>
Current assets................................................ $ 1,650,010 $ 4,665,000 $ -- $ 6,315,010
Property, plant and equipment, net............................ 4,816,343 13,286,000 -- 18,102,343
Goodwill and other intangibles, net........................... 13,022,069 2,391,000 18,484,894(3) 33,897,963
Other assets.................................................. 756,163 3,909,000 -- 4,665,163
-------------- -------------- ------------ -----------
Total assets................................................ $ 20,244,585 $ 24,251,000 $ 18,484,894 $62,980,479
-------------- -------------- ------------ -----------
-------------- -------------- ------------ -----------
Current liabilities........................................... $ 1,757,924 $ 6,846,000 $ -- $ 8,603,924
Long-term debt................................................ 5,056,514 3,259,000 -- 8,315,514
Other liabilities............................................. 253,451 2,046,000 -- 2,299,451
Mandatorily redeemable preferred stock........................ -- 750,000 -- 750,000
Shareholders' equity:
Preferred stock............................................. 128 -- -- 128
Class A common stock........................................ -- 14,000 (14,000)(4) --
Common stock................................................ 8,994 60,000 (60,000)(4) 17,427
8,433(5)
Paid in capital............................................. 14,952,046 6,373,000 (6,373,000)(4) 44,778,507
29,826,461(5)
Retained earnings (deficit)................................. (1,818,945) 5,789,000 (5,789,000)(4) (1,818,945)
Other....................................................... 34,473 (886,000) 886,000(4) 34,473
-------------- -------------- ------------ -----------
Total shareholders' equity.................................. 13,176,696 11,350,000 18,484,894 43,011,590
-------------- -------------- ------------ -----------
Total liabilities and shareholders' equity.................. $ 20,244,585 $ 24,251,000 $ 18,484,894 $62,980,479
-------------- -------------- ------------ -----------
-------------- -------------- ------------ -----------
</TABLE>
56
<PAGE>
WORLDCOM PRO FORMA CONDENSED COMBINED INCOME STATEMENT (1)
(PURCHASE)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
WORLDCOM MCI PRO FORMA PRO FORMA
HISTORICAL (2) HISTORICAL (2) ADJUSTMENTS COMBINED
-------------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues..................................................... $3,447,323 $9,726,000 $(180,000)(6) $12,993,323
Operating expenses:
Line costs................................................. 1,833,913 5,072,000 (180,000)(6) 6,725,913
Selling, general and administrative........................ 753,004 2,584,000 -- 3,337,004
Depreciation and amortization.............................. 450,676 932,000 231,061(7) 1,613,737
-------------- -------------- ----------- -----------
Operating income............................................. 409,730 1,138,000 (231,061) 1,316,669
Other income (expense):
Interest expense........................................... (153,160) (116,000) -- (269,160)
Other...................................................... 10,661 (58,000) -- (47,339)
-------------- -------------- ----------- -----------
Income before income taxes................................... 267,231 964,000 (231,061) 1,000,170
Provision for income taxes................................... 138,960 359,000 -- 497,960
-------------- -------------- ----------- -----------
Net income from continuing operations........................ 128,271 605,000 (231,061) 502,210
Preferred dividend requirement............................... 13,221 30,000 -- 43,221
-------------- -------------- ----------- -----------
Net income applicable to common shareholders................. $ 115,050 $ 575,000 $(231,061) $ 458,989
-------------- -------------- ----------- -----------
-------------- -------------- ----------- -----------
Number of shares issued
and oustanding:
Primary.................................................... 950,855 705,000 1,777,891
-------------- -------------- -----------
-------------- -------------- -----------
Fully diluted.............................................. 954,451 707,000 1,783,833
-------------- -------------- -----------
-------------- -------------- -----------
Earnings per share (8):
Primary.................................................... $ 0.13 $ 0.82 $ 0.26
Fully diluted.............................................. $ 0.13 $ 0.81 $ 0.26
</TABLE>
57
<PAGE>
WORLDCOM PRO FORMA CONDENSED COMBINED INCOME STATEMENT (1)
(PURCHASE)
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
WORLDCOM
ADJUSTED MCI PRO FORMA PRO FORMA
HISTORICAL (9) HISTORICAL (2) ADJUSTMENTS COMBINED
-------------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues..................................................... $5,635,223 $ 18,494,000 $(418,000)(6) $23,711,223
Operating expenses:
Line costs................................................. 3,121,281 9,489,000 (360,000)(6) 12,250,281
Selling, general and administrative........................ 1,366,122 5,028,000 -- 6,394,122
Depreciation and amortization.............................. 838,364 1,664,000 462,122(7) 2,964,486
Other...................................................... 600,148 -- (58,000)(6) 542,148
-------------- -------------- ----------- -----------
Operating income (loss)...................................... (290,692) 2,313,000 (462,122) 1,560,186
Other income (expense):
Interest expense........................................... (284,882) (196,000) -- (480,882)
Other...................................................... 4,169 (127,000) -- (122,831)
-------------- -------------- ----------- -----------
Income (loss) before income taxes............................ (571,405) 1,990,000 (462,122) 956,473
Provision for income taxes................................... 5,000 753,000 -- 758,000
-------------- -------------- ----------- -----------
Net income (loss) from continuing operations................. (576,405) 1,237,000 (462,122) 198,473
Preferred dividend requirement............................... 30,289 35,000 -- 65,289
-------------- -------------- ----------- -----------
Net income (loss) applicable to common shareholders.......... $ (606,694) $ 1,202,000 $(462,122) $ 133,184
-------------- -------------- ----------- -----------
-------------- -------------- ----------- -----------
Number of shares issued
and outstanding:
Primary.................................................... 869,390 695,000 1,700,767
-------------- -------------- -----------
-------------- -------------- -----------
Fully diluted.............................................. 869,390 701,000 1,708,426
-------------- -------------- -----------
-------------- -------------- -----------
Earnings (loss) per share (8):
Primary.................................................... $ (0.70) $ 1.73 $ 0.08
Fully diluted.............................................. $ (0.70) $ 1.72 $ 0.08
</TABLE>
58
<PAGE>
NOTES TO WORLDCOM PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
(PURCHASE)
1. The pro forma financial data do not give effect to any direct transaction
costs, resulting restructuring costs, nor any potential synergies that could
result from the Offer and the Merger. The pro forma financial data do not
reflect the possible payment of a termination fee to BT. Also, 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 Offer and the Merger. The pro forma data are not necessarily
indicative of the operating results or financial position that would have
occurred had the Offer and the Merger been consummated at the dates
indicated, nor necessarily indicative of future operating results or
financial position.
2. These columns represent historical results of operations and financial
position.
3. This adjustment reflects the excess of cost over net tangible assets
acquired. For purposes of allocating the acquisition costs among the various
assets acquired, WorldCom has tentatively considered the carrying value of
the acquired assets to approximate their fair value, with all of the excess
of such acquisition costs being attributed to goodwill. It is WorldCom's
intention to more fully evaluate the assets to be acquired and, as a result,
the allocation of the acquisition costs among the tangible and intangible
assets acquired may change. Goodwill associated with the Offer and the
Merger would be amortized over a 40-year life.
4. These adjustments represent the elimination of MCI's stockholders'
investment accounts.
5. These adjustments represent the issuance of approximately 843 million shares
of WorldCom Common Stock in connection with the Offer and the Merger and an
assumed Exchange Ratio of 1.1731 shares of WorldCom Common Stock for each
share of MCI Common Stock (including the shares of MCI Common Stock into
which the outstanding shares of Class A Common Stock would be automatically
converted in accordance with the provisions of MCI's Restated Certificate of
Incorporation upon the tender of such shares pursuant to the Offer)
outstanding. The actual Exchange Ratio may vary as described herein. For
purposes of these unaudited Pro Forma Condensed Combined Financial
Statements, the WorldCom Average Price has been assumed to be $35.38 per
share.
6. These estimated adjustments eliminate the revenues and corresponding line
costs and other charges attributable to the intercompany transactions
between WorldCom and MCI.
7. This entry reflects the adjustment to amortization for the effect of the
intangible assets acquired in the Offer and the Merger.
8. Pro forma per share data are based on the number of WorldCom common and
common equivalent shares that would have been outstanding had the Offer and
the Merger occurred on the earliest date presented.
9. The WorldCom Adjusted Historical Financial Statement for the year ended
December 31, 1996 includes the effect of WorldCom's acquisition of MFS in
December 1996 and MFS's acquisition of UUNET in August 1996 as if those
mergers had occurred on January 1, 1996. 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's worldwide information system, the Internet network
expansion system of UUNET and certain other identified research and
development projects purchased in the MFS Merger. This charge has not been
reflected in the accompanying financial statements as it is a non-recurring
charge. See the "WorldCom Adjusted Historical Financial Statement" set forth
elsewhere herein.
59
<PAGE>
WORLDCOM
PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
(POOLING)
The following unaudited Pro Forma Condensed Combined Balance Sheet as of
June 30, 1997 and unaudited Pro Forma Condensed Combined Income Statements for
the six months ended June 30, 1997 and 1996 and for the years ended December 31,
1996, 1995 and 1994 illustrate the effect of the Offer and the Merger as if the
Offer and the Merger had occurred on June 30, 1997 for the Pro Forma Condensed
Combined Balance Sheet and as of the earliest date presented for the Pro Forma
Condensed Combined Income Statements.
Pursuant to the terms of the Offer and the Merger, each holder of MCI Common
Stock (including the shares of MCI Common Stock into which the outstanding
shares of Class A Common Stock would be automatically converted in accordance
with the provisions of MCI's Restated Certificate of Incorporation upon the
tender of such Shares pursuant to the Offer) will be entitled to receive that
number of shares of WorldCom Common Stock equal to the Exchange Ratio. The pro
forma financial statements have been prepared assuming the WorldCom Average
Price to be $35.38 resulting in an assumed Exchange Ratio of 1.1731. The actual
Exchange Ratio may vary as described herein. These pro forma financial
statements are prepared on the basis of accounting for the Offer and the Merger
under the pooling-of-interests method and are based on the assumptions set forth
in the notes thereto.
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 WorldCom Adjusted Historical
Financial Statement 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.
60
<PAGE>
WORLDCOM PRO FORMA CONDENSED COMBINED BALANCE SHEET (1)
(POOLING)
AS OF JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
WORLDCOM MCI PRO FORMA PRO FORMA
HISTORICAL (2) HISTORICAL (2) ADJUSTMENTS COMBINED
-------------- -------------- ------------ -----------
<S> <C> <C> <C> <C>
Current assets................................................ $ 1,650,010 $ 4,665,000 $ -- $ 6,315,010
Property, plant and equipment, net............................ 4,816,343 13,286,000 -- 18,102,343
Goodwill and other intangibles, net........................... 13,022,069 2,391,000 -- 15,413,069
Other assets.................................................. 756,163 3,909,000 -- 4,665,163
-------------- -------------- ------------ -----------
Total assets................................................ $ 20,244,585 $ 24,251,000 $ -- $44,495,585
-------------- -------------- ------------ -----------
-------------- -------------- ------------ -----------
Current liabilities........................................... $ 1,757,924 $ 6,846,000 $ -- $ 8,603,924
Long-term debt................................................ 5,056,514 3,259,000 -- 8,315,514
Other liabilities............................................. 253,451 2,046,000 -- 2,299,451
Mandatorily redeemable preferred stock........................ -- 750,000 -- 750,000
Shareholders' equity:
Preferred stock............................................. 128 -- -- 128
Class A common stock........................................ -- 14,000 (14,000)(3) --
Common stock................................................ 8,994 60,000 (60,000)(3) 17,427
8,433(4)
Paid in capital............................................. 14,952,046 6,373,000 (6,373,000)(3) 20,504,613
5,552,567(4)
Retained earnings (deficit)................................. (1,818,945) 5,789,000 -- 3,970,055
Other....................................................... 34,473 (886,000) 886,000(3) 34,473
-------------- -------------- ------------ -----------
Total shareholders' equity.................................. 13,176,696 11,350,000 -- 24,526,696
-------------- -------------- ------------ -----------
Total liabilities and shareholders' equity.................. $ 20,244,585 $ 24,251,000 $ -- $44,495,585
-------------- -------------- ------------ -----------
-------------- -------------- ------------ -----------
</TABLE>
61
<PAGE>
WORLDCOM PRO FORMA CONDENSED COMBINED INCOME STATEMENT (1)
(POOLING)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
WORLDCOM MCI PRO FORMA PRO FORMA
HISTORICAL (2) HISTORICAL (2) ADJUSTMENTS COMBINED
-------------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues..................................................... $3,447,323 $9,726,000 $(180,000)(5) $12,993,323
Operating expenses:
Line costs................................................. 1,833,913 5,072,000 (180,000)(5) 6,725,913
Selling, general and administrative........................ 753,004 2,584,000 -- 3,337,004
Depreciation and amortization.............................. 450,676 932,000 -- 1,382,676
-------------- -------------- ----------- -----------
Operating income............................................. 409,730 1,138,000 -- 1,547,730
Other income (expense):
Interest expense........................................... (153,160) (116,000) -- (269,160)
Other...................................................... 10,661 (58,000) -- (47,339)
-------------- -------------- ----------- -----------
Income before income taxes................................... 267,231 964,000 -- 1,231,231
Provision for income taxes................................... 138,960 359,000 -- 497,960
-------------- -------------- ----------- -----------
Net income from continuing operations........................ 128,271 605,000 -- 733,271
Preferred dividend requirement............................... 13,221 30,000 -- 43,221
-------------- -------------- ----------- -----------
Net income applicable to common shareholders................. $ 115,050 $ 575,000 $ -- $ 690,050
-------------- -------------- ----------- -----------
-------------- -------------- ----------- -----------
Number of shares issued and outstanding:
Primary.................................................... 950,855 705,000 1,777,891
-------------- -------------- -----------
-------------- -------------- -----------
Fully diluted.............................................. 954,451 707,000 1,783,833
-------------- -------------- -----------
-------------- -------------- -----------
Earnings per share (6):
Primary.................................................... $ 0.13 $ 0.82 $ 0.39
Fully diluted.............................................. $ 0.13 $ 0.81 $ 0.39
</TABLE>
62
<PAGE>
WORLDCOM PRO FORMA CONDENSED COMBINED INCOME STATEMENT (1)
(POOLING)
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
WORLDCOM MCI PRO FORMA PRO FORMA
HISTORICAL (2) HISTORICAL (2) ADJUSTMENTS COMBINED
-------------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues..................................................... $2,107,598 $9,056,000 $(180,000)(5) $10,983,598
Operating expenses:
Line costs................................................. 1,147,463 4,686,000 (180,000)(5) 5,653,463
Selling, general and administrative........................ 390,429 2,414,000 -- 2,804,429
Depreciation and amortization.............................. 155,598 793,000 -- 948,598
Other...................................................... 402,000 -- -- 402,000
-------------- -------------- ----------- -----------
Operating income............................................. 12,108 1,163,000 -- 1,175,108
Other income (expense):
Interest expense........................................... (112,946) (102,000) -- (214,946)
Other...................................................... 4,149 (81,000) -- (76,851)
-------------- -------------- ----------- -----------
Income (loss) before income taxes............................ (96,689) 980,000 -- 883,311
Provision for income taxes................................... 60,172 380,000 -- 440,172
-------------- -------------- ----------- -----------
Net income (loss) from continuing operations................. (156,861) 600,000 -- 443,139
Preferred dividend requirement............................... 860 5,000 -- 5,860
-------------- -------------- ----------- -----------
Net income (loss) applicable to common shareholders.......... $ (157,721) $ 595,000 $ -- $ 437,279
-------------- -------------- ----------- -----------
-------------- -------------- ----------- -----------
Number of shares issued and outstanding:
Primary.................................................... 389,363 698,000 1,220,425
-------------- -------------- -----------
-------------- -------------- -----------
Fully diluted.............................................. 389,363 698,000 1,231,587
-------------- -------------- -----------
-------------- -------------- -----------
Earnings (loss) per share(6):
Primary.................................................... $ (0.41) $ 0.85 $ 0.36
Fully diluted.............................................. $ (0.41) $ 0.85 $ 0.36
</TABLE>
63
<PAGE>
WORLDCOM PRO FORMA CONDENSED COMBINED INCOME STATEMENT (1)
(POOLING)
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
WORLDCOM
ADJUSTED MCI PRO FORMA PRO FORMA
HISTORICAL (7) HISTORICAL (2) ADJUSTMENTS COMBINED
-------------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues..................................................... $5,635,223 $ 18,494,000 $(418,000)(5) $23,711,223
Operating expenses:
Line costs................................................. 3,121,281 9,489,000 (360,000)(5) 12,250,281
Selling, general and administrative........................ 1,366,122 5,028,000 -- 6,394,122
Depreciation and amortization.............................. 838,364 1,664,000 -- 2,502,364
Other...................................................... 600,148 -- (58,000)(5) 542,148
-------------- -------------- ----------- -----------
Operating income (loss)...................................... (290,692) 2,313,000 -- 2,022,308
Other income (expense):
Interest expense........................................... (284,882) (196,000) -- (480,882)
Other...................................................... 4,169 (127,000) -- (122,831)
-------------- -------------- ----------- -----------
Income (loss) before income taxes............................ (571,405) 1,990,000 -- 1,418,595
Provision for income taxes................................... 5,000 753,000 -- 758,000
-------------- -------------- ----------- -----------
Net income (loss) from continuing operations................. (576,405) 1,237,000 -- 660,595
Preferred dividend requirement............................... 30,289 35,000 -- 65,289
-------------- -------------- ----------- -----------
Net income (loss) applicable to common shareholders.......... $ (606,694) $ 1,202,000 $ -- $ 595,306
-------------- -------------- ----------- -----------
-------------- -------------- ----------- -----------
Number of shares issued and outstanding:
Primary.................................................... 869,390 695,000 1,700,767
-------------- -------------- -----------
-------------- -------------- -----------
Fully diluted.............................................. 869,390 701,000 1,708,426
-------------- -------------- -----------
-------------- -------------- -----------
Earnings (loss) per share(6):
Primary.................................................... $ (0.70) $ 1.73 $ 0.35
Fully diluted.............................................. $ (0.70) $ 1.72 $ 0.35
</TABLE>
64
<PAGE>
WORLDCOM PRO FORMA CONDENSED COMBINED INCOME STATEMENT (1)
(POOLING)
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
WORLDCOM MCI PRO FORMA PRO FORMA
HISTORICAL (2) HISTORICAL (2) ADJUSTMENTS COMBINED
-------------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues..................................................... $ 3,696,345 $ 15,265,000 $(240,000)(5) $18,721,345
Operating expenses:
Line costs................................................. 2,030,635 7,893,000 (240,000)(5) 9,683,635
Selling, general and administrative........................ 677,895 4,426,000 -- 5,103,895
Depreciation and amortization.............................. 312,671 1,308,000 -- 1,620,671
Other...................................................... -- 520,000 -- 520,000
-------------- -------------- ----------- -----------
Operating income............................................. 675,144 1,118,000 -- 1,793,144
Other income (expense):
Interest expense........................................... (249,216) (149,000) -- (398,216)
Other...................................................... 11,801 (72,000) -- (60,199)
-------------- -------------- ----------- -----------
Income before income taxes................................... 437,729 897,000 -- 1,334,729
Provision for income taxes................................... 171,458 349,000 -- 520,458
-------------- -------------- ----------- -----------
Net income from continuing operations........................ 266,271 548,000 -- 814,271
Preferred dividend requirement............................... 33,191 -- -- 33,191
-------------- -------------- ----------- -----------
Net income applicable to common shareholders................. $ 233,080 $ 548,000 $ -- $ 781,080
-------------- -------------- ----------- -----------
-------------- -------------- ----------- -----------
Number of shares issued and outstanding:
Primary.................................................... 386,898 687,000 1,192,818
-------------- -------------- -----------
-------------- -------------- -----------
Fully diluted.............................................. 402,990 694,000 1,217,121
-------------- -------------- -----------
-------------- -------------- -----------
Earnings per share(6):
Primary.................................................... $ 0.64 $ 0.80 $ 0.65
Fully diluted.............................................. $ 0.64 $ 0.79 $ 0.64
</TABLE>
65
<PAGE>
WORLDCOM PRO FORMA CONDENSED COMBINED INCOME STATEMENT (1)
(POOLING)
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
WORLDCOM MCI PRO FORMA PRO FORMA
HISTORICAL (2) HISTORICAL (2) ADJUSTMENTS COMBINED
-------------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues..................................................... $ 2,245,663 $ 13,338,000 $(180,000)(5) $15,403,663
Operating expenses:
Line costs................................................. 1,465,674 6,916,000 (180,000)(5) 8,201,674
Selling, general and administrative........................ 441,893 3,790,000 -- 4,231,893
Depreciation and amortization.............................. 164,362 1,176,000 -- 1,340,362
Other...................................................... 107,206 -- -- 107,206
-------------- -------------- ----------- -----------
Operating income............................................. 66,528 1,456,000 -- 1,522,528
Other income (expense):
Interest expense........................................... (47,303) (153,000) -- (200,303)
Other...................................................... (69,922) (23,000) -- (92,922)
-------------- -------------- ----------- -----------
Income (loss) before income taxes............................ (50,697) 1,280,000 -- 1,229,303
Provision for income taxes................................... 73,316 485,000 -- 558,316
-------------- -------------- ----------- -----------
Net income (loss) from continuing operations................. (124,013) 795,000 -- 670,987
Preferred dividend requirement............................... 27,766 1,000 -- 28,766
-------------- -------------- ----------- -----------
Net income (loss) applicable to common shareholders.......... $ (151,779) $ 794,000 $ -- $ 642,221
-------------- -------------- ----------- -----------
-------------- -------------- ----------- -----------
Number of shares issued and outstanding:
Primary.................................................... 315,610 604,000 1,036,606
-------------- -------------- -----------
-------------- -------------- -----------
Fully diluted.............................................. 315,610 604,000 1,045,369
-------------- -------------- -----------
-------------- -------------- -----------
Earnings (loss) per share(6):
Primary.................................................... $ (0.48) $ 1.32 $ 0.62
Fully diluted.............................................. $ (0.48) $ 1.32 $ 0.61
</TABLE>
66
<PAGE>
NOTES TO WORLDCOM PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
(POOLING)
1. The pro forma financial data do not give effect to any direct transaction
costs, resulting restructuring costs, nor any potential synergies that could
result from the Offer and the Merger. The pro forma financial data do not
reflect the possible payment of a termination fee to BT. The pro forma data
are not necessarily indicative of the operating results or financial
position that would have occurred had the Offer and the Merger been
consummated at the dates indicated, nor necessarily indicative of future
operating results or financial position.
2. These columns represent historical results of operations and financial
position.
3. These adjustments represent the elimination of the common stock,
paid-in-capital and treasury accounts of MCI.
4. These adjustments represent the issuance of approximately 843 million shares
of WorldCom Common Stock in connection with the Offer and the Merger and an
assumed Exchange Ratio of 1.1731 shares of WorldCom Common Stock for each
share of MCI Common Stock (including the shares of MCI Common Stock into
which the outstanding shares of Class A Common Stock would be automatically
converted in accordance with the provisions of MCI's Restated Certificate of
Incorporation upon the tender of such shares pursuant to the Offer)
outstanding. The actual Exchange Ratio may vary as described herein. For
purposes of these unaudited Pro Forma Condensed Combined Financial
Statements, the WorldCom Average Price has been assumed to be $35.38 per
share.
5. These estimated adjustments eliminate the revenues and corresponding line
costs and other charges attributable to the intercompany transactions
between WorldCom and MCI.
6. Pro forma per share data are based on the number of WorldCom common and
common equivalent shares that would have been outstanding had the Offer and
the Merger occurred on the earliest date presented.
7. The WorldCom Adjusted Historical Financial Statement for the year ended
December 31, 1996 includes the effect of WorldCom's acquisition of MFS in
December 1996 and MFS's acquisition of UUNET in August 1996 as if those
mergers had occurred on January 1, 1996. 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's worldwide information system, the Internet network
expansion system of UUNET and certain other identified research and
development projects purchased in the MFS Merger. This charge has not been
reflected in the accompanying financial statements as it is a non-recurring
charge. See the "WorldCom Adjusted Historical Financial Statement" which is
set forth elsewhere herein.
67
<PAGE>
WORLDCOM ADJUSTED HISTORICAL FINANCIAL STATEMENT
The following unaudited WorldCom Adjusted Historical Income Statement for
the year ended December 31, 1996 illustrates the effect of the MFS Merger as
well as MFS's earlier acquisition of UUNET (the "UUNET Acquisition") as if the
transactions had occurred on January 1, 1996.
On December 31, 1996, WorldCom through a wholly owned subsidiary merged with
MFS. As a result of the MFS Merger, each share of MFS common stock was converted
into the right to receive 2.1 shares of WorldCom Common Stock or approximately
471.0 million 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 Series A 8% Cumulative Convertible Preferred Stock
of WorldCom or 94,992 shares of WorldCom Series A Preferred Stock. Each share of
MFS Series B Convertible Preferred Stock was converted into the right to receive
one share of Series B Convertible Preferred Stock of WorldCom or approximately
12.7 million shares of WorldCom Series B Preferred Stock. In addition, each
depositary share representing 1/100th of a share of MFS Series A Preferred Stock
was exchanged for a depositary share representing 1/100th of a share of WorldCom
Series A Preferred Stock.
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 WorldCom Adjusted Historical Income Statement should be read in
conjunction with the historical financial statements of WorldCom, MFS and UUNET
which are incorporated by reference herein.
The WorldCom Adjusted Historical Income Statement is presented for
comparative purposes only and is not intended to be indicative of actual results
had the transactions occurred as of the dates indicated above nor does it
purport to indicate results which may be attained in the future.
68
<PAGE>
WORLDCOM ADJUSTED HISTORICAL INCOME STATEMENT (1)
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
UUNET
HISTORICAL(2) WORLDCOM
WORLDCOM MFS JANUARY 1, 1996 - PRO FORMA ADJUSTED
HISTORICAL (2) HISTORICAL (2) AUGUST 12, 1996 ADJUSTMENTS HISTORICAL
-------------- -------------- ----------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Revenues.................................. $4,485,130 $1,115,006 $129,047 $ (93,960)(3) $5,635,223
Operating expenses:
Line costs.............................. 2,457,102 687,034 71,105 (93,960)(3) 3,121,281
Selling general and administrative...... 828,673 493,346 44,103 -- 1,366,122
Depreciation and amortization........... 303,301 286,131 11,811 237,121(4) 838,364
Other................................... 600,148 -- -- -- 600,148
-------------- -------------- -------- ----------- ----------
Operating income (loss)................... 295,906 (351,505) 2,028 (237,121) (290,692)
Other income (expense):
Interest expense........................ (221,801) (62,161) (920) -- (284,882)
Other................................... 6,479 (2,652) 342 -- 4,169
-------------- -------------- -------- ----------- ----------
Income (loss) before income taxes......... 80,584 (416,318) 1,450 (237,121) (571,405)
Provision for income taxes................ 129,528 500 94 (125,122)(5) 5,000
-------------- -------------- -------- ----------- ----------
Net income (loss) from continuing (48,944) (416,818) 1,356 (111,999) (576,405)
operations..............................
Preferred dividend requirement............ 860 29,429 -- -- 30,289
-------------- -------------- -------- ----------- ----------
Net income (loss) applicable to common $ (49,804) $ (446,247) $ 1,356 $(111,999) $ (606,694)
shareholders............................
-------------- -------------- -------- ----------- ----------
-------------- -------------- -------- ----------- ----------
Number of shares issued and outstanding:
Primary................................. 397,890 N/M N/M 869,390
-------------- ----------
-------------- ----------
Fully diluted........................... 397,890 N/M N/M 869,390
-------------- ----------
-------------- ----------
Earnings (loss) per share (6):
Primary................................. $ (0.13) N/M N/M $ (0.70)
Fully diluted........................... $ (0.13) N/M N/M $ (0.70)
</TABLE>
69
<PAGE>
NOTES TO WORLDCOM
ADJUSTED HISTORICAL FINANCIAL STATEMENT
1. The adjusted historical financial data do not give effect to any potential
cost savings and synergies that could result from the MFS Merger and UUNET
Acquisition. 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's worldwide
information system, the Internet network expansion system of UUNET and
certain other identified research and development projects purchased in the
MFS Merger. This expense has not been reflected in the accompanying WorldCom
Adjusted Historical Income Statement as it is a non-recurring charge. Had
these charges been reflected, loss per share would be ($5.50). Charges
related to extraordinary items of $24.4 million, net of taxes, have also not
been included in the accompanying WorldCom Adjusted Historical Income
Statement. The pro forma data are not necessarily indicative of the
operating results or financial position that would have occurred had the 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 adjustments eliminate the revenues, corresponding line costs and other
charges attributable to the intercompany transactions among WorldCom, MFS
and UUNET.
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, the carrying value of the acquired assets
approximated their fair value, with all of the excess of such acquisition
costs being attributed to R&D in-process (network design and development
projects in-process), goodwill, network technology and assembled workforce.
It is WorldCom's intention to continue to evaluate the acquired assets and,
as a result, the allocation of the acquisition costs among the tangible and
intangible assets acquired may change. Goodwill 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 adjustments due to inclusion of
the acquired operations.
6. Pro forma per share data is based on the number of shares of WorldCom Common
Stock that would have been outstanding had the MFS Merger and UUNET
Acquisition occurred on the earliest date presented.
70
<PAGE>
INFORMATION REGARDING MCI
The following brief description of the business of MCI has been prepared on
the basis of information filed by MCI with the Commission. Additional
information regarding MCI is contained in its filings with the Commission
pursuant to the Exchange Act. See "Available Information" and "Incorporation of
Certain Documents by Reference."
MCI is one of the world's leading providers of communication services. It is
the second largest carrier of long-distance telecommunication services in the
United States and the third largest carrier of international long-distance
telecommunication services in the world.
MCI provides a broad range of communication services, including
long-distance telecommunications services, local and wireless services,
Internet/Intranet services and information technology and outsourcing services.
The provision of long-distance telecommunication services is MCI's core
business. Long-distance communication 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. During each of the last three years, more than
90% of MCI's operating revenues and operating income were derived from its core
business.
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
Commission pursuant to the Exchange Act. See "Available Information" and
"Incorporation of Certain Documents by Reference."
BUSINESS OF WORLDCOM
WorldCom is one of the four 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 provides telecommunications products and services including: switched
and dedicated long distance and local products, 800 services, calling cards,
domestic and international private lines, broadband data services, debit cards,
conference calling, advanced billing systems, enhanced fax and data connections,
high speed data communications, facilities management, local access to long
distance companies, local access to ATM-based backbone service and
interconnection via Network Access Points to Internet service providers.
WorldCom's principal executive offices are located at 515 East Amite Street,
Jackson, Mississippi 39201-2702, and its telephone number is (601) 360-8600.
RECENT DEVELOPMENTS
BFP ACQUISITION
On October 1, 1997, WorldCom announced that it had entered into the BFP
Merger Agreement with BFP, under which WorldCom would acquire BFP through a
merger of a subsidiary of WorldCom into BFP. Each outstanding share of BFP
common stock would be converted into the right to receive 1.65 shares of
71
<PAGE>
WorldCom Common Stock, subject to adjustment as provided in the BFP Merger
Agreement. The transaction has been structured to qualify as a pooling of
interests. Consummation of the BFP merger is subject to the satisfaction of
certain conditions, including the expiration or termination of any applicable
waiting periods 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 stockholders of BFP. The closing of the BFP merger is expected to
occur as soon as practicable after satisfaction of the conditions set forth in
the BFP Merger Agreement.
The following information concerning BFP has been prepared on the basis of
information filed by BFP with the Commission.
BFP, founded in 1993, is a leading facilities-based provider of competitive
local telecommunications services in selected markets within the United States.
BFP competes with ILECs by providing high quality, integrated local
telecommunications services over fiber optic digital networks to meet the voice,
data and video transmission needs of its customers. BFP's customers are
principally IXCs, ISPs, wireless carriers, telecommunications-intensive
business, government, and institutional end users, and residential customers.
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
existing systems and expanding service offerings. As of June 30, 1997, BFP had
networks in operation or under construction in a total of 44 U.S. cities, and
planned to expand its network operations to have systems in operation or under
construction in a total of 50 cities by the end of 1998. As of June 30, 1997,
BFP had a total of 22 digital telephone switches installed serving a total of 26
of its operating networks. BFP plans to offer local dial tone, switched access
termination and origination services, centrex and desktop products in all of its
operating networks. BFP is also expanding its capabilities to provide enhanced
services such as high speed video transport, frame relay and ATM-based packet
transport services and Internet access products. BFP is currently offering such
services in certain markets and expects to offer such services in all of its
currently operating networks by the end of 1997.
The Offer is not conditioned upon the consummation of the BFP merger, and
the BFP merger is not conditioned upon the consummation of the Offer.
COMPUSERVE ACQUISITION
On September 7, 1997, WorldCom entered into the CompuServe Merger Agreement
with Block, H&R Block Group, Inc., a wholly-owned subsidiary of Block,
CompuServe and WorldCom Sub, a wholly-owned acquisition subsidiary of WorldCom.
Pursuant to the CompuServe Merger Agreement, WorldCom would acquire CompuServe
through the CompuServe Merger in accordance with the laws of the State of
Delaware and the provisions of the CompuServe Merger Agreement. Pursuant to the
CompuServe Merger Agreement, each of the CompuServe Common Shares will be
converted into the right to receive 0.40625 of a share of WorldCom Common Stock,
subject to adjustment as provided in the CompuServe Merger Agreement.
Consummation of the CompuServe Merger is subject to the satisfaction of certain
conditions, including, among others, the expiration or termination of any
applicable waiting periods under the HSR Act and any foreign competition law or
similar law, the receipt of other required regulatory approvals and the absence
of certain material adverse changes. Consummation of the CompuServe Merger is
also subject to the approval and adoption of the CompuServe Merger Agreement by
the requisite number of CompuServe Common Shares. Block has agreed to vote all
of the shares directly or indirectly owned by it in favor of approval of the
CompuServe Merger Agreement, which number of shares is sufficient to approve the
CompuServe Merger Agreement and the CompuServe Merger. The closing of the
CompuServe Merger is expected to occur as soon as practicable after the
satisfaction of all the conditions set forth in the CompuServe Merger Agreement.
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The Offer is not conditioned upon the consummation of the CompuServe Merger,
and the CompuServe Merger is not conditioned upon the consummation of the Offer.
CompuServe operates primarily through two divisions: Interactive Services
and Network Services. Interactive Services offers worldwide online and Internet
access services for customers, while Network Services provide worldwide network
access, management and applications, and Internet services to businesses.
AOL PURCHASE AND SALE AGREEMENT
On September 7, 1997, WorldCom also entered into the AOL Purchase and Sale
Agreement by and among WorldCom, AOL and ANS, a wholly-owned subsidiary of AOL,
pursuant to which WorldCom agreed to (a) transfer to AOL the on-line services
business of CompuServe, which it will acquire as a result of the CompuServe
Merger Agreement, and $175 million in cash, subject to certain adjustments, and
(b) acquire all outstanding shares of ANS. Consummation of the AOL Purchase and
Sale Agreement is subject to the satisfaction of certain conditions, including,
among others, the expiration or termination of any applicable waiting periods
under the HSR Act, and any foreign competition law or similar law, the receipt
of other required regulatory approvals, and the absence of certain adverse
changes. Consummation of the AOL Purchase and Sale Agreement is also subject to
the consummation of the CompuServe Merger.
ON-LINE SERVICES BUSINESS
The on-line services business of ANS to be acquired under the Purchase and
Sale Agreement, as well as CNS to be acquired under the CompuServe Merger
Agreement, are expected to be combined with the business of UUNET, a
wholly-owned subsidiary of WorldCom.
UUNET is a leading worldwide provider of a comprehensive range of Internet
access options, applications, and consulting services to businesses,
professionals and on-line services providers, providing both dedicated and
dial-up access and other applications and services which include Web server
hosting and integration services, client software and security products,
training and network integration and consulting services. UUNET is the world's
largest provider of Internet services, with over 1,000 PoPs throughout the
United States and in Canada, Europe and the Asia-Pacific region.
According to CompuServe's Annual Report on Form 10-K for the fiscal year
ending April 30, 1997, CNS provides virtual private networking, Internet,
Intranet and Extranet services plus groupware application and Web hosting
services to corporate clients around the world. In addition to providing network
connectivity and Internet access for CompuServe's CSi and SPRYNET services, CNS
offers dial and dedicated connectivity solutions that allow corporate customers'
dispersed users to gain secure, seamless access to IP-based applications as well
as proprietary systems. At the end of fiscal year 1997 CNS had a client base of
1,200 corporate customers.
According to AOL's Annual Report on Form 10-K for the fiscal year ending
June 30, 1997, ANS designs, develops and operates high performance wide-area
networks for business, research, education and governmental organizations. The
ANS backbone, built on the proprietary expertise developed by ANS as the
principal architect of the National Science Foundation Backbone Network Service,
was the first and remains one of the largest and fastest public TCP/IP data
networks in the world. Through this network, ANS delivers Internet, Intranet and
virtual private data network services to enterprises.
MANAGEMENT
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS
Certain information regarding the directors and executive officers of
WorldCom is set forth on Schedule A annexed hereto and incorporated by reference
herein.
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The Audit Committee of the WorldCom Board of Directors consists of Max E.
Bobbitt (Chairman), Francesco Galesi, David C. McCourt and Richard R. Jaros. The
Compensation and Stock Option Committee of the WorldCom Board of Directors
consists of Stiles A. Kellett, Jr. (Chairman), Max E. Bobbitt and Lawrence C.
Tucker. The Nominating Committee of the WorldCom Board of Directors consisting
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 September 30, 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
NATURE OF EXISTING
NAME AND ADDRESS OF BENEFICIAL PERCENT
BENEFICIAL OWNER 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 907,159,586 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 September 30, 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
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 Inc. The principal address
of Salomon is Seven World Trade Center, New York, New York 10048. As of
September 30, 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.
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The following table sets forth the beneficial ownership of WorldCom Common
Stock and WorldCom Series B Preferred Stock, as of September 30, 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
BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED(1) PERCENT OF CLASS(1)
- ------------------------------------------------------------------------ -------------------- ---------------------
<S> <C> <C>
Carl J. Aycock 709,438(2) *
Max E. Bobbitt 156,292(3) *
Bernard J. Ebbers 15,819,993(4) 1.7%
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 3,138,706(10) *
Scott D. Sullivan 3,571 *
Lawrence C. Tucker 3,170,096(11) *
All Directors and Current Executive Officers as a Group (11 persons).... 36,301,392(12) 4.0%
</TABLE>
- ------------------------
* Less than one percent.
(1) Based upon 907,159,586 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 September 30, 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; 1,775,696 shares
purchasable upon exercise of options; and 855,448 shares owned by Mr.
Ebbers' spouse, as to which Mr. Ebbers shares voting and investment power.
(5) Consists of 3,483,596 shares owned by Rotterdam Ventures, Inc., of which
Mr. Galesi is sole shareholder; and 38,512 shares purchasable upon exercise
of options.
(6) Includes 6,449 shares issuable upon conversion of WorldCom Series B
Preferred Stock; 5,000 shares purchasable upon exercise of options; and
15,930 shares held as custodian for Mr. Jaros' children, as to which Mr.
Jaros disclaims beneficial ownership.
(7) Includes 16,000 shares owned by Mr. Kellett's spouse; 860 shares held as
custodian for minor daughter; 400,000 shares owned by a family partnership;
and 90,316 shares purchasable upon exercise of options.
(8) Includes 95 shares issuable upon conversion of WorldCom Series B Preferred
Stock; and 5,000 shares purchasable upon exercise of options.
(9) Includes 167,578 shares held as custodian or trustee for minor children;
73,048 shares purchasable upon exercise of options; 218,000 shares owned by
Mr. Porter's spouse, as to which beneficial ownership is disclaimed; 85,812
shares held in trust for son of majority age, as to which beneficial
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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 35,371 shares purchasable upon exercise of options; and 14,575
shares held in a trust of which Mr. Sidgmore is sole trustee with sole
voting and dispositive power.
(11) 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.
(12) Includes 2,179,315 shares purchasable upon exercise of options or
conversion of WorldCom Series B Preferred Stock.
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<PAGE>
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 Rights Agreement dated as of
August 25, 1996 between WorldCom and The Bank of New York, as Rights Agent, as
amended (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 Prospectus is
a part.
The authorized capital stock of WorldCom consists of 2,500,000,000 shares of
common stock, par value $.01 per share, and 50,000,000 shares of preferred
stock, par value $.01 per share. As of September 30, 1997, there were
907,159,586 shares of WorldCom Common Stock, 94,992 shares of WorldCom Series A
Preferred Stock and 12,445,113 shares of WorldCom Series B Preferred Stock
issued and outstanding. All the shares of WorldCom Series A Preferred Stock are
held by The Bank of New York as Depositary for the holders of WorldCom
Depositary Shares.
COMMON STOCK
All of the outstanding shares of WorldCom Common Stock are fully paid and
nonassessable. Subject to the prior rights of the holders of preferred stock
which may be issued and outstanding, the holders of WorldCom Common Stock are
entitled to receive dividends as and when declared by the Board of Directors out
of funds legally available therefor, and, in the event of 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 of Directors
without shareholder approval. The WorldCom Board of Directors has the authority
to prescribe for each series of preferred stock it establishes the number,
designation, preferences, limitations and relative rights of the shares of such
series, subject to applicable law and the provisions of any outstanding series
of preferred stock. The terms of any series of preferred stock including, but
not limited to, dividend rate, redemption price, liquidation rights, sinking
fund provisions, conversion rights and voting rights, and any corresponding
effect on other shareholders, will be dependent largely on factors existing at
the time of issuance. Such terms and effects could include restrictions on
dividends on the WorldCom Common Stock if dividends on the preferred stock are
in arrears, dilution of the voting power of other shareholders to the extent a
series of the preferred stock has voting rights, and reduction of amounts
available on liquidation as a result of any liquidation preference granted to
any series of preferred stock.
SERIES A PREFERRED STOCK
The following description of 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
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such proportion of all the rights, preferences and privileges of the shares of
WorldCom Series A Preferred Stock represented thereby. See "-- Depositary
Shares" below.
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 of Directors. WorldCom intends to pay dividends in shares of WorldCom
Common Stock on each dividend payment date to the extent that it is unable to
pay dividends in cash. If the dividends are paid in shares of WorldCom Common
Stock, the number of shares of WorldCom Common Stock to be issued on each
dividend payment date will be determined by dividing the total dividend to be
paid on each WorldCom Depositary Share by 90% of the average of the high and low
sales prices of the WorldCom Common Stock as reported by The Nasdaq Stock Market
or any national securities exchange upon which the WorldCom Common Stock is then
listed or included, for each of the ten consecutive trading days immediately
preceding the fifth business day preceding the record date for such dividend.
Unless all accumulated dividends on the Series A Preferred Stock have been
paid, (i) no dividend (other than a dividend payable solely in shares of junior
stock (as defined in the WorldCom Articles)) may be paid on the 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
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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.
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 of Directors at any time six or more
quarterly dividends on any shares of Voting Preferred Stock shall be in arrears
and unpaid, in whole or in part, whether or not declared and whether or not any
funds shall be or have been legally available for payment thereof. For this
purpose, "Voting Preferred Stock" shall mean the shares of WorldCom Series A
Preferred Stock and each other series of WorldCom Preferred Stock which shall
have substantially similar voting rights (including voting as one voting group
with other shares of Voting Preferred Stock) with respect to the election of
directors upon substantially similar arrearages of dividends.
SERIES B PREFERRED STOCK
The following description of WorldCom Series B Convertible Preferred Stock
does not purport to be complete and is subject to, and qualified in its entirety
by, the provisions of the WorldCom Articles.
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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 of Directors may determine, in cash, before any dividends
shall be set apart for or paid upon the WorldCom Common Stock or any other stock
ranking as to dividends junior to the 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 of
Directors 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
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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 by the holders of issued and outstanding shares of
WorldCom Series B Preferred Stock is required to adversely change the rights,
preferences or privileges of the WorldCom Series B Preferred Stock. For this
purpose, the authorization or issuance of any series of preferred stock with
preference or priority over, or being on a parity with the WorldCom Series B
Preferred Stock as to the right to receive either dividends or amounts
distributable upon liquidation, dissolution or winding up of WorldCom shall not
be deemed to affect adversely the WorldCom Series B Preferred Stock. In case
WorldCom shall at any time prior to March 23, 1999 subdivide (whether by stock
dividend, stock split or otherwise) its outstanding shares of WorldCom Common
Stock into a greater number of shares (each a "Subdivision"), the voting rights
of each share of WorldCom Series B Preferred Stock will be adjusted to provide
that the percentage of the aggregate voting power of the WorldCom Common Stock
represented by the WorldCom Series B Preferred Stock shall be the same as such
percentage immediately prior to such Subdivision, with the holder of each share
of WorldCom Series B Preferred Stock being entitled to the number of votes
proportionate to such adjustment. Such adjustments made pursuant to a
Subdivision will become effective immediately after the effective date of the
Subdivision.
DEPOSITARY SHARES
Each WorldCom Depositary Share represents a one-hundredth interest in a
share of WorldCom Series A Preferred Stock deposited under the Deposit Agreement
(the "Deposit Agreement"), by and among WorldCom, The Bank of New York, as
Depositary (the "Depositary"), and the holders from time to time of Depositary
Receipts issued thereunder. Subject to the terms of the Deposit Agreement, each
owner of a WorldCom Depositary Share is entitled proportionately to all of the
rights and preferences of the shares of WorldCom Series A Preferred Stock
represented thereby (including dividend, voting, redemption and liquidation
rights) contained in the WorldCom Articles and summarized above under
"Description of WorldCom Capital Stock -- Preferred Stock," and "-- Series A
Preferred Stock."
The WorldCom Depositary Shares are evidenced by depositary receipts issued
pursuant to the Deposit Agreement ("Depositary Receipts"). The following
description of 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 "Description of WorldCom
Capital Stock -- 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.
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CONVERSION AT THE OPTION OF HOLDER. As described under "Description of
WorldCom Capital Stock -- 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 Depositary will abstain from voting WorldCom
Series A Preferred Stock to the extent it does not receive specific written
voting instructions from the holders of Depositary Receipts representing such
WorldCom Series A Preferred Stock.
TERMINATION OF DEPOSIT AGREEMENT. The Deposit Agreement is subject to
termination by WorldCom, or, if the Depositary resigns and no successor
depositary is properly appointed and accepted, by the Depositary. If any
Depositary Receipts remain outstanding after the date of termination, the
Depositary thereafter will discontinue the transfer of Depositary Receipts, will
suspend the distribution of dividends to the holders thereof, and will not give
any further notices (other than notice of such termination) or perform any
further acts under the Deposit Agreement except as provided below and except
that the Depositary will continue (i) to collect dividends on the WorldCom
Series A Preferred Stock and any other distributions with respect thereto and
(ii) to deliver the WorldCom Series A Preferred Stock and any money and other
property represented by Depositary Shares upon surrender thereof by the holders
thereof. WorldCom does not intend to terminate the Deposit Agreement or to
permit the resignation of the Depositary without appointing a successor
depositary. In the event the Deposit Agreement is terminated, WorldCom has
agreed to use its best efforts to list the WorldCom Series A Preferred Stock on
The Nasdaq National Market.
WORLDCOM SERIES 3 PREFERRED STOCK
In connection with the issuance of the WorldCom Rights (as hereinafter
defined), the WorldCom Board of Directors has authorized 2,500,000 shares of
preferred stock to be issued as Series 3 Junior Participating Preferred Stock
(the "WorldCom Series 3 Preferred Stock"), a description of the terms of which
is set forth below under "-- Preferred Stock Purchase Rights."
PREFERRED STOCK PURCHASE RIGHTS
On August 25, 1996, WorldCom entered into the WorldCom Rights Agreement and
the WorldCom Board of Directors authorized the issuance of one preferred share
purchase right (a "WorldCom Right") for each outstanding share of WorldCom
Common Stock outstanding as of September 6, 1996 and issued thereafter until the
Distribution Date, as defined in the WorldCom Rights Agreement (the "WorldCom
Distribution Date"). Each WorldCom Right entitles the registered holder to
purchase from WorldCom one one-thousandth of a share of Series 3 Preferred Stock
at an initial price of $160.00 per one one-thousandth of such share, subject to
adjustment as described in the WorldCom Rights Agreement.
The WorldCom Rights will be evidenced by the WorldCom Common Stock and a
WorldCom Distribution Date will occur upon the earlier of ten business days
following public disclosure or the date on which WorldCom first determines that
certain persons or groups (a "WorldCom Acquiring Person") have become the
beneficial owner of 15% or more of the outstanding shares of voting stock of
WorldCom (the
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"Stock Acquisition Date") or ten business days (or such later date as may be
determined by action of the Board of Directors but not later than the Stock
Acquisition Date) following the commencement of a tender offer or exchange offer
that would result in certain persons or groups becoming 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 Right by
the number one one-thousandths of a share of WorldCom Series 3 Preferred Stock
for which a WorldCom Right is then exercisable and dividing that product by 50%
of the then current market price per share of the common stock of the acquiring
company on the date of such merger or other business combination transaction.
If a certain person or group acquires more than 15% but less than 50% of the
outstanding WorldCom Common Stock, WorldCom can exchange each WorldCom Right,
except those held by such persons, for one share of WorldCom Common Stock.
The WorldCom Series 3 Preferred Stock will be nonredeemable and junior to
any other series of WorldCom preferred stock (unless otherwise provided in the
terms of such WorldCom preferred stock). Each share of WorldCom Series 3
Preferred Stock will have a preferential dividend in an amount equal to 1,000
times any dividend declared on each share of WorldCom Common Stock. In the event
of liquidation, the holders of the WorldCom Series 3 Preferred Stock will
receive a preferred liquidation payment equal to the greater of $1,000 or 1,000
times the payment made per share of WorldCom Common Stock. Each share of
WorldCom Series 3 Preferred Stock will have 1,000 votes, voting together with
the WorldCom Common Stock. In the event of any merger, consolidation or other
transaction in which shares of WorldCom Common Stock are converted or exchanged,
each share of WorldCom Series 3 Preferred Stock will be entitled to receive
1,000 times the amount and type of consideration received per share of WorldCom
Common Stock. The rights of the WorldCom Series 3 Preferred Stock as to
dividends, liquidation and voting, and in the event of mergers and
consolidations, are protected by customary antidilution provisions.
At any time prior to the time a WorldCom Acquiring Person becomes such,
WorldCom may redeem the WorldCom Rights in whole, but not in part, at a price of
$.01 per WorldCom Right. The redemption of the WorldCom Rights may be made
effective at such time, on such basis and with such conditions as the WorldCom
Board of Directors, in its sole discretion, may establish. Immediately upon any
redemption of the WorldCom Rights, the right to exercise the WorldCom Rights
will terminate and the only right of the holders of WorldCom Rights will be to
receive the redemption price.
The terms of the WorldCom Rights may be amended by the WorldCom Board of
Directors without the consent of the holders of the WorldCom Rights, including
an amendment to lower certain thresholds described above to not less than the
greater of (i) any percentage greater than the largest percentage of the voting
power of all securities of WorldCom then known to WorldCom to be beneficially
owned by certain persons or groups and (ii) 10%, except that from and after such
time as any person or group of affiliated or
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associated persons becomes a WorldCom Acquiring Person no such amendment may
adversely affect the interests of the holders of the WorldCom Rights.
The WorldCom Rights have certain anti-takeover effects. The WorldCom Rights
will cause substantial dilution to a person or group that attempts to acquire or
merge with WorldCom in certain circumstances. Accordingly, the existence of the
WorldCom Rights may deter certain potential acquirors from making certain
takeover proposals or tender offers. The WorldCom Rights should not interfere
with any merger or other business combination approved by the WorldCom Board of
Directors since WorldCom may redeem the WorldCom Rights as described above.
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 Board of
Directors to issue shares to persons friendly to current management, which could
render more difficult or discourage an attempt to obtain control of WorldCom by
means of a merger, tender offer, proxy contest or otherwise, and thereby protect
the continuity of WorldCom's management and possibly deprive the shareholders of
opportunities to sell their shares of WorldCom Common Stock at prices higher
than the prevailing market prices. Such additional shares also could be used to
dilute the stock ownership of persons seeking to obtain control of WorldCom.
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COMPARATIVE RIGHTS OF SHAREHOLDERS
As a result of the Offer and the Merger, the stockholders of MCI, whose
rights are currently governed by Delaware law and the MCI Restated Certificate
of Incorporation and the by-laws of MCI (the "MCI By-laws"), will become
shareholders of WorldCom, and their rights will be governed by Georgia law and
the WorldCom Articles and 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 Bylaws and the WorldCom Articles and Bylaws, and MCI stockholders are
referred to the GBCC, the DGCL, the MCI Restated Certificate of Incorporation
and By-laws and the WorldCom Articles and Bylaws for detailed information
concerning this subject.
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 By-laws provide for a
classified Board of Directors (for directors other than 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 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 of Directors shall be fixed by the WorldCom Board
of Directors but shall not be less than three. The WorldCom Articles and the
WorldCom Bylaws do not provide for a staggered board of directors. Subject to
certain restrictions, nominations to the WorldCom Board of Directors may be made
by either the Board or shareholders, if delivered to WorldCom not later than 90
days prior to the anniversary date of the immediately preceding annual meeting
of WorldCom shareholders. Under Georgia law, shareholders do not have cumulative
voting rights for the election of directors unless the articles of incorporation
so provide. The WorldCom Articles do not provide for cumulative voting.
REMOVAL OF DIRECTORS
Under 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
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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 class of
shareholders, that director may only be removed by the vote of that voting
group. The WorldCom Articles and the WorldCom Bylaws contain no provisions that
a director may be removed only for cause and, because director terms are not
staggered, directors of WorldCom may be removed with or without cause.
ACTION BY WRITTEN CONSENT
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
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 Restated Certificate of Incorporation
relating to cumulative voting, by-law amendments, calling of special meetings of
stockholders and amendments to the 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, only the
affirmative vote of a majority of the votes entitled to be cast on the amendment
by each voting group entitled to vote on the amendment may amend a Georgia
corporation's articles of incorporation.
AMENDMENTS TO BYLAWS
Under Delaware law, a corporation's board of directors may propose, and its
stockholders may adopt, one or more amendments to the corporation's by-laws.
Under Delaware law, the power to amend the by-laws 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 MCI's Restated Certificate
of Incorporation, the board of directors is authorized to amend the MCI By-laws,
and stockholders may amend the MCI By-
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laws 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 By-laws provide that a special meeting of
stockholders may be called by the Chairman of the Board, a majority of the whole
Board of Directors 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. 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 of Directors, 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.
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 or other
disposition of all or substantially all of the corporation's assets, a merger or
consolidation of the corporation with another corporation or a dissolution of
the corporation requires the affirmative vote of the Board of Directors (except
in certain limited circumstances) plus, with certain exceptions, the affirmative
vote of a majority of the outstanding stock entitled to vote thereon. The
foregoing provisions apply to MCI and its stockholders.
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.
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
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. 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.
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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
ordinary course of business or (b) the corporation's total assets would be less
than the sum of its total liabilities 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 of the 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 a surviving corporation and if 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
the New York Stock Exchange or the American Stock Exchange, designated as a
national market system security on an interdealer quotation system by the NASD
or are held of record by more than 2,000 stockholders on the date set to
determine the stockholders entitled to vote on the merger or consolidation.
Notwithstanding the above, appraisal rights are available for the shares of any
class or series of stock of a Delaware corporation if the holders thereof are
required by the terms of an agreement of merger or consolidation to accept for
their stock anything except: (i) shares of stock of the corporation surviving or
resulting from the merger or consolidation; (ii) shares of stock of any other
corporation which at the effective date of the merger or consolidation will be
listed on the New York Stock Exchange or the American Stock Exchange, designated
as a national market system security on an interdealer quotation system by the
NASD or held of record by more than 2,000 stockholders; (iii) cash in lieu of
fractional shares of the corporations described in (i) and (ii); or (iv) any
combination of the shares of stock and cash in lieu of fractional shares
described in (i), (ii) and (iii).
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.
Georgia law provides that shareholders are entitled to have their shares
appraised if shareholders are permitted to dissent and dissent from mergers,
share exchanges, sales or exchanges of all or substantially all of the
corporation's assets, or an amendment to the articles of incorporation that
materially and adversely affects rights in respect of a dissenter's shares.
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 or exchange
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.
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WorldCom shareholders are not entitled to dissenters' or appraisal rights in
connection with the Merger. 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.
INDEMNIFICATION AND LIMITATION OF LIABILITY OF DIRECTORS AND OFFICERS
Delaware law permits a corporation to adopt a provision in its certificate
of incorporation eliminating or limiting the personal liability of a director to
the corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except that such provision 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 eliminates a director's monetary liability in a lawsuit by or on
behalf of the corporation or in an action by stockholders of the corporation to
the full extent permitted by 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 was an
officer, director, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation or other entity, against expenses actually and reasonably
incurred in connection with such action or suit if he or she acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the corporation, except that there may be no such
indemnification if the person is found liable to the corporation unless, in such
a case, the court determines the person is entitled thereto. A corporation must
indemnify a director, officer, employee or agent against expenses actually and
reasonably incurred by him or her who successfully defends himself or herself in
a proceeding to which he or she was a party because he or she was a director,
officer, employee or agent of the corporation. Expenses incurred by an officer
or director (or other employees or agents as deemed appropriate by the Board of
Directors) in defending a civil or criminal proceeding may be paid by the
corporation in advance of the final disposition of such proceeding upon receipt
of an undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that he or she is not entitled to be
indemnified by the corporation. The Delaware law indemnification and expense
advancement provisions are not exclusive of any other rights which may be
granted by the bylaws, a vote of stockholders or disinterested directors,
agreement or otherwise. MCI has entered into contracts with each of its
independent directors requiring MCI to indemnify such persons and to advance
litigation expenses to such persons to the fullest extent permitted by
applicable law.
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
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(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 and expense that may be incurred in connection with
any threatened, pending or completed civil, criminal, administrative or
investigative action, suit or proceeding (whether brought by or in the right of
WorldCom), in which he 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 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.
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.
SPECIAL REDEMPTION PROVISIONS
The WorldCom Articles contain provisions permitting WorldCom to redeem
shares of its capital stock from certain foreign shareholders in order to enable
it to continue to hold certain common carrier radio licenses. These provisions
are intended to cause WorldCom to remain in compliance with the Communications
Act of 1934, as amended, and the regulations of the FCC promulgated thereunder.
Under these provisions, at such time as the percentage of capital stock owned by
foreign shareholders or certain affiliates thereof exceeds 20%, WorldCom has the
right to redeem the "excess shares" held by such persons at the fair market
value thereof. Following any determination that such excess shares exist, such
excess shares shall not be deemed outstanding for purposes of determining the
vote required on any matter 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 of Directors. In the
event
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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.
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 The Nasdaq National Market
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.
BUSINESS COMBINATION RESTRICTIONS
In general, Delaware law prevents an "Interested Stockholder" (defined
generally as a person with 15% or more of a corporation's outstanding voting
stock, with the exception of any person who owned and has continued to own
shares in excess of the 15% limitation since December 23, 1987) from engaging in
a "Business Combination" with a Delaware corporation for three years following
the date such person became an Interested Stockholder. The term "Business
Combination" includes mergers or consolidations with an Interested Stockholder
and certain other transactions with an Interested Stockholder, including,
without limitation: (i) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (except proportionately as a stockholder of such corporation)
to or with the Interested Stockholder of assets (except proportionately as a
stockholder of the corporation) having an aggregate market value equal to 10% or
more of the aggregate market value of all assets of the corporation or of
certain subsidiaries thereof determined on a consolidated basis or the aggregate
market value of all the outstanding stock of the corporation; (ii) any
transaction which results in the issuance or transfer by the corporation or by
certain subsidiaries thereof of stock of the corporation or such subsidiary to
the Interested Stockholder, except pursuant to certain transfers in a conversion
or exchange or a pro rata distribution to all stockholders of the corporation or
certain other transactions, none of which increase the Interested Stockholder's
proportionate ownership of any class or series of the corporation's or such
subsidiary's stock; (iii) any transaction involving the corporation or certain
subsidiaries thereof which has the effect, directly or indirectly, of increasing
the proportionate share of the stock of any class or series, or securities
convertible into stock of the corporation or any subsidiary which is owned by
the Interested Stockholder (except as a result of immaterial changes due to
fractional share adjustments or as a result of any purchase or redemption of any
shares of stock not caused directly or indirectly by the Interested
Stockholder); or (iv) any receipt by the Interested Stockholder of the benefit
(except proportionately as a stockholder of such corporation) of any loans,
advances, guarantees, pledges, or other financial benefits provided by or
through the corporation or certain subsidiaries.
The three-year moratorium may be avoided if: (i) before such person became
an Interested Stockholder, the Board of Directors of the corporation approved
either the Business Combination or the transaction in which the Interested
Stockholder became an Interested Stockholder; or (ii) upon consummation of the
transaction which resulted in the stockholder becoming an Interested
Stockholder, the stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the
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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.
Under Georgia law, Georgia corporations may adopt a provision in their
bylaws requiring that "Business Combinations" be approved by a special vote of
the board of directors and/or the shareholders unless certain fair pricing
criteria are met. Georgia corporations may also adopt a provision in their
articles of incorporation or bylaws which requires that "Business Combinations"
with "Interested Shareholders" be approved by a super majority vote. These
provisions, neither of which has been adopted by WorldCom, are described below.
Also described below is the business combination restriction contained in the
WorldCom Articles.
Georgia's "fair price" statute authorizes a corporation to adopt a bylaw
provision which requires special approval by the board of directors and/or
shareholders for "Business Combinations" unless certain "fair price" criteria
are met. Generally, for purposes of this statute, "Business Combination" is
defined to include mergers, sales of assets out of the ordinary course of
business, liquidations, and certain issuances of securities involving the
corporation and any "Interested Shareholder." For purposes of this statute, an
"Interested Shareholder" is defined as a person or entity that is the beneficial
owner of 10% or more of the outstanding shares of the corporation's voting
stock, or a person or entity that is an affiliate of the corporation and, at any
time within the two-year period immediately prior to the date in question, was
the beneficial owner of 10% or more of the then outstanding shares of the
corporation's voting stock. A Business Combination with an Interested
Shareholder must meet one of three criteria: (i) the transaction must be
unanimously approved by the "Continuing Directors" (directors who served as
directors immediately prior to the date the Interested Shareholder first became
an Interested Shareholder and who are not affiliates or associates of the
Interested Shareholder), provided that the Continuing Directors constitute at
least three members of the board of directors at the time of such approval; (ii)
the transaction must be recommended by at least two-thirds of the Continuing
Directors and approved by a majority of the votes entitled to be cast by holders
of voting shares, excluding shares held by the Interested Shareholder; or (iii)
the terms of the transaction must meet fair pricing criteria and certain other
tests intended to assure
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that all shareholders receive a fair price and equivalent consideration for
their shares regardless of when they sell to the acquiring party.
Georgia's "business combination" statute authorizes a corporation to adopt a
bylaw provision which prohibits "Business Combinations" with "Interested
Shareholders" occurring within five years of the date a person first becomes an
Interested Shareholder, unless special approval of the transaction is obtained.
For purposes of this statute, "Business Combination" is defined to include
mergers, sales of 10% or more of the corporation's net assets, and certain
issuances of securities involving the corporation and any "Interested
Shareholder." "Interested Shareholder" has the same definition as under the
Georgia "fair price" statute. Any Business Combination with an Interested
Shareholder within five years of the date such person first became an Interested
Shareholder requires approval in one of three ways: (i) prior to 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
Board of Directors, but if the votes of such Continuing Directors would have
been insufficient to constitute an act of the Board of Directors, then such
transaction must have been approved by the unanimous vote of such Continuing
Directors so long as there were at least three such Continuing Directors serving
on the Board of Directors at the time of such unanimous vote, provided that no
such Continuing Director is a Related Person who has an interest in the Business
Transaction (other than a proportionate interest as a shareholder of WorldCom),
or (b) certain minimum price and procedural requirements are met. A "Business
Transaction" is defined to mean: (i) any merger, share exchange or consolidation
involving WorldCom or any of its subsidiaries; (ii) any sale, lease, exchange,
transfer or other disposition by WorldCom or any of its subsidiaries of more
than 20% of its assets; (iii) any sale, lease, exchange, transfer or disposition
of more than 20% of the assets of an entity to WorldCom or a subsidiary of
WorldCom; (iv) the issuance, sale, exchange, transfer or other disposition by
WorldCom or a subsidiary of WorldCom of any securities of WorldCom or any
subsidiary in exchange for cash, securities or other properties having an
aggregate fair market value of $15.0 million or more; (v) any merger, share
exchange or consolidation between WorldCom and any subsidiary of WorldCom in
which WorldCom is not the survivor and the charter of the surviving corporation
does not contain provisions similar to this provision; (vi) any recapitalization
or reorganization of WorldCom or reclassification of its securities which would
have the effect of increasing the voting power of a Related Person; (vii) any
liquidation, spin off, split off, split up or dissolution of WorldCom; and
(viii) any agreement, contract or other arrangement providing for any of the
Business Transactions defined or having a similar purpose or effect. A "Related
Person" is defined to mean a beneficial owner which, together with its
Affiliates and Associates (defined below), beneficially own 10% or more of
WorldCom's outstanding voting stock or who had such level of beneficial
ownership: (a) at the time of entering into the definitive agreement providing
for the Business Transaction; (b) at the time of adoption by the Board of
Directors of a resolution approving such transaction; or (c) as of the record
date for the determination of shareholders entitled to vote on or consent to the
Business Transaction. A "Continuing Director" is a director of WorldCom who
either was a member of the Board of Directors on September 15, 1993, or who
became a director of WorldCom subsequent to such date and whose election, or
nomination for election by the shareholders, was approved by at least a majority
of the
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Continuing Directors then on the Board of Directors. If the votes of such
Continuing Directors would have been insufficient to constitute an act of the
Board of Directors, then such election or nomination must have been approved by
the unanimous vote of the Continuing Directors so long as there were at least
three such Continuing Directors on the Board of Directors at the time of such
unanimous vote. An "Affiliate" is defined to mean a person that directly, or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control with, such specified person. An "Associate" is defined
to mean: (a) any corporation, partnership or other organization of which such
specified person is an officer or partner; (b) any trust or other estate in
which such specified person has a substantial beneficial interest or as to which
such specified person serves as trustee or in a similar fiduciary capacity; (c)
any relative or spouse of such specified person, or any relative of such spouse,
who has the same home as such specified person or who is a director or officer
of WorldCom or any of its subsidiaries; and (d) any person who is a director,
officer or partner of such specified person or of any corporation (other than
WorldCom or any wholly owned subsidiary of WorldCom), partnership or other
entity which is an Affiliate of such specified person.
MARKET PRICES AND DIVIDENDS
Each of the WorldCom Common Stock, MCI Common Stock and the WorldCom
Depositary Shares is traded on The Nasdaq Stock Market under the symbol "WCOM,"
"MCIC" and "WCOMP," respectively. The following table sets forth the high and
low intra-day sales prices per share of such stock as reported on The Nasdaq
Stock Market based on published financial sources, for the periods indicated.
WorldCom has never paid any cash dividends on its common stock. MCI paid cash
dividends of $.025 per share of MCI Common Stock in July and December of 1995
and 1996 and an equivalent cash dividend on the shares of Class A Common Stock.
The per share information presented below and elsewhere in this Prospectus has
been adjusted to reflect all stock splits and stock dividends of WorldCom and
MCI.
<TABLE>
<CAPTION>
WORLDCOM MCI
COMMON STOCK COMMON STOCK WORLDCOM DEPOSITARY SHARES
-------------------- -------------------- -------------------------------------
HIGH LOW HIGH LOW HIGH LOW DIVIDENDS(1)
--------- --------- --------- --------- ---------- ---------- -------------
<S> <C> <C> <C> <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 98.63 78.25 .68
Second Quarter...................... 32.97 21.25 41.88 35.63 114.50 78.19 .68
Third Quarter....................... 37.75 29.88 43.38 27.31 129.88 106.25 .68
Fourth Quarter (through October 10,
1997)............................. 39.88 33.75 37.19 34.06 136.88 117.50
</TABLE>
- ------------------------
(1) The WorldCom Depositary Shares are entitled to receive dividends, when, as
and if they are declared by the WorldCom Board of Directors, accruing at the
rate of $2.68 per share per annum, payable quarterly in arrears on each
February 28, May 31, August 31 and November 30. Dividends are payable in
cash or in shares of WorldCom Common Stock, at the election of WorldCom.
WorldCom paid the dividends on February 28, 1997, May 31, 1997 and August
31, 1997 in cash and expects to continue to pay dividends in cash on the
Depositary Shares.
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Dividends on the WorldCom Series B Preferred Stock accrue at the rate of
$0.0775 per share per annum and are payable in cash. Dividends will be paid only
when, as and if declared by the WorldCom Board of Directors. WorldCom
anticipates that dividends on the WorldCom Series B Preferred Stock will not be
declared but will continue to accrue. Upon conversion, accrued but unpaid
dividends are payable in cash or shares of Common Stock at WorldCom's election.
LEGAL MATTERS
The validity of the shares of WorldCom offered hereby will be passed upon
for WorldCom by . Certain tax matters with respect to the Merger will
be passed upon for WorldCom by Bryan Cave LLP, St. Louis, Missouri.
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 a 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.
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SCHEDULE A
DIRECTORS AND EXECUTIVE OFFICERS OF WORLDCOM
The name, business address, present principal occupation or employment and
five-year employment history of each of the directors and executive officers of
WorldCom are set forth below. Unless otherwise indicated, each occupation set
forth opposite an individual's name refers to employment with WorldCom. Each
director and executive officer listed below is a citizen of the United States.
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION; FIVE-
NAME ADDRESS COMPANY YEAR EMPLOYMENT HISTORY
- --------------------------- ---------------------------- ----------------------- ---------------------------------
<S> <C> <C> <C>
Carl J. Aycock 123 South Railroad Director Self-employed as a financial
Avenue administrator since 1992;
Brookhaven, MS 39601 Secretary of WorldCom from 1987
to 1995; Secretary and Chief
Financial Officer of Master
Corporation, a motel management
and ownership company, from 1989
until 1992
Max E. Bobbitt Metromedia Asia Corporation Director President and Chief Executive
110 East 42nd St. Officer, Metromedia Asia
Suite 1501 Corporation, a telecommunications
New York, NY 10017 company; from 1996 until February
1997, President and Chief
Executive Officer of Asian
American Telecommunications
Corporation; prior to 1996,
various positions, including
President and Chief Operating
Officer and director of ALLTEL
Corporation, a telecommunications
company
Bernard J. Ebbers 515 East Amite Street Director, Chairman, Chairman of the Board of WorldCom
Jackson, MS 39201-2702 President and Chief since September 1997; President
Executive Officer and Chief Executive Officer of
WorldCom, since 1985
Francesco Galesi Galesi Group Director Chairman and Chief Executive
435 East 52nd Street Officer, Galesi Group, which
New York, NY 10022 includes companies engaged in
distribution, manufacturing, real
estate and telecommunications.
</TABLE>
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<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION; FIVE-
NAME ADDRESS COMPANY YEAR EMPLOYMENT HISTORY
- --------------------------- ---------------------------- ----------------------- ---------------------------------
<S> <C> <C> <C>
Richard R. Jaros 9968 Spring Street Director Private investor; from July 1996
Omaha, NE 68124 to July 1997, President of Kiewit
Diversified Group, Inc., a coal
mining and telecommunications
company; from April 1993 to July
1997, Executive Vice President
and Chief Financial Officer of
Peter Kiewit Sons' ("PKS"), a
construction and mining company;
and Vice President of PKS from
1990 until 1992.
Stiles A. Kellet, Jr. Kellet Investment Corp. Director Chairman of Kellet Investment
200 Galleria Parkway, Corp. since 1995; from 1978 to
Suite 1800 1995, Chairman of the Board of
Atlanta, GA 30339 Directors of Convalescent
Services, Inc., a long-term
health care company in Atlanta,
Georgia
David C. McCourt C-TEC Corporation Director Chairman of the Board and Chief
105 Carnegie Center Executive Officer, C- TEC
Princeton, NJ 08540 Corporation, a telecommunications
company, since October 1993;
currently also President and
director of Kiewit Telecom
Holdings, Inc.; has served as
President of Metropolitan Fiber
Systems/McCourt, Inc., a
subsidiary of MFS Telecom, since
1988
John A. Porter 295 Bay Street Director Chairman of the Board of
Suite #2 Directors and Chief Executive
Easton, MD 21601 Officer, Industrial Electric
Manufacturing, Inc., a
manufacturer of electrical power
distribution products, from May
1995 until the present; Mr.
Porter was previously President
and sole shareholder of P.M.
Restaurant Group, Inc. which
filed for protection under
Chapter 11 of the U.S. Bankruptcy
Code in March 1995; subsequent to
March 1995, Mr. Porter sold all
of his shares in P.M. Restaurant
Group, Inc.
</TABLE>
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<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION; FIVE-
NAME ADDRESS COMPANY YEAR EMPLOYMENT HISTORY
- --------------------------- ---------------------------- ----------------------- ---------------------------------
<S> <C> <C> <C>
John W. Sidgmore UUNET Technologies, Inc. Director, Vice Chairman Vice Chairman of the Board and
3060 Williams Drive Fairfax, of the Board and Chief Chief Operations Officer,
VA 22031 Operations Officer WorldCom, Inc.; President and
Chief Operating Officer of MFS
from August 1996 until the MFS
Merger; Chief Executive Officer
and director of UUNET from June
1994 to the present; President of
UUNET from June 1994 to August
1996 and from January 1997 to
September 1997; and from 1989 to
1994, President and Chief
Executive Officer of CSC
Intelicom
Scott D. Sullivan 515 East Amite Street Director, Chief Chief Financial Officer and
Jackson, MS 39201-2702 Financial Officer and Secretary, WorldCom; from the ATC
Secretary Merger until December 1994, Vice
President and Assistant Treasurer
of WorldCom; from 1989 until
1992, served as an executive
officer of two long distance
companies, including ATC; from
1983 to 1989, served in various
capacities with KPMG Peat Marwick
LLP
Lawrence C. Tucker Brown Brothers Harriman & Director General Partner, Brown Brothers
Co. Harriman & Co., which is the
59 Wall Street general and managing partner of
New York, NY 10005 The 1818 Fund, L.P. and The 1818
Fund II, L.P.
</TABLE>
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SHARES TENDERED, TOGETHER WITH THE REQUISITE LETTERS OF
TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS, MUST BE DELIVERED TO THE EXCHANGE
AGENT,
IBJ SCHRODER BANK & TRUST COMPANY
FACSIMILE:
(212)858-2611
CONFIRM BY TELEPHONE:
(212)858-2103
<TABLE>
<S> <C>
BY MAIL: BY HAND/OVERNIGHT DELIVERY:
P.O. Box 84 One State Street
Bowling Green Station New York, New York 10004
New York, New York 10274-0084 Attention: Reorganization Operations Dept.
Attention: Reorganization Dept. Securities Processing Window SC-1
</TABLE>
ANY QUESTIONS CONCERNING TENDER PROCEDURES OR REQUESTS FOR ADDITIONAL COPIES OF
THIS PROSPECTUS, THE LETTER OF TRANSMITTAL, OR NOTICES OF GUARANTEED DELIVERY
SHOULD BE DIRECTED TO THE INFORMATION AGENT,
MACKENZIE PARTNERS, INC.
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (collect)
(800) 322-2885 (toll free)
THE DEALER MANAGER FOR THE OFFER IS:
SALOMON BROTHERS INC
SEVEN WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(212) 783-8141 (collect)
