<PAGE> 1
PROSPECTUS Registration Number 333-56895
Filed Pursuant Rule 424(b)(3)
846,154 SHARES
WORLDCOM, INC.
COMMON STOCK
-------------------------
This Prospectus relates to 846,154 shares (the "Shares") of common
stock, par value $.01 per share (the "Common Stock"), of WorldCom, Inc., a
Georgia corporation ("WorldCom" or the "Company"). The Shares are held by David
C. McCourt, Michael A. Adams, Nicolas A. Kensington and Costa Kensington (the
"Selling Shareholders"), who include certain former shareholders of McCourt
Fiber Network, Inc., a Massachusetts corporation. See "Selling Shareholders."
WorldCom will not receive any proceeds from the sale of Shares by the
Selling Shareholders. All expenses incurred in connection with this offering are
being borne by the Company, other than any commissions or discounts paid or
allowed by the Selling Shareholders to underwriters, dealers, brokers or agents.
The Selling Shareholders have not advised the Company of any specific
plans for the distribution of the Shares, but it is anticipated that the Shares
may be sold from time to time in transactions (which may include block
transactions) on The Nasdaq National Market at the market prices then
prevailing. Sales of the Shares may also be made through negotiated transactions
or otherwise. The Selling Shareholders and the brokers and dealers through which
the sales of the Shares may be made may be deemed to be "underwriters" within
the meaning set forth in the Securities Act of 1933, as amended, and their
commissions and discounts and other compensation may be regarded as
underwriters' compensation. See "Plan of Distribution."
The Common Stock is traded on The Nasdaq National Market under the
symbol "WCOM." The last reported sale price of the Common Stock as reported on
The Nasdaq National Market on June 22, 1998, was $47 9/16 per share.
-------------------------
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 date of this Prospectus is June 23, 1998.
<PAGE> 2
NO PERSON HAS BEEN AUTHORIZED BY WORLDCOM TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY WORLDCOM. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR
SOLICITATION TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER
THAN THE SHARES TO WHICH IT RELATES OR AN OFFER OR SOLICITATION TO ANY PERSON IN
ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY DISTRIBUTION OF THE SECURITIES OFFERED
HEREBY SHALL, UNDER ANY CIRCUMSTANCES, IMPLY OR CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF WORLDCOM OR IN THE INFORMATION SET
FORTH OR INCORPORATED BY REFERENCE HEREIN SUBSEQUENT TO THE DATE HEREOF.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
AVAILABLE INFORMATION.............................................................................................1
INCORPORATION OF DOCUMENTS BY REFERENCE...........................................................................2
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS.........................................................3
RISK FACTORS......................................................................................................3
PLAN OF DISTRIBUTION.............................................................................................11
INFORMATION REGARDING WORLDCOM...................................................................................12
INFORMATION REGARDING SELLING SHAREHOLDERS.......................................................................14
DESCRIPTION OF WORLDCOM CAPITAL STOCK............................................................................15
EXPERTS..........................................................................................................23
</TABLE>
AVAILABLE INFORMATION
WorldCom is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith file reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by WorldCom may be inspected and copied
at the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Commission's regional offices located at Northeast Regional Office, Seven World
Trade Center, Suite 1300, New York, New York 10048 and Midwest Regional Office,
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials can also be obtained from the Public Reference Section
of the Commission, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Commission maintains a Web site that contains
reports, proxy and information statements and other materials that are filed
through the Commission's Electronic Data Gathering, Analysis and Retrieval
("EDGAR") system. This Web site can be accessed at http://www.sec.gov. In
addition, material filed by WorldCom 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-3 (together with all amendments and exhibits thereto, the "Registration
Statement") filed by WorldCom under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Shares offered hereby. As permitted by
the rules and regulations of the Commission, this Prospectus omits certain
information contained or incorporated by reference in the Registration
Statement. Reference is made to the Registration Statement for further
information with respect to WorldCom and the WorldCom Common Stock. Statements
contained in this Prospectus as to the contents of any contract or other
<PAGE> 3
document filed as an exhibit to the Registration Statement are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement. Each such
statement is qualified in its entirety by such reference. For further
information, reference is hereby made to the Registration Statement.
"WorldCom" is a service mark of the Company.
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents filed with the Commission by WorldCom (formerly
Resurgens Communications Group, Inc. ("Resurgens")) under File No. 0-11258
(formerly File No. 1-10415) pursuant to the Exchange Act are incorporated herein
by reference:
(1) WorldCom's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997 (the "WorldCom 1997 Form 10-K");
(2) WorldCom's Quarterly Report on Form 10-Q for the three
months ended March 31, 1998;
(3) WorldCom's Current Reports on Form 8-K dated August 25,
1996 (filed August 26, 1996, and as amended on Forms 8-K/A filed
November 4, 1996, November 20, 1996, and December 19, 1997), November
9, 1997 (filed November 12, 1997, and as amended on Forms 8-K/A-1 filed
January 27, 1998 (the "January 1998 Form 8-K"), and on Form 8-K/A-2
filed January 28, 1998 and on Form 8-K/A-3 filed May 28, 1998), January
29, 1998 (filed February 12, 1998) and May 28, 1998 (filed May 28,
1998);
(4) the description of WorldCom's (formerly Resurgens')
Common Stock as contained in Item 1 of Resurgens' Registration
Statement on Form 8-A dated December 12, 1989, as updated by the
descriptions contained in WorldCom's Registration Statement on Form S-4
(File No. 333-16015), as declared effective by the Commission on
November 14, 1996, which includes the Joint Proxy Statement/Prospectus
dated November 14, 1996 with respect to WorldCom's Special Meeting of
Shareholders held on December 20, 1996, under the following captions:
"Description of WorldCom Capital Stock" and "Comparative Rights of
Shareholders";
(5) the description of WorldCom's Preferred Stock Purchase
Rights contained in WorldCom's Registration Statement on Form 8-A dated
August 26, 1996, as updated by WorldCom's Current Report on Form 8-K
dated May 22, 1997 (filed June 6, 1997); and
(6) the description of the WorldCom Series B Convertible
Preferred Stock (the "WorldCom Series B Preferred Stock") contained in
WorldCom's Registration Statement on Form 8-A dated November 13, 1996.
All documents filed by WorldCom 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
2
<PAGE> 4
REFERENCE INTO THE INFORMATION INCORPORATED HEREIN) WILL BE PROVIDED BY FIRST
CLASS MAIL WITHOUT CHARGE TO EACH PERSON TO WHOM THIS PROSPECTUS IS DELIVERED,
UPON WRITTEN OR ORAL REQUEST BY SUCH PERSON, TO WORLDCOM, INC., 515 EAST AMITE
STREET, JACKSON, MISSISSIPPI 39201-2702, ATTENTION: STEPHANIE Q. SCOTT, DIRECTOR
OF FINANCIAL REPORTING (TELEPHONE: (601) 360-8600).
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The following statements are or may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (the "PSLRA"):
(i) certain statements, including possible or assumed future results of
operations of WorldCom, CompuServe Corporation ("CompuServe"), MCI
Communications Corporation ("MCI"), Brooks Fiber Properties, Inc. ("BFP"), ANS
Communications, Inc. ("ANS"), and the combined companies contained in "Risk
Factors" and "Information Regarding WorldCom -- Recent Developments," including
any forecasts, projections and descriptions of anticipated cost savings or other
synergies referred to therein, and certain statements incorporated by reference
from documents filed with the Commission by WorldCom and MCI, including any
statements contained herein or therein regarding the development of possible or
assumed future results of operations of WorldCom's and MCI's businesses, the
markets for WorldCom's and MCI's services and products, anticipated capital
expenditures, regulatory developments, competition or the effects of the pending
merger (the "MCI/WorldCom Merger") of MCI with and into TC Investments Corp., a
wholly owned subsidiary of WorldCom ("MCI Merger Sub"), the recently completed
merger (the "CompuServe Merger") of a wholly owned subsidiary of WorldCom with
and into CompuServe, the recently completed transactions (the "AOL Transaction")
contemplated by the Purchase and Sale Agreement (the "AOL Agreement") with
America Online, Inc. ("AOL") or the recently completed merger (the "BFP Merger")
of a wholly owned acquisition subsidiary of WorldCom with and into BFP;
(ii) any statements preceded by, followed by or that include the words
"believes," "expects," "anticipates," "intends" or similar expressions; and
(iii) other statements contained or incorporated by reference herein
regarding matters that are not historical facts.
Because such statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements; factors that could cause actual results to differ
materially include, but are not limited to, those discussed under "Risk
Factors." Potential purchasers of WorldCom Common Stock are cautioned not to
place undue reliance on such statements, which speak only as of the date
thereof.
The independent public accountants have not examined or compiled the
accompanying forward-looking statements or any forecasts or other projections
referred to herein and, accordingly, do not provide any assurance with respect
to such statements.
The cautionary statements contained or referred to in this section
should be considered in connection with any subsequent written or oral
forward-looking statements that may be issued by WorldCom or persons acting on
its behalf. WorldCom does not undertake any obligation to release publicly any
revisions to such forward-looking statements to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
RISK FACTORS
Prospective purchasers of WorldCom Common Stock should carefully
consider all of the information contained in this Prospectus, including the
following factors, in evaluating WorldCom and its business before purchasing
such WorldCom Common Stock. In particular, prospective investors should note
that this Prospectus contains forward-looking statements within the meaning of
the PSLRA and that actual results could differ materially
3
<PAGE> 5
from those contemplated by such statements. See "Cautionary Statement Regarding
Forward Looking Statements." The factors listed below represent certain
important factors the Company believes could cause such results to differ. These
factors are not intended to represent a complete list of the general or specific
risks that may affect the Company. It should be recognized that other risks may
be significant, presently or in the future, and the risks set forth below may
affect the Company to a greater extent than indicated.
RISKS RELATED TO THE MCI/WORLDCOM MERGER AND OTHER ACQUISITIONS
Uncertainties in Integrating the Acquired Companies and Achieving Cost Savings
WorldCom entered into the MCI/WorldCom Merger Agreement (as defined
herein), and recently completed the BFP Merger, the CompuServe Merger and the
AOL Transaction, in each case with the expectation that the transactions will
result in certain benefits, including, without limitation, cost savings,
operating efficiencies, revenue enhancements and other synergies. See
"Information Regarding WorldCom -- Recent Developments." Achieving the benefits
of the MCI/WorldCom Merger (which would be significantly larger than previous
acquisitions completed by WorldCom), the BFP Merger, the CompuServe Merger and
the AOL Transaction, will depend in part upon the integration of the businesses
of WorldCom together with MCI, BFP, CompuServe Network Services ("CNS") and ANS,
in an efficient manner, and there can be no assurance that this will occur. The
consolidation of operations will require substantial attention from management.
The diversion of management attention and any difficulties encountered in the
transition and integration processes could have a material adverse effect on the
revenues, levels of expenses and operating results of the combined companies.
There can be no assurance that the combined companies will realize any of their
anticipated benefits. For a discussion of other factors and assumptions related
to the synergy estimates see "Item 5. Other Events - The MCI/WorldCom Merger -
Effects of the MCI/WorldCom Merger; Estimated Synergies" contained in the
January 1998 Form 8-K incorporated herein by reference.
Necessity of Receiving Governmental Approvals Prior to the MCI/WorldCom Merger;
Risks Associated with Failure to Obtain Approvals of Certain Governmental
Authorities
The consummation of the MCI/WorldCom Merger is conditioned upon the
expiration or termination of the applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"Hart-Scott-Rodino Act"), and confirmation from the Commission of the European
Communities (the "European Commission") by way of a decision under Council
Regulation 4064/89 (the "Merger Control Regulation") that the MCI/WorldCom
Merger does not create or strengthen a dominant position as a result of which
competition would be significantly impeded in the European common market. The
waiting period under the Hart-Scott-Rodino Act expired on March 31, 1998,
although the U.S. Department of Justice is continuing to review the transaction.
In addition, other authorizations and approvals of various governmental
agencies, both domestic and foreign, with respect to the transactions
contemplated by the MCI/WorldCom Merger Agreement, relating primarily to the
Federal Communications Commission (the "FCC"), and state public utility or
service commissions ("PUCs"), must be received prior to consummation of the
MCI/WorldCom Merger. There can be no assurance that such authorizations,
approvals or decisions will be granted, or, if granted will not contain certain
material conditions or restrictions, that an injunction will not be issued by a
court of competent jurisdiction enjoining the consummation of the MCI/WorldCom
Merger or that a challenge to the MCI/WorldCom Merger on the grounds that it
violates U.S. antitrust laws or is not compatible with the European common
market will not be made, or if a challenge is made, what the result will be.
Consummation of the MCI/WorldCom Merger is subject to additional
approvals from certain governmental authorities. If such approvals have not been
received at such time as all other material conditions to the MCI/WorldCom
Merger have been satisfied or waived, MCI and WorldCom may nonetheless determine
to consummate the MCI/WorldCom Merger. Although MCI and WorldCom are seeking
such approvals, it is uncertain whether such approvals will be timely received
from, among others, every jurisdiction in which MCI and WorldCom are authorized
to do business. If MCI and WorldCom determine to consummate the MCI/WorldCom
Merger without having received all such approvals, no assurance can be given
that any resulting loss of business would not have a material adverse effect on
the businesses, prospects, financial condition or results of operations of
4
<PAGE> 6
WorldCom and MCI on a combined basis. See "Item 5. Other Events -- The
MCI/WorldCom Merger -- Certain Regulatory Filings and Approvals" contained in
the January 1998 Form 8-K incorporated herein by reference.
The Effect of Stock Price Fluctuations
The relative stock prices of Common Stock in the future may vary
significantly from the prices as of the date hereof. These variances may be due
to changes in the businesses, operations, results and prospects of WorldCom, as
well as MCI, market assessments of the likelihood that the MCI/WorldCom Merger
will be consummated and the timing thereof, the effect of any conditions or
restrictions imposed on or proposed with respect to any of the combined
companies by regulatory agencies in connection with or following consummation of
the MCI/WorldCom Merger, general market and economic conditions, and other
factors. In addition, the stock market generally has experienced significant
price and volume fluctuations. These market fluctuations could have a material
adverse effect on the market price or liquidity of WorldCom Common Stock.
RISKS RELATING TO THE BUSINESSES AND OPERATIONS OF WORLDCOM
Investors should be aware that business and other risks described
herein as applicable to WorldCom are generally also applicable to MCI.
Debt Service, Interest Rate Fluctuations, Other Restrictive Covenants and
Capital Spending
In connection with the MCI/WorldCom Merger, WorldCom has agreed to pay
British Telecommunications plc ("BT") $51.00 in cash without interest for each
share of Class A common stock ("MCI Class A Common Stock") of MCI it owns, or
$6.94 billion in the aggregate. Additionally, WorldCom has paid BT a fee of $465
million to induce BT to terminate the previously signed BT/MCI Merger Agreement
(as defined herein) and enter into the BT Agreement (as defined herein). See
"Information Regarding WorldCom -- Recent Developments -- The MCI/WorldCom
Merger." WorldCom expects to fund the remaining commitment through a combination
of commercial bank and public debt financings. The MCI/WorldCom Merger is
expected to close by mid-year 1998, and therefore funding of this commitment is
not expected to occur until the second half of 1998. Increases in interest rates
on WorldCom's debt would have an adverse effect upon WorldCom's reported net
income and cash flow. WorldCom believes that the combined operations of
WorldCom, CNS, ANS, and, upon consummation of the MCI/WorldCom Merger, MCI,
would generate sufficient cash flow to service WorldCom's debt and capital
requirements; however, economic downturns, increased interest rates and other
adverse developments, including factors beyond WorldCom's control, could impair
its ability to service its indebtedness. In addition, the cash flow required to
service WorldCom's debt may reduce its ability to fund internal growth,
additional acquisitions and capital improvements.
The development of the businesses of the combined companies and the
installation and expansion of their domestic and international networks would
continue to require significant capital expenditures. Failure to have access to
sufficient funds for capital expenditures on acceptable terms or the failure to
achieve capital expenditure synergies may require the combined company to delay
or abandon some of its plans, which could have a material adverse effect on the
success of the combined company. The Company has historically utilized a
combination of cash flow from operations and debt to finance capital
expenditures and a mixture of cash flow, debt and stock to finance acquisitions.
The Company expects to experience increased capital intensity due to network
expansion and merger related expenses as noted above and believes that funding
needs in excess of internally generated cash flow and the Company's existing
credit facilities will be met by accessing the debt markets. The Company has
filed shelf registration statements on Form S-3 with the Commission for the
sale, from time to time, of one or more series of unsecured debt securities
having an aggregate value of $6.0 billion. The Company expects to utilize the
shelf registrations in connection with the MCI/WorldCom Merger and the $6.94
billion payment to BT during 1998. No assurance can be given that any public
financing will be available on terms acceptable to the Company.
5
<PAGE> 7
Acquisition Integration
A major portion of WorldCom's growth in recent years has resulted from
acquisitions, which involve certain operational and financial risks. Operational
risks include the possibility that an acquisition does not ultimately provide
the benefits originally anticipated by WorldCom's management, while WorldCom
continues to incur operating expenses to provide the services formerly provided
by the acquired company. Financial risks involve the incurrence of indebtedness
as a result of the acquisition and the consequent need to service that
indebtedness. In addition, the issuance of stock in connection with acquisitions
dilutes the voting power and may dilute the economic interests of existing
shareholders. In carrying out its acquisition strategy, WorldCom attempts to
minimize the risk of unexpected liabilities and contingencies associated with
acquired businesses through planning, investigation and negotiation, but there
can be no assurance that it will be successful in doing so. In addition, there
can be no assurance that WorldCom will be successful in identifying attractive
acquisition candidates or completing additional acquisitions on favorable terms.
Risks of International Business
The Company derives substantial revenues from providing international
communications services to United States commercial and carrier customers. Such
operations are subject to certain risks such as changes in United States or
foreign government regulatory policies, disruption, suspension or termination of
operating agreements, and currency fluctuations. In particular, the Company's
revenues and costs of sales are sensitive to changes in international settlement
rates and international traffic routing patterns. The rates that the Company can
charge its customers for international services may decrease in the future due
to the entry of new carriers with substantial resources, aggressiveness on the
part of new or existing carriers, the widespread resale of international private
lines to provide switched voice services, the provision of international
services via non-traditional means including the Internet, the consummation of
mergers, joint ventures and alliances among large international carriers that
facilitate targeted pricing and cost reductions, and the rapid growth of
international circuit capacity due to the deployment of new undersea fiber optic
cables and new high capacity satellite systems in the Atlantic, Pacific and
Indian Ocean regions.
Risks of Overseas Business Operations
The Company derives substantial revenues from providing services to
customers in overseas locations, particularly the United Kingdom and Germany.
Such operations are subject to certain risks such as changes in the legal and
regulatory policies of the foreign jurisdiction, local political and economic
developments, currency fluctuations, exchange controls, royalty and tax
increases, retroactive tax claims, expropriation, and import and export
regulations and other laws and policies of the United States affecting foreign
trade, investment and taxation. In addition, in the event of any dispute arising
from foreign operations, the Company may be subject to the exclusive
jurisdiction of foreign courts and may not be successful in subjecting foreign
persons or entities to the jurisdiction of the courts in the United States.
WorldCom may also be hindered or prevented from enforcing its rights with
respect to foreign governments because of the doctrine of sovereign immunity.
There can be no assurance that the laws, regulations or administrative practices
of foreign countries relating to WorldCom's ability to do business in that
country will not change. Any such change could have a material adverse effect on
WorldCom's financial condition and results of operations.
Rapid Technological Change; Dependence upon Product Development
The telecommunications industry is subject to rapid and significant
changes in technology. While WorldCom does not believe that, for the foreseeable
future, these changes will either materially or adversely affect the continued
use of fiber optic cable or materially hinder its ability to acquire necessary
technologies, the effect of technological changes, including changes relating to
emerging wireline and wireless transmission and switching technologies, on the
businesses of WorldCom cannot be predicted.
6
<PAGE> 8
The market for the data communications products and services of UUNET
Technologies, Inc., a wholly owned subsidiary of WorldCom ("UUNET"), CNS and
ANS, including Internet access and related products, is characterized by rapidly
changing technology, evolving industry standards, emerging competition and
frequent new product and service introductions. There can be no assurance that
the Company will successfully identify new product and service opportunities and
develop and bring new products and services to market in a timely manner. The
Company also will be at risk from fundamental changes in the way data
communications, including Internet access, services are marketed and delivered.
The Company's Internet service strategy assumes that the Transmission Control
Protocol/Internet Protocol, utilizing fiber optic or copper-based
telecommunications infrastructures, will continue to be the primary protocol and
transport infrastructure for Internet-related services. Emerging transport
alternatives include wireless cable modems and satellite delivery of Internet
information; alternative open protocol and proprietary protocol standards have
been or are being developed. WorldCom's pursuit of necessary technological
advances may require substantial time and expense, and there can be no assurance
that WorldCom will succeed in adapting its data communications services business
to alternate access devices, conduits and protocols.
Regulation Risks
WorldCom's operating subsidiaries are subject to varying degrees of
federal, state, local and international regulation. In the United States,
WorldCom's subsidiaries are most heavily regulated by the states, especially for
the provision of local exchange services. Each such subsidiary must be
separately certified in each state to offer local exchange and intrastate long
distance services. No state, however, subjects WorldCom to price cap or rate of
return regulation, nor is WorldCom currently required to obtain FCC
authorization for installation or operation of its network facilities used for
domestic services, other than licenses for specific terrestrial microwave and
satellite earth station facilities which utilize radio frequency spectrum. FCC
approval is required, however, for the installation and operation of
international facilities and services. WorldCom is subject to varying degrees of
regulation in the foreign jurisdictions in which it conducts business including
authorization for the installation and operation of network facilities. Although
the trend in federal, state, local and international regulation appears to favor
increased competition, no assurance can be given that changes in current or
future regulations adopted by the FCC, state or foreign regulators or
legislative initiatives in the United States and abroad would not have a
material adverse effect on WorldCom.
General. On February 8, 1996, President Clinton signed the
Telecommunications Act of 1996 (the "Telecom Act"), which permits the Bell
Operating Companies (the "BOCs") to provide domestic and international long
distance services to customers located outside of the BOCs' home regions;
permits a petitioning BOC to provide domestic and international long distance
services to customers within its operating area on a state by state basis upon a
finding by the FCC that a petitioning BOC has satisfied certain criteria for
opening up its local exchange network to competition and that its provision of
long distance services would further the public interest; and removes existing
barriers to entry into local service markets. Additionally, there were
significant changes in: the manner in which carrier-to-carrier arrangements are
regulated at the federal and state level; procedures to revise universal service
standards; and penalties for unauthorized switching of customers. The FCC has
instituted and, in most instances completed, proceedings addressing the
implementation of this legislation.
In implementing the Telecom Act, the FCC established nationwide rules
designed to encourage new entrants to participate in the local services markets
through interconnection with the incumbent local exchange carriers ("ILECs"),
resale of ILECs' retail services, and use of individual and combinations of
unbundled network elements. These rules set the groundwork for the statutory
criteria governing BOC entry into the long distance market. Appeals of the FCC
order adopting those rules were consolidated before the United States Court of
Appeals for the Eighth Circuit (the "Eighth Circuit"). The Eighth Circuit found
constitutional challenges to certain practices implementing cost provisions of
the Telecom Act that were ordered by certain PUCs to be premature, but vacated
significant portions of the FCC's nationwide pricing rules, and vacated an FCC
rule requiring that unbundled network elements be provided on a combined basis.
In response to requests by the Solicitor General, on behalf of the FCC, and
certain other parties, including WorldCom, the United States Supreme Court has
agreed to review the decision of the Eighth Circuit. Certain BOCs have also
raised constitutional challenges to provisions of the
7
<PAGE> 9
Telecom Act restricting BOC provision of long distance services, manufacturing
of telecommunications equipment, electronic publishing and alarm monitoring
services. On December 31, 1997, the United States District Court for the
Northern District of Texas (the "Texas District Court") ruled that these
restrictions violate the Bill of Attainder Clause of the U.S. Constitution.
Currently, this decision only applies to SBC Corporation ("SBC"), US WEST
Communications Group ("US WEST"), and Bell Atlantic Corporation ("Bell
Atlantic"). At the request of various parties, on February 11, 1998 the Texas
District Court issued a stay of its decision pending appeal. AT&T Corp.
("AT&T"), MCI, the Department of Justice, the FCC and other parties have
appealed the decision to the United States Court of Appeals for the Fifth
Circuit. BellSouth Corporation ("BellSouth") raised the Bill of Attainder issue
in its appeal before the United States Court of Appeals for the Fifth Circuit of
the electronic publishing restrictions imposed under the Telecom Act. The Fifth
Circuit held that the Telecom Act did not constitute a Bill of Attainder in
respect to BellSouth's activities in the electronic publishing business.
WorldCom cannot predict either the ultimate outcome of these or future
challenges to the Telecom Act, any related appeals of regulatory or court
decisions, or the eventual effect on its businesses or the industry in general.
The FCC has denied applications filed by Ameritech Corporation
("Ameritech"), SBC and BellSouth seeking authority to provide inter-local access
transport area ("interLATA") long distance service in Michigan, Oklahoma,
Louisiana and South Carolina, respectively. SBC appealed the FCC's denial of its
application covering Oklahoma to the United States Court of Appeals for the
District of Columbia Circuit. The Court has affirmed the FCC's denial of that
application. In its denial of an Ameritech application and a BellSouth
application, the FCC provided detailed guidance to applicants regarding the
obligations of the applicants, the format of future applications, the content of
future applications, and the review standards that it will apply in evaluating
any future applications. The National Association of Regulatory Utility
Commissioners and several state regulatory commissions have appealed
jurisdictional aspects of that Ameritech application denial to the Eighth
Circuit. WorldCom cannot predict either the outcome of these appeals, or the
BOCs' willingness to abide by these FCC guidelines, or the timing or outcome of
future applications submitted to the FCC. Additionally, several Regional Bell
Operating Companies ("RBOCs") have filed petitions requesting that the FCC
forbear from imposing the line of business restrictions upon their data service
offerings and the data network deployment. Other BOCs have filed or announced
their intention to file applications at the FCC for authority to provide
interLATA services. Additionally, the FCC and several PUCs are considering a
proposal that would allow BOCs electing to create separate wholesale network and
retail organizations to enter the long distance market on an accelerated basis.
WorldCom cannot predict the outcome of these proceedings or whether the outcome
will have a material impact upon its consolidated financial position or results
of operations.
On May 7, 1997, the FCC announced that it will issue a series of orders
that will reform Universal Service Subsidy allocations and adopted various
reforms to the existing rate structure for interstate access services provided
by the ILECs that are designed to reduce access charges, over time, to more
economically efficient levels and rate structures. It also affirmed that
information service providers (including, among others, Internet service
providers ("ISPs")) should not be subject to existing access charges ("ISP
Exemption"). Petitions for reconsideration of, among other things, the access
service and ISP Exemption related actions were filed before the FCC and appeals
taken to various United States Courts of Appeals. On reconsideration, the FCC in
significant part affirmed the access charge and ISP Exemption actions and the
court appeals have been consolidated before the Eighth Circuit. Also, several
state agencies have started proceedings to address the reallocation of implicit
subsidies contained in the access rates and retail service rates to state
universal service funds. Access charges are a principal component of WorldCom's
telecommunication expense. Additionally, modification of the ISP Exemption could
have an adverse effect on the Company's Internet-related services business.
WorldCom cannot predict either the outcome of these appeals or whether or not
the result(s) will have a material impact upon its consolidated financial
position or results of operations.
The FCC issued on December 24, 1996, a Notice of Inquiry to seek
comment on whether it should consider various actions relating to interstate
information services and the Internet. The FCC recognized that these services
and recent technological advances may be constrained by current regulatory
practices that have their foundations in traditional circuit switched
telecommunications services and technologies. Based upon this and other
proceedings, the FCC may permit telecommunications companies, BOCs, or others to
increase the scope or reduce the cost of
8
<PAGE> 10
their Internet access services. WorldCom cannot predict the effect that the
Notice of Inquiry, the Telecom Act or any future legislation, regulation or
regulatory changes may have on its consolidated financial position or results of
operations.
International. In December 1996, the FCC adopted a new policy that
makes it easier for United States international carriers to obtain authority to
route international public switched voice traffic to and from the United States
outside of the traditional settlement rate and proportionate return regimes. In
February 1997, the United States entered into a World Trade Organization
Agreement (the "WTO Agreement") that should have the effect of liberalizing the
provision of switched voice telephone and other telecommunications services in
scores of foreign countries over the next several years. The WTO Agreement
became effective in February 1998. In order to comply with United States
commitments to the WTO Agreement, the FCC implemented new rules in February 1998
that liberalize existing policies regarding (i) the services that may be
provided by foreign affiliated United States international common carriers,
including carriers controlled or more than 25 percent owned by foreign carriers
that have market power in their home markets, and (ii) the provision of
international switched voice services outside of the traditional settlement rate
and proportionate return regimes. The new rules make it much easier for foreign
affiliated carriers to enter the United States market for the provision of
international services.
In August 1997, the FCC adopted mandatory settlement rate benchmarks.
These benchmarks are intended to reduce the rates that United States carriers
pay foreign carriers to terminate traffic in their home countries. The FCC will
also prohibit a United States carrier affiliated with a foreign carrier from
providing facilities-based service to the foreign carrier's home market until
and unless the foreign carrier has implemented a settlement rate within the
benchmark. The FCC also adopted new rules that will liberalize the provision of
switched services over private lines to World Trade Organization member
countries, by allowing such services on routes where 50% or more of United
States billed traffic is being terminated in the foreign country at or below the
applicable settlement rate benchmark or where the foreign country's rules
concerning provision of international switched services over private lines are
deemed equivalent to United States rules.
Although the FCC's new policies and implementation of the WTO Agreement
may result in lower costs to WorldCom to terminate international traffic, there
is a risk that the revenues that WorldCom will receive from inbound
international traffic may decrease to an even greater degree. The implementation
of the WTO Agreement may also make it easier for foreign carriers with market
power in their home markets to offer United States and foreign customers
end-to-end services to the disadvantage of WorldCom, which may continue to face
substantial obstacles in obtaining from foreign governments and foreign carriers
the authority and facilities to provide such end-to-end services. Further, many
foreign carriers have challenged, in court and at the FCC, the FCC's order
adopting mandatory settlement rate benchmarks. If the FCC's settlement rate
benchmark order was overturned, it could accelerate the full-fledged entry of
foreign carriers into the United States, and make it more advantageous for
foreign carriers to route international traffic into the United States at low,
cost-based termination rates, while United States carriers would continue to
have little choice but to route international traffic into most foreign
countries at much higher, above cost, settlement rates.
Competition
Virtually every aspect of the telecommunications industry is extremely
competitive, and WorldCom expects that competition will intensify in the future.
WorldCom (including UUNET, CNS, ANS and BFP) faces significant competition from
carriers and other companies with greater market share and financial resources.
WorldCom competes domestically with incumbent providers, which have historically
dominated local telecommunications, and with long distance carriers, for the
provision of long distance services. Sometimes the incumbent provider offers
both local and long distance services. The ILECs presently have numerous
advantages as a result of their historic monopoly control over local exchanges.
A continuing trend toward business combinations and alliances in the
telecommunications industry may create significant new competitors to WorldCom.
Many of WorldCom's existing and potential competitors have financial, personnel
and other resources significantly greater than those of WorldCom. WorldCom also
faces competition from one or more competitors in every area of their
businesses, including competitive access providers operating fiber optic
networks, in some cases in conjunction with
9
<PAGE> 11
the local cable television operator. Several competitors have announced the
deployment of nationwide fiber networks using advanced state-of-the-art
technologies. AT&T and Sprint Corporation ("Sprint") have indicated their
intention to offer local telecommunications services in major United States
markets using their own facilities, including in AT&T's case, the announced
acquisition of the facilities and business of Teleport Communications Group,
Inc., or by resale of the local exchange carriers' or other providers' services.
In addition, WorldCom competes with equipment vendors and installers and
telecommunications management companies with respect to certain portions of
their businesses.
Overseas, WorldCom competes with incumbent providers, some of which
still have special regulatory status and the exclusive rights to provide certain
services, and virtually all of which have historically dominated their local,
domestic long distance and international services business. These incumbent
providers have numerous advantages, including existing facilities, customer
loyalty and substantial financial resources. WorldCom also competes with other
service providers, many of which are affiliated with incumbent providers in
other countries. Typically, WorldCom must devote extensive resources to
obtaining regulatory approvals necessary to operate overseas, and then to
obtaining access to and interconnection with the incumbent's network on a
non-discriminatory basis.
WorldCom may also be subject to additional competition due to the
development of new technologies and increased availability of domestic and
international transmission capacity. For example, even though fiber optic
networks, such as that of WorldCom, are now widely used for long distance
transmission, it is possible that the desirability of such networks could be
adversely affected by changing technology. The telecommunications industry is in
a period of rapid technological evolution, marked by the introduction of new
product and service offerings and increasing satellite and fiber optic
transmission capacity for services similar to those provided by WorldCom.
WorldCom cannot predict which of many possible future product and service
offerings will be important to maintain its competitive position or what
expenditures will be required to develop and provide such products and services.
For most of the Company's communications services, the factors critical to
consumers' choice of a service provider are cost, ease of use, speed of
installation, quality, reputation, and in some cases geography and network size.
Under the Telecom Act and ensuing federal and state regulatory
initiatives, barriers to local exchange competition are being removed. The
introduction of such competition, however, also establishes, in part, the
predicate for the BOCs to provide in-region interexchange long distance services
if the constitutionality of the Telecom Act is upheld. The BOCs are currently
allowed to offer certain "incidental" long distance service in-region and to
offer out-of-region long distance services. Once the BOCs are allowed to offer
in-region long distance services, they could be in a position to offer single
source local and long distance service similar to that being offered by
WorldCom. WorldCom expects that the increased competition made possible by
regulatory reform will result in certain additional pricing and margin pressures
in the domestic telecommunications services business. Such of the additional
pressures as may result from BOC provision of in-region interexchange long
distance services may be accelerated if the ruling of the Texas District Court
on the constitutionality of the Telecom Act's restrictions is ultimately upheld
on appeal.
WorldCom also competes in offering data communications services,
including Internet access and related services. This is also an extremely
competitive business, and WorldCom expects that competition will intensify in
the future. WorldCom believes that the ability to compete successfully in this
arena depends on a number of factors, including: industry presence; the ability
to execute a rapid expansion strategy; the capacity, reliability and security of
its network infrastructure; ease of access to and navigation on the Internet;
the pricing policies of its competitors and suppliers; the timing of the
introduction of new products and services by WorldCom and its competitors; the
Company's ability to support industry standards; and industry and general
economic trends. The success of WorldCom will depend heavily upon its ability to
provide high quality data communication services, including Internet
connectivity and value-added Internet services at competitive prices.
Major telecommunications companies have expanded their current services
to compete fully in offering data communication services, including Internet
access and value-added and data communications services, and
10
<PAGE> 12
WorldCom expects additional telecommunications companies to continue to compete
in this arena. WorldCom believes that new competitors, including large computer
hardware, software, media and other technology and communications companies will
also offer data communications services, resulting in even greater competition
for the combined company. Certain companies, including AT&T, GTE Corporation
("GTE"), Intermedia Communications, Inc., Teleport Communications Group, Qwest
Communications, PSINet, Inc., IXC Communications, Inc. and Williams
Communications, have obtained or expanded their Internet access products and
services as a result of network deployment, acquisitions and strategic
investments. Such acquisitions may permit WorldCom's competitors to devote
greater resources to the development and marketing of new competitive products
and services and the marketing of existing competitive products and services.
WorldCom expects these acquisitions and strategic investments to increase, thus
creating significant new competitors to the Company. In addition, WorldCom
expects new companies, such as Level 3, to enter this arena and provide
additional competition for the Company's service offerings.
As the Company continues to expand voice and data communications
operations outside of the United States, the Company will be forced to compete
with and buy services from incumbent providers, some of which are
government-owned and/or still have special regulatory status and the exclusive
rights to provide certain essential services. The Company will also encounter
competition from companies whose operating styles are substantially different
from those that they usually encounter. For example, in Europe, WorldCom's
subsidiaries compete directly with: (1) telecommunications companies, such as
BT, Deutsche Telekom AG and others; (2) global telecommunications alliances such
as Global One (Deutsche Telekom AG, France Telecom and Sprint),
Unisource/Uniworld (AT&T, Telia AB of Sweden, PTT Telecom Netherlands, and
Swisscom) and others; and (3) other Internet access providers, such as Demon
Internet Limited. Foreign competitors may also possess a better understanding of
their local areas and may have better working relationships with, or control of,
local telecommunications companies. There can be no assurance that the Company
can obtain similar levels of local knowledge, and failure to obtain that
knowledge could place the Company at a serious competitive disadvantage.
Anti-Takeover Provisions
The Second Amended and Restated Articles of Incorporation of WorldCom
(the "WorldCom Articles") contain provisions (a) requiring a 70% vote for
approval of certain business combinations with certain 10% shareholders unless
approved by a majority of the continuing members of the WorldCom Board of
Directors or unless certain minimum price, procedural and other requirements are
met, (b) restricting aggregate beneficial ownership of the capital stock of
WorldCom by foreign shareholders to 20% of the total outstanding capital stock,
and subjecting excess shares to redemption, and (c) authorizing WorldCom's Board
of Directors to issue preferred stock in one or more classes without any action
on the part of shareholders. In addition, WorldCom has entered into a Rights
Agreement between WorldCom and The Bank of New York, as Rights Agent (the
"Rights Agent"), dated as of August 25, 1996, as amended (the "WorldCom Rights
Agreement"), which would cause substantial dilution to a person or group that
attempts to acquire WorldCom on terms not approved by WorldCom's Board of
Directors. Further, the WorldCom Restated Bylaws (the "WorldCom Bylaws") (a)
contain requirements regarding advance notice of nomination of directors by
shareholders and (b) restrict the calling of special meetings by shareholders to
those owning shares representing not less than 40% of the votes to be cast.
These provisions, including the WorldCom Rights Agreement, may have an
"anti-takeover" effect. See "Description of WorldCom Capital Stock."
PLAN OF DISTRIBUTION
The Shares offered hereby may be sold by the Selling Shareholders or by
pledgees, donees, transferees or other successors in interest (collectively with
the Selling Shareholders, the "Sellers") acting as principals for their own
accounts. The Company will not receive any of the proceeds of this offering.
The Sellers, directly or through brokers, dealers, underwriters, agents
or market makers, may sell some or all of the Shares. Any broker, dealer,
underwriter, agent or market maker participating in a transaction involving the
Shares may receive a commission from the Sellers. Usual and customary
commissions may be paid by the
11
<PAGE> 13
Sellers. The broker, dealer, underwriter or market maker may agree to sell a
specified number of the Shares at a stipulated price per Share and, to the
extent that such person is unable to do so acting as an agent for the Sellers,
to purchase as principal any of the Shares remaining unsold at a price per Share
required to fulfill the person's commitment to the Sellers.
A broker, dealer, underwriter or market maker who acquires the Shares
from the Sellers as a principal for its own account may thereafter resell such
Shares from time to time in transactions (which may involve block or cross
transactions and which may also involve sales to or through another broker,
dealer, underwriter, agent or market maker, including transactions of the nature
described above) on The Nasdaq Stock Market, in negotiated transactions or
otherwise, at market prices prevailing at the time of the sale or at negotiated
prices. In connection with such resales, the broker, dealer, underwriter, agent
or market maker may pay commissions to or receive commissions from the
purchasers of the Shares. The Sellers also may sell some or all of the Shares
directly to purchasers without the assistance of a broker, dealer, underwriter,
agent or market maker and without the payment of any commissions.
The Company is bearing all of the costs relating to the registration of
the Shares (other than fees and expenses of counsel for the Selling
Shareholders). Any commissions, discounts or other fees payable to a broker,
dealer, underwriter, agent or market maker in connection with the sale of any of
the Shares will be borne by the Sellers.
Any commissions paid or any discounts or concessions allowed to any
broker, dealer, underwriter, agent or market maker and, if any such broker,
dealer, underwriter, agent or market maker purchases any of the Shares as
principal, any profits received on the resale of such Shares, may be deemed to
be underwriting commissions or discounts under the Securities Act.
Pursuant to the registration rights granted to the Selling Shareholders
in the Share Exchange Agreement, the Company has agreed to indemnify the Selling
Shareholders any person who controls any of the Selling Shareholders against
certain liabilities and expenses arising out of or based upon the information
set forth or incorporated by reference in this Prospectus, and the Registration
Statement of which this Prospectus is a part, including liabilities under the
Securities Act.
INFORMATION REGARDING WORLDCOM
The following briefly describes the businesses of WorldCom, as well as
information regarding the MCI/WorldCom Merger. Additional information regarding
WorldCom and such proposed transactions is contained in its filings with the
Commission pursuant to the Exchange Act. See "Available Information" and
"Incorporation of Documents by Reference."
BUSINESS OF WORLDCOM
WorldCom is one of the largest telecommunications companies in the
United States, serving local, long distance, and Internet customers domestically
and internationally. WorldCom provides telecommunications services to business,
government, telecommunications companies and consumer customers, through its
network of fiber optic cables, digital microwave, and fixed and transportable
satellite earth stations.
WorldCom is one of the first major facilities-based telecommunications
companies with the capability to provide businesses with high quality local,
long distance, Internet, data and international communications services over its
global networks. With service to points throughout the nation and the world,
WorldCom provides telecommunications products and services including: switched
and dedicated long distance and local products, dedicated and dial-up Internet
access, resale cellular services, 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,
12
<PAGE> 14
local access to ATM-based backbone service, web server hosting and integration
services and interconnection via Network Access Points ("NAPs") to ISPs.
WorldCom's principal executive offices are located at 515 East Amite
Street, Jackson, Mississippi 39201-2702, and its telephone number is (601)
360-8600.
RECENT DEVELOPMENTS
The MCI/WorldCom Merger
On October 1, 1997, WorldCom announced its intention to commence an
exchange offer to acquire all of the outstanding shares of MCI common stock, par
value $.10 per share ("MCI Common Stock"), for $41.50 of Common Stock, subject
to adjustment in certain circumstances as set forth in materials filed by
WorldCom with the Commission. On November 9, 1997, WorldCom entered into an
Agreement and Plan of Merger (the "MCI/WorldCom Merger Agreement") with MCI and
MCI Merger Sub, providing for the MCI/WorldCom Merger, with MCI Merger Sub
surviving as a wholly owned subsidiary of WorldCom. As a result of the
MCI/WorldCom Merger, the separate corporate existence of MCI will cease, and MCI
Merger Sub (which will be renamed "MCI Communications Corporation") will succeed
to all the rights and be responsible for all the obligations of MCI in
accordance with the Delaware General Corporation Law. Subject to the terms and
conditions of the MCI/WorldCom Merger Agreement, each share of MCI Common Stock
outstanding immediately prior to the effective time of the MCI/WorldCom Merger
(the "MCI/WorldCom Effective Time"), other than shares owned by WorldCom or held
by MCI, will be converted into the right to receive that number of shares of
WorldCom Common Stock equal to the MCI Exchange Ratio (as defined below), and
each share of MCI Class A Common Stock, par value $.10 per share outstanding
immediately prior to the MCI/WorldCom Effective Time will be converted into the
right to receive $51.00 in cash, without interest thereon. The "MCI Exchange
Ratio" means the quotient (rounded to the nearest 1/10,000) determined by
dividing $51.00 by the average of the high and low sales prices of WorldCom
Common Stock (the "MCI/WorldCom Average Price") as reported on The Nasdaq
National Market on each of the 20 consecutive trading days ending with the third
trading day immediately preceding the MCI/WorldCom Effective Time; provided,
however, that the MCI Exchange Ratio will not be less than 1.2439 or greater
than 1.7586. Cash will be paid in lieu of the issuance of any fractional share
of WorldCom Common Stock in the MCI/WorldCom Merger.
Based on the number of shares MCI Common Stock outstanding as of
January 20, 1998 and assumed MCI Exchange Ratios of 1.2439 and 1.7586,
approximately 710,554,160 shares and 1,004,566,722 shares, respectively, of
Common Stock would be issued in the MCI/WorldCom Merger. In addition, as of
December 31, 1997, outstanding options to purchase shares of MCI Common Stock
would be converted in the MCI/ WorldCom Merger to options to acquire an
aggregate of approximately 86,491,688 shares and 122,280,154 shares,
respectively, of Common Stock, and the exercise price would be adjusted to
reflect the MCI Exchange Ratio, so that, on exercise, the holders would receive,
in the aggregate, the same number of shares of Common Stock as they would have
received had they exercised prior to the MCI/WorldCom Merger, at the same
exercise price.
The MCI/WorldCom Merger was approved by the MCI stockholders and the
WorldCom shareholders at separate meetings held on March 11, 1998. The
MCI/WorldCom Merger is also subject to approvals from the FCC, the Department of
Justice and various state government bodies. In addition, the MCI/WorldCom
Merger is subject to approval by the Commission of the European Communities (the
"European Commission"). WorldCom anticipates that the MCI/WorldCom Merger will
close in mid-1998.
In addition, GTE Corporation and three of its subsidiaries filed suit
in the U.S. District Court for the District of Columbia against WorldCom and MCI
seeking to enjoin the pending merger on the grounds that it violates U.S.
antitrust laws. WorldCom believes that the complaint is without merit, although
there can be no assurance as to the ultimate result of the suit.
Termination of the MCI/WorldCom Merger Agreement by MCI or WorldCom
under certain conditions will require MCI to pay WorldCom $750 million as a
termination fee and to reimburse WorldCom the $450 million alternative
transaction fee paid by WorldCom to British Telecommunications plc ("BT").
Further, termination of the MCI/WorldCom Merger Agreement by MCI or WorldCom
under certain conditions will require WorldCom to pay MCI $1.635 billion as a
termination fee.
13
<PAGE> 15
Pursuant to an agreement (the "BT Agreement") among MCI, WorldCom and
BT, the prior merger agreement between BT and MCI (the "BT/MCI Merger
Agreement") was terminated, and WorldCom agreed to pay BT an alternative
transaction fee of $450 million and expenses of $15 million payable to BT in
accordance with the BT/MCI Merger Agreement. These fees were paid on November
12, 1997. WorldCom also agreed to pay to BT an additional payment of $250
million in the event that WorldCom is required to make the $1.635 billion
payment to MCI in accordance with the MCI/WorldCom Merger Agreement. In
addition, pursuant to the BT Agreement, BT voted (or caused to be voted) its
shares of MCI Class A Common Stock in favor of the MCI/WorldCom Merger Agreement
and the approval of the other transactions contemplated by the MCI/WorldCom
Merger Agreement.
The foregoing description of the MCI/WorldCom Merger Agreement and the
BT Agreement and the transactions contemplated thereby does not purport to be
complete and is qualified in its entirety by reference to such agreements,
copies of which are attached to the WorldCom 1997 Form 10-K and incorporated by
reference herein. Additional information regarding such agreements and the
transactions contemplated thereby is also contained under the caption "The
MCI/WorldCom Merger" contained in WorldCom's Current Report on Form 8-K/A-1
dated November 9, 1997 (filed January 27, 1998), which is incorporated by
reference herein.
Divestiture of MCI Internet Backbone
On May 28, 1998, MCI announced that it entered into a letter of intent
with Cable & Wireless PLC ("Cable & Wireless") to sell its Internet backbone
service business for $625 million in cash. Under the terms of the proposed
agreement, MCI would sell to Cable & Wireless its Internet backbone service
business, comprising all of its 22 domestic nodes, 15,000 interconnection ports,
more than 40 ongoing peering agreements, and equipment dedicated to supporting
the network including routers and switches. Cable & Wireless would acquire and
assume support for MCI's contracts with its ISP customers, whose business is
primarily re-selling Internet access. Additionally, MCI would provide the
underlying telecommunications transport services supporting the Cable & Wireless
backbone and would provide additional services as required by Cable & Wireless
and MCI would use Cable & Wireless's backbone services to support certain
non-ISP customers. The agreement sets forth certain revenue and traffic
guarantees for Cable & Wireless.
MCI's residential and non-ISP commercial customers (who are not
resellers of Internet services) would not be affected by the Cable & Wireless
transaction, and MCI would continue to provide non-Internet services to its ISP
customers. Residential and commercial customers would continue to receive MCI
services exactly as they do today from the same access facilities, under the
same terms of their contracts and with support from their existing account
teams. For a period of at least two years, underlying Internet services for
MCI's existing customers would be provided on the Cable & Wireless network, MCI
would continue to provide Intranet, web-hosting and other value-added Internet
services to its customer base.
The completion of the acquisition of MCI's Internet backbone service
business by Cable & Wireless is subject to certain conditions precedent which
must be met by December 31, 1998 or the agreement will terminate. The
conditions precedent include (i) the receipt of certain government approvals of
the acquisition itself, including that of the U.S. Department of Justice
("DOJ") and (ii) satisfaction of the conditions precedent to the MCI/WorldCom
Merger which include the receipt of approvals of the DOJ, the European
Commission and the FCC. The second of these conditions precedent requires,
among other things, that the proposed sale of MCI's Internet backbone service
business to Cable & Wireless satisfies concerns the DOJ and the European
Commission have raised in the context of their review of the MCI/WorldCom
Merger about the combination of MCI's and WorldCom's Internet businesses. MCI
and WorldCom are currently in discussions with the DOJ and the European
Commission to address their concerns.
On June 10, 1998, Cable & Wireless filed a civil action in the United
States District Court for the District of Columbia ("DC District Court")
seeking, in essence, to compel compliance with certain provisions of the
agreement. On June 12, 1998, the DC District Court denied Cable & Wireless'
motion for a temporary restraining order enforcing certain provisions of the
agreement. The ruling, however, was without prejudice to the right of Cable &
Wireless to seek injunctive relief at some future point.
INFORMATION REGARDING SELLING SHAREHOLDERS
The Shares were issued to David C. McCourt, Michael A. Adams and
Nicolas A. Kensington on August 19, 1997, pursuant to a certain Share Exchange
Agreement, by and among WorldCom and the Selling Shareholders, dated June 19,
1997 (the "Share Exchange Agreement"), that was entered into in conjunction with
WorldCom's acquisition of McCourt Fiber Network, Inc. ("MFN"), a Massachusetts
corporation. Pursuant to the Share Exchange Agreement, the Company acquired the
shares of common stock of MFN that it did not already own. Costa Kensington
acquired his shares from Nicolas A. Kensington.
None of the Selling Shareholders is an affiliate of the Company.
14
<PAGE> 16
On December 31, 1996, a wholly owned subsidiary of WorldCom merged with
MFS Communications Company, Inc. ("MFS") in a transaction accounted for as a
purchase ("MFS Merger"). As a result of the MFS Merger, each share of MFS common
stock was converted into the right to receive 2.1 shares of common stock of the
Company. Outstanding MFS options and warrants generally were converted on a
similar basis, except for MFS Shareworks Plus Awards, which were paid out in
cash. 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 in the aggregate. Each
share of MFS Series B Convertible Preferred Stock was converted into the right
to receive one share of Series B Convertible Preferred Stock of WorldCom, or
approximately 12.7 million shares in the aggregate.
Pursuant to the MFS merger agreement, WorldCom agreed to cause the
WorldCom Board of Directors as of the effective time of the MFS Merger to
consist of an odd number of directors, with MFS being entitled to designate one
less director than WorldCom. Mr. McCourt was among the directors designated by
MFS to become a director of WorldCom. Mr. McCourt resigned as a director of
WorldCom in March 1998.
Each of the Selling Shareholders presently beneficially owns less than
one percent of the outstanding Common Stock. The Selling Shareholders do not
beneficially own any other shares of Common Stock except for Mr. McCourt, who
beneficially owns a total of 824,423 shares, which includes 95 shares issuable
upon conversion of WorldCom Series B Preferred Stock (as hereinafter defined)
and 5,000 shares purchasable upon the exercise of options. The Selling
Shareholders have sole voting and investment power with respect to the Shares.
The following table sets forth the number of shares owned by each of
the Selling Shareholders as of June 15, 1998 prior to the Offering and after the
Offering.
<TABLE>
<CAPTION>
AMOUNT OF AMOUNT OF
COMMON STOCK COMMON STOCK
OWNED PRIOR TO THE OWNED AFTER THE
SELLING SHAREHOLDER OFFERING OFFERING
------------------- ------------------- ----------------
<S> <C> <C>
Michael A. Adams 16,923 --
David C. McCourt 824,423 12,115
Nicolas A. Kensington 16,423 --
Costa Kensington 500* --
TOTAL 858,269 12,115
</TABLE>
---------
* Held in the name of Charles Schwab Corporation.
DESCRIPTION OF WORLDCOM CAPITAL STOCK
The following summary is a description of the material terms of
WorldCom capital stock, does not purport to be complete and is subject in all
respects to the applicable provisions of the Georgia Business Corporation Code
(the "GBCC"), the WorldCom Articles, the WorldCom Bylaws, the Deposit Agreement
(referred to below), and the WorldCom Rights Agreement. The WorldCom Articles,
the WorldCom Bylaws, the Deposit Agreement and the
15
<PAGE> 17
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 March 31, 1998, there were
1,028,976,222 shares of Common Stock, 94,992 shares of WorldCom Series A
Preferred Stock (which were redeemed for or converted into shares of WorldCom
Common Stock on or prior to May 31, 1998, as discussed below) and 12,237,025
shares of WorldCom Series B Preferred Stock issued and outstanding.
COMMON STOCK
All of the outstanding shares of 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 Common Stock are entitled to
receive dividends as and when declared by the Board of Directors out of funds
legally available therefor, and, in the event of the dissolution of WorldCom, to
share ratably in all assets remaining after payment of liabilities and
satisfaction of the liquidation preferences of the holders of WorldCom preferred
stock, as provided in the WorldCom Articles. Each holder of Common Stock is
entitled to one vote for each share held of record on all matters presented to a
vote at a shareholders' meeting, including the election of directors. Holders of
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 Common Stock may be issued without shareholder
approval.
The transfer agent and registrar for the 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 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 AND DEPOSITARY SHARES
On May 15, 1998, the Company announced that it elected to redeem on May
31, 1998 (the "Redemption Date"), all of the outstanding shares of WorldCom
Series A Preferred Stock and related Depositary Shares. On the Redemption Date,
each Depositary Share will be redeemed for 0.79511 shares of Common Stock. The
Company will pay cash in lieu of any fractional share of Common Stock. The
Depositary Shares are convertible into 3.44274 shares of Common Stock for each
Depositary Share plus payment of unpaid dividends at any time prior to the close
of business on the Redemption Date. Accordingly, WorldCom expects that all of
the holders of Depositary Shares will convert their shares into Common Stock
prior to redemption.
From and after the Redemption Date, (i) dividends on the WorldCom
Series A Preferred Stock and the Depositary Shares shall cease to accrue, (ii)
the WorldCom Series A Preferred Stock and the Depositary Shares shall no longer
be deemed to be outstanding and (iii) all rights of the holders of Receipts
evidencing Depositary Shares
16
<PAGE> 18
shall cease (except the rights to receive the shares of Common Stock and cash in
lieu of any fractional shares thereof payable upon such redemption, without
interest thereon, upon surrender of Receipts evidencing Depositary Shares).
The Call Price per Share of WorldCom Series A Preferred Stock and the
Current Market Price per share of Common Stock used for purposes of determining
the exchange rate were $3,417.00 and $42.975 respectively. The Current Market
Price is the lesser of (i) the average of the high and low sales prices of the
Common Stock as reported on The Nasdaq National Market for the 10 consecutive
trading days ending on and including the date of determination, which was May
14, 1998, or (ii) the closing price of the Common Stock on The Nasdaq National
Market on the date of determination. The number of shares of Common Stock to be
exchanged for each outstanding share of WorldCom Series A Preferred Stock is the
result of dividing the Call Price by the Current Market Price.
SERIES B PREFERRED STOCK
The following description of WorldCom Series B Convertible Preferred
Stock does not purport to be complete and is subject to, and qualified in its
entirety by, the provisions of the WorldCom Articles.
Dividends
The holders of WorldCom Series B Preferred Stock are entitled to
receive when, as and if declared by the Board of Directors out of funds legally
available therefor, cumulative dividends from the issue date of the WorldCom
Series B Preferred Stock, accruing at the rate per share of $.0775 per annum,
payable when and as the WorldCom Board of Directors may determine, in cash,
before any dividends shall be set apart for or paid 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 Common Stock at a rate of 0.0973912 shares
of WorldCom Common Stock for each share of WorldCom Series B Preferred Stock
(equivalent to an initial conversion price of $10.268 per share of WorldCom
Common Stock), subject to adjustment for certain capital events (the "Series B
Conversion Rate"), and the holder will also be entitled to receive accrued and
unpaid dividends payable in cash or, at the option of WorldCom, in shares of
Common Stock, based on the Fair Market Value thereof (as defined in the WorldCom
Articles).
17
<PAGE> 19
Adjustment for Consolidation or Merger
In the case of certain mergers, consolidations or other capital
transactions, certain customary provisions are required to be made relating to
the terms of conversion and redemption applicable to the WorldCom Series B
Preferred Stock in order to protect the interests of the holders thereof.
Right to Redeem WorldCom Series B Preferred Stock
The WorldCom Series B Preferred Stock is not redeemable by WorldCom
prior to September 30, 2001. Thereafter, WorldCom has the right to redeem the
shares of WorldCom Series B Preferred Stock, in whole or in part, at a
redemption price of $1.00 per share plus an amount equal to all accrued and
unpaid dividends thereon (the "Redemption Price"); provided, that all or any
portion of the Redemption Price may be paid in shares of Common Stock as
determined by the WorldCom Board of Directors based on the Fair Market Value
thereof (as defined in the WorldCom Articles).
Liquidation Rights
In the event of the liquidation, dissolution, or winding up of the
business of WorldCom, the holders of WorldCom Series B Preferred Stock are
entitled to receive a liquidation preference for each share of WorldCom Series B
Preferred Stock in an amount equal to the sum of $1.00 plus all accrued and
unpaid dividends thereon to the date of liquidation, dissolution or winding up.
Voting Rights
Each share of WorldCom Series B Preferred Stock is entitled to one vote
per share with respect to all matters voted on at a shareholders' meeting,
including the election of directors. The holders of the WorldCom Series B
Preferred Stock and the holders of 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) the outstanding shares of 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 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.
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
18
<PAGE> 20
outstanding share of 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
WorldCom 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 Common Stock until, and a
WorldCom Distribution Date will occur upon, the earlier of ten business days
following public disclosure or the date on which WorldCom first determines that
certain persons or groups (a "WorldCom Acquiring Person") have become the
beneficial owner of 15% or more of the outstanding shares of voting stock of
WorldCom (the "Stock Acquisition Date") or ten business days (or such later date
as may be determined by action of the WorldCom Board of Directors but not later
than the Stock Acquisition Date) following the commencement of a tender offer or
exchange offer that would result in certain persons or groups becoming a
WorldCom Acquiring Person. Pursuant to the WorldCom Rights Agreement, as
amended, the WorldCom Rights are not exercisable until the WorldCom Distribution
Date and will expire, if not previously exercised, on September 6, 2001, unless
such final expiration date is extended (subject to shareholder approval) or
unless the WorldCom Rights are earlier redeemed or exchanged by WorldCom.
Upon the occurrence of a WorldCom Distribution Date, each holder of a
WorldCom Right, except for a WorldCom Acquiring Person, has the right to
acquire, upon exercise of the WorldCom Right, 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 person or group acquires more than 15% but less than 50% of the
outstanding Common Stock, WorldCom can exchange each WorldCom Right, except
those held by such person or group, for one share of 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 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 Common Stock. Each share of WorldCom Series 3
Preferred Stock will have 1,000 votes, voting together with the Common Stock. In
the event of any merger, consolidation or other transaction in which shares of
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 Common Stock. The rights of the WorldCom
Series 3 Preferred Stock as to dividends, liquidation and voting, and in the
event of mergers and consolidations, are protected by customary antidilution
provisions.
At any time prior to the time a WorldCom Acquiring Person becomes such,
WorldCom may redeem the WorldCom Rights in whole, but not in part, at a price of
$.01 per WorldCom Right. The redemption of the WorldCom Rights may be made
effective at such time, on such basis and with such conditions as the WorldCom
Board of Directors, in its sole discretion, may establish. Immediately upon any
redemption of the WorldCom Rights, the right to exercise the WorldCom Rights
will terminate, and the only right of the holders of the WorldCom Rights will be
to receive the redemption price.
19
<PAGE> 21
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 any person or group and (ii) 10%, except that from and
after such time as any person or group of affiliated or associated persons
becomes a WorldCom Acquiring Person no such amendment may adversely affect the
interests of the holders of the WorldCom Rights.
The WorldCom Rights have certain anti-takeover effects. The WorldCom
Rights will cause substantial dilution to a person or group that attempts to
acquire or merge with WorldCom in certain circumstances. Accordingly, the
existence of the WorldCom Rights may deter certain potential acquirors from
making certain takeover proposals or tender offers. The WorldCom Rights should
not interfere with any merger or other business combination approved by the
WorldCom Board of Directors since WorldCom may redeem the WorldCom Rights as
described above.
CERTAIN CHARTER AND BYLAW PROVISIONS
ELECTION OF DIRECTORS. Under Georgia law, directors, unless their terms
are staggered pursuant to the corporation's articles of incorporation or a bylaw
adopted by the shareholders, are elected at each annual shareholder meeting, and
vacancies on the board of directors may be filled by the shareholders or
directors, unless the articles of incorporation or a bylaw approved by the
shareholders provides otherwise. The articles of incorporation may authorize the
election of certain directors by one or more classes or series of shares. The
articles of incorporation or the bylaws also may allow the shareholders or the
board of directors to fix or change the number of directors. Currently, the
WorldCom Bylaws provide that the number of members of the WorldCom Board of
Directors shall be fixed by the WorldCom Board of Directors but shall not be
less than three. Neither the WorldCom Articles nor the WorldCom Bylaws provide
for a staggered board of directors. Subject to certain restrictions, nominations
to the WorldCom Board of Directors may be made by either the Board or
shareholders if, in the case of nominations by shareholders, notice thereof is
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.
SPECIAL MEETINGS OF SHAREHOLDERS. Georgia law permits the board of
directors or any person authorized in the corporation's articles of
incorporation or bylaws to call special meetings of shareholders. Except in the
case of a corporation having 100 or fewer shareholders of record, a special
meeting may also be called by at least 25% or such greater or lesser percentage
of all the votes entitled to be cast on any issue proposed to be considered at
the special meeting as may be provided in the corporation's articles of
incorporation or bylaws. The WorldCom Bylaws provide that a special meeting may
be called by the WorldCom Board of Directors, the President of WorldCom or the
holders of not less than 40% of all the votes entitled to be cast on the issue
proposed to be considered at the proposed special meeting.
SPECIAL REDEMPTION PROVISIONS. Under the GBCC, a corporation may
acquire its own shares of capital stock, subject to the requirement that at all
times the corporation must have authorized: (i) at least one or more classes of
shares that together have unlimited voting rights; and (ii) at least one or more
classes of shares (which may be the same class or classes as those with
unlimited voting rights) that together are entitled to receive the net assets of
the corporation upon dissolution. In addition, a corporation's acquisition of
its own shares of capital stock is deemed a "distribution" under Georgia law
and, accordingly, is subject to the restrictions on distributions set forth in
the corporation's articles of incorporation and Section 14-2-640 of the GBCC.
The WorldCom Articles contain provisions permitting WorldCom to redeem
shares of its capital stock from certain foreign shareholders in order to enable
it to continue to hold certain common carrier radio licenses. These provisions
are intended to cause WorldCom to remain in compliance with the Communications
Act of 1934, as amended, and the regulations of the FCC promulgated thereunder.
Under these provisions, at such time as the
20
<PAGE> 22
percentage of capital stock owned by foreign shareholders or certain affiliates
thereof exceeds 20%, WorldCom has the right to redeem the excess shares held by
such persons at the fair market value thereof. Following any determination that
such excess shares exist, such excess shares shall not be deemed outstanding for
purposes of determining the vote required on any matter brought to the attention
of the shareholders of WorldCom and such excess shares shall have no right to
receive any dividends or other distributions, including distributions in
liquidation. If such shares are traded on a national securities exchange or in
the over-the-counter market, such fair market value is the average closing price
for the 45 trading days immediately preceding the date of redemption. If such
shares are not so traded, such fair market value shall be established by the
WorldCom Board of Directors. In the event there is a foreign shareholder who
acquired 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.
BUSINESS COMBINATION RESTRICTIONS. Under Georgia law, Georgia
corporations may adopt a provision in their bylaws requiring that Business
Combinations be approved by a special vote of the board of directors and/or the
shareholders unless certain fair pricing criteria are met. Georgia corporations
may also adopt a provision in their articles of incorporation or bylaws which
requires that Business Combinations with Interested Shareholders be approved by
a super- majority vote. These provisions, neither of which has been adopted by
WorldCom, are described below. Also described below is the business combination
restriction contained in the WorldCom Articles.
Georgia's fair price statute authorizes a corporation to adopt a bylaw
provision which requires special approval by the board of directors and/or
shareholders for Business Combinations unless certain fair price criteria are
met. Generally, for purposes of this statute, "Business Combinations" are
defined to include mergers, sales of 10% or more of the corporation's assets out
of the ordinary course of business, liquidations, and certain issuances of
securities, involving the corporation and any Interested Shareholder. For
purposes of this statute, an "Interested Shareholder" is defined as a person or
entity that is the beneficial owner of 10% or more of the voting power of the
corporation's voting stock, or a person or entity that is an affiliate of the
corporation and, at any time within the two-year period immediately prior to the
date in question, was the beneficial owner of 10% or more of the then
outstanding voting power of the corporation's voting stock. To satisfy Georgia's
fair price statute, a Business Combination with an Interested Shareholder must
meet one of three criteria: (i) the transaction must be approved unanimously by
the "Continuing Directors" (directors who served as directors immediately prior
to the date the Interested Shareholder first became an Interested Shareholder
and who are not affiliates or associates of the Interested Shareholder or his
affiliates), provided that the Continuing Directors constitute at least three
members of the board of directors at the time of such approval; (ii) the
transaction must be recommended by at least two-thirds of the Continuing
Directors and approved by a majority of the votes entitled to be cast by holders
of voting shares, excluding shares beneficially owned by the Interested
Shareholder who is, or whose affiliate is, a party to the Business Combination;
or (iii) the terms of the transaction must meet statutory fair pricing criteria
and certain other tests intended to assure that all shareholders receive a fair
price and equivalent consideration for their shares regardless of when they sell
to the acquiring party.
Georgia's business combination statute authorizes a "resident domestic
corporation" to adopt a bylaw provision which prohibits Business Combinations
with Interested Shareholders occurring within five years of the date a person
first becomes an Interested Shareholder, unless special approval of the
transaction is obtained. For purposes of this statute, Business Combination is
defined to include mergers, sales of 10% or more of the corporation's net
assets, and certain issuances of securities, all involving the corporation and
any Interested Shareholder. Interested Shareholder has the same definition as
under the Georgia fair price statute. With limited exceptions, any Business
Combination with an Interested Shareholder within five years of the date such
person first became an Interested Shareholder requires approval in one of three
ways: (i) prior to 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 must acquire at least 90% of the
outstanding voting stock of the corporation (other than shares owned by
officers, directors and their affiliates and associates) in the same transaction
in which such person becomes an Interested
21
<PAGE> 23
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 shares entitled to vote thereon, exclusive
of shares held beneficially by the Interested Shareholder and its affiliates
(and shares owned by officers, directors and their affiliates and associates).
The WorldCom Articles contain a provision that requires the approval by
the holders of at least 70% of the voting power of the outstanding shares of any
class of stock of WorldCom entitled to vote generally in the election of
directors as a condition for Business Transactions (defined below) involving
WorldCom and a Related Person (defined below) or in which a Related Person has
an interest, unless (a) the Business Transaction is approved by at least a
majority of WorldCom's Continuing Directors (defined below) then serving on the
Board of Directors, but if the votes of such Continuing Directors would have
been insufficient to constitute an act of the Board of Directors, then such
transaction must have been approved by the unanimous vote of such Continuing
Directors so long as there were at least three such Continuing Directors serving
on the Board of Directors at the time of such unanimous vote, provided that no
such Continuing Director is a Related Person who has an interest in the Business
Transaction (other than a proportionate interest as a shareholder of WorldCom),
or (b) certain minimum price and procedural requirements are met. A "Business
Transaction" is defined to mean: (i) any merger, share exchange or consolidation
involving WorldCom or any of its subsidiaries; (ii) any sale, lease, exchange,
transfer or other disposition by WorldCom or any of its subsidiaries of more
than 20% of its assets; (iii) any sale, lease, exchange, transfer or disposition
of more than 20% of the assets of an entity to WorldCom or a subsidiary of
WorldCom; (iv) the issuance, sale, exchange, transfer or other disposition by
WorldCom or a subsidiary of WorldCom of any securities of WorldCom or any
subsidiary in exchange for cash, securities or other properties having an
aggregate fair market value of $15.0 million or more; (v) any merger, share
exchange or consolidation between WorldCom and any subsidiary of WorldCom in
which WorldCom is not the survivor and the charter of the surviving corporation
does not contain provisions similar to this provision; (vi) any recapitalization
or reorganization of WorldCom or reclassification of its securities which would
have the effect of increasing the voting power of a Related Person; (vii) any
liquidation, spin off, split off, split up or dissolution of WorldCom; and
(viii) any agreement, contract or other arrangement providing for any of the
Business Transactions defined or having a similar purpose or effect. A "Related
Person" is defined to mean a beneficial owner which, together with its
Affiliates and Associates (defined below), beneficially owns 10% or more of
WorldCom's outstanding voting stock or who had such level of beneficial
ownership: (a) at the time of entering into the definitive agreement providing
for the Business Transaction; (b) at the time of adoption by the Board of
Directors of a resolution approving such transaction; or (c) as of the record
date for the determination of shareholders entitled to vote on or consent to the
Business Transaction. A "Continuing Director" is a director of WorldCom who
either was a member of the Board of Directors on September 15, 1993, or who
became a director of WorldCom subsequent to such date and whose election, or
nomination for election by the shareholders, was approved by at least a majority
of the Continuing Directors then on the Board of Directors. If the votes of such
Continuing Directors would have been insufficient to constitute an act of the
Board of Directors, then such election or nomination must have been approved by
the unanimous vote of the Continuing Directors so long as there were at least
three such Continuing Directors on the Board of Directors at the time of such
unanimous vote. An "Affiliate" is defined to mean a person that directly, or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control with, such specified person. An "Associate" is defined
to mean: (a) any corporation, partnership or other organization of which such
specified person is an officer or partner; (b) any trust or other estate in
which such specified person has a substantial beneficial interest or as to which
such specified person serves as trustee or in a similar fiduciary capacity; (c)
any relative or spouse of such specified person, or any relative of such spouse,
who has the same home as such specified person or who is a director or officer
of WorldCom or any of its subsidiaries; and (d) any person who is a director,
officer or partner of such specified person or of any corporation (other than
WorldCom or any wholly owned subsidiary of WorldCom), partnership or other
entity which is an Affiliate of such specified person.
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. In addition, one of
the effects of the existence of unissued and unreserved 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
22
<PAGE> 24
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.
EXPERTS
The consolidated financial statements of WorldCom as of December 31,
1997 and 1996, and for each of the years in the three-year period ended December
31, 1997, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
in WorldCom's Current Report on Form 8-K dated May 28, 1998 (filed May 28,
1998), 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
Consolidated Financial Statements), and for the year ended December 31, 1996,
included in WorldCom's Current Report on Form 8-K/A dated August 25, 1996 (filed
December 19, 1997) and incorporated by reference into this registration
statement, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are
incorporated herein by reference, in reliance upon the authority of such firm as
experts in accounting and auditing in giving said reports.
The consolidated financial statements of MFS as of December 31, 1995
and 1994 and for each of the three and two years in the period ended December
31, 1995, included in WorldCom's Current Report on Form 8-K/A dated August 25,
1996 (filed November 4, 1996 and December 19, 1997) and incorporated by
reference into this registration statement, have been incorporated in reliance
on the reports of Coopers & Lybrand L.L.P., independent accountants, given upon
the authority of that firm as experts in accounting and auditing.
The consolidated financial statements of UUNET as of December 31, 1995
and 1994 and for each of the three years in the period ended December 31, 1995,
included in WorldCom's Current Report on Form 8-K/A dated August 25, 1996 (filed
November 4, 1996) and incorporated by reference into this registration
statement, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto and are
incorporated herein by reference in reliance upon the authority of said firm as
experts in giving said reports.
The consolidated financial statements of MCI, as of December 31, 1997
and 1996 and for each of the three years in the period ended December 31, 1997,
incorporated in this Prospectus by reference to WorldCom's Current Report on
Form 8-K/A-3 dated November 9, 1997 (filed May 28, 1998), have been so
incorporated in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
23
