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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): September 14, 1998
MCI WORLDCOM, Inc.
(Exact Name of Registrant as Specified in its Charter)
Georgia 0-11258 58-1521612
(State or Other (Commission File (IRS Employer
Jurisdiction of Number) Identification Number)
Incorporation)
515 East Amite Street
Jackson, Mississippi 39201-2702
(Address of Principal Executive Office)
Registrant's telephone number, including area code: (601) 360-8600
WorldCom, Inc.
(Former name or former address, if changed since last report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
References herein to the "Company" or "MCI WorldCom" refer to MCI
WORLDCOM, Inc., a Georgia corporation, and its subsidiaries, which
prior to September 15, 1998, was named WorldCom, Inc., ("WorldCom").
(a) On September 14, 1998, the Company acquired MCI Communications
Corporation, a Delaware corporation ("MCI"), pursuant to the merger
(the "Merger") of MCI with and into TC Investments Corp. ("Acquisition
Subsidiary"), a wholly owned subsidiary of the Company. Upon
consummation of the Merger, Acquisition Subsidiary was renamed MCI
Communications Corporation which became a wholly owned subsidiary of
the Company. The Merger was effected pursuant to an Agreement and Plan
of Merger dated as of November 9, 1997 by and among WorldCom, MCI and
Acquisition Subsidiary (the "Merger Agreement").
As a result of the Merger, each share of MCI common stock was converted
into the right to receive 1.2439 shares of MCI WorldCom common stock or
approximately 755 million MCI WorldCom common shares in the aggregate,
and each share of MCI Class A common stock outstanding (all of which
were held by British Telecommunications plc ("BT")) was converted into
the right to receive $51.00 in cash or approximately $7 billion in the
aggregate.
The funds paid to BT were obtained by the Company from available cash
as a result of the Company's $6.1 billion public debt offering in
August 1998, the sale of MCI's Internet assets to Cable & Wireless, the
sale of MCI's 24.9% equity stake in Concert Communications Services
("Concert") to BT and availability under the Company's commercial paper
program. Certain portions of the press release related to the sale of
MCI's 24.9% equity stake in Concert to BT are filed as Exhibit 99.1
hereto and incorporated by reference herein.
Upon effectiveness of the Merger, the then outstanding and unexercised
options exercisable for shares of MCI common stock were converted into
options exercisable for an aggregate of approximately 80 million shares
of MCI WorldCom common stock having the same terms and conditions as
the MCI options, except that the exercise price and the number of
shares issuable upon exercise were divided and multiplied,
respectively, by 1.2439.
The basic terms of the Merger and the relationships between the
Company, MCI and BT and the respective directors and executive officers
of the Company and MCI, were described in the Joint Proxy
Statement/Prospectus dated January 22, 1998 filed in connection with
the Company's Registration Statement on Form S-4 (Registration No.
333-36901), which is incorporated by reference herein. The terms of the
Merger were determined in accordance with the Merger Agreement and were
established through arm's length negotiations between the Company, MCI
and BT.
(b) As of the effectiveness of the Merger, the Board of Directors of the
Company consists of the following individuals: Clifford Alexander, Jr.,
James C. Allen, Judith Areen, Carl J. Aycock, Max E. Bobbitt, Stephen
M. Case, Bernard J. Ebbers, Francesco Galesi, Stiles A. Kellett, Jr.,
Gordon S. Macklin, John A. Porter, Timothy F. Price, Bert C. Roberts,
Jr., John W. Sidgmore, Scott D. Sullivan, Gerald H. Taylor and Lawrence
C. Tucker.
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(c) Through its acquisition of MCI, the Company acquired one of the world's
largest and most advanced digital networks, connecting local markets in
the U.S. to more than 280 countries and locations worldwide.
The Company intends to continue using property, plant and equipment
acquired pursuant to the Merger for the purposes previously noted,
subject to possible determinations to eliminate duplicate facilities.
(d) The Company has amended and restated its Bylaws to, among other things,
adopt advance notice provisions relating to proposals of business and
nominations of directors at meetings of shareholders.
Under the Restated Bylaws, in order for a shareholder to nominate a
candidate for director, timely notice of the nomination must be given
to and received by the Company in advance of the meeting. Ordinarily,
such notice must be given and received not less than 120 nor more than
150 days before the first anniversary of the preceding year's annual
meeting (or between December 22, 1998 and January 20, 1999 for the
1999 Annual Meeting); provided, however, that in the event that the
date of the annual meeting is advanced by more than 30 days or delayed
by more than 60 days from such anniversary date, then such notice must
be given by the shareholder and received by the Company not earlier
than 150 days prior to such annual meeting and not later than the close
of business on the later of the 120th day prior to such annual meeting
or the 10th day following the day on which public announcement of such
meeting is first made. In certain cases, notice may be delivered and
received later if the number of directors to be elected to the Board of
Directors is increased. The shareholder submitting the notice of
nomination must describe various matters as specified in the Company's
Restated Bylaws, including the name and address of each proposed
nominee, his or her occupation and number of shares held, and certain
other information.
In order for a shareholder to bring other business before a shareholder
meeting, timely notice must be given to and received by the Company
within the time limits described. Such notice must include a
description of the proposed business (which must otherwise be a proper
subject for action by the shareholders), the reasons therefor and other
matters specified in the Company's Restated Bylaws. The Board of
Directors or the presiding officer at the meeting may reject any such
proposals that are not made in accordance with these procedures or that
are not a proper subject for shareholder action in accordance with
applicable law.
In the case of special meetings of shareholders, only such business
will be conducted, and only such proposals will be acted upon, as are
brought pursuant to the Company's notice of meeting. Nominations for
election to the Board of Directors may be made by any shareholder who
complies with the notice and other requirements of the Restated Bylaws.
In the event the Company calls a special meeting of shareholders to
elect one or more directors, any shareholder may nominate a candidate,
if such notice from such shareholder is given and received not earlier
than 150 days prior to such special meeting and not later than the
close of business on the later of the 120th day prior to such special
meeting or the 10th day following the day on which public announcement
of such meeting and/or of the nominees proposed by the Company is first
made. The notice from such shareholder must also include the same
information described above. Proposals of other business may be
considered at a special meeting requested in accordance with the
Restated Bylaws only if the requesting shareholders give and the
Company receives a notice containing the same information as required
for an annual meeting at the time the meeting is requested.
A special meeting of shareholders, for any purpose or purposes, unless
otherwise prescribed by statute, will be called at the written request
of holders of not less than 40% of all the votes entitled to be cast on
any issue to be considered at the meeting (subject to any requirements
or limitations imposed by the Restated Articles of Incorporation, as
amended, by the Restated Bylaws, or by law) which request must
describe the purpose or purposes for which the meeting is to be held
(which must be a proper subject for action by the shareholders), and
must further contain the same information as would be required for such
a proposal at an annual meeting.
In the case of an annual or special meeting, the shareholder proponent
must be a shareholder of the Company who was a shareholder of record
both at the time of giving of notice and at the time of the meeting and
who is entitled to vote at the meeting. Any such notice must be given
to the Secretary of the Company, whose address is 515 East Amite
Street, Jackson, Mississippi, 39201. Any shareholder desiring a copy of
the Company's Restated Articles of Incorporation, as amended, or
Restated Bylaws will be furnished a copy without charge upon written
request to the Secretary.
The time limits described above also apply in determining whether
notice is timely for purposes of new Rule 14a-4(c)(1) under the
Securities Exchange Act of 1934 relating to exercise of discretionary
voting authority, and are separate from and in addition to the
Securities and Exchange Commission's requirements
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that a shareholder must meet to have a proposal included in the
Company's proxy statement for an annual meeting. Proposals of
shareholders intended to be presented at the 1999 Annual Meeting must
be received by the Company by December 24, 1998 for inclusion in the
Company's proxy statement and proxy relating to that meeting. Upon
receipt of any such proposal, the Company will determine whether or not
to include such proposal in the proxy statement and proxy in accordance
with regulations governing the solicitation of proxies.
(e) MCI WorldCom has completed asset valuation studies of MCI's tangible
and identifiable intangible assets, including in-process research and
development projects ("R&D"). The preliminary estimate of the one-time
charge for purchased in-process R&D projects of MCI, was $6 - $7
billion.
The Securities and Exchange Commission (the "SEC") recently issued new
guidance to the AICPA SEC Regulations Committee with respect to
allocations of in-process R&D. Consistent with this guidance, the final
analysis reflects the views of the SEC in that the value allocated to
MCI's in-process R&D, considered factors such as status of completion,
technological uncertainties, costs incurred and projected costs to
complete.
As a result of the preliminary allocation of the MCI purchase price,
approximately $3.1 billion will be immediately expensed as in-process
R&D and approximately $26 billion will be recorded as the excess of
purchase price over the fair value of identifiable net assets, also
known as goodwill, which will be amortized on a straight-line basis
over 40 years. The Company expects to finalize the allocation of the
MCI purchase price prior to announcing third quarter 1998 results.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of businesses acquired
The audited financial statements as of December 31, 1997 and 1996 and
for each of the three years in the period ended December 31, 1997 of
MCI, including the report of independent auditors, were previously
reported in WorldCom's Current Report on Form 8-K/A-3 dated November 9,
1997 (filed May 28, 1998).
The unaudited financial statements of MCI as of and for the six months
ended June 30, 1998 and 1997 are contained in the financial statements
and footnotes thereto listed in the Index on Page F-1 herein and
incorporated by reference herein.
Note: the financial information described above for the three
years ended December 31, 1997 related to MCI was previously
filed as Exhibit 13 to MCI's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 (the "MCI Form 10-K") and
has not been updated to reflect changes since December 31,
1997. MCI's financial information for the six months ended June
30, 1998 and 1997 was previously filed in MCI's Quarterly
Report on Form 10-Q for the quarterly period ended June 30,
1998 (the "MCI Form 10-Q") and has not been updated to reflect
changes since June 30, 1998. To the extent the above financial
information differs from the financial information reported in
the MCI Form 10-K or MCI Form 10-Q, the MCI Form 10-K or MCI
Form 10-Q shall control.
(b) Pro forma financial information
The pro forma financial information required by this item will be filed
by amendment to this Current Report on Form 8-K not later than 60 days
after the date that the initial report on this Form 8-K must be filed.
(c) Exhibits
See Exhibit Index
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: September 29, 1998
MCI WORLDCOM, Inc.
By: /s/ Scott D. Sullivan
-------------------------------
Scott D. Sullivan
Chief Financial Officer
<PAGE> 7
INDEX TO FINANCIAL STATEMENTS AND OTHER INFORMATION
<TABLE>
<CAPTION>
Financial Statements Page Numbers
-------------------- ------------
<S> <C>
MCI Communications Corporation and Subsidiaries - for the
three and six month periods ended June 30,1997 and 1998
(unaudited)
Consolidated Income Statements F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Cash Flows F-5
Consolidated Statements of Stockholders' Equity F-6
Notes to Interim Condensed Consolidated Financial
Statements F-7
Management's Discussion and Analysis of Financial
Condition and Results of Operations F-11
</TABLE>
Note: the financial information described above related
to MCI was previously contained in MCI's Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 1998
and has not been updated to reflect changes since
June 30, 1998. To the extent the above financial information
differs from the financial information reported in MCI's
Form 10-Q, the MCI Form 10-Q shall control.
F-1
<PAGE> 8
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
INCOME STATEMENTS
(In millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -----------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
REVENUE $5,370 $4,843 $10,658 $9,726
------ ------ ------ ------
OPERATING EXPENSES
Cost of services 2,839 2,547 5,722 5,072
Sales, operations and general 1,554 1,265 3,058 2,584
Depreciation 621 479 1,311 932
------ ------ ------ ------
TOTAL OPERATING EXPENSES 5,014 4,291 10,091 8,588
------ ------ ------ ------
INCOME FROM OPERATIONS 356 552 567 1,138
Interest expense (54) (58) (106) (116)
Interest income 12 4 16 10
Equity in income (losses) of
affiliated companies (23) (24) (47) (61)
Other income (expense), net 38 (4) 77 (7)
------ ------ ------ ------
INCOME BEFORE INCOME TAXES AND
TRUST DISTRIBUTIONS 329 470 507 964
Income tax provision 119 175 181 359
Distributions on subsidiary Trust mandatorily
redeemable preferred securities 15 15 30 30
------ ------ ------ ------
NET INCOME $ 195 $ 280 $ 296 $ 575
====== ====== ====== ======
BASIC EARNINGS PER COMMON SHARE $ .27 $ .41 $ .41 $ .84
DILUTED EARNINGS PER COMMON SHARE .26 .40 .40 .82
Weighted average number of common shares 729 689 722 688
Weighted average number of common shares
assuming dilution 745 708 737 705
Dividends declared per common share $ .025 $ .025 $ .025 $ .025
See accompanying Notes to Interim Condensed Consolidated Financial Statements.
</TABLE>
F-2
<PAGE> 9
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
BALANCE SHEETS
(In millions)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- -----------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 1,126 $ 261
Receivables, net of allowance for
uncollectibles of $426 and $372 million 3,325 3,576
Other current assets 983 1,423
------- -------
TOTAL CURRENT ASSETS 5,434 5,260
------- -------
PROPERTY AND EQUIPMENT, net 14,140 13,868
OTHER ASSETS
Investment in affiliates 636 653
Investment in DBS 1,064 1,043
Investment in News Corp. 1,350 1,350
Other assets and deferred charges, net 1,054 991
Goodwill, net 2,308 2,345
------- -------
TOTAL OTHER ASSETS 6,412 6,382
------- -------
TOTAL ASSETS $25,986 $25,510
======= =======
</TABLE>
See accompanying Notes to Interim Condensed Consolidated Financial Statements.
F-3
<PAGE> 10
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
BALANCE SHEETS
(In millions)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,075 $1,321
Accrued telecommunications expense 2,564 2,416
Other accrued liabilities 2,562 2,248
Long-term debt due within one year 742 2,111
------- -------
TOTAL CURRENT LIABILITIES 6,943 8,096
------- -------
NONCURRENT LIABILITIES
Long-term debt 3,938 3,276
Deferred taxes and other 2,167 2,077
------- -------
TOTAL NONCURRENT LIABILITIES 6,105 5,353
------- -------
COMMITMENTS AND CONTINGENT LIABILITIES
COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED
SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY
JUNIOR SUBORDINATED DEFERRABLE INTEREST
DEBENTURES OF THE COMPANY 750 750
STOCKHOLDERS' EQUITY
Class A common stock, $.10 par value,
authorized 500 million shares, issued
136 million shares 14 14
Common stock, $.10 par value, authorized
2 billion shares, issued
598 million shares 60 60
Additional paid in capital 6,489 6,343
Retained earnings 5,623 5,345
Accumulated other comprehensive income 2 19
Treasury stock, at cost,
0 million and 22 million shares - (470)
------- -------
TOTAL STOCKHOLDERS' EQUITY 12,188 11,311
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $25,986 $25,510
======= =======
</TABLE>
See accompanying Notes to Interim Condensed Consolidated Financial Statements.
F-4
<PAGE> 11
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(In millions)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------
1998 1997
------ ------
OPERATING ACTIVITIES
<S> <C> <C>
Receipts from customers $10,892 $9,311
Payments to suppliers and employees (8,533) (7,499)
Taxes paid, net (56) (167)
Interest paid (99) (115)
Interest received 8 5
------ ------
CASH FROM OPERATING ACTIVITIES 2,212 1,535
------ ------
INVESTING ACTIVITIES
Capital expenditures for property and equipment (1,500) (1,710)
Proceeds from sales and maturities of marketable securities
and other investments, net 40 91
Investment in Direct Broadcast Satellite (34) (127)
Investment in affiliates (44) (42)
Other, net 418 35
------ ------
CASH USED FOR INVESTING ACTIVITIES (1,120) (1,753)
------ ------
NET CASH FLOW BEFORE FINANCING ACTIVITIES 1,092 (218)
------ ------
FINANCING ACTIVITIES
Issuance of Senior Notes 1,172 -
Payment of Senior Notes and other debt (124) (160)
Commercial paper and bank credit facility activity, net (1,806) 135
Issuance of common stock for employee plans 579 251
Purchase of treasury stock - (93)
Distributions paid on Trust mandatorily redeemable
preferred securities (30) (30)
Payment of dividends on common stock and
class A common stock (18) (17)
------ ------
CASH FROM (USED FOR) FINANCING ACTIVITIES (227) 86
------ ------
Net increase (decrease) in cash and cash equivalents 865 (132)
Cash and cash equivalents - beginning balance 261 187
------ ------
Cash and cash equivalents - ending balance $1,126 $ 55
====== ======
Reconciliation of net income to cash from operating activities:
Net income $ 296 $ 575
Adjustments to net income:
Depreciation and amortization 1,338 953
Equity in (income) losses of affiliated companies 47 61
Deferred income tax provision 86 34
Net change in operating activity accounts other than cash and cash equivalents:
Receivables 251 (190)
Operating accounts payable and accrued liabilities (51) (204)
Other operating activity accounts 245 306
------ ------
Cash from operating activities $ 2,212 $1,535
====== ======
</TABLE>
See accompanying Notes to Interim Condensed Consolidated Financial Statements.
F-5
<PAGE> 12
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
STATEMENT OF STOCKHOLDERS' EQUITY
(In millions)
<TABLE>
<CAPTION>
Accumulated
Class A Addit'l Other Treasury
Common Common Paid in Retained Comprehensive Stock Total
Stock Stock Capital Earnings Income at Cost Equity
-----------------------------------------------------------------------------------------------
Balance at
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1997 $14 $60 $6,343 $5,345 $19 $ (470) $11,311
Common stock issued
for employee stock
and benefit plans &
other activity
(22 million shares) - - 146 - - 470 616
Common stock dividends - - - (18) - - (18)
Comprehensive income
Net income - - - 296 - - -
Change in other
comprehensive income - - - - (17) - -
Total other
comprehensive income - - - - - - 279
-----------------------------------------------------------------------------------------------
Balance at
June 30, 1998 $14 $60 $6,489 $5,623 $ 2 $ - $12,188
===============================================================================================
</TABLE>
See accompanying Notes to Interim Condensed Consolidated Financial Statements.
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MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. GENERAL
The accompanying unaudited interim condensed consolidated financial statements
have been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission (SEC). The interim condensed consolidated
financial statements include the consolidated accounts of MCI Communications
Corporation and its majority-owned subsidiaries (collectively, the company) with
all significant intercompany transactions eliminated. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair statement of the financial position, results of operations
and cash flows for the interim periods presented have been made. The preparation
of the financial statements includes estimates that are used when accounting for
revenue, including long-term customer contracts and allowances for uncollectible
receivables, investments, telecommunications expense, depreciation, including
asset write-downs and amortization, reorganization accruals, employee benefit
plans and taxes. Actual results could differ from those estimates. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles (GAAP) have
been condensed or omitted pursuant to such SEC rules and regulations. These
financial statements should be read in conjunction with the company's Annual
Report on Form 10-K for the year ended December 31, 1997.
NOTE 2. MCI WORLDCOM MERGER AGREEMENT
On November 9, 1997, the company entered into an Agreement and Plan of Merger
(the MCI WorldCom Merger Agreement) with WorldCom, Inc. (WorldCom), a Georgia
corporation, and TC Investments Corp. (Merger Sub), a Delaware corporation and a
wholly-owned subsidiary of WorldCom, pursuant to which the company will merge
with and into Merger Sub (the Merger). As a result of the Merger, (a) each
outstanding share of the company's common stock, par value $.10 per share,
(other than shares owned by WorldCom or Merger Sub or held by the company) will
be converted into the right to receive that number of shares of WorldCom common
stock, par value $.01 per share, equal to the quotient determined by dividing
$51.00 by the average of the high and low sale prices of WorldCom common stock
as reported on the Nasdaq National Market on each of the 20 consecutive trading
days ending with the third trading day immediately preceding the effective time
of the Merger (the Exchange Ratio), provided that the Exchange Ratio shall not
be less than 1.2439 or greater than 1.7586; and (b) each outstanding share of
the company's Class A common stock shall be converted into the right to receive
$51.00 in cash, without interest thereon. On March 11, 1998, the stockholders of
the company and shareholders of WorldCom approved the Merger. On July 8, 1998,
and July 15, 1998, the European Commission and the United States Department of
Justice (DOJ) approved the merger, respectively, subsequently conditional to the
company's agreement to sell its public Internet services business. The Merger is
also subject to the approval of the Federal Communications Commission (FCC) and
various state regulatory agencies, approvals which the company expects to
receive in the summer of 1998. The Merger will be accounted for as a purchase in
accordance with GAAP.
The company and WorldCom have certain interconnection or other service
agreements at prevailing market rates in the ordinary course of their
businesses. For the three and six months ended June 30, 1998, the company
recognized revenue of approximately $214 million and $402 million, respectively,
for services provided by the company under these agreements. In addition, cost
of services during the same period for services provided by WorldCom was
approximately $18 million and $34 million, respectively, under such agreements.
As of June 30, 1998, amounts due from WorldCom, which were included in accounts
receivable, totaled approximately $225 million.
NOTE 3. COMPREHENSIVE INCOME
On January 1, 1998, the company adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income". Total comprehensive
income is reported in the statement of stockholders' equity and includes net
income, unrealized gains and losses on marketable securities, net of tax, a
reclassification adjustment associated with gains and losses realized on
marketable securities in net income, net of tax, and foreign currency
translation adjustments.
NOTE 4. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In July, 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities", that will
be effective for the company's year ending December 31, 2000. Management is
currently evaluating the impact of the adoption of the statement and believes
there will not be a material impact to the company's financial statements. In
April 1998, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position No. (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which will be
effective for the company's year ending December 31, 1999. Management is
currently analyzing the impact of the adoption of the statement, which may be
material to the company's financial statements taken as a whole. The AICPA also
issued SOP No. 98-5, "Reporting on the Costs of Start-up Activities," which will
be effective for the company's year ending December 31, 1999. The company is
currently evaluating the effects of this statement, however; management believes
F-7
<PAGE> 14
its adoption will not have a material impact on the company's financial
statements taken as a whole. In 1997, the FASB issued SFAS No. 131, "Disclosure
about Segments of an Enterprise and Related Information," that will be effective
for the company's year ending December 31, 1998. The company is currently
evaluating the effects and believes that the adoption of this statement will not
have a material impact on the company's financial statements taken as a whole.
NOTE 5. DEBT
On April 22, 1998, the company issued $500 million aggregate principal amount of
6.50% Senior Notes due April 15, 2010 and $700 million aggregate principal
amount of 6.125% Callable/Redeemable Notes due April 15, 2012. The proceeds from
the issuance will be used for general corporate purposes, including the
repayment of short-term borrowings under the company's commercial paper program.
On April 28, 1998, the company extended its $4 billion revolving line of credit
loan agreement with several financial institutions. Borrowings under this
agreement mature on the earlier of April 26, 1999 or on the closing date of the
Merger.
NOTE 6. 1997 REORGANIZATION EFFORTS
In the second half of 1997, the company completed a comprehensive review of its
product and service offerings. As a result of this review, the company decided
to exit and restructure several business customer contracts, consolidate certain
operating centers and streamline or discontinue certain non-core or
under-performing Information Technology (IT) operations and reorganize certain
operations or eliminate certain product or service offerings within its core
business. For the year ended December 31, 1997, the company recorded $361
million in its costs of services to reflect costs and provisions to exit,
restructure or settle several business customer contracts and cease certain
product and service offerings. The company also recorded $282 million in sales,
operations and general expense primarily for reorganization efforts, which
included approximately $103 million of severance associated with a workforce
alignment and $93 million of obligations and penalties associated with lease,
vendor and customer contracts. The remainder represented other costs associated
with the company's business reorganization and certain legal costs.
Through June 30, 1998, the company expended approximately $447 million of the
accrued costs related to the above items, with the majority of the remaining
$196 million to be expended during the remainder of 1998. The remaining accrual,
which is included in other accrued liabilities on the accompanying balance
sheet, was primarily comprised of severance, lease obligations and customer and
vendor contract termination and commitment costs and certain legal costs. Cash
expenditures for these obligations will continue to be funded through cash from
operations. As a result of the workforce alignment associated with its
reorganization efforts, the company expected to reduce its workforce by
approximately 4,500 employees, of whom approximately 3,500 had left the company
by June 30, 1998. The remaining employees are expected to leave by the end of
1998.
NOTE 7. DIRECT BROADCAST SATELLITE (DBS) VENTURE
In May 1997, the company and The News Corporation Limited (News Corp.) entered
into an agreement to form a joint venture (DBS Venture) in which both parties
would contribute their respective DBS assets and cash. In exchange, the company
would receive a 19.9% interest in the new venture. In addition, the parties
agreed that the company's funding obligation to the DBS Venture would be limited
to $440 million. The agreement also provided that the parties would seek a third
party to acquire their combined interests in this DBS business. In June 1997,
the company and News Corp. entered into an agreement with Primestar Partners,
L.P. (Primestar) for the sale and transfer of the company's and News Corp.'s DBS
assets other than two of the four DBS Venture satellites (Primestar
Transaction). In March 1998, the parties sold their interest in one of the
remaining satellites and are pursuing the disposition of the other. The
Primestar Transaction is part of a larger transaction that involves the
consolidation of Primestar and TCI Satellite Entertainment, Inc. into a newly
formed entity (New Primestar) that was completed in April 1998. Concurrent with
the consummation of the Primestar Transaction or upon the approval by the FCC of
the transfer of the orbital slot to the DBS Venture or another third party, the
company will acquire preferred shares in a subsidiary of News Corp. for a face
amount equal to the company's cost of obtaining the FCC license plus interest
thereon. Under the terms of the Primestar Transaction, the company will also
receive from New Primestar consideration in the form of cash and interest
bearing non-voting New Primestar securities for its share of the DBS Venture
assets transferred to New Primestar. On May 12, 1998 the Department of Justice
filed suit in the U.S. District Court for the District of Columbia seeking to
enjoin the completion of the Primestar Transaction.
F-8
<PAGE> 15
NOTE 8. EARNINGS PER SHARE
Earnings per share (EPS) are calculated in accordance with SFAS No. 128. The
following is a reconciliation of the numerators and the denominators of the
basic and diluted per share computations (in millions, except per share
amounts):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
-----------------------------------------------------------------
Basic:
<S> <C> <C> <C> <C>
Net income $195 $280 $296 $575
Weighted average common
shares outstanding 729 689 722 688
----------------------- -----------------------
Basic EPS $0.27 $0.41 $0.41 $0.84
======================= =======================
Diluted:
Net income $195 $280 $296 $575
Weighted average common
shares outstanding 729 689 722 688
----------------------- -----------------------
Effect of dilutive securities:
Shares of common stock issuable
upon the assumed exercise of
common stock equivalents 62 84 62 84
Shares of common stock assumed
repurchase for treasury (46) (65) (47) (67)
------------------------ ------------------------
Weighted average common
shares outstanding assuming
dilution 745 708 737 705
----------------------- -----------------------
Diluted EPS $0.26 $0.40 $0.40 $0.82
======================= =======================
</TABLE>
NOTE 9. CONTINGENCIES
The company, in the normal course of business, is a party to a number of
lawsuits and regulatory and other proceedings and has included accrued loss
contingencies in other accrued liabilities for certain of these matters. The
company does not expect that the results in these lawsuits and proceedings will
have a material adverse effect on the consolidated financial position or
operations of the company.
On November 4, 1996, and thereafter, and on August 25, 1997, and thereafter, the
company and all of its directors, including the two directors who are also
executive officers of the company and the three directors elected by British
Telecommunications plc (BT), were named as defendants in a total of 15
complaints filed in the Court of Chancery in the State of Delaware. BT was named
as a defendant in 13 of the complaints. The complaints were brought by alleged
stockholders of the company, individually and purportedly as class actions on
behalf of all other stockholders of the company. In general, the complaints
allege that the company's directors breached their fiduciary duty in connection
with the MCI BT Merger Agreement, that BT aided and abetted those breaches of
duty, that BT owes fiduciary duties to the other stockholders of the company and
that it breached those duties in connection with the MCI BT Merger Agreement.
The complaints seek damages and injunctive and other relief.
On or about October 8, 1997, all of the company's directors, including the two
directors who are also executive officers of the company and the three directors
elected by BT, were named as defendants in a purported derivative complaint
filed in the Court of Chancery in the State of Delaware. BT and Tadworth
Corporation were also named as defendants, and the company was named as a
nominal defendant. The plaintiff, derivatively and on behalf of the company,
alleges breach of fiduciary duty by the company's directors and aiding and
abetting those breaches of duty by BT in connection with the MCI BT Merger
Agreement and WorldCom's exchange offer. The complaint seeks injunctive relief,
damages and other relief.
One of the purported stockholder class actions pending in Delaware Chancery
Court has been amended and plaintiffs in four of the other purported stockholder
class actions have moved to amend their complaints to name WorldCom and Merger
F-9
<PAGE> 16
Sub, as additional defendants. They generally allege that the defendants
breached their fiduciary duty to stockholders in connection with the Merger, the
agreement to pay a termination fee to WorldCom, and allege discrimination in
favor of BT in connection with the Merger. They seek, inter alia, damages and
injunctive relief prohibiting the consummation of the Merger and the payment of
the inducement fee to BT.
Three complaints were filed in the federal district court in Washington, D.C.,
as class actions on behalf of purchasers of the company's shares. The three
cases were consolidated on April 1, 1998. On or about May 8, 1998, the
plaintiffs in all three cases filed a consolidated amended complaint alleging,
on behalf of purchasers of the company's shares between July 11, 1997 and August
21, 1997, inclusive, that the company and certain of its officers and directors
failed to disclose material information about the company, including that the
company was renegotiating the terms of the MCI BT Merger Agreement dated
November 3, 1996. The consolidated amended complaint seeks damages and other
relief. The company and the other defendants have moved to dismiss the
consolidated amended complaint.
On May 7, 1998, GTE Corporation and three of its subsidiaries filed suit in the
U.S. District Court for the District of Columbia against the company and
WorldCom. The complaint alleges that the pending merger between the company and
WorldCom would have the effect of substantially lessening competition or tending
to create a monopoly, and thereby violate section 7 of the Clayton Act, with
respect to the markets for Internet backbone services, facilities to extend the
reach of the Internet backbone, wholesale and retail long-distance services and
international calling services. The complaint requests declaratory and
injunctive relief. At a scheduling conference on July 10, 1998, the District
Court set a trial date of May 10, 1999.
The company believes that all of the complaints are without merit and the
company presently does not expect that the above actions will have a material
adverse effect on the consolidated financial position or results of operations
of the company.
NOTE 10. SUBSEQUENT EVENTS
Divesture of the Public Internet Services Business
On July 15, 1998, the company announced that it had entered into a letter
agreement (Letter Agreement) with Cable & Wireless plc (Cable & Wireless) to
sell its public Internet services business for $1.75 billion. The Letter
Agreement supersedes the letter of intent between the company and Cable &
Wireless to sell MCI's Internet backbone services business which was announced
on May 28, 1998. The completion of the transaction is subject to certain
conditions precedent, including the satisfaction of the conditions precedent to
the Merger, which include the approval by the FCC of the Merger. Either party
may terminate the Letter Agreement if the sale is not consummated by December
31, 1998.
Investment in Embratel
On July 29, 1998, the company acquired, through its wholly-owned subsidiary
Startel Participacoes Ltda., for approximately $2.3 billion, a 51.79% voting
interest and a 19.26% economic interest in Embratel Participacoes S.A., Brazil's
only facilities-based national communications provider. The purchase price will
be paid in installments of which $916 million was paid on July 29, 1998 with the
remainder to be paid prior to July 29, 2000.
Sale of Investment in Concert CS
On August 7, 1998, the company entered into an agreement with BT, Concert CS and
WorldCom addressing various aspects of certain agreements and relationships
among the parties. The agreement is conditioned upon the resolution of certain
operational matters between the company and Concert CS. Under the terms of the
agreement the company has agreed to sell to BT its interest in Concert CS for
$1.013 billion immediately after consummation of the Merger.
F-10
<PAGE> 17
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
GENERAL
The following discussion and analysis provides information that management
believes is relevant to an assessment and understanding of the consolidated
results of operations and financial condition of MCI Communications Corporation
and its subsidiaries (collectively, the company). The discussion should be read
in conjunction with the interim condensed consolidated financial statements and
notes thereto and the company's Annual Report on Form 10-K for the year ended
December 31, 1997.
MERGER AGREEMENT WITH WORLDCOM, INC.
On November 9, 1997, the company entered into an Agreement and Plan of Merger
(the MCI WorldCom Merger Agreement) with WorldCom, Inc. (WorldCom), a Georgia
corporation, and TC Investments Corp. (Merger Sub), a Delaware corporation and a
wholly-owned subsidiary of WorldCom, pursuant to which the company will merge
with and into Merger Sub (the Merger). As a result of the Merger, (a) each
outstanding share of the company's common stock, par value $.10 per share,
(other than shares owned by WorldCom or Merger Sub or held by the company) will
be converted into the right to receive that number of shares of WorldCom common
stock, par value $.01 per share, equal to the quotient determined by dividing
$51.00 by the average of the high and low sale prices of WorldCom common stock
as reported on the Nasdaq National Market on each of the 20 consecutive trading
days ending with the third trading day immediately preceding the effective time
of the Merger (the Exchange Ratio), provided that the Exchange Ratio shall not
be less than 1.2439 or greater than 1.7586; and (b) each outstanding share of
the company's Class A common stock shall be converted into the right to receive
$51.00 in cash, without interest thereon.
- --------------------------------------------------------------------------------
Forward-looking Statements May Prove Inaccurate
The company has made certain forward-looking statements in Management's
Discussion and Analysis that are subject to risks and uncertainties.
Forward-looking statements include information concerning the possible future
results of operations of the company, its communication services, information
technology and other services, the possible future results of operations of the
company and MCI WorldCom after the Merger and statements preceded by, followed
by, or that include the words believes, expects, anticipates, intends, or
similar expressions. For those statements, the company claims the protection of
the safe-harbor for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995. The reader is cautioned that the
following important factors, among others, in addition to those contained
elsewhere in Management's Discussion and Analysis, could adversely affect the
future results of the company, its communication services, information
technology and other services and the company and MCI WorldCom after the Merger
and could cause those results to differ materially from the statements and
information expressed in the forward-looking statements: material adverse
changes in the economic conditions in the markets served by the company and MCI
WorldCom; a significant delay in the expected closing of the Merger; future
regulatory actions and conditions in the company's operating areas, including
the ability of the company to implement its local strategy and obtain local
facilities at competitive rates and resulting changes in the implementation of
its local strategy; and the ability to pass on additional charges imposed by the
Federal Communications Commission (FCC); competition from others in the U.S. and
international long-distance markets, including the entry of the regional Bell
operating companies (RBOCs) and other companies in the long-distance markets in
the U.S.; the cost of the company's year 2000 compliance efforts; and the effect
of future technological changes on its business.
F-11
<PAGE> 18
On March 11, 1998, the stockholders of the company and shareholders of WorldCom
approved the Merger. On July 8, 1998, and July 15, 1998, the European Commission
and the United States (U.S.) Department of Justice (DOJ) approved the merger,
respectively, subsequently conditional to the company's agreement to sell its
public Internet services business. The Merger is also subject to the approval of
the Federal Communications Commission (FCC) and various state regulatory
agencies, approvals which the company expects to receive in the summer of 1998.
The Merger will be accounted for as a purchase in accordance with generally
accepted accounting principles. The company believes that the Merger will create
a fully integrated global communications company that will be well positioned to
take advantage of growth opportunities in the global telecommunications market
by providing a complete range of local, long-distance, Internet and
international communications services.
DIVESTURE OF THE PUBLIC INTERNET SERVICES BUSINESS
On July 15, 1998, the company announced that it had entered into a letter
agreement (Letter Agreement) with Cable & Wireless plc (Cable & Wireless) to
sell its public Internet services business for $1.75 billion. The Letter
Agreement supersedes the letter of intent between the company and Cable &
Wireless to sell MCI's Internet backbone services business which was announced
on May 28, 1998. The completion of the transaction is subject to certain
conditions precedent, including the satisfaction of the conditions precedent to
the Merger, which include the approval by the FCC of the Merger. Either party
may terminate the Letter Agreement if the sale is not consummated by December
31, 1998.
TELECOMMUNICATIONS REGULATORY ENVIRONMENT
In 1998, the company began incurring per-line charges resulting from the FCC's
Access Reform Order and certain new universal service support obligation costs
resulting from the FCC's Universal Service Order. Under the Access Reform Order
adopted by the FCC in May 1997, interstate access charges were restructured to
shift more costs directly to end users. The Access Reform Order also reduced
per-minute charges long-distance carriers pay and created new flat-rate charges
to long distance carriers based on the number of pre-subscribed customers the
carrier has and subscriber lines held by the customers. In 1997, the FCC also
adopted the Universal Service Order which created new universal service support
obligations for telecommunications services for schools and libraries and rural
health care facilities. Despite rate reductions associated with the Access
Reform Order that went into effect January 1, 1998, cost of providing
telecommunications services for the first half of 1998 increased compared to the
first half of 1997.
In 1998, the company also recalibrated and will continue to recalibrate its
rates to ensure it is collecting amounts necessary to pay incumbent local
exchange company (ILEC) per-minute and per-line access charges and the universal
service obligations imposed directly on the company. During the first half of
1998, the company had experienced collection difficulties on such charges which
led to an increase in its allowance for uncollectibles. Certain provisions of
the Access Reform Order, Price Cap Order, and Universal Service Order are now
under review by various U.S. Courts of Appeal. In addition, the company has
renewed its requests that the FCC itself revisit access reform and mandate that
access charges decrease to cost. On August 6, 1998, the FCC began proceedings in
which it has proposed to reform its international settlements policy. Through
that policy the FCC regulates the fees that U.S. carriers pay to foreign
carriers for the termination of international calls from the U.S. The FCC
proposed to remove constraints under that policy that restrict the kinds of
arrangements the U.S. carriers may enter into with foreign carriers located in
World Trade Organization member countries.
CONSOLIDATED RESULTS OF OPERATIONS
The company operates predominantly in the communications services industry which
includes a broad range of long-distance, local and wireless telecommunications
services. Long-distance telecommunications services comprise a wide spectrum of
domestic and international voice and data services, including long-distance
telephone, electronic messaging, teleconferencing and data communications and
Internet services. The company also provides information technology (IT)
services which include equipment deployment, consulting and systems integration
and outsourcing services. The following discusses the company's consolidated
results of operations for the three and six months ended June 30, 1998 and 1997,
respectively.
REVENUE
For the three and six months ended June 30, 1998, revenue increased 10.9% and
9.6% to $5,370 million and $10,658 million, respectively, from the comparable
periods in 1997. Communications services revenue, which includes voice,
messaging, data and Internet, grew 10.6% and 9.5% compared to traffic growth of
12.3% and 13.0% for the three and six months ended June 30, 1998, respectively,
from the comparable periods in 1997. The variance in the growth of revenue
versus traffic of (1.7%) and (3.5%) reflects the growth in IntraLata services,
and ongoing levels of industry pricing competition. IT services revenue
increased 11.3% and 15.2% to $464 million and $949 million for the three and six
months ended June 30, 1998, respectively, from the comparable prior year
periods, as a result of growth in the systems integration and outsourcing
businesses.
<TABLE>
<CAPTION>
The following provides supplemental detail for communications services and IT
services revenue:
Three Months Ended Six Months Ended
Percent Percent
June 30, 1998 1997 Change 1998 1997 Change
- - ---------------------------------------------------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
Voice & Messaging $ 3,934 $ 3,654 7.7% $ 7,829 $ 7,367 6.3%
Data & Internet 1,001 809 23.7% 1,944 1,561 24.5%
Information Technology 464 417 11.3% 949 824 15.2%
Eliminations & Other (29) (37) 21.6% (64) (26) NM
-------------------------------- ----------------------------
Total Revenue $ 5,370 $ 4,843 10.9% $10,658 $ 9,726 9.6%
================================= ==============================
NM = Not meaningful
</TABLE>
F-12
<PAGE> 19
Voice and messaging services include traditional switched services such as
domestic and international inbound and outbound services and local, call centers
and wireless services. Voice and messaging revenue increased by $280 million and
$462 million to $3,934 million and $7,829 million for the three and six months
ended June 30, 1998, respectively, over the comparable periods in 1997. The
revenue increase were primarily the results of growth in the mass markets, local
services expansion, and increases in certain commercial business services,
partially offset by the continued de-emphasis of wholesale carrier customer
sales. In the mass markets, revenue and volume increased primarily as a result
of growth in the company's transactional brands, such as 1-800-Collect(R) and
10-10-321(R), and pre-subscribed services, such as 5-Cent SundaysSM. For the
three and six months ended June 30, 1998, the company's continuing strategy to
retain and focus on high-value customers resulted in a reduction of customer
churn. In business markets, commercial services revenue and volume increased,
led by inbound, teleconferencing and prepaid card services. Local services
revenue increased by approximately 70% and 77% for the three and six months
ended June 30, 1998, respectively, from the comparable periods in 1997. This
increase in revenue is primarily the result of the expansion of facilities
based, switched services to a total of 31 markets as of June 30, 1998, an
increase of 6 markets since June 30, 1997. Local services are provided to both
business and residential customers.
Data and Internet services include all domestic and international private line,
virtual data, managed services and Internet access services. Data and Internet
revenue increased by $192 million and $383 million to $1,001 million and $1,944
million for the three and six months ended June 30, 1998, respectively, from the
comparable periods in 1997. The increase was primarily due to increased demand
for integrated data and Internet services. For the three and six months ended
June 30, 1998, data revenue increased by $159 million and $314 million to $912
million and $1,722 million, respectively, in comparison to prior year's periods.
This increase is primarily the result of growth in virtual data, international
private line and managed services. Internet revenue for the three and six months
ended June 30, 1998, increased by $33 million and $69 million to $89 million and
$172 million, respectively, over the comparable periods in 1997. As announced on
July 15, 1998, the company has agreed to sell its public Internet services
business to Cable & Wireless for $1.75 billion simultaneous with the completion
of the Merger. (See Divesture of the Public Internet Services Business on page
F-12.)
IT services, which consist solely of the operations of MCI Systemhouse, includes
equipment deployment, consulting and systems integration and outsourcing
services. IT revenue increased 11.3% and 15.2% to $464 million and $949 million
for the three and six months ended June 30, 1998, respectively, over the
comparable periods in 1997. IT services revenue growth was the result of
increases in systems integration and outsourcing business predominately driven
by contract wins in late 1997, offset by a decline in revenue from discontinued
service lines. Excluding the impact of revenue from service lines discontinued
during the first half of 1998, revenue for the three and six months ended June
30, 1998 was $444 million and $889 million, respectively, an increase of 21%
and 24.3%, respectively, in comparison to the same periods in 1997.
COST OF SERVICES
Cost of services consists of telecommunications expense and costs of other
products and services. Telecommunications expense is primarily comprised of
access fees paid to local exchange carriers and other domestic service
providers, and payments made to foreign telephone companies (international
settlements) to complete calls made to foreign countries from the U.S. by the
company's customers. Cost of services for the three and six months ended June
30, 1998 increased 11.5% and 12.8% to $2,839 million and $5,722 million,
respectively, from the comparable prior year periods. Cost of services as a
percentage of revenue was 52.9% and 53.7%, from 52.6% and 52.1% for the three
and six months ended June 30, 1998, and 1997, respectively. The expense and
percentage of revenue increases in 1998 were primarily the results of
consolidated revenue growth and increases in direct operating expense in the
company's local service and IT businesses revenue mix. Telecommunications
expense as a percentage of communication services revenue decreased to 47.9%
from 48.7% for the three months ended June 30, 1998, and 1997, respectively.
This decrease was due to favorable domestic and international telecommunications
interconnections rates, and more efficient network usage; partially offset by
prescribed line and universal service support obligations and a reduction in
revenue rates as a result of competitive pricing. Telecommunications expense as
a percentage of communication services revenue increased to 49.0% from 48.5% for
the six months ended June 30, 1998, and 1997, respectively. The increase of
telecommunications expense as a percentage of communications revenue is the
result of a reduction in revenue rates due to competitive pricing, required
compensation to payphone owners and implementation of prescribed line and
universal service support obligations. The increase was partially offset by
lower domestic and international telecommunications interconnections rates, and
more efficient network usage.
SALES, OPERATIONS AND GENERAL EXPENSE
Sales, operations and general expense increased 22.8% and 18.3% to $1,554
million and $3,058 million for the three and six months ended June 30, 1998,
respectively, in comparison to the same periods in 1997. As a percentage of
revenue, sales, operations and general expense increased to 28.9% and 28.7%,
from 26.1% and 26.6% for the three and six months ended June 30, 1998, and 1997,
respectively. The increases for the three and six months ended June 30, 1998
F-13
<PAGE> 20
were the result of increased human resource and support costs associated with
business growth primarily in local and information and technology services, year
2000 efforts and pre-merger retention bonuses. In connection with the Merger
Agreement, pre-merger retention bonus pools were established to retain key
executives and employees of the company. For the three and six months ended June
30, 1998, the company recorded compensation costs of $32 million and $67
million, respectively, under these retention bonus programs. The company expects
to recognize additional compensation costs of approximately $60 million in the
last half of 1998 and approximately $50 million in 1999 under these programs.
However, all unpaid amounts under these retention pools will be paid on the
closing date of the Merger if earlier than the scheduled pay-out date at which
time any unrecognized compensation costs would be accelerated and expensed by
the company.
DEPRECIATION EXPENSE
Depreciation expense increased $142 million and $379 million to $621 million and
$1,311 million for the three and six months ended June 30, 1998, respectively,
from the comparable prior year periods. Approximately $58 million and $195
million of these increases resulted from additional depreciation expense on
equipment disposed of during the three and six months ended June 30, 1998,
respectively, that was identified for disposition in connection with an asset
disposition plan adopted in the fourth quarter of 1997. The remaining increase
in depreciation expense represents the depreciation impact of property and
equipment additions placed into service partially offset by the impact of
equipment disposals.
INTEREST EXPENSE
Interest expense decreased $4 million and $10 million for the three and six
months ended June 30, 1998, respectively, from the same periods in 1997, due to
lower average total debt balances and interest rates.
INTEREST INCOME
Interest income increased $8 million and $6 million for the three and six months
ended June 30, 1998, respectively, from the same periods in 1997, due to
increased cash balances.
EQUITY IN INCOME (LOSSES) OF AFFILIATES
Equity in income (losses) of affiliates decreased $1 million and $14 million to
($23) million and ($47) million for the three and six months ended June 30,
1998, respectively, from the comparable periods in 1997. The decrease for the
six month period is primarily the result of a reduction in the company's share
of operating losses of ICS Communications, Inc. and Concert Communications
Company (Concert CS).
OTHER INCOME (EXPENSE), NET
Other income, net, was $38 million and $77 million an increase of $42 million
and $84 million for the three and six months ended June 30, 1998, and 1997,
respectively. For the three months ended June 30, 1998, the increase from the
comparable period in 1997 was the result of recognized gains of approximately
$43 million related to the sales of certain non-core holdings. For the six
months ended June 30, 1998, the increase from the comparable period in 1997 was
primarily the result of the aforementioned gains and a $51 million realized gain
resulting from the company's exchange of a marketable equity securities
investment in Brooks Fiber Properties, Inc. which occurred in the first quarter
of 1998.
INCOME TAX PROVISION
The provision for income taxes decreased by $56 million and $178 million to $119
million and $181 million for the three and six months ended June 30, 1998,
respectively, from the comparable periods in 1997. The decreases are the result
of the 1998 reduction in pre-tax income. The company's effective tax rate
approximated 38% for each period.
NET INCOME
Net income decreased $85 million and $279 million to $195 million and $296
million for the three and six months ended June 30, 1998, respectively, from the
same periods during 1997. The decrease in net income for the three and six
months ended June 30, 1998 are the result of increases in operating expense
associated with, and in response to, growth and competitive initiatives as well
as the additional depreciation expense for equipment subject to the asset
disposition plan adopted in 1997 offset by the increase in other income, net and
the lower provision for income taxes.
GLOBAL AND OTHER ALLIANCES
CONCERT CS
During the first quarter of 1998, the company invested $8 million in Concert CS,
its 24.9% owned international services venture with British Telecommunications
plc, (BT). For the three and six months ended June 30, 1998, Concert CS
distributor revenue amounted to approximately $232 million and $444 million,
respectively. The company's share of Concert CS losses reported in accordance
with U.S. GAAP was $(2) million and $(5) million for the three and six months
ended June 30, 1998, respectively. BT has agreed to exercise its call option to
acquire the company's shares in Concert CS immediately following the effective
time of the Merger.
On August 7, 1998, the company entered into an agreement with BT, Concert CS
and WorldCom addressing various aspects of certain agreements and relationships
among the parties. The agreement is conditioned upon the resolution of certain
operational matters between the company and Concert CS. Under the terms of the
agreement the company has agreed to sell to BT its interest in Concert CS for
F-14
<PAGE> 21
$1.013 billion immediately after consummation of the Merger. The company will be
a distributor of Concert CS services on a nonexclusive basis to customers in the
U.S. for a period of at least two years and as many as five years following BT's
exercise of its call option.
TELEFONICA de ESPANA S.A. ALLIANCE (Telefonica)
In April 1997, the company formed a strategic alliance with Telefonica to
explore opportunities in Latin America's telecommunications market. In March
1998, the company and Telefonica expanded the scope of their alliance to include
WorldCom and to pursue certain activities in the Americas and Europe.
AVANTEL S.A. de C.V (Avantel)
During the first half of 1998, the company funded an additional $37 million in
Avantel, a 44.5% owned business venture with Grupo Financiero Banamex-Accival.
At June 30, 1998, Avantel has approximately a 10% share in the addressable
Mexico long-distance market. The company's share of Avantel's losses reported in
accordance with U.S. GAAP was $(23) million and $(43) million for the three and
six months ended June 30, 1998, respectively. The company expects Avantel to
continue to generate operating losses as Avantel expands its service and
customer bases in Mexico's telecommunications market.
INVESTMENT in EMBRATEL
On July 29, 1998, the company acquired, through its wholly-owned subsidiary
Startel Participacoes Ltda., for approximately $2.3 billion, a 51.79% voting
interest and a 19.26% economic interest in Embratel Participacoes S.A., Brazil's
only facilities-based national communications provider. The purchase price will
be paid in installments of which $916 million was paid on July 29, 1998 with the
remainder to be paid prior to July 29, 2000.
DIRECT BROADCAST SATELLITE (DBS) VENTURE
In May 1997, the company and The News Corporation Limited (News Corp.) entered
into an agreement to form a joint venture (DBS Venture) in which both parties
would contribute their respective DBS assets and cash. In exchange, the company
would receive a 19.9% interest in the new venture. In addition, the parties
agreed that the company's funding obligation to the DBS Venture would be limited
to $440 million. The agreement also provided that the parties would seek a third
party to acquire their combined interests in this DBS business. In June 1997,
the company and News Corp. entered into an agreement with Primestar Partners,
L.P. (Primestar) for the sale and transfer of the company's and News Corp.'s DBS
assets other than two of the four DBS Venture satellites (Primestar
Transaction). In March 1998, the parties sold their interest in one of the
remaining satellites and are pursuing the disposition of the other. The
Primestar Transaction is part of a larger transaction that involves the
consolidation of Primestar and TCI Satellite Entertainment, Inc. into a newly
formed entity (New Primestar) that was completed in April 1998. Concurrent with
the consummation of the Primestar Transaction or upon the approval by the FCC of
the transfer of the orbital slot to the DBS Venture or another third party, the
company will acquire preferred shares in a subsidiary of News Corp. for a face
amount equal to the company's cost of obtaining the FCC license plus interest
thereon. Under the terms of the Primestar Transaction, the company will also
receive from New Primestar consideration in the form of cash and interest
bearing non-voting New Primestar securities for its share of the DBS Venture
assets transferred to New Primestar. On May 12, 1998 the Department of Justice
filed suit in the U.S. District Court for the District of Columbia seeking to
enjoin the completion of the Primestar Transaction.
YEAR 2000 EFFORTS
The company continues to evaluate and upgrade its computer systems and
applications for the year 2000. The company's objective is to target year 2000
compliance for all of its major systems, including network and customer
interfacing systems, on or before March 31, 1999. All other systems are targeted
for compliance by June 1999. The company is currently testing the systems and
applications that have been corrected or reprogrammed to date for year 2000
compliance.
As part of its year 2000 plan, the company is seeking confirmation from its
domestic and foreign interconnecting carriers and major communications
equipment vendors (Primary Vendors) that they are developing and implementing
plans to become year 2000 compliant. Confirmations received to date from its
Primary Vendors have indicated that such respondents are in the process of
implementing remediation procedures to ensure that their computer systems are
year 2000 compliant by December 31, 1999. The company has already started
testing with some of its Primary Vendors and expects to have started testing
with all of its Primary Vendors by the second quarter of 1999.
In addition, the company is developing a contingency plan to deal with potential
year 2000 related business interruptions that may occur on January 1, 2000 or
thereafter. The company believes this plan will be ready for implementation in
early 1999 and it is anticipated that contingency plan testing will begin during
the first quarter of 1999.
To achieve its year 2000 compliance plan, the company is utilizing both internal
and external resources to identify, correct or reprogram, and test its systems
for year 2000 compliance. The company expects to incur internal labor as well as
consulting and other expenses related to infrastructure and facilities
enhancements necessary to prepare its systems for the year 2000. The costs
incurred by the company for the six months ended June 30, 1998 were
approximately $52 million and are included in sales, operations and general
expense and were consistent with the planned expenditures for the period. The
company expects to incur approximately $350 million in expenses in the last half
of 1998 and 1999 to support its compliance initiatives. Although the company
expects its systems to be year 2000 compliant on or before December 31, 1999, it
cannot predict the outcome or the success of its year 2000 joint testing program
or the year 2000 compliance programs of the Primary Vendors, nor can it predict
the impact on its financial condition or results of operations, if any, in the
event that such joint testing compliance objectives and year 2000 compliance
programs of its Primary Vendors are not successful.
F-15
<PAGE> 22
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
Cash from operating activities increased by $677 million to $2,212 million for
the six months ended June 30, 1998 compared to the six months ended June 30,
1997. Receipts from customers increased by $1,581 million due primarily to the
increase in revenue and improved collection experience. Payments to suppliers
and employees increased by $1,034 million as a result of increases in operating
expenses and the timing of the related payments. Taxes and interest paid for the
six months ended June 30, 1998 declined from the year ago period primarily as a
result of lower income taxes and interest expenses, and income tax refunds. Cash
used for investing activities decreased by $633 million for the six months ended
June 30, 1998 compared to the six months ended June 30, 1997. The decrease was
the result of lower expenditures for property and equipment and investments in
DBS and affiliates of $301 million. These investing activities were offset by a
$383 million increase in other investing activities, net primarily the result of
$360 million of proceeds received from a sale-lease back transaction offset by a
reduction in proceeds received from marketable securities and other investments,
net of $51 million. Cash from operating activities and financing activities was
used to support the company's investing activities for the six months ended June
30, 1998.
Cash used for financing activities was ($227) million for the six months ended
June 30, 1998 compared to net cash proceeds from financing activities of $86
million for the six months ended June 30, 1997. During the six months ended June
30, 1998, the company was able to repay approximately $1.8 billion in commercial
paper and other debt balances. These balances were repaid in-part from proceeds
raised from issuances of common stock to support employee benefit programs and
proceeds from debt issuances of $500 million aggregate principal amount of 6.50%
Senior Notes and $700 million aggregate principal amount of 6.125%
Callable/Redeemable notes issued in April 1998. Other financing activities
included distributions paid on Trust mandatorily redeemable preferred securities
of $30 million and dividend payments of $18 million. Cash from financing
activities for the six months ended June 30, 1997 consisted of payments of
Senior Notes and other debt of $160 million, distributions paid on Trust
mandatorily redeemable preferred securities of $30 million, and dividend
payments of $17 million offset by net commercial paper borrowings of $135
million and issuances of common stock to support employer benefit programs net
of treasury share repurchases of $158 million.
CAPITAL RESOURCES AND LIQUIDITY
For the six months ended June 30, 1998, the company funded its capital
expenditures and other investment activities through cash from operations and
other financing activities. The company expects net capital expenditures of
approximately $3.1 billion for 1998 and expects to fund a majority of the
expenditures with cash from operations. The company has a $4 billion bank credit
facility that supports the company's commercial paper program and may be used to
fund short-term fluctuations in working capital and other corporate
requirements. In April 1998, this facility was extended until the earlier of the
consummation of the Merger or April 26, 1999. In April 1998, the company also
issued $500 million aggregate principal amount of 6.50% Senior Notes due April
15, 2010 and $700 million aggregate principal amount of 6.125%
Callable/Redeemable Notes due April 15, 2012 under its $1.2 billion shelf
registration. The proceeds from these issuances were used to repay maturing
commercial paper balances and for other general corporate purposes. After these
issuances, there were no amounts available for issuance under the shelf
registration. Upon issuance of the $500 million Senior Notes, the company
terminated an interest rate swap which had been designated as a hedge against
adverse market interest rate changes. The swap had a negative fair value of
approximately $27 million at the time of the transaction which is being
amortized over the life of the Senior Notes. On July 29, 1998 the company
invested approximately $916 million for its interest in Embratel Participacoes
S.A. This was funded with cash from operations. The company believes it will be
able to meet its current and long-term liquidity and capital requirements from
cash from operating activities, its commercial paper program and other investing
activities.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The company believes its market risk exposure with regard to its financial
instruments is limited to changes in interest rates primarily in the U.S. The
company believe its market risk exposure is not material. At June 30, 1998, the
company had no amounts of variable rate debt outstanding.
F-16
<PAGE> 23
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
2.1 Agreement and Plan of Merger by and among WorldCom,
TC Investments Corp. and MCI dated as of November 9,
1997 (filed as Annex I to the Joint Proxy
Statement/Prospectus dated January 22, 1998 included
in WorldCom's Registration Statement on Form S-4,
Registration No. 333-36901 and incorporated herein by
reference)*
2.2 Agreement by and among BT, MCI and WorldCom dated
as of November 9, 1997 (incorporated herein by
reference to Exhibit 99.1 of WorldCom's Current
Report on Form 8-K dated November 9, 1997 (filed
November 12, 1997) (File No. 0-11258))*
3.1 Second Amended and Restated Articles of Incorporation
of MCI WORLDCOM, Inc. (including preferred stock
designations), as amended as of September 15, 1998
(incorporated herein by reference to Exhibit 4.1 of
MCI WorldCom's Post-Effective Amendment No. 1 on Form
S-8 to Registration Statement on Form S-4, No.
333-36901 (filed September 14, 1998))
3.2 Restated Bylaws of MCI WORLDCOM, Inc.
99.1 Certain portions of Press Release dated August 12,
1998
99.2 Joint Proxy Statement/Prospectus dated January 22,
1998 filed in connection with WorldCom's Registration
Statement on Form S-4, Registration No. 333- 36901,
and incorporated herein by reference.
</TABLE>
- ----------------------
* The registrant hereby undertakes to furnish supplementally a copy of any
omitted schedule to this Agreement to the Securities and Exchange Commission
upon request.
<PAGE> 1
EXHIBIT 3.2
As Adopted September 15, 1993,
Amended on May 23, 1996,
August 25, 1996 and September 10,
1998 and Reflecting Name
Change on September 15, 1998
RESTATED BYLAWS
OF
MCI WORLDCOM, INC.
(a Georgia Corporation)
-----------------------
ARTICLE I
OFFICES
The principal office of the corporation shall be located in
Jackson, Mississippi. The principal books of the corporation shall be kept at
such principal office, with necessary books and records being kept at such other
place or places as the Board of Directors may from time to time determine. The
registered office of the corporation required by the Georgia Business
Corporation Code shall be located within the State of Georgia. The corporation
may have such other offices, either within or without the State of Georgia, as
the Board of Directors may designate or as the business of the corporation may
require from time to time.
ARTICLE II
SHAREHOLDERS
Section 1. Annual Meeting. The annual meeting of the
shareholders shall be held on the date and time fixed by the Board of Directors
for the purpose of electing directors and for the transaction of such other
business as may properly be brought before the meeting.
Section 2. Special Meetings. Special meetings of the
shareholders, for any purpose or purposes, unless otherwise prescribed by
statute, may be called by the Board of Directors or President, and shall be
called by the President at the written request of the holders of not less than
forty percent (40%) of all the votes entitled to be cast on any issue to be
considered at the meeting (subject to any requirements or limitations imposed by
the corporation's Articles of Incorporation, by these Bylaws or by law), which
written request must describe the purpose or purposes for which the special
meeting is to be held (which must be a proper subject for action by the
corporation's shareholders) and further comply with the provisions of Section 11
of this Article II.
Section 3. Place of Meeting. Meetings of the shareholders
shall be held at such place as may be designated by the Board of Directors and
stated in the notice of meeting.
Section 4. Notice of Meeting. Written notice stating the
place, date and time of the meeting and, in case of a special meeting, the
purpose or purposes for which the meeting is called, shall, unless otherwise
prescribed by statute, be delivered to each shareholder of record entitled to
vote at such meeting not less than ten (10) days or more than sixty (60) days
before the date of the meeting.
Section 5. Record Date. In order that the corporation may
determine the shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other action, the Board of Directors may fix, in advance,
a record date, which shall not be more than seventy (70) days before the date of
such meeting or action. If no record date is fixed, (i) the record date for
determining shareholders entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on the day before the day on
which the first notice is given to such shareholders, and (ii) the record date
for determining shareholders for any other purpose shall be at the close of
business on the day which the Board of Directors authorizes the action. A
determination of shareholders of record entitled to notice of or to vote at a
meeting of shareholders
<PAGE> 2
shall apply to any adjournment of the meeting, unless the Board of Directors
fixes a new record date. The Board of Directors is required to fix a new record
date if the meeting is adjourned to a date more than one hundred twenty (120)
days after the date fixed for the original meeting.
Section 6. Voting Record. The officer or agent having charge
of the stock transfer books for shares of the corporation shall make a complete
record of the shareholders entitled to vote at each meeting of shareholders or
any adjournment thereof, arranged by voting group in alphabetical order, with
the address of and the number of shares held by each. Such record shall be
produced and kept open beginning two (2) business days after notice of the
meeting through the meeting at the corporation's principal office. Upon written
demand of a shareholder, such record shall be subject to inspection by the
shareholder during regular business hours during such time. Such record may also
be copied by any shareholder, at his expense, if such shareholder does so in
good faith, for a proper purpose and in compliance with statutory requirements.
Section 7. Quorum. The holders of shares entitled to vote as a
separate voting group may take action on a matter at a meeting only if a quorum
exists with respect to that matter. Unless the Articles of Incorporation or the
Georgia Business Corporation Code, as amended from time to time, provides
otherwise, the holders of a majority of the votes entitled to be cast on a
matter by the voting group constitute a quorum of that voting group for action
on that matter. Once a share is represented for any purpose at a meeting, the
holder is deemed present for quorum purposes for the remainder of the meeting,
unless a new record date is or must be set for an adjournment of such meeting.
Section 8. Proxies. At all meetings of shareholders, a
shareholder may vote in person or by proxy executed in writing by the
shareholder or by his duly authorized attorney-in-fact. Such proxy shall be
filed with the Secretary of the corporation before or at the time of the
meeting. No proxy shall be valid after eleven (11) months from the date of its
execution, unless otherwise provided in the proxy. The appointment of a proxy is
revocable by the shareholder, unless the appointment form conspicuously states
that it is irrevocable and the appointment is coupled with an interest.
Section 9. Voting of Shares. Directors shall be elected by a
plurality of the votes cast by shareholders entitled to vote in the election at
a meeting at which a quorum is present. Shareholder action on all other matters
shall be approved if the votes cast in favor of the action exceed the votes cast
in opposition to such action, unless otherwise provided by law or the Articles
of Incorporation. If two or more groups are entitled to vote separately on a
matter, action on a matter is taken only when approved by each voting group.
Each outstanding share of the capital stock having voting power shall be
entitled to one vote upon each matter submitted to a vote at a meeting of
shareholders; provided, however, that the preferred stock of the corporation
outstanding, if any, shall have such voting rights as granted to such shares of
preferred stock in or pursuant to the corporation's Articles of Incorporation.
Section 10. Adjournment. When a meeting of shareholders is
adjourned to another date, time or place, notice need not be given of the
adjourned meeting if the new date, time and place are announced at the meeting
before the adjournment; provided, however, that if a new record date is or must
be fixed under the Georgia Business Corporation Code, as amended from time to
time, or these Bylaws, a notice of the adjourned meeting must be given to
shareholders as of the new record date. At the adjourned meeting the
shareholders may transact any business which might have been transacted had a
quorum been present at the time originally designated for the meeting.
Section 11. Advance Notice of Nominations and Shareholder
Proposals. All nominations of individuals for election to the Board of Directors
and proposals of business to be considered at any meeting of the shareholders
shall be made as set forth in this Section 11.
(a) Annual Meeting of Shareholders. (1) Nominations of
individuals for election to the Board of Directors and the proposal of business
to be considered by the shareholders may be made at an annual meeting of
shareholders (i) pursuant to the corporation's notice of meeting, (ii) by or at
the direction of the Board of Directors or a committee appointed by the Board of
Directors, or (iii) by any shareholder of the corporation who was a shareholder
of record both at the time of giving of notice provided for in this Section 11
and at the time of the meeting, who is entitled to vote at the meeting and who
complied with the notice and other requirements set forth in this Section 11.
2
<PAGE> 3
(2) For nominations or other business to be properly
brought before an annual meeting by a shareholder pursuant to clause (iii) of
paragraph (a)(1) of this Section 11, the shareholder must have given timely
notice thereof in writing to the Secretary as hereinafter provided and, in the
case of other business, such other business must otherwise be a proper subject
for action by the corporation's shareholders. To be timely, a shareholder's
notice shall be delivered to the Secretary at the principal executive offices of
the corporation and received not less than one hundred twenty (120) days nor
more than one hundred fifty (150) days prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is advanced by more than thirty (30) days or delayed
by more than sixty (60) days from such anniversary date, notice by the
shareholder to be timely must be so delivered and received not earlier than the
150th day prior to such annual meeting and not later than the close of business
on the later of the 120th day prior to such annual meeting or the tenth day
following the day on which public announcement of the date of such meeting is
first made. Such shareholder's notice shall set forth (i) as to each person whom
the shareholder proposes to nominate for election or reelection as a director
(a) the name, age, business and residential addresses, and principal occupation
or employment of each proposed nominee, (b) the class and number of shares of
capital stock of the corporation that are beneficially owned by such nominee on
the date of such notice, (c) a description of all arrangements or understandings
between the shareholder and each nominee and the name of any other person or
persons pursuant to which the nomination or nominations are to be made by the
shareholder, (d) all other information relating to such person that is required
to be disclosed in solicitations of proxies for election of directors, or is
otherwise required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or any successor
provision, and (e) the written consent of each proposed nominee to being named
as a nominee in the proxy statement and to serve as a director of the
corporation if so elected; (ii) as to any other business that the shareholder
proposes to bring before the meeting, a brief description of the business
desired to be brought before the meeting, the reasons for conducting such
business at the meeting and any material interest in such business of such
shareholder and of the beneficial owner, if any, on whose behalf the proposal is
made; and (iii) as to the shareholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made, (x) the name
and address of such shareholder, as they appear on the corporation's books, and
of such beneficial owner, (y) the class and number of shares of stock of the
corporation which are owned beneficially and of record by such shareholder and
such beneficial owner, and (z) a representation that the shareholder intends to
appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice or to propose such other business. The corporation may
require any proposed nominee to furnish any information, in addition to that
furnished pursuant to clause (i) above, it may reasonably require to determine
the eligibility of the proposed nominee to serve as a director of the
corporation.
(3) Notwithstanding anything in the second sentence of
paragraph (a)(2) of this Section 11 to the contrary, in the event that the
number of directors to be elected to the Board of Directors is increased and
there is no public announcement naming all of the nominees for director or
specifying the size of the increased Board of Directors made by the corporation
at least one hundred thirty (130) days prior to the first anniversary of the
preceding year's annual meeting, a shareholder's notice required by this Section
11(a) shall also be considered timely, but only with respect to nominees for any
new positions created by such increase, if it shall be delivered to and received
by the Secretary at the principal executive offices of the corporation not later
than the close of business on the tenth day following the day on which such
public announcement is first made by the corporation.
(b) Special Meetings of Shareholders. Only such business
shall be conducted, and only such proposals shall be acted upon, at a special
meeting of shareholders as shall have been brought before such meeting pursuant
to the corporation's notice of meeting. Nominations of persons for election to
the Board of Directors may be made at a special meeting of shareholders at which
directors are to be elected (i) by or at the direction of the Board of Directors
or a committee appointed by the Board of Directors, or (ii) provided that the
notice of the special meeting states that the purpose or one of the purposes of
the special meeting is to elect directors at such special meeting, by any
shareholder of the corporation who is a shareholder of record both at the time
of giving of notice provided for in this Section 11 and at the time of the
meeting, who is entitled to vote at the meeting and who complied with the notice
and other requirements set forth in this Section 11. In the event the
corporation calls a special meeting of shareholders for the purpose of electing
one or more directors to the Board of Directors, any such shareholder may
nominate a person or persons (as the case may be) for election to such position
as specified in the corporation's notice of meeting, if a notice containing the
same information as would be required under Section 11(a)(2) of this Article II
for an annual meeting is delivered to and received by the Secretary at the
principal executive offices of the corporation not earlier than the 150th day
prior to such special meeting and not later than the close of business on the
later of the 120th day prior to such
3
<PAGE> 4
special meeting or the tenth day following the day on which public announcement
is first made of the date of the special meeting and/or of the nominees proposed
by the Board of Directors or a committee appointed by the Board of Directors to
be elected at such meeting. Proposals of business other than the nomination of
persons for election to the Board of Directors may be considered at a special
meeting requested by shareholders in accordance with Section 2 of this Article
II only if the shareholders give a notice containing the same information as
would be required under Section 11(a)(2) of this Article II for an annual
meeting at the time such shareholders requested the meeting.
(c) General. (1) Only such persons who are nominated in
accordance with the procedures set forth in this Section 11 shall be eligible to
serve as directors and only such business shall be conducted at a meeting of
shareholders as shall have been brought before the meeting in accordance with
the procedures set forth in this Section 11. The Board of Directors may reject
any nomination or shareholder proposal submitted for consideration at any
meeting of shareholders which is not made in accordance with the provisions of
this Section 11 or which is not a proper subject for shareholder action in
accordance with provisions of applicable law. Alternatively, if the Board of
Directors fails to consider the validity of any nomination or shareholder
proposal, the presiding officer of the meeting shall have the power and duty to
determine whether a nomination or any business proposed to be brought before the
meeting was made in accordance with the provisions of this Section 11 and is a
proper subject for shareholder action in accordance with provisions of
applicable law and, if any proposed nomination or business is not in compliance
with this Section 11 or not a proper subject for shareholder action, to declare
that such defective nomination or proposal be disregarded. This provision shall
not prevent the consideration and approval or disapproval at the meeting of
reports of officers, directors and committees of the Board of Directors, but, in
connection with such reports, no new business shall be acted upon at the meeting
unless stated, submitted and received as herein provided.
(2) For purposes of this Section 11, "public
announcement" shall mean disclosure in a press release reported by the Dow Jones
News Service, Associated Press, Reuters or comparable news service or in a
document publicly filed by the corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act or any
successor provision. In no event shall the public announcement of a postponement
or adjournment of a meeting commence a new time period for the giving of a
shareholder's notice pursuant to this Section 11.
(3) Notwithstanding the foregoing provisions of this
Section 11, a shareholder shall also comply with all applicable requirements of
state law and of the Exchange Act and the rules and regulations thereunder with
respect to the matters set forth in this Section 11. Nothing in this Section 11
shall be deemed to affect any rights of shareholders to request inclusion of
proposals in, or the corporation's right to omit proposals from, the
corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or
any successor provision.
ARTICLE III
BOARD OF DIRECTORS
Section 1. General Powers. The powers of the corporation shall
be exercised, its business conducted and managed, and its property controlled
under the direction of the Board of Directors.
Section 2. Number, Tenure and Qualifications. The number of
directors of the corporation shall be not less than three (3); the number
thereof to be determined from time to time by the Board of Directors. Each
director shall hold office until the next annual meeting of shareholders
following his election or appointment and until his successor shall have been
elected and qualified or until his earlier resignation, removal from office, or
death. A director need not be a resident of the State of Georgia or a
shareholder of the corporation.
Section 3. Nomination. Nominations for the election of
directors shall be made as provided in Section 11 of Article II of these Bylaws.
Section 4. Regular Meetings. A regular meeting of the Board of
Directors shall be held without notice other than this Bylaw immediately after,
and at the same place as, the annual meeting of shareholders. The Board of
4
<PAGE> 5
Directors may provide, by resolution, the time and place for the holding of
additional regular meetings without notice other than such resolution.
Section 5. Special Meetings. Special meetings of the Board of
Directors may be called by or at the request of the Chairman of the Board, the
President or a majority of directors. The person or persons authorized to call
special meetings of the Board of Directors may fix any place as the place for
holding any special meeting of the Board of Directors so called.
Section 6. Chairman of the Board. The Chairman of the Board
shall be chosen from among the members of the Board of Directors. If requested
to do so, the Chairman of the Board shall preside at all meetings of the Board
of Directors and shareholders. The Chairman of the Board shall perform such
other duties as from time to time may be assigned by the Board of Directors.
Section 7. Telephonic Meetings. Meetings of the Board of
Directors may be conducted by conference telephone or similar communications
equipment by means of which all persons participating can hear each other, and
participation in such a meeting shall constitute presence in person at such
meeting.
Section 8. Notice of Meeting. Notice of any special meeting
shall be given at least one (1) day prior thereto. Notice is not required prior
to any regular meeting of the Board of Directors. Any director may waive notice
of any meeting. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of any regular or special meeting of the Board of
Directors need be specified in the notice or waiver of notice of such meeting.
Section 9. Adjournment. When a meeting of the Board of
Directors is adjourned to another time or place, notice need not be given of the
adjourned meeting if the new time and place are fixed at the meeting at which
the adjournment is taken and if the period of adjournment does not exceed one
(1) month in any one adjournment. At the adjourned meeting the Board of
Directors may transact any business which might have been transacted had a
quorum been present at the time originally designated for the meeting.
Section 10. Quorum and Voting. A quorum of the Board of
Directors consists of a majority of the number of directors fixed pursuant to
these Bylaws. The affirmative vote of a majority of the directors present at a
meeting at which a quorum is present shall be the act of the Board of Directors,
except as otherwise may be specifically provided by law, by the Articles of
Incorporation or by these Bylaws.
Section 11. Action without a Meeting. Any action required or
permitted to be taken by the Board of Directors at a meeting may be taken
without a meeting if all members of the Board consent thereto in writing,
setting forth the action so taken, and there is an affirmative vote of the
number of directors which would be necessary to authorize or take such action at
a meeting, evidenced in writing. The writing or writings are to be filed with
the minutes of the proceedings of the Board.
Section 12. Vacancies. Any vacancy occurring on the Board of
Directors created by an increase in the number of directors by action of the
shareholders shall be filled by the shareholders in the same manner as at an
annual election. The Board of Directors shall fill any vacancy occurring on the
Board created by an increase in the number of directors by action of the Board
or the removal or resignation of a director as set forth in Sections 14 and 15
of this Article III, except such vacancy shall be filled pursuant to the
Articles of Incorporation to the extent the Articles of Incorporation provide
that a class of shareholders may fill a vacancy created by the removal or
resignation of a director elected by that class. A director elected to fill a
vacancy shall hold office for the unexpired term of his predecessor.
Section 13. Compensation. By resolution of the Board of
Directors, each director may be paid his expenses, if any, of attendance at each
meeting of the Board of Directors, and may be paid a stated salary as director,
or a fixed sum for attendance at each meeting of the Board of Directors, or
both, payable in cash or securities of the corporation. No such payment shall
preclude any director from serving the corporation in any other capacity and
receiving compensation therefor.
5
<PAGE> 6
Section 14. Removal. Any or all of the directors may be
removed with or without cause by majority vote of the shares represented at a
meeting of the shareholders at which a quorum is present.
Section 15. Resignation. A director may resign at any time by
delivering written notice to the corporation, the Chairman of the Board, the
Board of Directors or the President. A resignation is effective when the notice
is delivered unless the notice specifies a later effective date.
ARTICLE IV
OFFICERS
Section 1. Number. The officers of the corporation shall be a
President and a Secretary, each of whom shall be elected by the Board of
Directors. The Board may also elect or appoint a Chairman of the Board, one or
more Vice Presidents (with or without a modified title such as "Senior,"
"Executive," or "Assistant"), an Assistant Secretary, a Treasurer, an Assistant
Treasurer and such other officers and assistant officers as may be deemed
necessary. One person may hold any number of such offices, except the President
may not hold the office of Senior Vice President, Vice President, Secretary or
Assistant Secretary, and the Secretary and Treasurer shall not hold the office
of Assistant Secretary and Assistant Treasurer, respectively.
Section 2. Election and Term of Office. The officers of the
corporation shall be elected from time to time by the Board of Directors, as it
deems advisable. Each officer shall hold office until his successor shall have
been duly elected and qualified, or until his death, or until he shall resign or
shall have been removed in the manner hereinafter provided.
Section 3. Removal. The Board of Directors may remove any
officer or agent of the corporation at any time with or without cause. Removal
of an officer or agent shall be without prejudice to the contract rights, if
any, of the person so removed. Election or appointment of an officer or agent
shall not of itself create any contract rights.
Section 4. Resignation. Any officer may resign at any time by
delivering notice to the corporation. A resignation is effective when the notice
is delivered unless the notice specifies a later effective date. If a
resignation is made effective at a later date and the corporation accepts the
future effective date, the Board of Directors may fill the pending vacancy
before the effective date if it provides that the successor does not take office
until the effective date. An officer's resignation does not affect the
corporation's contract rights, if any, with the officer.
Section 5. Vacancies. A vacancy in any office because of
death, resignation, removal, disqualification, or otherwise, may be filled by
the Board of Directors for the unexpired portion of the term. In the event of an
absence of any officer of the corporation, or for any other reason which the
Board of Directors may deem sufficient, the Board may delegate for the time
being the powers or duties, or any of them, of such officer to any other officer
or director, in connection with these Bylaws.
Section 6. Salaries. The salaries of the officers shall be
fixed from time to time by the Board of Directors, and no officer shall be
prevented from receiving such salary by reason of the fact that he is also a
director of the corporation.
Section 7. President. The President shall be the chief
executive officer of the corporation and, subject to the control of the Board of
Directors, shall be primarily responsible for the general management of the
business affairs of the corporation and for implementing the policies and
directives of the Board of Directors, shall in general supervise and control all
of the business and affairs of the corporation and shall see that all orders and
resolutions of the Board of Directors are carried into effect, shall have
authority to make contracts on behalf of the corporation in the ordinary course
of business of the corporation, shall preside at all meetings of the Board of
Directors and shareholders if requested to do so and shall perform such other
duties as from time to time may be assigned by the Board of Directors.
Section 8. The Vice Presidents. The Vice Presidents shall
assist the President in the management of the business. During the absence or
disability of the President, the Vice Presidents in the order designated by the
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President or the Board of Directors, or in the absence of any designation, then
in the order of their election, shall perform the duties of the President, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the President. The Vice Presidents shall perform such other
duties as from time to time may be assigned to them by the President.
Section 9. The Secretary. The Secretary shall: (a) keep the
minutes of the proceedings of the shareholders, the Board of Directors and the
standing committees in one or more books provided for that purpose; (b) see that
all notices are duly given in accordance with the provisions of these Bylaws or
as required by law; (c) be custodian of the corporate records and of the seal of
the corporation and see that the seal of the corporation is affixed to all
documents, the execution of which on behalf of the corporation under its seal is
duly authorized; (d) keep a register of the post office address of each
shareholder which shall be furnished to the Secretary by such shareholder; (e)
sign, with the President, certificates for shares of the corporation, the
issuance of which shall have been authorized by resolution of the Board of
Directors; (f) have general charge of the stock transfer books of the
corporation; and (g) in general perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the Board of Directors or the President.
Section 10. The Treasurer. The Treasurer shall be the chief
financial officer of the corporation and shall have custody of all valuables.
The Treasurer shall: (a) have charge and custody of and be responsible for all
funds and securities of the corporation; (b) receive and give receipts for
monies due and payable to the corporation from any source whatsoever, and
deposit all such monies in the corporation's account(s); and (c) in general
perform all of the duties incident to the office of Treasurer and such other
duties as from time to time may be assigned to him by the President.
Section 11. Assistant Secretaries and Assistant Treasurers.
The Assistant Secretaries may sign with the President certificates for shares of
the corporation, the issuance of which shall have been authorized by a
resolution of the Board of Directors. The Assistant Treasurers shall, if
required by the Board of Directors, give bonds for the faithful discharge of
their duties in such sums and with such sureties as the Board of Directors shall
determine. The Assistant Secretaries and Assistant Treasurers, in general, shall
perform such duties as shall be assigned to them by the Secretary or the
Treasurer, respectively, or the President.
ARTICLE V
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares. Shares may be issued by
the corporation by the delivery of certificates representing such shares and in
such form as shall be determined by the Board of Directors. Such certificates
shall be signed by the President and by the Secretary or an Assistant Secretary.
The signature of such officers upon a certificate may be facsimiles if the
certificate is manually signed on behalf of a transfer agent or a registrar,
other than the corporation itself or one of its employees. Each certificate for
shares shall be consecutively numbered or otherwise identified. The name and
address of the person to whom the shares represented thereby are issued, with
the number and class of shares, the designation of the series, if any, the
certificate represents, and date of issue, shall be entered on the stock
transfer books of the corporation. All certificates surrendered to the
corporation for transfer shall be cancelled, and no new certificate shall be
issued until the former certificate for a like number of shares shall have been
surrendered and cancelled, except that in case of a lost, destroyed, or
mutilated certificate a new one may be issued therefor upon such terms and
indemnity to the corporation as the President or the Board of Directors may
prescribe.
Section 2. Shares without Certificates. Shares of common stock
of the corporation need not be represented by certificates. The Board of
Directors of the corporation may authorize the issuance of some or all of the
shares of any or all of the corporation's other classes or series of stock
without certificates. Any such authorization shall not affect shares already
represented by certificates until such certificated shares are surrendered to
the corporation. Within a reasonable time after the issue or transfer of shares
without certificates, the corporation shall send to the holder thereof a written
statement which includes: (1) the name of the corporation and that it is
organized under the laws of the State of Georgia; (2) the name of the person to
whom the shares are issued; (3) the number and class and designation of the
series, if any, of the shares; and (4) any restrictions on the transfer or
registration of transfer of such shares.
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Section 3. Transfer of Shares. Transfers of shares of the
corporation shall be made only on the stock transfer books of the corporation by
the holder of record thereof or by his legal representative, who shall furnish
proper evidence of his authority to transfer, or by his attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary of
the corporation or a transfer agent or registrar, and on surrender for
cancellation of the certificate for such shares, if a certificate representing
such shares shall have been issued. The person in whose name shares stand on the
books of the corporation shall be deemed by the corporation to be the owner
thereof for all purposes.
ARTICLE VI
FISCAL YEAR
The fiscal year of the corporation shall be determined and
fixed by the Board of Directors.
ARTICLE VII
CORPORATE SEAL
The Board of Directors of the corporation may adopt a
corporate seal for the corporation and when so adopted and impressed on the
margin hereof or the margin of the minutes of the meeting at which the seal is
adopted, the same shall be and constitute the corporate seal of this
corporation, but unless and until such action be taken by the Board of
Directors, this corporation shall have no corporate seal. In the event that no
corporate seal is adopted, or if it is inconvenient to use such seal at any
time, the signature of the corporation followed by the word "Seal" enclosed in
parentheses shall be deemed the seal of the corporation, but the absence of such
seal on any instrument, or its addition thereto, shall not affect its character
or validity or legal effect in any respect.
ARTICLE VIII
WAIVER OF NOTICE
Whenever any notice is required to be given to any shareholder
or director of the corporation pursuant to law or under the provisions of the
Articles of Incorporation or these Bylaws, a waiver thereof in writing signed by
the person or persons entitled to such notice delivered to the corporation and
filed in the corporation's minutes or corporate records, whether before or after
the time stated therein, shall be deemed equivalent to the giving of such
notice. A shareholder's or director's attendance at, or participation in, a
meeting shall constitute waiver of notice and consent to the consideration of
matters not described in any notice as set forth in the Georgia Business
Corporation Code, as amended from time to time. Neither the business to be
transacted at, nor the purpose of, any meeting of the shareholders or directors
is required to be specified in any waiver of notice.
ARTICLE IX
COMMITTEES
Section 1. Appointment. The Board of Directors, by resolution
adopted by a majority of all the directors in office when the action is taken,
may designate one or more of its members to constitute a committee. The
designation of a committee and the delegation of authority thereto shall not
operate to relieve the Board of Directors, or any member thereof, of any
responsibility imposed by law. The Board of Directors may designate one or more
directors as alternate members of any committee, who may replace any absent or
disabled member at any meeting of the committee.
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Section 2. Tenure. The members of a committee serve at the
pleasure of the Board of Directors, which may at any time, for any or no reason,
remove any individual committee member, increase or decrease the number of
members of a committee, or terminate the existence of a committee. The
membership of a committee member shall terminate on the date of his removal,
resignation or death. The Board of Directors may fill any vacancy on a committee
created by removal, resignation, death or an increase in the number of members
of the committee.
Section 3. Authority. All duly delegated committees may
exercise such power and authority in the management of the business and affairs
of the corporation as specified by resolution of the Board of Directors and to
the extent allowed by applicable law, the Articles of Incorporation and these
Bylaws and may have power to authorize the seal of the corporation to be affixed
to all papers which may require it.
Section 4. Executive Committee. The Board of Directors may
appoint an Executive Committee which, to the extent permitted by law, shall have
and may exercise when the Board of Directors is not in session all powers of the
Board of Directors regarding the supervision of the management of the business
and affairs of the corporation. The Executive Committee shall be chaired by the
President of the corporation.
ARTICLE X
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 1. Indemnification for Third Party Actions. Under the
circumstances prescribed in Sections 3 and 4 of this Article, the corporation
shall indemnify and hold harmless any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in a manner he believed in good faith to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 2. Indemnification for Derivative Actions. Under the
circumstances prescribed in Sections 3 and 4 of this Article, the corporation
shall indemnify and hold harmless any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit, if he acted in good faith and in a manner he
believed in good faith to be in or not opposed to the best interests of the
corporation; except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
corporation, unless and only to the extent that the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the court shall deem proper.
Section 3. Indemnification for Expenses. To the extent that a
director, officer, employee or agent of a corporation has been successful on the
merits or otherwise in defense of any action, suit or proceeding referred to in
Sections 1 and 2 of this Article, or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
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Section 4. Determination as to Indemnification. Except as
provided in Section 3 of this Article and except as may be ordered by a court,
any indemnification under Sections 1 and 2 of this Article shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Sections 1 and 2. Such determination shall be made (1) by the Board of Directors
by a majority vote of a quorum consisting of directors not at the time parties
to the proceeding; (2) if a quorum cannot be obtained under paragraph (1) of
this subsection, by majority vote of a committee duly designated by the Board of
Directors (in which designation directors who are parties may participate),
consisting solely of two (2) or more directors not at the time parties to the
proceeding; (3) by special legal counsel (A) selected by the Board of Directors
or a committee thereof in the manner prescribed in paragraph (1) or (2) of this
subsection, or (B) if a quorum of the Board of Directors cannot be obtained
under paragraph (1) of this subsection and a committee cannot be designated
under paragraph (2) of this subsection, selected by majority vote of the full
Board of Directors (in which selection directors who are parties may
participate); or (4) by the shareholders, but shares owned by or voted under the
control of directors who are at the time parties to the proceeding may not be
voted on the determination. The obligation to indemnify and the evaluation as to
reasonableness of expenses shall be made in the same manner as the determination
whether indemnification is proper is made, except that if the determination is
made by special legal counsel, authorization of indemnification and evaluation
as to reasonableness of expenses also shall be made by such special legal
counsel.
Section 5. Advancement of Expenses. Reasonable expenses
incurred by a director, officer, employee or agent who is a party to a civil or
criminal action, suit or proceeding may be paid by the corporation in advance of
the final disposition of such action, suit or proceeding as authorized by the
Board of Directors in the specific case upon receipt of (1) a written
affirmation from the director, officer, employee or agent of his good faith
belief that he has met the standard of conduct set forth in Sections 1 and 2 of
this Article, and (2) a written undertaking, executed personally or on behalf of
such director, officer, employee or agent, to repay any advances if it
ultimately shall be determined that he is not entitled to be indemnified by the
corporation as authorized in this section.
Section 6. Indemnification not Exclusive. The indemnification
provided by this Article shall not be deemed exclusive of any other rights, in
respect of indemnification or otherwise, to which those seeking indemnification
may be entitled under any Bylaw or resolution approved by the affirmative vote
of the holders of a majority of the shares entitled to vote thereon taken at a
meeting the notice of which specified that such Bylaw or resolution would be
placed before the shareholders, both as to action by a director, officer,
employee or agent in his official capacity while holding such office or
position, and as to action by a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors, and
administrators of such a person.
Section 7. Insurance. The corporation may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, or other enterprise, against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the corporation would have the power to
indemnify him against such liability under the provisions of this Article.
Section 8. Statement to Shareholders. If and as required by
the Georgia Business Corporation Code, as amended from time to time, the
corporation shall send to its shareholders a statement regarding expenses or
other amounts paid by way of indemnification.
ARTICLE XI
AMENDMENTS
The Bylaws of the corporation may be altered, amended or
repealed, and new Bylaws may be adopted, by the shareholders at any annual or
special meeting of the shareholders or by the Board of Directors at any regular
or special meeting of the Board of Directors; provided, however, that, the
notice of such meeting shall specify that amendments to the Bylaws will be
considered at such meeting and shall summarize the proposed amendments; and
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provided further, that the Bylaws may not be altered, amended or repealed by the
Board of Directors to the extent: (1) the Articles of Incorporation or
applicable law reserve the power to alter, amend or repeal a particular Bylaw
exclusively to the shareholders, in whole or in part; or (2) the shareholders in
altering, amending or repealing a particular Bylaw provide expressly that the
Board of Directors may not alter, amend or repeal that Bylaw.
ARTICLE XII
ARTICLES OF INCORPORATION
In the event that any provision of these Bylaws is
inconsistent or in conflict with any provision contained in the corporation's
Articles of Incorporation (including any amendment thereto setting forth the
preferences, limitations and rights of any series or class of the corporation's
preferred stock) the provision contained in the Articles of Incorporation shall
govern.
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Exhibit 99.1
BT AGREES TO PURCHASE MCI'S STAKE IN CONCERT FOR US$1 BILLION;
MCI RETAINS RIGHT TO DISTRIBUTE CONCERT SERVICES ON NON-EXCLUSIVE BASIS
WASHINGTON, Aug. 12, 1998 -- MCI today announced that it has reached
an Agreement to sell its 24.9 percent equity stake in Concert Communications
Services to British Telecommunications (BT) for US$1 billion. The sale will
occur immediately following the close of the MCI and WorldCom merger, expected
later this summer.
Under the agreement, MCI will continue providing Concert services in the
U.S. on a non-exclusive basis for up to five years after the close of the
merger. Contracts for Concert services which are signed with MCI prior to the
end of a two-year period, will continue to be supported by MCI and Concert for
three additional years. In addition, Concert will continue to honor, on an
interim basis, MCI's sub-distributor and supply agreements for Concert services
in the Americas, including its distribution agreement with Stentor
Communications of Canada. These sub-distributor agreements also will be on a
non-exclusive basis.
BT announced its intent to buy back MCI's stake in Concert following MCI and
WorldCom's 1997 merger agreement. The pre-existing joint venture agreement
between MCI and BT gave BT the right to exercise its purchase rights following
a change in ownership of the U.S. company. Today's agreement to buy MCI's stake
in Concert is contingent upon the resolution of certain operational matters,
which are expected to be finalized shortly.
MCI, headquartered in Washington, D.C., is a leading provider of local-to-
global communication services to business, government and residential users.
The company's fast-growing portfolio of advanced data and IT services accounts
for a quarter of MCI's approximately $20 billion in annual revenue. MCI
operates one of the world's largest and most advanced digital networks,
connecting local markets in the U.S. to hundreds of locations worldwide. MCI
has agreed to merge with WorldCom, one of the world's fastest-growing
communications companies. The merger, which is expected to be completed later
this summer, will create MCI WorldCom, a company uniquely positioned in the
U.S. local and long distance markets as well as the global data and Internet
markets.
/CONTACT: For media, Jane Levene, 914-934-6480 or 800-644-NEWS; or for
investors, Mike Kraft, 202-887-2801, both of MCI.
