<PAGE>
As filed with the Securities and Exchange Commission on November 5, 1999
Registration No. 333- .
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
--------------
MCI WORLDCOM, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Georgia 4813 58-1521612
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
500 Clinton Center Drive
Clinton, Mississippi 39056
(601) 460-5600
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------
Bernard J. Ebbers
President and Chief Executive Officer
MCI WORLDCOM, Inc.
500 Clinton Center Drive
Clinton, Mississippi 39056
(601) 460-5600
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------
Copies to:
Robert A. Kindler, Esq. Bruce N. Hawthorne, Esq.
Robert I. Townsend, III, Esq. E. William Bates, II, Esq.
Cravath, Swaine & Moore King & Spalding
Worldwide Plaza 1185 Avenue of the Americas
825 Eighth Avenue New York, New York 10036
New York, New York 10019 (212) 556-2100
(212) 474-1000
--------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement is declared effective in
connection with the merger (the "Merger") of Sprint Corporation ("Sprint") with
and into the Registrant pursuant to the Agreement and Plan of Merger (the
"Merger Agreement") described in the proxy statement/prospectus forming a part
of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed Proposed
maximum maximum Amount of
Title of each class of securities to be Amount to be offering price aggregate registration
registered registered per unit offering price(8) fee
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $0.01 per share
("WorldCom Common Stock"), and associated
preferred stock purchase rights................ 982,823,287 (1) N/A $56,008,011,760 (9)(10) $15,570,227
- --------------------------------------------------------------------------------------------------------------------
Common Stock, Series 2, par value $0.01 per
share
("WorldCom Series 2 Common Stock"), and
associated preferred stock purchase rights..... 37,107,358 (2) N/A $ 0 (10) $ 0
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Common Stock, Series 3, par value $0.01 per
share
("WorldCom Series 3 Common Stock"), and
associated preferred stock purchase rights..... 109,767,108 (3) N/A $1,021,206,907 (10)(11) $ 283,896
- --------------------------------------------------------------------------------------------------------------------
PCS Common Stock, Series 1, par value $1.00 per
share
("WorldCom Series 1 PCS Stock"), and associated
preferred stock purchase rights..... 236,257,694 (4) N/A $ 18,944,913,838 (12) $ 5,266,686
- --------------------------------------------------------------------------------------------------------------------
PCS Common Stock, Series 2, par value $1.00 per
share
("WorldCom Series 2 PCS Stock"), and associated
preferred stock purchase rights..... 239,866,570 (5) N/A $ 2,007,683,191 (11) $ 558,136
- --------------------------------------------------------------------------------------------------------------------
PCS Common Stock, Series 3, par value $1.00 per
share
("WorldCom Series 3 PCS Stock"), and associated
preferred stock purchase rights..... 13,089,418 (6) N/A $ 109,558,429 (11) $ 30,457
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Class A Common Stock, Series FT, par value $2.50
per share
("WorldCom Series FT Common Stock"), and
associated preferred stock purchase rights..... 43,118,018 (7) N/A $ 680,402,324 (11) $ 189,152
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Class A Common Stock, Series DT, par value $2.50
per share
("WorldCom Series DT Common Stock"), and
associated preferred stock purchase rights..... 43,118,018 (7) N/A $ 680,402,324 (11) $ 189,152
- --------------------------------------------------------------------------------------------------------------------
Series 5 Preferred Stock, par value $0.01 per
share
("WorldCom Series 5 Preferred Stock").......... 95 (7) N/A $ 9,500,000 (11) $ 2,641
- --------------------------------------------------------------------------------------------------------------------
Series 7 Preferred Stock, par value $0.01 per
share
("WorldCom Series 7 Preferred Stock").......... 246,766 (7) N/A $ 246,766,000 (11) $ 68,601
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Total....................................................................................... $22,158,948
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- --------------------------------------------------------------------------------------------------------
</TABLE>
(See footnotes on the following page.)
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
(1) Based upon the sum of (i) 946,274,222, the product of (a) 773,858,539, the
total fully diluted number of shares of Series 1 FON common stock, par
value $2.00 per share, of Sprint (the "Sprint Series 1 FON Stock") and (b)
1.2228, the maximum FON Exchange Ratio (as defined in the attached Merger
Agreement) and (ii) 36,549,065, the product of (a) 236,257,694, the total
fully diluted number of shares of Series 1 PCS common stock, par value
$1.00 per share, of Sprint (the "Sprint Series 1 PCS Stock") and (b)
0.1547, the PCS Exchange Ratio (as defined in the attached Merger
Agreement). The Registrant hereby also registers such additional shares as
may be issuable in the merger in respect of shares of Series 3 FON common
stock, par value $2.00 per share, of Sprint (the "Sprint Series 3 FON
Stock") that have converted prior to the merger into shares of Sprint
Series 1 FON Stock and shares of Series 2 PCS common stock, par value
$1.00 per share, of Sprint (the "Sprint Series 2 PCS Stock") and shares of
Series 3 PCS common stock, par value $1.00 per share, of Sprint (the
"Sprint Series 3 PCS Stock") that have converted prior to the merger into
shares of Sprint Series 1 PCS Stock.
(2) Based upon the product of (i) 239,866,570, the sum of (a) the outstanding
number of shares of Sprint Series 2 PCS Stock, (b) the number of shares of
Sprint Series 2 PCS Stock issuable upon the exercise of the Sprint
warrants (the "Warrants") issued to Cox Teleport Partners, Inc., Cox
Communications, Inc., Comcast Telephony Services Holdings, Inc., TCI
Wireless Holdings, Inc. and TCI Spectrum Investment, Inc., and (c) the
number of shares of Sprint Series 2 PCS Stock issuable upon conversion of
the outstanding shares of Preferred Stock--Seventh Series, Convertible,
without par value, of Sprint (the "Sprint Seventh Series Preferred Stock")
and (ii) 0.1547, the PCS Exchange Ratio.
(3) Based upon the sum of (i) 107,742,175, the product of (a) 88,111,036, the
outstanding number of shares of Sprint Series 3 FON Stock and (b) 1.2228,
the maximum FON Exchange Ratio and (ii) 2,024,933, the product of (a)
13,089,418, the outstanding number of shares of Sprint Series 3 PCS Stock
and (b) 0.1547, the PCS Exchange Ratio. The Registrant hereby also
registers such additional shares as may be issuable in the merger in
respect of shares of Class A Common Stock, par value $2.50 per share, of
Sprint (the "Sprint Class A Stock") and Class A Common Stock--Series DT,
par value $2.50 per share, of Sprint (the "Sprint Class A Stock--Series
DT") that have converted prior to the merger into shares of Sprint Series
3 FON Stock.
(4) Based upon the total fully diluted number of shares of Series 1 PCS common
stock, par value $1.00 per share, of Sprint (the "Sprint Series 1 PCS
Stock"). The Registrant hereby also registers such additional shares as
may be issuable in the merger in respect of shares of Sprint Series 2 PCS
Stock (including shares issuable upon the exercise of the Warrants and
upon conversion of Sprint Seventh Series Preferred Stock) and Sprint
Series 3 PCS Stock that have converted prior to the merger into shares of
Sprint Series 1 PCS Stock.
(5) Based upon the sum of (i) the outstanding number of shares of Sprint
Series 2 PCS Stock, (ii) the number of shares of Sprint Series 2 PCS Stock
issuable upon the exercise of the Warrants and (iii) the number of shares
of Sprint Series 2 PCS Stock issuable upon conversion of the outstanding
shares of Sprint Seventh Series Preferred Stock into shares of Sprint
Series 2 PCS Stock.
(6) Based upon the outstanding number of shares of Sprint Series 3 PCS Stock.
The Registrant hereby also registers such additional shares as may be
issuable in the merger in respect of shares of Sprint Class A Stock and
Sprint Class A Stock--Series DT that have converted prior to the merger
into shares of Sprint Series 3 PCS Stock.
(7) Based upon the outstanding number of shares of the corresponding class or
series of Sprint capital stock.
(8) Estimated solely for the purpose of calculating the registration fee
pursuant to Rules 457(f)(l) and 457(f)(2) of the Securities Act of 1933,
as amended.
(9) Based upon the product of (i) 773,858,539, the total fully diluted number
of shares of Sprint Series 1 FON Stock to be exchanged in the Merger and
(ii) $72.375, the average of the high and low sale prices of Sprint Series
1 FON Stock on November 3, 1999 as reported by the New York Stock
Exchange, Inc. (the "NYSE").
(10) The proposed maximum aggregate offering price in respect of the WorldCom
Series 2 Common Stock and a portion of the proposed maximum aggregate
offering price in respect of the WorldCom Common Stock and the WorldCom
Series 3 Common Stock is included in the proposed maximum aggregate
offering price in respect of the WorldCom Series 2 PCS Stock, the WorldCom
Series 1 PCS Stock and the WorldCom Series 3 PCS Stock, respectively.
(11) Based upon the product of (i) the total fully diluted number of shares of
the corresponding class or series of Sprint capital stock to be exchanged
in the Merger and (ii) the corresponding book value per share of such
class or series of Sprint capital stock computed as of September 30, 1999.
(12) Based upon the product of (i) 236,257,694, the total fully diluted number
of shares of Sprint Series 1 PCS Stock to be exchanged in the Merger and
(ii) $80.1875, the average of the high and low sale prices of Sprint
Series 1 PCS Stock on November 2, 1999 as reported by the NYSE.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this proxy statement/prospectus is not complete and may be +
+changed. WorldCom may not sell these securities until the registration +
+statement filed with the Securities and Exchange Commission is effective. +
+This proxy statement/prospectus is not an offer to sell these securities and +
+it is not soliciting an offer to buy these securities in any state where the +
+offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION -- DATED NOVEMBER 5, 1999
[LOGO OF SPRINT]
SPRINT CORPORATION
2330 SHAWNEE MISSION PARKWAY
WESTWOOD, KANSAS 66205
[Date]
Dear Stockholder:
You are cordially invited to attend a special meeting of the stockholders of
Sprint Corporation, which we will hold on . , . , 2000, at . a.m., local
time, at Sprint World Headquarters, 2330 Shawnee Mission Parkway, Westwood,
Kansas. At the special meeting, we will ask you to vote on the merger of Sprint
into MCI WORLDCOM, Inc. The combined company will be called WorldCom. All
Sprint stockholders will receive WorldCom stock in the merger.
For each share of Sprint FON common stock that you own, you will receive an
amount of WorldCom group common stock equal to the FON exchange ratio. The FON
exchange ratio will equal $76 divided by the average closing price of MCI
WorldCom common stock for the 15 trading days randomly selected by MCI WorldCom
and Sprint from the 30 trading days ending shortly before completion of the
merger. The FON exchange ratio will in no event be less than 0.9400 or greater
than 1.2228. The terms of the WorldCom group common stock will be virtually
identical to the terms of the Sprint FON common stock and will be designed to
reflect the performance of all of WorldCom's businesses after the merger, other
than the WorldCom PCS group. For each series of Sprint FON common stock, a
corresponding series of WorldCom group common stock will be issued in the
merger.
For each share of Sprint PCS common stock that you own, you will receive one
share of WorldCom PCS group common stock and 0.1547 shares of WorldCom group
common stock in the merger. The WorldCom PCS group common stock will be
established in connection with the merger. The terms of the WorldCom PCS group
common stock will be virtually identical to the terms of the Sprint PCS common
stock and will be designed to reflect the performance of the WorldCom PCS
group, which will initially consist of the existing Sprint PCS wireless
business. For each series of Sprint PCS common stock, a corresponding series of
WorldCom PCS group common stock will be issued in the merger.
Holders of shares of the other classes or series of Sprint capital stock will
receive one share of a class or series of WorldCom capital stock with virtually
identical terms, which will be established in connection with the merger, for
each share of Sprint capital stock that they own. Sprint will redeem the Sprint
first and second series preferred stock before the merger.
MCI WorldCom common stock is quoted on The Nasdaq National Market under the
trading symbol "WCOM." On . , MCI WorldCom common stock closed at $ . per
share.
Holders of Sprint FON common stock and Sprint PCS common stock will not incur
federal income tax as a result of the merger, except on any cash received for
fractional shares.
We cannot complete the merger unless holders of shares representing a
majority of the total voting power of Sprint capital stock entitled to vote at
the special meeting vote to adopt the merger agreement. Only stockholders who
hold shares of Sprint capital stock at the close of business on the record date
will be entitled to vote at the special meeting. The record date is . . MCI
WorldCom shareholders must also vote to approve the merger agreement.
You should consider the matters discussed under "Risk Factors Relating to the
Merger" beginning on page . of this proxy statement/prospectus before voting.
Please review this entire proxy statement/prospectus carefully.
After careful consideration, the Sprint board of directors has approved the
merger agreement and has determined that the merger and the merger agreement
are advisable, fair to and in the best interests of Sprint and all of its
stockholders. The Sprint board of directors recommends that you vote FOR the
adoption of the merger agreement.
You can learn how to find additional information regarding MCI WorldCom and
Sprint in the section entitled "Where You Can Find More Information" beginning
on page . of this proxy statement/prospectus.
William T. Esrey
Chairman and Chief Executive Officer
Your vote is important. Please complete, sign, date and return your proxy.
Neither the Securities and Exchange Commission
nor any state securities regulator has approved
or disapproved the merger described in this proxy
statement/prospectus or the WorldCom capital
stock to be issued in connection with the merger,
or determined if this proxy statement/prospectus
is accurate or adequate. Any representation to
the contrary is a criminal offense.
This proxy statement/prospectus is dated . , and is first being mailed to
stockholders on or about . .
<PAGE>
REFERENCES TO ADDITIONAL INFORMATION
This proxy statement/prospectus incorporates important business and
financial information about MCI WorldCom and Sprint from other documents that
are not included in or delivered with this proxy statement/prospectus. This
information is available to you without charge upon your written or oral
request. You can obtain those documents incorporated by reference in this proxy
statement/prospectus by requesting them in writing or by telephone from the
appropriate company at the following addresses and telephone numbers:
MCI WORLDCOM, Inc. Sprint Corporation
500 Clinton Center Drive 2330 Shawnee Mission Parkway
Clinton, Mississippi 39056 Westwood, Kansas 66205
Attention: Investor Relations Attention: Investor Relations
Department Department
Telephone: (877) 624-9266 or (601) Telephone: (800) 259-3785
460-5600
If you would like to request documents, please do so by . , 2000 in order
to receive them before your special meeting.
See "Where You Can Find More Information" beginning on page ..
<PAGE>
SUBJECT TO COMPLETION -- DATED NOVEMBER 5, 1999
SPRINT CORPORATION
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON . , 2000
To the Stockholders of Sprint Corporation:
We will hold a special meeting of the stockholders of Sprint Corporation on
. , . , 2000, at . a.m., local time, at Sprint World Headquarters, 2330
Shawnee Mission Parkway, Westwood, Kansas, for the following purpose:
To consider and vote upon a proposal to adopt the merger agreement
between MCI WORLDCOM, Inc. and Sprint. In the merger, Sprint will be merged
with and into MCI WorldCom. The combined company after the merger will be
called WorldCom. Other than shares of Sprint capital stock held by MCI
WorldCom or Sprint or Sprint stockholders who perfect their statutory
appraisal rights under Kansas law:
. each outstanding share of Sprint FON common stock will be converted into
the right to receive an amount of WorldCom group common stock equal to
the FON exchange ratio, which will be calculated shortly before the
merger
. each outstanding share of Sprint PCS common stock will be converted into
the right to receive one share of a series of WorldCom PCS group common
stock with virtually identical terms and 0.1547 shares of WorldCom group
common stock and
. each outstanding share of the other classes or series of Sprint capital
stock will be converted into the right to receive one share of a class or
series of WorldCom capital stock with virtually identical terms. Sprint
will redeem the Sprint first and second series preferred stock before the
merger.
We will transact no other business at the special meeting, except for
business properly brought before the special meeting or any adjournment or
postponement of the special meeting by the Sprint board of directors.
Only holders of record of shares of Sprint capital stock at the close of
business on . , the record date for the special meeting, are entitled to
notice of, and to vote at, the special meeting and any adjournments or
postponements of the special meeting.
We cannot complete the merger unless holders of shares of Sprint capital
stock representing a majority of the total voting power entitled to vote at the
special meeting vote to adopt the merger agreement.
Under Kansas law, holders of Sprint class A common stock, Sprint class A
common stock--series DT, Sprint series 3 FON common stock, Sprint series 2 PCS
common stock, Sprint series 3 PCS common stock, Sprint fifth series preferred
stock and Sprint seventh series preferred stock are entitled to appraisal
rights in connection with the merger.
For more information about the merger, please review the accompanying proxy
statement/prospectus and the merger agreement attached as Annex 1.
Whether or not you plan to attend the special meeting, please complete, sign
and date the enclosed proxy and return it promptly in the enclosed postage-paid
envelope. If you do not vote by proxy or in person at the special meeting, it
will count as a vote against the adoption of the merger agreement.
Please do not send any stock certificates at this time.
By Order of the Board of Directors,
Don A. Jensen
Vice President and Secretary
Westwood, Kansas
[Date]
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this proxy statement/prospectus is not complete and may be +
+changed. WorldCom may not sell these securities until the registration +
+statement filed with the Securities and Exchange Commission is effective. +
+This proxy statement/prospectus is not an offer to sell these securities and +
+it is not soliciting an offer to buy these securities in any state where the +
+offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION -- DATED NOVEMBER 5, 1999
[LOGO OF MCI WORLDCOM]
MCI WORLDCOM, INC.
500 CLINTON CENTER DRIVE
CLINTON, MISSISSIPPI 39056
[Date]
Dear Shareholder:
You are cordially invited to attend a special meeting of the shareholders of
MCI WORLDCOM, Inc., which we will hold on . , . , 2000, at . a.m., local
time, at 500 Clinton Center Drive, Clinton, Mississippi. At the special
meeting, we will ask you to vote on the merger of Sprint Corporation into MCI
WorldCom. The combined company will be called WorldCom. All Sprint stockholders
will receive WorldCom stock in the merger.
Holders of Sprint FON common stock will receive, for each share that they
own, an amount of WorldCom group common stock equal to the FON exchange ratio.
The FON exchange ratio will equal $76 divided by the average closing price of
MCI WorldCom common stock for the 15 trading days randomly selected by MCI
WorldCom and Sprint from the 30 trading days ending shortly before completion
of the merger. The FON exchange ratio will in no event be less than 0.9400 or
greater than 1.2228. The terms of the WorldCom group common stock will be
virtually identical to the terms of the Sprint FON common stock and will be
designed to reflect the performance of all of WorldCom's businesses after the
merger, other than the WorldCom PCS group. For each series of Sprint FON common
stock, a corresponding series of WorldCom group common stock will be issued in
the merger.
Holders of Sprint PCS common stock will receive, for each share that they
own, one share of WorldCom PCS group common stock and 0.1547 shares of WorldCom
group common stock in the merger. The WorldCom PCS group common stock will be
established in connection with the merger. The terms of the WorldCom PCS group
common stock will be virtually identical to the terms of the Sprint PCS common
stock and will be designed to reflect the performance of the WorldCom PCS
group, which will initially consist of the existing Sprint PCS wireless
business. For each series of Sprint PCS common stock, a corresponding series of
WorldCom PCS group common stock will be issued in the merger.
Holders of shares of the other classes or series of Sprint capital stock will
receive one share of a class or series of WorldCom capital stock with virtually
identical terms, which will be established in connection with the merger, for
each share of Sprint capital stock that they own. Sprint will redeem the Sprint
first and second series preferred stock before the merger.
We cannot complete the merger unless holders of shares of MCI WorldCom common
stock and MCI WorldCom series B preferred stock representing a majority of all
the votes entitled to be cast at the special meeting, voting together as a
single group, vote to approve the merger agreement. Only shareholders who hold
shares of MCI WorldCom common stock and MCI WorldCom series B preferred stock
at the close of business on the record date will be entitled to vote at the
special meeting. The record date is . . Sprint stockholders must also vote to
adopt the merger agreement.
You should consider the matters discussed under "Risk Factors Relating to the
Merger" beginning on page . of this proxy statement/prospectus before voting.
Please review this entire proxy statement/prospectus carefully.
After careful consideration, the MCI WorldCom board of directors has adopted
the merger agreement and determined that the merger and the merger agreement
are advisable, fair to and in the best interests of MCI WorldCom and its
shareholders. The MCI WorldCom board of directors recommends that you vote FOR
the approval of the merger agreement.
You can learn how to find additional information regarding MCI WorldCom and
Sprint in the section entitled "Where You Can Find More Information" beginning
on page . of this proxy statement/prospectus.
Bernard J. Ebbers
President and Chief Executive Officer
Your vote is important. Please complete, sign, date and return your proxy.
Neither the Securities and Exchange Commission nor
any state securities regulator has approved or
disapproved the merger described in this proxy
statement/prospectus or the WorldCom capital stock
to be issued in connection with the merger, or
determined if this proxy statement/prospectus is
accurate or adequate. Any representation to the
contrary is a criminal offense.
This proxy statement/prospectus is dated . , and is first being mailed to
shareholders on or about . .
<PAGE>
SUBJECT TO COMPLETION--DATED NOVEMBER 5, 1999
MCI WORLDCOM, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON . , 2000
To the Shareholders of MCI WORLDCOM, Inc.:
We will hold a special meeting of the shareholders of MCI WorldCom on . ,
. , 2000, at . a.m., local time, at 500 Clinton Center Drive, Clinton,
Mississippi, for the following purpose:
To consider and vote upon a proposal to approve the merger agreement
between MCI WorldCom and Sprint Corporation. In the merger, Sprint will be
merged with and into MCI WorldCom. The combined company after the merger
will be called WorldCom. Other than shares of Sprint capital stock held by
MCI WorldCom or Sprint or Sprint stockholders who perfect their statutory
appraisal rights under Kansas law:
. each outstanding share of Sprint FON common stock will be converted into
the right to receive an amount of WorldCom group common stock equal to
the FON exchange ratio, which will be calculated shortly before the
merger
. each outstanding share of Sprint PCS common stock will be converted into
the right to receive one share of a series of WorldCom PCS group common
stock with virtually identical terms and 0.1547 shares of WorldCom group
common stock and
. each outstanding share of the other classes or series of Sprint capital
stock will be converted into the right to receive one share of a class or
series of WorldCom capital stock with virtually identical terms. Sprint
will redeem the Sprint first and second series preferred stock before the
merger.
We will transact no other business at the special meeting, except for
business properly brought before the special meeting or any adjournment or
postponement of the special meeting by the MCI WorldCom board of directors.
Only holders of record of shares of MCI WorldCom common stock and MCI
WorldCom series B preferred stock at the close of business on . , the record
date for the special meeting, are entitled to notice of, and to vote at, the
special meeting and any adjournments or postponements of the special meeting.
We cannot complete the merger unless holders of shares of MCI WorldCom
common stock and MCI WorldCom series B preferred stock representing a majority
of all the votes entitled to be cast at the special meeting, voting together as
a single group, vote to approve the merger agreement.
The vote to approve the merger agreement will also constitute approval of
the issuance of shares of WorldCom capital stock in the merger and amendment of
the MCI WorldCom articles of incorporation. The amended WorldCom articles of
incorporation which reflect that amendment are attached as Annex 2 to this
proxy statement/prospectus.
Under Georgia law, holders of MCI WorldCom series B preferred stock are
entitled to assert dissenters' rights in connection with the merger.
For more information about the merger, please review the accompanying proxy
statement/prospectus and the merger agreement attached as Annex 1.
Whether or not you plan to attend the special meeting, please complete, sign
and date the enclosed proxy and return it promptly in the enclosed postage-paid
envelope. If you do not vote by proxy or in person at the special meeting, it
will count as a vote against the approval of the merger agreement.
By Order of the Board of Directors,
Scott D. Sullivan
Secretary
Clinton, Mississippi
[Date]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
What Sprint Stockholders Will Receive in the Merger....................... 1
Questions and Answers About the Merger.................................... 3
Summary................................................................... 5
General................................................................... 5
The Special Meetings...................................................... 9
The Merger................................................................ 10
The Companies............................................................. 15
Comparative Per Share Data................................................ 16
Selected Historical and Unaudited Pro Forma Condensed Combined Financial
Data..................................................................... 18
MCI WorldCom............................................................ 18
Sprint.................................................................. 20
Sprint FON Group........................................................ 22
Sprint PCS Group........................................................ 24
MCI WorldCom and Sprint Pro Forma Condensed Combined.................... 26
Risk Factors Relating to the Merger....................................... 27
Stock price fluctuations may affect the value of the WorldCom group common
stock or WorldCom PCS group common stock that holders of Sprint FON
common stock and Sprint PCS common stock will receive in the merger...... 27
The integration of MCI WorldCom and Sprint following the merger will
present significant challenges........................................... 28
The merger is subject to the receipt of consents and approvals from
various government entities.............................................. 28
Holders of different classes of WorldCom capital stock may have competing
interests................................................................ 28
Events at one business group could adversely affect the other group and
the market price of its securities, because both WorldCom group common
stock and WorldCom PCS group common stock will be stock of a single
corporation.............................................................. 28
The market price of WorldCom group common stock and WorldCom PCS group
common stock may not accurately reflect the performance of these groups.. 29
The WorldCom PCS group will likely continue to experience operating losses
and negative cash flow from operations................................... 29
The WorldCom PCS group will continue to require significant capital....... 29
Future sales of substantial amounts of WorldCom capital stock could
adversely affect the market prices of WorldCom capital stock............. 29
Tracking stock policies are subject to change............................. 30
The MCI WorldCom Special Meeting.......................................... 31
Date, Time and Place...................................................... 31
Purpose of MCI WorldCom Special Meeting................................... 31
MCI WorldCom Record Date; Stock Entitled to Vote; Quorum.................. 31
Votes Required............................................................ 31
Voting by MCI WorldCom Directors and Executive Officers................... 31
Voting of Proxies......................................................... 32
Revocability of Proxies................................................... 32
Solicitation of Proxies................................................... 33
The Sprint Special Meeting................................................ 34
Date, Time and Place...................................................... 34
Purpose of Sprint Special Meeting......................................... 34
Sprint Record Date; Stock Entitled to Vote; Quorum........................ 34
Votes Required............................................................ 35
Voting by Sprint Directors and Executive Officers......................... 35
Voting of Proxies......................................................... 35
Revocability of Proxies................................................... 36
Solicitation of Proxies................................................... 36
The Companies............................................................. 37
MCI WorldCom.............................................................. 37
Sprint.................................................................... 37
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Material Contracts Between MCI WorldCom and Sprint....................... 38
The Merger............................................................... 41
Background to the Merger................................................. 41
Sprint's Reasons for the Merger and the Sprint Board of Directors'
Recommendation.......................................................... 46
Opinion of Sprint's Financial Advisor.................................... 50
MCI WorldCom's Reasons for the Merger and the MCI WorldCom Board of
Directors' Recommendation............................................... 60
Opinion of MCI WorldCom's Financial Advisor.............................. 63
Interests of Sprint Directors and Executive Officers in the Merger....... 69
Form of the Merger....................................................... 73
Merger Consideration..................................................... 73
Conversion of Shares; Procedures for Exchange of Certificates; Fractional
Shares.................................................................. 75
Effective Time of the Merger............................................. 76
Listing of WorldCom Capital Stock........................................ 76
Delisting and Deregistration of Sprint Capital Stock..................... 76
Material United States Federal Income Tax Consequences................... 76
Regulatory Matters....................................................... 81
Litigation............................................................... 82
Accounting Treatment..................................................... 83
Appraisal Rights......................................................... 83
Sprint Employee Benefits Matters......................................... 88
Effect on Awards Outstanding Under Sprint Stock Plans.................... 89
Resale of WorldCom Capital Stock......................................... 89
The Merger Agreement..................................................... 90
Conditions to the Completion of the Merger............................... 90
No Solicitation.......................................................... 92
Termination.............................................................. 94
Termination Fees......................................................... 95
Conduct of Business Pending the Merger................................... 96
Amendment; Extension and Waiver.......................................... 98
Expenses................................................................. 99
Representations and Warranties........................................... 99
Other Agreements......................................................... 100
Amendments to the MCI WorldCom Articles of Incorporation................. 100
Amendments to the MCI WorldCom Bylaws.................................... 101
Certain Corporate Governance and Capital Structure Matters............... 101
Comparative Stock Prices and Dividends................................... 102
Unaudited Pro Forma Condensed Combined Financial Statements.............. 103
Additional Unaudited Pro Forma Presentation.............................. 112
Certain Tracking Stock Matters........................................... 118
Inter-Group Interest..................................................... 118
The Tracking Stock Policies and the Capital Stock Committee.............. 119
Future Inter-Group Interest.............................................. 123
Arrangements with Certain Sprint Stockholders............................ 125
France Telecom and Deutsche Telekom...................................... 125
The Cable Holders........................................................ 134
Description of MCI WorldCom Capital Stock................................ 141
General.................................................................. 141
Common Stock............................................................. 141
Preferred Stock.......................................................... 148
Warrants................................................................. 156
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Transfer Agent........................................................... 157
Anti-Takeover Considerations............................................. 157
Comparison of Rights of MCI WorldCom Shareholders and Sprint
Stockholders............................................................ 158
Capitalization........................................................... 158
Voting Rights............................................................ 159
Number and Election of Directors......................................... 162
Vacancies on the Board of Directors...................................... 164
Removal of Directors..................................................... 165
Amendments to Articles of Incorporation.................................. 166
Amendments to Bylaws..................................................... 167
Action by Written Consent................................................ 168
Notice of Shareholder Action............................................. 169
Special Meetings of Shareholders......................................... 170
Limitation of Personal Liability of Directors............................ 170
Indemnification of Directors and Officers................................ 171
Dividends................................................................ 173
Appraisal Rights......................................................... 173
Preemptive Rights........................................................ 175
Special Redemption Provisions............................................ 175
Rights Plans............................................................. 176
Extraordinary Corporate Transactions..................................... 180
State Anti-Takeover Statutes............................................. 181
Business Combination Restrictions........................................ 183
Legal Matters............................................................ 186
Experts.................................................................. 186
Stockholder Proposals.................................................... 187
Where You Can Find More Information...................................... 187
Special Note Regarding Forward-Looking Statements........................ 190
</TABLE>
Annexes
<TABLE>
<C> <S>
Annex 1 Agreement and Plan of Merger
Annex 2 Form of Amended Articles of Incorporation of WorldCom
Annex 3 Form of Amended Bylaws of WorldCom
Annex 4 Opinion of Salomon Smith Barney Inc.
Annex 5 Opinion of Warburg Dillon Read LLC
Annex 6 Section 17-6712 of the Kansas General Corporation Code--Appraisal
Rights
Annex 7 Section 14-2-1301 et seq. of the Georgia Business Corporation Code--
Dissenters' Rights
</TABLE>
iii
<PAGE>
WHAT SPRINT STOCKHOLDERS WILL RECEIVE IN THE MERGER
The following chart describes the shares of WorldCom capital stock that
Sprint stockholders will receive in the merger in exchange for their shares of
Sprint capital stock. Sprint stockholders will receive cash for any fractional
shares which they would otherwise receive in the merger. The FON exchange ratio
will be calculated shortly before the merger, but will not be less than 0.9400
or more than 1.2228. For a complete description of the capital structure of
WorldCom after the merger, see "Description of MCI WorldCom Capital Stock--
Common Stock--Amended WorldCom Articles of Incorporation" and "--Preferred
Stock--Amended WorldCom Articles of Incorporation".
<TABLE>
<CAPTION>
WorldCom Capital Stock to be
Received in the Merger for Each Share
Sprint Capital Stock of Sprint Capital Stock Held
---------------------------------- ---------------------------------------------
<S> <C> <C>
Sprint FON Sprint series 1 FON common stock . a number of shares of common stock, par
common stock value $.01 per share, of WorldCom, which we
refer to as WorldCom common stock, equal to
the FON exchange ratio
Sprint series 3 FON common stock . a number of shares of common stock, series
3, par value $.01 per share, of WorldCom,
which we refer to as WorldCom series 3
common stock, equal to the FON exchange
ratio
Sprint series 1 PCS common stock . one share of PCS common stock, series 1,
par value $1.00 per share, of WorldCom,
which we refer to as WorldCom series 1 PCS
common stock and
. 0.1547 shares of WorldCom common stock
Sprint PCS Sprint series 2 PCS common stock . one share of PCS common stock, series 2,
common stock par value $1.00 per share, of WorldCom,
which we refer to as WorldCom series 2 PCS
common stock and
. 0.1547 shares of common stock, series 2,
par value $.01 per share, of WorldCom, which
we refer to as WorldCom series 2 common
stock
Sprint series 3 PCS common stock . one share of PCS common stock, series 3,
par value $1.00 per share, of WorldCom,
which we refer to as WorldCom series 3 PCS
common stock and
. 0.1547 shares of WorldCom series 3 common
stock
Sprint FT/DT Sprint class A common stock . one share of class A common stock, series
class A stock FT, par value $2.50 per share, of WorldCom,
which we refer to as WorldCom series FT
common stock
Sprint class A common stock-- . one share of class A common stock, series
series DT DT, par value $2.50 per share, of WorldCom,
which we refer to as WorldCom series DT
common stock
Sprint Sprint first series preferred . to be redeemed by Sprint before the
preferred stock completion of the merger
stock
Sprint second series preferred . to be redeemed by Sprint before the
stock completion of the merger
Sprint fifth series preferred . one share of series 5 preferred stock, par
stock value $.01 per share, of WorldCom, which we
refer to as WorldCom series 5 preferred
stock
Sprint seventh series preferred . one share of series 7 preferred stock, par
stock value $.01 per share, of WorldCom, which we
refer to as WorldCom series 7 preferred
stock
</TABLE>
1
<PAGE>
The following diagrams illustrate the proposed merger in general terms. Only
the publicly traded classes of common stock of Sprint, MCI WorldCom and
WorldCom are illustrated. For a more complete description of the merger, see
"The Merger" beginning on page ..
[CHART APPEARS HERE]
Before the Merger
MCI Sprint Sprint
WorldCom FON group PCS group
common common stock common stock
stock
MCI WorldCom Sprint
Existing
MCI WorldCom Sprint Sprint
businesses FON group PCS group
After the Merger
WorldCom WorldCom
group common PCS group common
stock stock
WorldCom
WorldCom group WorldCom
(initially consists of the businesses conducted PCS group
by MCI WorldCom and the Sprint FON (initially consists of the
group before the merger) businesses conducted
by the Sprint PCS
group before the merger)
"__" indicates direct ownership of a business.
"__" indicates tracking of economic performance, but not direct ownership.
2
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: What do I need to do now?
A: After carefully reading and considering the information contained in this
proxy statement/ prospectus, please complete and sign your proxy and return
it in the enclosed return envelope as soon as possible, so that your shares
may be represented at your special meeting.
If you sign and send in your proxy and do not indicate how you want to
vote, we will count your proxy as a vote in favor of adoption or approval
of the merger agreement.
If you abstain from voting or do not vote, it will count as a vote against
the adoption or approval of the merger agreement.
The Sprint special meeting and the MCI WorldCom special meeting will take
place on . , . , 2000. You may attend your special meeting and vote your
shares in person rather than signing and mailing your proxy.
Q: Is WorldCom acquiring the Sprint FON group and the Sprint PCS group in the
merger?
A: Yes. After the merger, WorldCom will combine the existing businesses of MCI
WorldCom and the Sprint FON group to form the new WorldCom group. The
WorldCom group common stock will be designed to reflect the performance of
the WorldCom group.
In addition, what is now the Sprint PCS group will be called the WorldCom
PCS group. The newly created WorldCom PCS group common stock will be
designed to reflect the performance of the WorldCom PCS group.
Q: Can I change my vote after I have mailed my signed proxy?
A: Yes. You can change your vote at any time before your proxy is voted at
your special meeting. You can do this in one of several ways. First, you
can send a written notice stating that you would like to revoke your proxy.
Second, you can complete and submit a new proxy. If you choose either of
these two methods, you must submit your notice of revocation or your new
proxy to MCI WorldCom or Sprint at the address on the inside front cover of
this proxy statement/prospectus. Third, you can attend your special meeting
and vote in person. You may also revoke your proxy by calling the toll-free
number on your proxy or by voting through the Internet by following the
instructions on your proxy, even if you did not previously vote by either
of these methods.
Q: If my broker holds my shares in "street name", will my broker vote my
shares?
A: Your broker will vote your shares only if you provide instructions on how
to vote. You should follow the directions provided by your broker regarding
how to instruct your broker to vote your shares. If you do not provide your
broker with instructions on how to vote your shares, it will count as a
vote against the adoption or approval of the merger agreement.
Q: Am I entitled to appraisal rights?
A: It depends. Only holders of Sprint class A common stock, Sprint class A
common stock-- series DT, Sprint series 3 FON common stock, Sprint series 2
PCS common stock, Sprint series 3 PCS common stock, Sprint fifth series
preferred stock, Sprint seventh series preferred stock and MCI WorldCom
series B preferred stock will have appraisal rights in connection with the
merger. All other holders of any other class or series of common stock or
preferred stock of Sprint or MCI WorldCom are not entitled to appraisal
rights. We describe the procedures for exercising appraisal rights in this
proxy statement/prospectus and we have attached the provisions of Kansas
and Georgia law that govern appraisal rights as Annexes 6 and 7.
Q: Should I send in my stock certificates now?
A: No. After the merger is completed, we will send Sprint stockholders written
instructions for exchanging their Sprint stock certificates. Sprint
stockholders should not send in their stock certificates now. MCI WorldCom
shareholders will keep their existing share certificates.
3
<PAGE>
Q: When do you anticipate that the merger will be completed?
A: We anticipate that the merger will be completed in the second half of 2000.
We are working to complete the merger as quickly as possible and intend to
do so as soon as possible after the special meetings and after we have
obtained the regulatory approvals necessary for the merger.
Q: Who can help answer my questions?
A: If you have any questions about the merger or if you need additional copies
of this proxy statement/prospectus or the enclosed proxy, you should
contact:
Sprint stockholders:
D.F. King & Co., Inc. 77 Water Street New York, New York 10005 Telephone:
(888) 414-5566
Sprint Corporation 2330 Shawnee Mission Parkway Westwood, Kansas 66205
Attention: Investor Relations Department Telephone: (800) 259-3785
MCI WorldCom shareholders:
MacKenzie Partners, Inc.
156 Fifth Avenue
New York, New York 10010
Telephone: call collect (212) 929-5500 or
call toll free (800) 322-2885
MCI WORLDCOM, Inc. 500 Clinton Center Drive Clinton, Mississippi 39056
Attention: Investor Relations Department Telephone: (877) 624-9266 or
(601) 460-5600
4
<PAGE>
SUMMARY
This summary highlights selected information from this proxy
statement/prospectus and may not contain all of the information that is
important to you. To understand the merger fully and for a more complete
description of the legal terms of the merger, you should read carefully this
entire proxy statement/prospectus and the other documents to which we have
referred you. See "Where You Can Find More Information" beginning on page . .
For a description of any material differences between the rights of MCI
WorldCom shareholders and Sprint stockholders, see "Comparison of Rights of MCI
WorldCom Shareholders and Sprint Stockholders" beginning on page . . We have
included page references parenthetically to direct you to a more complete
description of the topics presented in this summary.
General
What You Will Receive in the Merger (page .)
MCI WorldCom Shareholders
After the merger, each share of MCI WorldCom capital stock will remain
outstanding and will be designed to reflect the performance of the WorldCom
group. The WorldCom group will initially consist of the businesses of the
combined company other than the Sprint PCS wireless business.
MCI WorldCom shareholders should not send in their stock certificates.
Sprint Stockholders
Sprint FON Common Stock. The number of shares of WorldCom group common stock
that will be received in the merger for each share of Sprint FON common stock
will be equal to the FON exchange ratio. Each share of Sprint FON common stock
will be exchanged for WorldCom group common stock valued at $76 in the merger
if the average closing price of MCI WorldCom common stock is between $62.15 and
$80.85, calculated as described below.
The FON exchange ratio will be determined shortly before we complete the
merger. It will equal $76 divided by the average closing price of MCI WorldCom
common stock on The Nasdaq National Market for the 15 trading days randomly
selected by MCI WorldCom and Sprint from the 30 trading days ending shortly
before we complete the merger, subject to the following two adjustments:
. if the average closing price of MCI WorldCom common stock, as calculated
above, equals or exceeds $80.85, the FON exchange ratio will be fixed at
0.9400 and
. if the average closing price of MCI WorldCom common stock, as calculated
above, equals or falls below $62.15, the FON exchange ratio will be fixed at
1.2228.
This means that the number of shares of WorldCom group common stock received
for each share of Sprint FON common stock will never be less than 0.9400 or
more than 1.2228 regardless of what happens to MCI WorldCom's stock price
shortly before the merger. Therefore, it is possible that each share of Sprint
FON common stock will be valued in the merger at more or less than $76.
The terms of the WorldCom group common stock will be virtually identical to
the terms of the Sprint FON common stock and will be designed to reflect the
performance of the WorldCom group.
On . , the latest practicable date before the date of this proxy
statement/prospectus, MCI WorldCom common stock closed at $ . per share on The
Nasdaq National Market. If this were the average closing price of MCI WorldCom
common stock shortly before the merger, then, because the price is [greater]
than $[80.85], the FON exchange ratio would [become fixed] and Sprint FON
stockholders would receive [0.9400] shares of WorldCom group common stock for
each share of Sprint FON common stock that they own. This could result in a
value of $ . per share of Sprint FON common stock. The actual number of shares
issued by WorldCom may differ from this example and will not be known at the
special meetings because the merger will not be completed until after the
special meetings.
Set forth below is a table showing the range of prices of MCI WorldCom
common stock, along with entries showing the corresponding FON exchange ratios
and corresponding valuations in the merger of
5
<PAGE>
a share of Sprint series 1 FON common stock. The table also highlights the
minimum and maximum exchange ratios.
<TABLE>
<CAPTION>
Average Value of a
Closing Price of FON Share of Sprint
MCI WorldCom Exchange Series 1 FON
Common Stock Ratio Common Stock
---------------- -------- ---------------
<S> <C> <C> <C>
$90.00 0.9400 $84.60
88.00 0.9400 82.72
86.00 0.9400 80.84
84.00 0.9400 78.96
82.00 0.9400 77.08
Exchange Ratio-- 80.85 0.9400 76.00
Limitation 78.00 0.9744 76.00
76.00 1.0000 76.00
74.00 1.0270 76.00
72.00 1.0556 76.00
70.00 1.0857 76.00
68.00 1.1176 76.00
66.00 1.1515 76.00
64.00 1.1875 76.00
Exchange Ratio-- 62.15 1.2228 76.00
Limitation 60.00 1.2228 73.37
58.00 1.2228 70.92
56.00 1.2228 68.48
54.00 1.2228 66.03
52.00 1.2228 63.59
</TABLE>
For a Sprint stockholder who owns 100 shares of Sprint series 1 FON common
stock, if the exchange ratio was 1.0270, for example, this would translate into
102.70 shares of WorldCom common stock. Since cash will be paid instead of
fractional shares, that Sprint stockholder would receive 102 shares of WorldCom
common stock and a check in an amount equal to the fractional share multiplied
by the closing market price of MCI WorldCom common stock on the date of
completion of the merger.
We refer to the series of WorldCom group common stock to be received by
holders of the publicly traded Sprint series 1 FON common stock as "WorldCom
common stock".
Sprint PCS Common Stock. Holders of each series of Sprint PCS common stock
will receive one share of a series of WorldCom PCS group common stock to be
created in connection with the merger and 0.1547 shares of WorldCom group
common stock for each share of Sprint PCS common stock that they own. The terms
of the WorldCom PCS group common stock will be virtually identical to the terms
of the Sprint PCS common stock and will be designed to reflect the performance
of the WorldCom PCS group, which will initially consist only of the Sprint PCS
wireless business.
Sprint FT/DT Class A Stock. France Telecom S.A. and Deutsche Telekom AG, the
holders of Sprint FT/DT class A stock, will receive one share of a
corresponding series of WorldCom class A common stock, with virtually identical
terms, to be created in connection with the merger, for each share of Sprint
FT/DT class A stock that they own.
France Telecom and Deutsche Telekom are European telephone companies with a
combined approximate 20% equity investment in Sprint.
Fractional Shares. Sprint common stockholders will receive cash for any
fractional shares which they would otherwise receive in the merger. This amount
will be calculated by multiplying the fractional share interest of the
applicable series of WorldCom group common stock to which each Sprint common
stockholder would be entitled by the closing price of MCI WorldCom common stock
on the date of completion of the merger.
Sprint Preferred Stock. Sprint will redeem the shares of its first and
second series preferred stock that are outstanding before the completion of the
merger. Accordingly, those holders will receive cash in exchange for the shares
of Sprint first and second series preferred stock that they own at that time.
Holders of Sprint fifth series preferred stock will receive one share of
WorldCom series 5 preferred stock, with virtually identical terms, to be
created in connection with the merger, for each share of Sprint fifth series
preferred stock that they own. Holders of Sprint seventh series preferred stock
will receive one share of WorldCom series 7 preferred stock, with virtually
identical terms, to be created in connection with the merger, for each share of
Sprint seventh series preferred stock that they own.
6
<PAGE>
Sprint stockholders should not send in their Sprint stock certificates until
instructed to do so after the merger is completed.
Appraisal Rights (page .)
MCI WorldCom Shareholders
Holders of MCI WorldCom common stock do not have any right to an appraisal
of the value of their shares in connection with the merger. Holders of shares
of MCI WorldCom series B preferred stock have the right under Georgia law to
exercise appraisal rights in connection with the merger. These holders will be
entitled to receive payment in cash for the fair value of their shares if they
preserve their rights by following specific procedures. These procedures are
described in this proxy statement/prospectus, and the provisions of Georgia law
that grant appraisal rights and govern such procedures are attached as Annex 7.
Sprint Stockholders
Holders of Sprint series 1 FON common stock, Sprint series 1 PCS common
stock, Sprint first series preferred stock and Sprint second series preferred
stock do not have any right to an appraisal of the value of their shares in
connection with the merger.
Holders of Sprint FT/DT class A stock, Sprint series 3 FON common stock,
Sprint series 2 PCS common stock, Sprint series 3 PCS common stock, Sprint
fifth series preferred stock and Sprint seventh series preferred stock have the
right under Kansas law to exercise appraisal rights and to receive payment in
cash for the fair value of their shares of Sprint capital stock in connection
with the merger. To preserve their rights, holders of Sprint capital stock
described above who wish to exercise appraisal rights must follow specific
procedures. These procedures are described in this proxy statement/prospectus,
and the provisions of Kansas law that grant appraisal rights and govern such
procedures are attached as Annex 6.
How Tracking Stocks Work (page .)
A tracking stock is a separate class of a company's common stock that is
designed to reflect the economic performance of a specific business group of
the company. The terms of a tracking stock, such as the dividend provisions,
are designed so that the market will tie the value of the tracking stock to the
performance of the tracked business group, rather than to the performance of
the entire company.
Holders of WorldCom PCS group common stock will be shareholders of WorldCom
as a whole and not of the WorldCom PCS group. Holders of WorldCom group common
stock will also be shareholders of WorldCom as a whole, and not of the WorldCom
group.
Current MCI WorldCom shareholders will have economic participation in the
new WorldCom PCS group by owning WorldCom group common stock to the extent
there is an inter-group interest in the WorldCom PCS group. After the merger
the WorldCom group will have only a small inter-group interest. We use the term
"inter-group interest" to mean the WorldCom group's economic interest in the
WorldCom PCS group. It is similar to the WorldCom group holding shares of
WorldCom PCS group common stock, except that the inter-group interest does not
vote. See "Certain Tracking Stock Matters--Inter-Group Interest".
Ownership of WorldCom After the Merger
Based on the number of outstanding shares of Sprint capital stock, the MCI
WorldCom common stock closing price and an assumed FON exchange ratio of . ,
in each case on the Sprint record date, Sprint stockholders will receive a
total of approximately . shares of WorldCom group common stock and
approximately . shares of WorldCom PCS group common stock in the merger.
Based on those numbers and on the number of outstanding shares of MCI
WorldCom capital stock on the Sprint record date, after the merger former
Sprint stockholders will own shares representing approximately . %, and
existing MCI WorldCom shareholders will own shares representing approximately
. %, of the total voting power of WorldCom capital stock.
WorldCom Board of Directors and Management after the Merger
After the merger, the WorldCom board of directors will have 16 members, with
10 initially
7
<PAGE>
designated by MCI WorldCom and 6 initially designated by Sprint, subject to
increase if France Telecom or Deutsche Telekom have the right to elect
directors, as described below.
Bernard J. Ebbers, the current President and Chief Executive Officer of MCI
WorldCom, will serve as President and Chief Executive Officer of WorldCom after
the merger.
William T. Esrey, the current Chairman and Chief Executive Officer of
Sprint, will serve as Chairman of WorldCom after the merger.
Material United States Federal Income Tax Consequences of the Merger (page .)
The merger will generally be tax-free to holders of each series of Sprint
FON common stock, Sprint PCS common stock and Sprint FT/DT class A stock for
United States federal income tax purposes, except in the case of U.S. holders
with respect to cash received for fractional shares of WorldCom group common
stock or because of the exercise of appraisal rights.
Tax matters are very complicated and the tax consequences of the merger to
you will depend on the facts of your own situation. You should consult your own
tax advisor for a full understanding of the tax consequences of the merger to
you.
Boards of Directors' Recommendations (pages . and .)
The MCI WorldCom board of directors has determined that the merger and the
merger agreement are advisable, fair to and in the best interests of MCI
WorldCom and its shareholders and recommends that MCI WorldCom shareholders
vote FOR the approval of the merger agreement.
The Sprint board of directors has determined that the merger and the merger
agreement are advisable, fair to and in the best interests of Sprint and all of
its stockholders and recommends that Sprint stockholders vote FOR the adoption
of the merger agreement.
To review the background and reasons for the merger in greater detail, as
well as certain risks related to the merger, see pages . through . , .
through . , . through . and . .
Fairness Opinions of Financial Advisors
MCI WorldCom (page .)
In deciding to adopt the merger agreement, the MCI WorldCom board of
directors considered the opinion dated October 4, 1999 of its financial
advisor, Salomon Smith Barney Inc., that, as of that date, the FON exchange
ratio and the consideration to be paid by MCI WorldCom to holders of Sprint PCS
common stock in the merger, taken as a whole, was fair, from a financial point
of view, to MCI WorldCom. Such opinion was confirmed in writing on October 4,
1999. This opinion is attached as Annex 4 to this proxy statement/prospectus.
We encourage MCI WorldCom shareholders to read this opinion carefully.
Sprint (page .)
In deciding to approve the merger and the merger agreement, the Sprint board
of directors considered the opinion dated October 4, 1999 of its financial
advisor, Warburg Dillon Read LLC, that, as of that date:
. the FON exchange ratio was fair, from a financial point of view, to the
holders of each series of Sprint FON common stock
. the consideration to be received by holders of Sprint PCS common stock in the
merger was fair, from a financial point of view, to the holders of each
series of Sprint PCS common stock
. the consideration to be received by holders of Sprint class A common stock in
the merger was fair, from a financial point of view, to holders of Sprint
class A common stock
. the consideration to be received by holders of Sprint class A common stock--
series DT, in the merger was fair, from a financial point of view, to holders
of Sprint class A common stock--series DT and
. the consideration to be received by holders of Sprint common stock in the
merger was fair, from a financial point of view, to the holders of Sprint
common stock taken as a whole.
This opinion is attached as Annex 5 to this proxy statement/prospectus. We
encourage Sprint stockholders to read this opinion carefully.
8
<PAGE>
Interests of Sprint Directors and Executive Officers in the Merger (page .)
Sprint stockholders should note that Sprint directors and executive officers
have interests in the merger as directors or executive officers that are
different from, or in addition to, the interests of other Sprint stockholders.
You should be aware of these interests because they may conflict with yours. If
we complete the merger, six Sprint designees will become members of the board
of directors of the combined company and several current Sprint executive
officers will become employees of the combined company. The indemnification
arrangements for current Sprint directors and officers will also be continued.
In addition, options to acquire Sprint common stock held by Sprint directors
and executive officers will automatically vest at the time of the Sprint
special meeting, unless otherwise agreed to by the individual directors and
executive officers.
In connection with the merger, Sprint is considering a special grant of
stock options to officers and director-level employees designed to retain these
individuals following the Sprint special meeting.
The Special Meetings
MCI WorldCom (page .)
The special meeting of MCI WorldCom shareholders will be held at 500 Clinton
Center Drive, Clinton, Mississippi, at . a.m., local time, on . , . , 2000.
At the MCI WorldCom special meeting, shareholders will be asked to approve the
merger agreement.
Sprint (page .)
The special meeting of Sprint stockholders will be held at Sprint World
Headquarters, 2330 Shawnee Mission Parkway, Westwood, Kansas, at . a.m.,
local time, on . , . , 2000. At the Sprint special meeting, stockholders will
be asked to adopt the merger agreement.
Record Dates; Voting Power
MCI WorldCom (page .)
MCI WorldCom shareholders are entitled to vote at the MCI WorldCom special
meeting if they owned shares of MCI WorldCom common stock or MCI WorldCom
series B preferred stock as of the close of business on . , 1999, the MCI
WorldCom record date.
On . , 1999, there were approximately . shares of MCI WorldCom common
stock and approximately . shares of MCI WorldCom series B preferred stock
entitled to vote, together as a single group, at the MCI WorldCom special
meeting. MCI WorldCom shareholders will have one vote at the MCI WorldCom
special meeting for each share of MCI WorldCom common stock or MCI WorldCom
series B preferred stock that they owned on the MCI WorldCom record date.
Sprint (page .)
Sprint stockholders are entitled to vote at the Sprint special meeting if
they owned shares of Sprint capital stock as of the close of business on . ,
1999, the Sprint record date.
On . , 1999, there were outstanding the approximate number of shares of
Sprint capital stock set forth below. Sprint stockholders will have the
following votes per share, depending on the class and series of stock owned:
<TABLE>
<CAPTION>
Number of
Shares Votes
Sprint Capital Stock Outstanding Per Share
- -------------------- ----------- ----------
<S> <C> <C>
Series 1 FON............................................. . 1
Series 3 FON............................................. . 1
Series 1 PCS............................................. . .
Series 2 PCS............................................. . .
Series 3 PCS............................................. . .
Class A.................................................. . .
Class A--series DT....................................... . .
First series preferred................................... . 1
Second series preferred.................................. . 1
Fifth series preferred................................... . 1
Seventh series preferred................................. . .
</TABLE>
Votes Required
MCI WorldCom (page .)
The affirmative vote of holders of shares of MCI WorldCom common stock and
MCI WorldCom series B preferred stock representing a majority of all the votes
entitled to be cast at the MCI WorldCom
9
<PAGE>
special meeting, voting together as a single group, is required to approve the
merger agreement. The vote to approve the merger agreement will also constitute
approval of the issuance of shares of WorldCom capital stock in the merger and
amendment of the MCI WorldCom articles of incorporation. The amended WorldCom
articles of incorporation which reflect that amendment are attached as Annex 2
to this proxy statement/prospectus.
Sprint (page .)
The affirmative vote of holders of shares representing a majority of the
total voting power of Sprint common stock and Sprint preferred stock entitled
to vote at the Sprint special meeting is required to adopt the merger
agreement.
Voting by Directors and Executive Officers
MCI WorldCom (page .)
On the MCI WorldCom record date, directors and executive officers of MCI
WorldCom and their affiliates owned and were entitled to vote approximately .
shares of MCI WorldCom common stock and no shares of MCI WorldCom series B
preferred stock, or approximately . % of the aggregate number of shares of MCI
WorldCom common stock and MCI WorldCom series B preferred stock outstanding on
that date.
The directors and executive officers of MCI WorldCom have indicated that
they intend to vote the MCI WorldCom common stock that they own for the
approval of the merger.
Sprint (page .)
On the Sprint record date, directors and executive officers of Sprint and
their affiliates (other than France Telecom and Deutsche Telekom and their
designees) owned and were entitled to vote . shares of Sprint FON common
stock, . shares of Sprint PCS common stock, and no shares of Sprint preferred
stock. All of these shares together represented approximately . % of the total
voting power of Sprint capital stock on that date.
The directors and executive officers of Sprint (other than the Sprint
directors who are designees of France Telecom and/or Deutsche Telekom) have
indicated that they intend to vote their shares of Sprint common stock for the
adoption of the merger agreement.
The Merger (page .)
The merger agreement is attached as Annex 1 to this proxy
statement/prospectus. We encourage you to read the merger agreement carefully.
It is the principal document governing the merger.
Conditions to the Completion of the Merger (page .)
MCI WorldCom and Sprint will complete the merger only if they satisfy or, in
some cases, waive, several conditions, including the following:
. holders of the requisite number of shares of MCI WorldCom common stock
and MCI WorldCom series B preferred stock, voting together as a single
group, must have approved the merger agreement
. holders of the requisite number of shares of Sprint common stock and
Sprint preferred stock, voting together as a single group, must have
adopted the merger agreement
. the waiting period required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 must have expired or been terminated
. any required European antitrust clearances must have been obtained
. all approvals for the merger from the Federal Communications Commission
and state public utility commissions must have been obtained, except
where the failure to obtain such approvals would not, individually or in
the aggregate, reasonably be expected to materially impair MCI WorldCom's
and Sprint's ability to achieve the overall benefits expected to be
realized from the completion of the merger
. no legal restraints or prohibitions may exist which have the effect of
making the merger illegal or otherwise preventing the completion of the
merger
. WorldCom common stock and WorldCom series 1 PCS common stock issuable to
10
<PAGE>
Sprint stockholders in the merger must have been approved for quotation on
The Nasdaq National Market
. Cravath, Swaine & Moore must have delivered an opinion to MCI WorldCom
stating that:
-- the merger will qualify as a "reorganization" within the meaning of
section 368(a) of the Internal Revenue Code
-- MCI WorldCom and Sprint will each be a "party" to that reorganization
within the meaning of section 368(b) of the Internal Revenue Code and
-- the issuance of the WorldCom group common stock, WorldCom PCS group
common stock and WorldCom class A common stock will not result in
WorldCom recognizing an amount of income or gain, or being subject to
an amount of tax, in each case that individually or the aggregate, is
reasonably likely to have a material adverse effect on WorldCom.
. King & Spalding must have delivered an opinion to Sprint stating that:
-- the merger will qualify as a "reorganization" within the meaning of
section 368(a) of the Internal Revenue Code
-- MCI WorldCom and Sprint will each be a "party" to that reorganization
within the meaning of section 368(b) of the Internal Revenue Code and
-- the WorldCom group common stock, WorldCom PCS group common stock and
WorldCom class A common stock received by holders of each series of
Sprint FON common stock, Sprint PCS common stock and Sprint FT/DT class
A stock, as applicable, in the merger will be property permitted to be
received under section 354 of the Internal Revenue Code without the
recognition of gain.
. there must have been no material adverse change in MCI WorldCom or
Sprint, other than changes relating to the economy, securities markets or
the telecommunications industry generally
. the representations and warranties of MCI WorldCom and Sprint contained
in the merger agreement must be true and correct on the date of the
merger agreement and on the closing date, except for failures to be true
and correct that are not individually or in the aggregate reasonably
likely to have a material adverse effect on MCI WorldCom or Sprint, as
applicable and
. MCI WorldCom and Sprint must have performed all material agreements
contained in the merger agreement in all material respects.
Termination of the Merger Agreement (page .)
1. MCI WorldCom and Sprint can jointly agree to terminate the merger
agreement at any time without completing the merger.
2. MCI WorldCom or Sprint can terminate the merger agreement if:
. the merger is not completed byDecember 31, 2000
. holders of the requisite number of shares of MCI WorldCom common stock
and MCI WorldCom series B preferred stock, voting together as a single group
at the MCI WorldCom special meeting, do not approve the merger agreement
. holders of the requisite number of shares of Sprint common stock and
Sprint preferred stock, voting together as a single group at the Sprint
special meeting, do not adopt the merger agreement
. a governmental authority permanently prohibits the completion of the
merger or fails to issue an order necessary to satisfy the conditions
regarding Federal
11
<PAGE>
Communications Commission and state public utility commission approvals
and clearances under the Hart-Scott-Rodino Act or from European antitrust
authorities or
. a condition to the completion of the merger cannot be satisfied because
the other party breached or failed to comply with any of the
representations or warranties it made or any of its obligations under the
merger agreement and has not cured the breach or failure within 45 days.
3. Sprint can terminate the merger agreement if:
. at any time during the period beginning on December 4, 1999 and ending on
the date the vote of holders of Sprint capital stock required to adopt
the merger agreement has been obtained, the Sprint board of directors
receives a competing proposal by a third party and the Sprint board of
directors, in the exercise of its fiduciary duties, determines in good
faith:
-- the terms of the third party proposal would be more favorable than the
MCI WorldCom/Sprint merger to Sprint stockholders taken as a whole, is
reasonably capable of being completed and for which financing, to the
extent required, is then committed or is reasonably capable of being
obtained by such third party and
-- failure to terminate the merger agreement with MCI WorldCom would not
be in the best interests of Sprint stockholders or
. MCI WorldCom modifies or proposes publicly to modify, in a manner adverse
to Sprint, the approval or recommendation of the merger or the merger
agreement by the MCI WorldCom board of directors.
4. MCI WorldCom can terminate the merger agreement if:
. at any time during the period beginning on December 4, 1999 and ending on
the date the vote of holders of MCI WorldCom capital stock required to
approve the merger agreement has been obtained, the MCI WorldCom board of
directors receives a competing proposal by a third party and the MCI
WorldCom board of directors, in the exercise of its fiduciary duties,
determines in good faith:
-- the terms of the third party proposal would be more favorable than the
MCI WorldCom/Sprint merger to MCI WorldCom shareholders taken as a
whole, is reasonably capable of being completed and for which
financing, to the extent required, is then committed or is reasonably
capable of being obtained by such third party and
-- failure to terminate the merger agreement with Sprint would not be in
the best interests of MCI WorldCom shareholders or
. Sprint modifies or proposes publicly to modify, in a manner adverse to
MCI WorldCom, the approval or recommendation of the merger or the merger
agreement by the Sprint board of directors.
Termination Fees
MCI WorldCom (page .)
MCI WorldCom must pay Sprint a termination fee of $2.5 billion if:
. at any time before the MCI WorldCom shareholder approval of the merger
agreement has been obtained, MCI WorldCom or its shareholders receive a
competing proposal, or a third party publicly announces an intention to
make a competing proposal for MCI WorldCom, and in either case MCI
WorldCom or Sprint then terminates the merger agreement for the first
reason (without an MCI WorldCom special meeting having occurred) or the
second reason described in paragraph 2 above under "--Termination of the
Merger Agreement"
. MCI WorldCom terminates the merger agreement for the first reason
described in paragraph 4 above under "--Termination of the Merger
Agreement" or
12
<PAGE>
. Sprint terminates the merger agreement for the second reason described in
paragraph 3 above under "--Termination of the Merger Agreement".
MCI WorldCom is not required to pay Sprint the termination fee in the first
or third situation described above unless MCI WorldCom enters into an agreement
for or approves or completes any competing proposal within 12 months of the
termination of the merger agreement.
Sprint (page .)
Sprint must pay MCI WorldCom a termination fee of $2.5 billion if:
. at any time before the Sprint stockholders' adoption of the merger
agreement has been obtained, Sprint or its stockholders receive a
competing proposal, or a third party publicly announces an intention to
make a competing proposal for Sprint, and in either case MCI WorldCom or
Sprint then terminates the merger agreement for the first reason (without
a Sprint special meeting having occurred) or the third reason described
in paragraph 2 above under "--Termination of the Merger Agreement"
. Sprint terminates the merger agreement for the first reason described in
paragraph 3 above under "--Termination of the Merger Agreement" or
. MCI WorldCom terminates the merger agreement for the second reason
described in paragraph 4 above under "--Termination of the Merger
Agreement".
Sprint is not required to pay MCI WorldCom the termination fee in the first
or third situation described above unless Sprint enters into an agreement for
or approves or completes any competing proposal within 12 months of the
termination of the merger agreement.
Regulatory Approvals (page .)
Under the Communications Act of 1934, the Federal Communications Commission
must approve the transfer of control to MCI WorldCom of Sprint and those
subsidiaries of Sprint that hold FCC licenses and authorizations. The FCC must
determine whether MCI WorldCom is qualified to control such licenses and
authorizations and whether the transfer is consistent with the public interest,
convenience and necessity. MCI WorldCom and Sprint intend to file transfer of
control applications with the FCC in November 1999.
Under the Hart-Scott-Rodino Act, the merger may not be completed until
notifications have been given and certain information furnished to the Federal
Trade Commission and to the Antitrust Division of the U.S. Department of
Justice and the specified waiting period has been terminated or has expired. On
October 12, 1999, MCI WorldCom and Sprint each filed notification and report
forms with the Federal Trade Commission and the Department of Justice. The
merger is also subject to review under state antitrust laws and could be the
subject of challenges by private parties under the antitrust laws.
Various subsidiaries of Sprint hold licenses and service authorizations
issued by state public utility commissions. Approximately 26 state commissions
must review the transfer of control of these licenses and authorizations to MCI
WorldCom.
The merger may also be subject to review by certain European antitrust
authorities and to regulatory review in jurisdictions other than the United
States and Europe.
Accounting Treatment (page .)
The merger will be accounted for using the purchase method of accounting
with MCI WorldCom having acquired Sprint.
Expenses (page .)
Each of MCI WorldCom and Sprint will bear all expenses it incurs in
connection with the merger, except that MCI WorldCom and Sprint will share
13
<PAGE>
equally the costs of filing with the Securities and Exchange Commission the
registration statement, of which this proxy statement/prospectus forms a part,
printing and mailing this proxy statement/ prospectus and the filing fees for
the pre-merger notification and report forms under the Hart-Scott-Rodino Act
and for any filings with the European Commission.
Market Price Information (page .)
Shares of MCI WorldCom common stock are traded on The Nasdaq National
Market. Shares of Sprint series 1 FON common stock and Sprint series 1 PCS
common stock are listed on the New York Stock Exchange. The following table
presents:
. the last reported sale price of one share of MCI WorldCom common stock,
as reported on The Nasdaq National Market
. the last reported sale prices of one share of Sprint series 1 FON common
stock and one share of Sprint series 1 PCS common stock,
as reported on the New York Stock Exchange and
. the market value of one share of Sprint series 1 FON common stock and one
share of Sprint series 1 PCS common stock on an equivalent per share
basis determined as if the merger had been completed,
in each case as if the merger had been completed on October 4, 1999, the last
full trading day before the public announcement of the merger agreement, and on
. , the last practicable day before the date of this proxy
statement/prospectus. The equivalent price per share data for Sprint series 1
FON common stock has been determined by multiplying the applicable last
reported sale price of one share of MCI WorldCom common stock on each of these
dates by an assumed FON exchange ratio of .. The equivalent price per share
data for Sprint series 1 PCS common stock has been determined by (1)
multiplying the applicable last reported sale price of one share of MCI
WorldCom common stock on each of these dates by 0.1547 and (2) adding this
amount to the applicable last reported sale price of one share of Sprint series
1 PCS common stock on each of these dates. Because the sale price of the Sprint
series 1 PCS common stock on . may already reflect the anticipated receipt of
0.1547 shares of WorldCom common stock per share in the merger, the actual
expected value for each share of Sprint series 1 PCS common stock may be less
than that indicated by the equivalent price per share of Sprint series 1 PCS
common stock set forth below.
MCI WorldCom
<TABLE>
<CAPTION>
MCI WorldCom
Date Common Stock
---- ------------
<S> <C> <C>
October 4, 1999............................... $71.63
. , 1999..................................... .
Sprint FON
<CAPTION>
Equivalent Price Per
Sprint Share of Sprint
Series 1 FON Series 1 FON
Date Common Stock Common Stock
---- ------------ --------------------
<S> <C> <C>
October 4, 1999............................... $60.88 $ .
. , 1999..................................... . .
Sprint PCS
<CAPTION>
Equivalent Price Per
Sprint Share of Sprint
Series 1 PCS Series 1 PCS Common
Date Common Stock Stock
---- ------------ --------------------
<S> <C> <C>
October 4, 1999............................... $78.69 $89.77
. , 1999..................................... . .
</TABLE>
At the completion of the merger, MCI WorldCom expects that the WorldCom
series 1 PCS common stock will be approved for quotation on The Nasdaq National
Market, subject to official notice of issuance.
Dividend Information (page .)
MCI WorldCom has never paid cash dividends on its common stock. Sprint has
historically paid regular quarterly dividends of $0.125 per share on its FON
common stock but has never paid dividends on its PCS common stock. WorldCom
does not intend to pay dividends on either the WorldCom group common stock or
the WorldCom PCS group common stock.
14
<PAGE>
The Companies (page .)
MCI WORLDCOM, INC.
500 Clinton Center Drive
Clinton, Mississippi 39056
(877) 624-9266 or
(601) 460-5600
MCI WorldCom is a global leader in telecommunications services with 1998
revenues of more than $30 billion, pro forma to include MCI Communications,
Inc., and established operations in over 65 countries encompassing the
Americas, Europe and the Asia-Pacific regions. MCI WorldCom is one of the first
major facilities-based telecommunications companies with the capability to
provide consumers and businesses with high quality local, long distance,
Internet, data and international communications services over its global
networks.
After the merger, WorldCom will be organized into two groups:
. the WorldCom group, which will initially consist of the combined assets
and businesses of MCI WorldCom before the merger and the Sprint FON group
and
. the WorldCom PCS group, which will initially consist of the assets and
businesses of the Sprint PCS group.
SPRINT CORPORATION
2330 Shawnee Mission Parkway
Westwood, Kansas 66205
(913) 624-3000
Sprint is a diversified telecommunications company, providing long distance,
local and wireless communications services. Sprint's business is organized in
two groups:
. the PCS group, which markets its wireless PCS telephony products and
services under the Sprint(R) and Sprint PCS(R) brand names and
. the FON group, which consists of all of Sprint's businesses and assets not
included in the PCS group and includes:
--Sprint's long distance division, which is the nation's third-largest
provider of long distance telephone services
--Sprint's local telecommunications division, which consists primarily of
regulated local exchange carriers serving approximately 7.9 million
access lines in 18 states
--Sprint's product distribution and directory publishing businesses, which
consist of wholesale distribution of telecommunications equipment and
publishing and marketing white and yellow page telephone directories.
15
<PAGE>
Comparative Per Share Data
The following table sets forth for MCI WorldCom common stock, Sprint series
1 FON common stock and Sprint PCS common stock, for the periods indicated,
selected historical per share data and the corresponding unaudited pro forma
combined and pro forma equivalent per share amounts, calculated separately,
assuming FON exchange ratios of 0.94 and 1.2228 shares of WorldCom group common
stock for each share of Sprint FON common stock, giving effect to the
consideration to be received by holders of shares of Sprint PCS common stock
and giving effect to the proposed merger. The actual FON exchange ratio may
vary as described in this proxy statement/prospectus. The data presented are
based upon the historical consolidated financial statements and related notes
of each of MCI WorldCom and Sprint, which are incorporated by reference into
this document. See "Where You Can Find More Information" beginning on page . .
This information should be read in conjunction with, and is qualified in its
entirety by reference to, the historical consolidated financial statements of
MCI WorldCom, the Sprint FON group and the Sprint PCS group and related notes
thereto. The data presented are not necessarily indicative of the future
results of operations of the consolidated companies or the actual results that
would have occurred if the merger had been consummated prior to the periods
indicated. MCI WorldCom has never paid cash dividends on its common stock.
Sprint has historically paid regular quarterly dividends on its FON common
stock but not on its PCS common stock.
<TABLE>
<CAPTION>
Sprint Sprint
FON Pro Forma FON Pro Forma WorldCom
WorldCom Equivalent Equivalent PCS Group
MCI Sprint Group (assuming a FON (assuming a FON Sprint Pro Forma
WorldCom FON Group Pro Forma exchange ratio exchange ratio PCS Group Combined and
Historical Historical Combined of 0.94) of 1.2228) Historical Equivalent
---------- ---------- --------- --------------- --------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Book value per common
share:
December 31, 1998...... $24.51 $10.48 $39.89 $37.50 $48.78 $9.02 $100.88
June 30, 1999.......... 25.77 11.20 40.55 38.12 49.58 9.68 90.55
Income (loss) per common
share from continuing
operations (after
preferred dividend
requirement):
Basic:
Year ended December
31, 1998............ (2.02) 1.80 (1.75) (1.65) (2.14) -- (7.72)
Six months ended June
30, 1999............ 0.85 0.92 0.32 0.30 0.39 (2.62) (4.90)
Diluted:
Year ended December
31, 1998............ (2.02) 1.78 (1.75) (1.65) (2.14) -- (7.72)
Six months ended June
30, 1999............ 0.81 0.90 0.31 0.29 0.38 (2.62) (4.90)
Total dividends per
share:
Year ended December
31, 1998............ -- 0.50 -- -- -- -- --
Six months ended June
30, 1999............ -- 0.25 -- -- -- -- --
</TABLE>
- -------
(1) In 1998, MCI WorldCom recorded a pre-tax charge of $196 million in
connection with its merger with Brooks Fiber Properties, Inc. on January
29, 1998, the merger with MCI Communications Corporation on September 14,
1998 and certain asset write-downs and loss contingencies. These charges
included $21 million for employee severance, $17 million for Brooks Fiber
Properties direct merger costs, $38 million for conformance of Brooks
Fiber Properties accounting policies, $56 million for exit costs under
long-term commitments, $31 million for the write-down of a permanently
impaired investment and $33 million related to certain asset write-downs
and loss contingencies. Additionally, in connection with business
combinations, MCI WorldCom made allocations of the purchase price to
acquired in-process research and development totaling $429 million in the
first quarter of 1998 related to the merger with CompuServe Corporation on
January 31, 1998 and the acquisition of ANS Communications, Inc. from
America Online, Inc., on January 31, 1998, and $3.1 billion in the third
quarter of 1998 related to the merger with MCI Communications.
(2) On September 14, 1998, MCI WorldCom merged with MCI Communications in a
transaction accounted for as a purchase. Accordingly, the operating
results of MCI Communications are included in MCI WorldCom's historical
results from the date of acquisition. If MCI WorldCom's merger with MCI
Communications was assumed to have occurred on January 1, 1998, selected
pro forma combined per share amounts would reflect basic and diluted loss
per common share of $(1.41) for the year ended December 31, 1998.
16
<PAGE>
(3) Sprint completed a two-for-one stock split of its FON common stock in the
form of a dividend in the first quarter of 1999. Sprint has historically
paid a cash dividend of $.125 per share, in post-split terms, per quarter
on the Sprint FON common stock. Before November 1998, which is when the
Sprint FON group and the Sprint PCS group were created, this dividend
applied to Sprint common stock.
(4) Earnings per share for the Sprint FON group is on a pro forma basis, which
assumes that the Sprint FON common stock, which was created in the
November 1998 Sprint PCS restructuring, existed for all periods presented.
(5) Sprint calculated its earnings per share on a consolidated basis until the
Sprint FON common stock and Sprint PCS common stock were created as part
of the November 1998 Sprint PCS restructuring. From that time forward,
earnings per share was computed individually for the Sprint FON group and
the Sprint PCS group. Sprint reported diluted earnings per share of $1.96
before extraordinary items on a consolidated basis for 1998 before the
November 1998 Sprint PCS restructuring. For the period from the November
1998 Sprint PCS restructuring through December 31, 1998, the Sprint FON
group reported diluted earnings per share of $0.14 and the Sprint PCS
group reported a loss of $(1.26) per share before extraordinary items.
(6) Does not reflect the 0.1547 shares of WorldCom group common stock that
holders of Sprint PCS common stock are entitled to receive in the merger
for each share of Sprint PCS common stock owned by them. These shares will
be received in addition to the one share of WorldCom PCS group common
stock that holders of Sprint PCS common stock will receive for each share
of Sprint PCS common stock owned by them.
17
<PAGE>
Selected Historical and Unaudited Pro Forma Condensed Combined Financial Data
MCI WorldCom
The selected historical financial data of MCI WorldCom set forth below have
been derived from the historical consolidated financial statements of MCI
WorldCom as they appeared in MCI WorldCom's Annual Reports on Form 10-K filed
with the Securities and Exchange Commission for each of the five fiscal years
in the period ended December 31, 1998, MCI WorldCom's Current Report on Form 8-
K filed with the Securities and Exchange Commission on November 5, 1999 and MCI
WorldCom's Quarterly Reports on Form 10-Q filed with the Securities and
Exchange Commission for the periods ended June 30, 1999 and June 30, 1998.
Results for the six months ended June 30, 1999 are not necessarily indicative
of the results that may be expected for the entire year.
You should read the financial information in this section along with the
historical financial statements and accompanying notes incorporated by
reference in this proxy statement/prospectus. See "Where You Can Find More
Information" beginning on page . .
<TABLE>
<CAPTION>
At or for the
Six Months
Ended June 30, At or for the Year
(unaudited) Ended December 31,
-------------- ----------------------------------------
1999 1998 1998 1997 1996 1995 1994
------- ------ ------- ------- ------- ------ ------
(In millions, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating results:
Revenues................ $17,945 $4,901 $17,678 $ 7,384 $ 4,449 $3,636 $2,211
Operating income
(loss)................. 3,259 423 (975) 1,018 (1,875) 667 67
Income (loss) before
extraordinary items.... 1,604 (53) (2,540) 247 (2,233) 257 (124)
Extraordinary items..... -- (129) (129) (3) (24) -- --
Net income (loss)
applicable to common
shareholders........... 1,572 (195) (2,700) 218 (2,258) 224 (152)
Preferred dividend
requirement............ -- 13 13 26 1 33 28
Earnings (loss) per
common share:
Income (loss) before
extraordinary items
Basic................. 0.85 (0.06) (2.02) 0.23 (5.02) 0.58 (0.48)
Diluted............... 0.81 (0.06) (2.02) 0.22 (5.02) 0.56 (0.48)
Net income (loss)
Basic................. 0.85 (0.19) (2.12) 0.23 (5.07) 0.58 (0.48)
Diluted............... 0.81 (0.19) (2.12) 0.22 (5.07) 0.56 (0.48)
Number of weighted
average shares
Basic................. 1,855 1,028 1,274 966 445 383 316
Diluted............... 1,930 1,028 1,274 997 445 439 316
Financial position:
Total assets............ $86,573 $86,401 $23,596 $20,843 $6,803 $3,441
Long-term debt.......... 13,550 16,083 7,413 5,356 2,324 794
Subsidiary trust and
other mandatorily
redeemable preferred
securities............. 798 798 -- -- -- --
Shareholders'
investment............. 48,249 45,003 13,801 13,252 2,281 1,827
Deficiency of earnings
to combined fixed
charges and preference
dividends.............. -- (1,960) -- (2,114) -- (97)
Ratio of earnings to
combined fixed charges
and preference
dividends.............. 4.37:1 -- 1.93:1 -- 2.12:1 --
Deficiency of earnings
to fixed charges....... -- (1,909) -- (2,112) -- (52)
Ratio of earnings to
fixed charges.......... 4.69:1 -- 2.08:1 -- 2.53:1 --
</TABLE>
- --------
(1) On September 14, 1998, MCI WorldCom completed a merger with MCI
Communications. The merger with MCI Communications was accounted for as a
purchase. Accordingly, the operating results of MCI Communications are
included from the date of that acquisition.
18
<PAGE>
(2) In 1998, MCI WorldCom recorded a pre-tax charge of $196 million in
connection with a merger with Brooks Fiber Properties, the merger with MCI
Communications and certain asset write-downs and loss contingencies. These
charges included $21 million for employee severance, $17 million for
Brooks Fiber Properties direct merger costs, $38 million for conformance
of Brooks Fiber Properties accounting policies, $56 million for exit costs
under long-term commitments, $31 million for the write-down of a
permanently impaired investment and $33 million related to certain asset
write-downs and loss contingencies. Additionally, in connection with
business combinations, MCI WorldCom made allocations of the purchase price
to acquired in-process research and development totaling $429 million in
the first quarter of 1998 related to the merger with CompuServe and the
acquisition of ANS Communications from America Online and $3.1 billion in
the third quarter of 1998 related to the merger with MCI Communications.
(3) Results for 1996 include other after-tax charges of $121 million for
employee severance, employee compensation charges, alignment charges and
costs to exit unfavorable telecommunications contracts and a $344 million
after-tax write-down of operating assets within MCI WorldCom's non-core
businesses. On a pre-tax basis, these charges totaled $600 million.
(4) In connection with various debt refinancings, MCI WorldCom recognized in
1998, 1997 and 1996 extraordinary items of $129 million, $3 million and $4
million, respectively, net of taxes, consisting of unamortized debt
discount, unamortized issuance cost and prepayment fees. Additionally, in
1996 MCI WorldCom recorded an extraordinary item of $20 million, net of
taxes, related to a write-off of deferred international costs.
(5) In connection with the conversion of MCI WorldCom series 1 $2.25
cumulative senior perpetual convertible preferred stock, MCI WorldCom made
a non-recurring payment of $15 million in 1995 to the holder of the stock,
representing a discount to the minimum nominal dividends that would have
been payable on the MCI WorldCom series 1 preferred stock before the
September 15, 1996 optional call date of approximately $26.6 million,
which amount included an annual dividend requirement of $24.5 million plus
accrued dividends to such call date.
(6) As a result of a merger with IDB Communications Group, Inc., MCI WorldCom
initiated plans to reorganize and restructure its management and
operational organization and facilities to eliminate duplicate personnel,
physical facilities and service capacity, to abandon certain products and
marketing activities and to take further advantage of the synergies
available to the combined entities. Accordingly, in 1994, MCI WorldCom
charged $44 million to operations for the estimated costs of such
reorganization and restructuring activities, including employee severance,
physical facility abandonment and duplicate service capacity.
Also, during 1994, MCI WorldCom incurred direct merger costs of $15
million, related to the merger with IDB Communications Group. These costs
include professional fees, proxy solicitation costs, travel and related
expenses and certain other direct costs attributable to the merger with
IDB Communications Group.
(7) For the purpose of computing the ratio of earnings to combined fixed
charges and preference dividends, earnings consist of pretax income (loss)
from continuing operations, excluding minority interests in losses of
consolidated subsidiaries, and fixed charges consist of pretax interest
(including capitalized interest) on all indebtedness, amortization of debt
discount and expense, that portion of rental expense which MCI WorldCom
believes to be representative of interest, and distributions on subsidiary
trust and other mandatorily redeemable preferred securities and preferred
dividends, both of which have been grossed up to a pretax basis utilizing
MCI WorldCom's effective tax rate.
(8) For the purpose of computing the ratio of earnings to fixed charges,
earnings consist of pretax income (loss) from continuing operations,
excluding minority interests in losses of consolidated subsidiaries, and
fixed charges consist of pretax interest (including capitalized interest)
on all indebtedness, amortization of debt discount and expense, and that
portion of rental expense which MCI WorldCom believes to be representative
of interest.
19
<PAGE>
Sprint
The selected historical financial data of Sprint set forth below have been
derived from the historical consolidated financial statements of Sprint, as
they appeared in Sprint's Annual Reports on Form 10-K filed with the Securities
and Exchange Commission for each of the five fiscal years in the period ended
December 31, 1998 and Sprint's Quarterly Reports on Form 10-Q filed with the
Securities and Exchange Commission for the periods ended June 30, 1999 and June
30, 1998. Results for the six months ended June 30, 1999 are not necessarily
indicative of the results that may be expected for the entire year.
You should read the financial information in this section along with the
historical financial statements and accompanying notes incorporated by
reference in this proxy statement/prospectus. See "Where You Can Find More
Information" beginning on page . .
<TABLE>
<CAPTION>
At or for the
Six Months
Ended June 30, At or for the Year
(unaudited) Ended December 31,
--------------- -----------------------------------------
1999 1998 1998 1997 1996 1995 1994
------- ------ ------- ------- ------- ------- -------
(In millions, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating results:
Net operating revenues.. $ 9,645 $8,265 $17,134 $14,874 $13,887 $12,735 $11,965
Operating income
(loss)................. (62) 399 190 2,451 2,267 1,834 1,691
Income (loss) before
extraordinary items.... (368) 422 450 952 1,191 946 899
Pro forma earnings
(loss) per common
share:
Income (loss) before
extraordinary items
Sprint FON group
(basic).............. 0.92 0.84 1.80 1.59 1.55 1.38 1.30
Sprint FON group
(diluted)............ 0.90 0.82 1.78 1.57 1.54 1.37 1.28
Sprint PCS group
(basic and diluted).. (2.62) (1.95) (4.42) (3.52) -- -- --
Pro forma dividends per
common share........... 0.25 0.25 0.50 0.50 0.50 0.50 0.50
Financial position:
Total assets............ $36,099 $33,230 $18,274 $16,915 $15,074 $14,425
Property, plant and
equipment, net......... 20,176 18,983 11,494 10,464 9,716 10,259
Total debt.............. 13,486 12,189 3,880 3,274 5,668 4,927
Common stock and other
stockholders' equity... 13,987 12,448 9,025 8,520 4,643 4,525
</TABLE>
- --------
(1) In 1998, the Sprint PCS group recorded a nonrecurring charge to write off
$179 million of acquired in-process research and development costs related
to the Sprint PCS restructuring. This charge reduced operating income and
income from continuing operations by $179 million.
(2) The Sprint FON group recorded nonrecurring charges of $20 million in 1997
and $60 million in 1996 related to litigation within Sprint's long distance
division. These charges reduced income from continuing operations by $13
million in 1997 and $36 million in 1996. In 1995, the Sprint FON group
recorded a nonrecurring charge of $88 million related to a restructuring
within Sprint's local telephone division. This reduced income from
continuing operations by $55 million.
(3) In 1998, the Sprint FON group recorded net nonrecurring gains of $104
million mainly from the sale of local exchanges. This increased income from
continuing operations by $62 million. In 1997, the Sprint
20
<PAGE>
FON group recorded nonrecurring gains of $71 million mainly from sales of
local exchanges and certain investments. These gains increased income from
continuing operations by $44 million. In 1994, the Sprint FON group
recognized a $35 million gain on the sale of equity securities, which
increased income from continuing operations by $22 million.
(4) Pro forma amounts do not give effect to the merger. Pro forma earnings per
share for the Sprint FON group assumes the shares of Sprint FON common
stock created in the Sprint PCS restructuring existed for all periods
presented. Pro forma loss per share for the Sprint PCS group assumes the
Sprint PCS restructuring occurred at the beginning of 1997 and excludes the
Sprint PCS group's write-off of $179 million of acquired in-process
research and development costs. These pro forma amounts are for comparative
purposes only and do not necessarily represent what actual results of
operations would have been had the transactions occurred at the beginning
of 1997, nor do they indicate the results of future operations. In the 1999
second quarter, Sprint effected a two-for-one stock split of its FON common
stock. As a result, basic and diluted earnings per common share, weighted-
average common shares and dividends per common share for Sprint FON common
stock have been restated for periods prior to the stock split.
The recapitalization of Sprint common stock into Sprint FON common stock and
Sprint PCS common stock occurred in the November 1998 Sprint PCS restructuring.
As a result, certain prior-year amounts have been reclassified to conform to
the current-year presentation. These reclassifications had no effect on the
results of operations or group equity as previously reported.
21
<PAGE>
Sprint FON Group
The selected historical financial data of the Sprint FON group set forth
below have been derived from the historical combined financial statements of
the Sprint FON group, as they appeared in Sprint's Annual Reports on Form 10-K
filed with the Securities and Exchange Commission for each of the five fiscal
years in the period ended December 31, 1998 and Sprint's Quarterly Reports on
Form 10-Q filed with the Securities and Exchange Commission for the periods
ended June 30, 1999 and June 30, 1998. Results for the six months ended June
30, 1999 are not necessarily indicative of the results that may be expected for
the entire year.
You should read the financial information in this section along with the
historical financial statements and accompanying notes incorporated in this
proxy statement/prospectus by reference. See "Where You Can Find More
Information" beginning on page . .
<TABLE>
<CAPTION>
At or for the
Six Months
Ended June 30, At or for the Year
(unaudited) Ended December 31,
-------------- ---------------------------------------
1999 1998 1998 1997 1996 1995 1994
------- ------ ------- ------- ------- ------- -------
(In millions, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating results:
Net operating revenues.. $ 8,416 $7,837 $16,017 $14,874 $13,887 $12,735 $11,965
Operating income........ 1,473 1,375 2,760 2,470 2,268 1,834 1,691
Income before
extraordinary items.... 792 720 1,540 1,372 1,311 966 899
Pro forma earnings per
common share:
Income before
extraordinary items
Basic................. 0.92 0.84 1.80 1.59 1.55 1.38 1.30
Diluted............... 0.90 0.82 1.78 1.57 1.54 1.37 1.28
Number of weighted
average shares
Basic................. 864.9 860.6 854.0 860.5 843.4 697.5 692.1
Diluted............... 883.7 878.0 868.9 873.0 854.0 702.5 699.9
Pro forma dividends per
common share........... 0.25 0.25 0.50 0.50 0.50 0.50 0.50
Financial position:
Total assets............ $19,413 $19,001 $16,581 $15,655 $14,101 $14,374
Property, plant and
equipment, net......... 13,145 12,464 11,307 10,464 9,716 10,259
Total debt.............. 4,050 4,442 3,880 3,274 5,668 4,927
Group equity............ 9,717 9,024 7,639 7,332 3,677 4,474
</TABLE>
- --------
(1) The Sprint FON group recorded nonrecurring charges of $20 million in 1997
and $60 million in 1996 related to litigation within Sprint's long distance
division. These charges reduced income from continuing operations by $13
million in 1997 and $36 million in 1996. In 1995, the Sprint FON group
recorded a nonrecurring charge of $88 million related to a restructuring
within Sprint's local telephone division. This charge reduced income from
continuing operations by $55 million.
(2) In 1998, the Sprint FON group recorded net nonrecurring gains of $104
million mainly from the sale of local exchanges. These gains increased
income from continuing operations by $62 million. In 1997, the Sprint FON
group recorded nonrecurring gains of $71 million mainly from sales of local
exchanges and certain investments. These gains increased income from
continuing operations by $44 million. In 1994, the Sprint FON group
recognized a $35 million gain on the sale of equity securities, which
increased income from continuing operations by $22 million.
22
<PAGE>
(3) Pro forma amounts do not give effect to the merger. Pro forma earnings per
share and dividends for the Sprint FON group assume that the shares of
Sprint FON common stock created in the Sprint PCS restructuring existed for
all periods presented. In the 1999 second quarter, Sprint effected a two-
for-one stock split of its FON common stock. As a result, basic and diluted
earnings per common share, weighted average common shares and dividends per
common share for Sprint FON common stock have been restated for periods
prior to the stock split.
The recapitalization of Sprint common stock into Sprint FON common stock and
Sprint PCS common stock occurred in the November 1998 Sprint PCS restructuring.
As a result, certain prior-year amounts have been reclassified to conform to
the current-year presentation. These reclassifications had no effect on the
results of operations or group equity as previously reported.
23
<PAGE>
Sprint PCS Group
The selected historical financial data of the Sprint PCS group set forth
below have been derived from the historical combined financial statements of
the Sprint PCS group, as they appeared in Sprint's Annual Reports on Form 10-K
filed with the Securities and Exchange Commission for each of the four fiscal
years in the period ended December 31, 1998 and Sprint's Quarterly Reports on
Form 10-Q filed with the Securities and Exchange Commission for the periods
ended June 30, 1999 and June 30, 1998. The selected financial data at and for
the year ended December 31, 1994 have been derived from the unaudited Sprint
PCS group combined financial statements. Results for the six months ended June
30, 1999 are not necessarily indicative of the results that may be expected for
the entire year.
You should read the financial information in this section along with the
historical financial statements and accompanying notes incorporated by
reference in this proxy statement/prospectus. See "Where You Can Find More
Information" beginning on page . .
<TABLE>
<CAPTION>
At or for the
Six Months
Ended June 30, At or for the Year
(unaudited) Ended December 31,
----------------- -----------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- ------- ------- ------ ------ ---- ----
(In millions, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating results:
Net operating revenues.. $ 1,340 $ 468 $ 1,225 $ -- $ -- $ -- $ --
Operating loss.......... (1,535) (976) (2,570) (19) (1) -- --
Other partners' loss in
Sprint PCS group ...... -- 640 1,251 -- -- -- --
Equity in loss of Sprint
PCS group ............. -- -- -- (660) (192) (31) (1)
Loss before
extraordinary items.... (1,181) (298) (1,121) (420) (120) (20) --
Pro forma loss per
common share before
extraordinary items:
Basic and diluted loss
per common share....... (2.62) (1.95) (4.42) (3.52) -- -- --
Basic and diluted
weighted average common
shares................. 445.9 415.8 415.8 415.4 -- -- --
Financial position:
Total assets............ $ 17,393 $15,138 $1,703 $1,260 $974 $ 51
Property, plant and
equipment, net......... 7,052 6,535 187 -- -- --
Total debt.............. 9,577 8,195 -- -- -- --
Group equity............ 4,578 3,755 1,386 1,188 966 51
</TABLE>
Operating results for 1998 include the operating results of Sprint Spectrum
Holding Company, L.P. and PhillieCo., L.P., which we together refer to as
"Sprint Spectrum", on a consolidated basis for the entire year. Before the
Sprint PCS restructuring on November 23, 1998, Sprint Spectrum was owned
approximately 40% by Sprint and approximately 60% by affiliates or associates
of persons that now hold Sprint series 2 PCS common stock. The share of Sprint
Spectrum losses attributable to these holders through the date of the Sprint
PCS restructuring has been reflected as "Other partners' loss in Sprint PCS
group" in the combined statements of operations. Sprint's investment in Sprint
Spectrum before the Sprint PCS restructuring was accounted for using the equity
method. Sprint Spectrum's financial position at year-end 1998 has been
reflected on a consolidated basis in the Sprint PCS group's combined balance
sheets.
- --------
(1) In 1998, the Sprint PCS group recorded a nonrecurring charge to write off
$179 million of acquired in-process research and development costs related
to the Sprint PCS restructuring. This charge increased operating loss and
loss before extraordinary item by $179 million.
24
<PAGE>
(2) Pro forma amounts do not give effect to the merger. Pro forma loss per
share for the Sprint PCS group assumes the Sprint PCS restructuring, and
the purchase of 5.1 million shares of Sprint PCS common stock by France
Telecom and Deutsche Telekom that occurred in connection with the Sprint
PCS restructuring, occurred at the beginning of 1997 and excludes the
Sprint PCS group's write-off of $179 million of acquired in-process
research and development costs. These pro forma amounts are for comparative
purposes only and do not necessarily represent what actual results of
operations would have been had the transactions occurred at the beginning
of 1997, nor do they indicate the results of future operations.
The recapitalization of Sprint common stock into Sprint FON common stock and
Sprint PCS common stock occurred in the November 1998 Sprint PCS restructuring.
As a result, certain prior-year amounts have been reclassified to conform to
the current-year presentation. These reclassifications had no effect on the
results of operations or group equity as previously reported.
25
<PAGE>
MCI WorldCom and Sprint Pro Forma Condensed Combined
The following selected unaudited pro forma condensed combined financial data
of MCI WorldCom and Sprint combine the consolidated financial information of
MCI WorldCom for the year ended December 31, 1998 and at or for the six-month
period ended June 30, 1999, with the consolidated financial information of
Sprint for the year ended December 31, 1998, and at or for the six-month period
ended June 30, 1999. The selected unaudited pro forma condensed combined
financial data are derived from the unaudited pro forma combined condensed
financial statements contained elsewhere in this proxy statement/prospectus. We
have prepared the unaudited pro forma condensed combined financial information
using the purchase method of accounting. This pro forma information does not
give effect to any restructuring costs or to any potential cost savings or
other operating efficiencies that could result from the merger.
The unaudited pro forma condensed combined financial information does not
purport to represent what the combined company's financial position or results
of operations would have been had the merger occurred at the beginning of the
earliest period presented or to project the combined financial position or
results of operations for any future date or period.
You should read the financial information in this section along with
historical and unaudited pro forma condensed combined financial statements and
accompanying notes, either incorporated by reference or included in this proxy
statement/prospectus. See "Unaudited Pro Forma Condensed Combined Financial
Statements" beginning on page . and "Where You Can Find More Information"
beginning on page . .
<TABLE>
<CAPTION>
Pro Forma
----------------------------
At or for
the
Six Months
For the Ended
Year Ended June 30,
December 31, 1998 1999
----------------- ----------
(In millions, except per
share data)
<S> <C> <C>
Revenues:
WorldCom group.................................. $33,390 $26,094
WorldCom PCS group.............................. 1,225 1,340
Inter-group eliminations........................ (108) (111)
WorldCom consolidated........................... 34,507 27,323
Income (loss) before extraordinary items (after
preferred dividend requirement):
Total:
WorldCom group.................................. (3,923) 921
WorldCom PCS group.............................. (3,210) (2,187)
Inter-group eliminations........................ -- --
WorldCom consolidated........................... (7,133) (1,266)
Per common share:
Basic
WorldCom group................................ (1.75) 0.32
WorldCom PCS group............................ (7.72) (4.90)
Diluted
WorldCom group................................ (1.75) 0.31
WorldCom PCS group............................ (7.72) (4.90)
Balance sheet data:
Total assets...................................... $219,237
Long-term debt.................................... 26,372
Shareholders' equity.............................. 158,801
</TABLE>
26
<PAGE>
RISK FACTORS RELATING TO THE MERGER
In addition to the other information included and incorporated by reference
in this proxy statement/prospectus, MCI WorldCom shareholders and Sprint
stockholders should consider carefully the matters described below in
determining whether to approve or adopt the merger agreement.
. Stock price fluctuations may affect the value of the WorldCom group common
stock or WorldCom PCS group common stock that holders of Sprint FON common
stock and Sprint PCS common stock will receive in the merger. The prices of
MCI WorldCom common stock and Sprint FON common stock and Sprint PCS common
stock at the closing of the merger may vary from their respective prices on
the date of this proxy statement/prospectus, the date of the special
meetings and the date on which the FON exchange ratio is determined. These
variances may be due to a number of factors, including:
-- changes in the business, operations or prospects of MCI WorldCom or
Sprint
-- market assessments of the likelihood that the merger will be completed
and the timing of the completion of the merger
-- the effect of any conditions or restrictions imposed on or proposed with
respect to the combined company by regulatory agencies due to the merger
-- general market and economic conditions and other factors or
-- the prospects of post-merger operations.
In addition, the stock market has experienced significant price and volume
fluctuations. These market fluctuations could have a material adverse effect
on the market price and liquidity of the MCI WorldCom common stock before the
merger and the WorldCom group common stock and the WorldCom PCS group common
stock after the merger.
The date that the merger is completed will be later than the date of the
special meetings. The FON exchange ratio will depend on an average trading
price of MCI WorldCom common stock, to be calculated shortly before the
merger is completed. The average trading price at that time could be lower
than the price at the time of the special meetings. If the average trading
price used to calculate the FON exchange ratio is less than $62.15 per share,
the FON exchange ratio will be a fixed number of shares of WorldCom group
common stock, and the value of the shares of WorldCom group common stock to
be received for each share of Sprint FON common stock in the merger will be
less than $76.
The actual trading price of the WorldCom group common stock received in the
merger could be lower than the average trading price used to determine the
FON exchange ratio. Therefore, even if the average trading price used to
calculate the FON exchange ratio is greater than $62.15, stockholders could
receive less than $76 in WorldCom group common stock for each share of Sprint
FON common stock in the merger.
Holders of Sprint PCS common stock will receive shares of WorldCom PCS group
common stock on a one-for-one basis in the merger. The WorldCom PCS group
common stock will have no trading history at the time it is issued in the
merger. Although the WorldCom PCS group will initially consist of the same
businesses that are in the Sprint PCS group, the shares of WorldCom PCS group
common stock received in the merger could trade at a lower price per share
than the Sprint PCS common stock. Holders of Sprint PCS common stock will
also receive a fixed fraction of a share of WorldCom group common stock in
the merger for each share of Sprint PCS common stock held. Because the market
price of MCI WorldCom common stock is subject to fluctuation, there can be no
assurance as to the value of the WorldCom group common stock received by
holders of Sprint PCS common stock in the merger.
Because the FON exchange ratio will not be determined until the third trading
day before the completion of the merger, you must decide whether or not to
vote for or against the approval or adoption of the merger agreement before
knowing the actual FON exchange ratio. Changes in the
27
<PAGE>
price of MCI WorldCom common stock may cause the actual FON exchange ratio
to differ significantly from the FON exchange ratio that would have existed
if it had been calculated on or before the date of the special meetings.
. The integration of MCI WorldCom and Sprint following the merger will present
significant challenges. MCI WorldCom and Sprint will face significant
challenges in consolidating functions, integrating their organizations,
procedures, operations and product lines in a timely and efficient manner,
and retaining key MCI WorldCom and Sprint personnel. The integration of MCI
WorldCom and Sprint will be complex and time-consuming. The consolidation of
operations will require substantial attention from management. The diversion
of management attention and any difficulties encountered in the transition
and integration process could have a material adverse effect on the
revenues, level of expenses and operating results of WorldCom. The failure
to successfully integrate MCI WorldCom and Sprint and to successfully manage
the challenges presented by the integration process may result in WorldCom
not achieving the anticipated potential benefits of the merger.
. The merger is subject to the receipt of consents and approvals from various
government entities. Completion of the merger is conditioned upon the
expiration or termination of the applicable waiting period under the Hart-
Scott-Rodino Act and any required clearance of the merger by European
antitrust authorities. In addition, other filings with, and the receipt of
required consents, orders, approvals or clearances from various governmental
agencies, both foreign and domestic, including the Federal Communications
Commission and state public utility or service commissions, must be made and
received before the completion of the merger. These consents, orders,
approvals and clearances may impose certain conditions on or require certain
divestitures relating to the divisions, operations or assets of MCI WorldCom
or Sprint. Such conditions or divestitures may jeopardize or delay
completion of the merger or may reduce the anticipated benefits of the
merger. The merger agreement provides that neither MCI WorldCom nor Sprint
is required to agree to any such condition or divestiture that individually
or in the aggregate would reasonably be expected to materially impair MCI
WorldCom's or Sprint's ability to achieve the overall benefits expected to
be realized from the completion of the merger.
. Holders of different classes of WorldCom capital stock may have competing
interests. After completion of the merger, potential conflicts of interest
may arise between holders of WorldCom group common stock and holders of
WorldCom PCS group common stock with respect to, among other things, the
payment of dividends, formulation of policies affecting the two business
groups, conversion of WorldCom PCS group common stock into WorldCom group
common stock, asset dispositions and operational and financial decisions of
the WorldCom board of directors. For a description of potential conflicts of
interest between the holders of WorldCom group common stock and the holders
of WorldCom PCS group common stock, see "Certain Tracking Stock Matters".
After the merger, each of the members of the WorldCom board of directors is
expected to have a greater economic interest in the WorldCom group than in
the WorldCom PCS group, and these disproportionate ownership interests could
give rise to potential claims of conflicts of interests when directors
address decisions having different implications for these different classes.
. Events at one business group could adversely affect the other group and the
market price of its securities, because both WorldCom group common stock and
WorldCom PCS group common stock will be stock of a single corporation. After
the merger, the WorldCom group and the WorldCom PCS group will be part of
one legal entity that is responsible for all of the liabilities for both
groups. WorldCom group common stock will not represent a direct legal
interest in the assets and liabilities of the WorldCom group, and WorldCom
PCS common stock will not represent a direct legal interest in the assets
and liabilities of the WorldCom PCS group. Rather, both kinds of shares will
be common stock of WorldCom. Holders of the WorldCom group common stock and
holders of the WorldCom PCS group common stock will therefore be subject to
the risks associated with an investment in WorldCom as a whole. For example,
events that adversely affect the results or financial condition of the
WorldCom PCS group could have a material adverse effect on the market price
of WorldCom group common stock.
28
<PAGE>
. The market price of WorldCom group common stock and WorldCom PCS group
common stock may not accurately reflect the performance of these groups.
There can be no assurance that WorldCom group common stock or WorldCom PCS
group common stock will accurately "track" the performance of a particular
business group. As a result, there is a risk that the market may assign
values to WorldCom group common stock or WorldCom PCS group common stock
that are not based on the reported financial performance of that business
group.
. The WorldCom PCS group will likely continue to experience operating losses
and negative cash flow from operations. MCI WorldCom expects that, after the
merger, the WorldCom PCS group will continue to build its network and expand
its customer base, causing it to continue to incur significant operating
losses and to generate significant negative cash flow from operating
activities for the next 12 to 24 months, which could adversely affect the
results and financial condition of WorldCom as a whole. There can be no
assurance that the WorldCom PCS group will achieve or sustain operating
profitability or positive cash flow from operating activities in the future.
. The WorldCom PCS group will continue to require significant capital. The
operation and expansion of the WorldCom PCS group's network and marketing and
distribution efforts will continue to require substantial capital.
Substantial additional capital may be required for, among other things:
--unforeseen delays or costs, engineering design changes and technological
and other risks relating to continued buildout of the PCS network
--regulatory changes relating to the requirements for network buildout
--PCS licenses or system acquisitions and
--system development and acquisition or buildout of additional network
capacity required by call volumes in markets already served.
. Future sales of substantial amounts of WorldCom capital stock could
adversely affect the market prices of WorldCom capital stock. After the
merger, sales of substantial amounts of WorldCom group common stock or
WorldCom PCS group common stock in the public market by certain significant
shareholders, or the public perception that these sales might occur, could
adversely affect the market prices of these shares and WorldCom's ability to
raise capital through public offerings or other sales of its capital stock.
After the merger, the holders of shares of WorldCom series 2 common stock
and WorldCom series 2 PCS common stock, which we refer to as the "cable
holders", will be able to sell these shares without restriction under the
Securities Act of 1933 to the extent that these investors are not
"affiliates" of WorldCom. In addition, any shares of WorldCom capital stock
held by France Telecom and Deutsche Telekom may be sold in compliance with
Rule 145 under the Securities Act of 1933; however, the majority of the
WorldCom class A common stock that will be held by France Telecom and
Deutsche Telekom upon completion of the merger will remain subject to
restrictions on transfer until January 31, 2001.
Each of these investors will have registration rights, subject to certain
conditions, that will permit them to require WorldCom to register for sale
any or all of their shares of WorldCom capital stock at any time, subject to
certain exceptions, and to participate in public offerings of their shares.
These registration rights are assignable by these investors to third parties
at any time.
France Telecom and Deutsche Telekom have publicly disclosed that they do not
intend to remain long-term investors in Sprint or WorldCom. Tele-
Communications, Inc., one of the cable holders, transferred its shares of
Sprint series 2 PCS common stock to a trust in connection with its merger
with AT&T. Under a settlement agreement with the Department of Justice, the
trust is required to divest all of its shares of Sprint series 2 PCS common
stock on or before May 2004, and must divest approximately half of its shares
by May 2002. There is no limit on the number of shares that may be sold by
the trust in any given period. This trust arrangement, together with (1) the
transferability after the merger of the shares of WorldCom capital stock held
by the cable holders, France Telecom and Deutsche Telekom, (2) the
significant registration rights of
29
<PAGE>
these investors and (3) the public disclosure by France Telecom and Deutsche
Telekom described above, increase the likelihood that sales of substantial
amounts of WorldCom group common stock and WorldCom PCS group common stock
into the public market will occur or be perceived as likely to occur.
. Tracking stock policies are subject to change. The tracking stock policies
described in this proxy statement/prospectus will govern the relationship
between the WorldCom group and the WorldCom PCS group and other "tracking
stock" matters. Certain provisions of the tracking stock policies relating
to tax matters and provisions regarding the allocation of debt expense may
not be modified, suspended or rescinded, nor may additions or exceptions be
made to these provisions, before December 31, 2001. The remaining policies
may be modified, suspended or rescinded, or additions or exceptions made to
them, at any time in the sole discretion of the WorldCom board of directors
without approval of the stockholders, although there is no present intention
to do so. The WorldCom board of directors may also adopt additional policies
depending upon the circumstances. Any determination of the WorldCom board of
directors to modify, suspend or rescind these policies, or to make
exceptions or adopt additional policies, including any decision that would
have different effects on holders of WorldCom group common stock and the
WorldCom PCS group common stock, would be made by the WorldCom board of
directors in a manner consistent with its fiduciary duties to WorldCom and
all of its common shareholders after giving fair consideration to the
potentially divergent interests and all other relevant interests of the
holders of the separate classes of common stock of WorldCom, including the
holders of WorldCom group common stock and the holders of WorldCom PCS group
common stock. See "Certain Tracking Stock Matters--The Tracking Stock
Policies and the Capital Stock Committee".
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THE MCI WORLDCOM SPECIAL MEETING
We are furnishing this proxy statement/prospectus to shareholders of MCI
WorldCom as part of the solicitation of proxies by the MCI WorldCom board of
directors for use at the MCI WorldCom special meeting.
Date, Time and Place
We will hold the MCI WorldCom special meeting on . , . , 2000, at .
a.m., local time, at 500 Clinton Center Drive, Clinton, Mississippi.
Purpose of MCI WorldCom Special Meeting
At the MCI WorldCom special meeting, we are asking holders of MCI WorldCom
common stock and MCI WorldCom series B preferred stock to approve the merger
agreement. See "The Merger" and "The Merger Agreement".
The vote to approve the merger agreement will also constitute approval of
the issuance of shares of WorldCom capital stock in the merger and amendment of
the MCI WorldCom articles of incorporation. The amended WorldCom articles of
incorporation which reflect that amendment are attached as Annex 2 to this
proxy statement/prospectus.
The MCI WorldCom board of directors has adopted the merger agreement, and
has determined that the merger and the merger agreement are advisable, fair to
and in the best interests of MCI WorldCom and its shareholders. The MCI
WorldCom board of directors recommends that MCI WorldCom shareholders vote FOR
the approval of the merger agreement.
MCI WorldCom Record Date; Stock Entitled to Vote; Quorum
Only holders of record of MCI WorldCom common stock and MCI WorldCom series
B preferred stock at the close of business on . , the MCI WorldCom record
date, are entitled to notice of and to vote at the MCI WorldCom special
meeting. On the MCI WorldCom record date, approximately . shares of MCI
WorldCom common stock and approximately . shares of MCI WorldCom series B
preferred stock were issued and outstanding and held by approximately .
holders of record and . holders of record, respectively.
A quorum will be present at the MCI WorldCom special meeting if the holders
of shares representing a majority of the votes entitled to be cast on the
matter on the MCI WorldCom record date are represented in person or by proxy.
If a quorum is not present at the MCI WorldCom special meeting, we expect that
the meeting will be adjourned or postponed to solicit additional proxies.
Holders of record of MCI WorldCom common stock and MCI WorldCom series B
preferred stock on the MCI WorldCom record date are entitled to one vote per
share at the MCI WorldCom special meeting on the proposal to approve the merger
agreement.
Votes Required
The approval of the merger agreement requires the affirmative vote of
holders of shares of MCI WorldCom common stock and MCI WorldCom series B
preferred stock, voting together as a single voting group, representing a
majority of all votes entitled to be cast at the MCI WorldCom special meeting.
If an MCI WorldCom shareholder abstains from voting or does not vote (either in
person or by proxy), it will count as a vote against the approval of the merger
agreement.
Voting by MCI WorldCom Directors and Executive Officers
At the close of business on the MCI WorldCom record date, directors and
executive officers of MCI WorldCom and their affiliates owned and were entitled
to vote approximately . shares of MCI WorldCom common stock, which
represented approximately . % of the shares of MCI WorldCom common stock
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outstanding on that date. At the close of business on the MCI WorldCom record
date, directors and executive officers of MCI WorldCom and their affiliates did
not own and were not entitled to vote any shares of MCI WorldCom series B
preferred stock. Each MCI WorldCom director and executive officer has indicated
his or her present intention to vote, or cause to be voted, the shares of MCI
WorldCom common stock owned by him or her for the approval of the merger
agreement.
Voting of Proxies
All shares represented by properly executed proxies received in time for the
MCI WorldCom special meeting will be voted at the MCI WorldCom special meeting
in the manner specified by the holders of those proxies. Properly executed
proxies that do not contain voting instructions will be voted for the approval
of the merger agreement.
If you are a record holder of shares of MCI WorldCom common stock or MCI
WorldCom series B preferred stock, in order for your shares to be included in
the vote, you must vote your shares by one of the following means:
. in person
. by proxy by completing, signing and dating the enclosed proxy and
returning it in the enclosed postage-paid envelope or
. by telephone or via the Internet by following the instructions printed on
the enclosed proxy.
Shares of MCI WorldCom common stock and MCI WorldCom series B preferred
stock represented at the MCI WorldCom special meeting but not voting, including
shares of MCI WorldCom common stock and MCI WorldCom series B preferred stock
for which proxies have been received but for which holders of shares have
abstained, will be treated as present at the MCI WorldCom special meeting for
purposes of determining the presence or absence of a quorum for the transaction
of all business.
Only shares affirmatively voted for the approval of the merger agreement,
including properly executed proxies that do not contain voting instructions,
will be counted as votes in favor of the approval of the merger agreement.
Brokers who hold shares of MCI WorldCom common stock or shares of MCI WorldCom
series B preferred stock in street name for customers who are the beneficial
owners of those shares may not give a proxy to vote those shares without
specific instructions from those customers. These non-voted shares are referred
to as "broker non-votes" and will be equivalent to a vote against the approval
of the merger agreement.
The persons named as proxies by an MCI WorldCom shareholder may propose and
vote for one or more adjournments of the MCI WorldCom special meeting,
including adjournments to permit further solicitations of proxies. No proxy
voted against the proposal to approve the merger agreement will be voted in
favor of any such adjournment or postponement.
MCI WorldCom does not expect that any matter other than the proposal to
approve the merger agreement will be brought before the MCI WorldCom special
meeting. If, however, the MCI WorldCom board of directors properly presents
other matters, the persons named as proxies will vote in accordance with their
judgment.
Revocability of Proxies
The grant of a proxy on the enclosed proxy does not preclude an MCI WorldCom
shareholder from voting in person at the MCI WorldCom special meeting. An MCI
WorldCom shareholder may revoke a proxy at any time before the vote at the MCI
WorldCom special meeting by:
. delivering to the Secretary of MCI WorldCom a duly executed revocation of
proxy
. submitting a duly executed proxy to MCI WorldCom bearing a later date
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. appearing at the MCI WorldCom special meeting and voting in person
. calling the toll-free number on the enclosed proxy and changing your
vote, even if you did not previously vote by telephone or
. submitting a later vote via the Internet.
Attendance at the MCI WorldCom special meeting will not in and of itself
revoke a proxy.
Solicitation of Proxies
MCI WorldCom will bear the cost of the solicitation of proxies from its
shareholders. In addition to solicitation by mail, the directors, officers and
employees of MCI WorldCom and its subsidiaries may solicit proxies from MCI
WorldCom shareholders by telephone or other electronic means or in person.
Arrangements will also be made with brokerage houses and other custodians,
nominees and fiduciaries for the forwarding of solicitation materials to the
beneficial owners of stock held of record by these persons, and MCI WorldCom
will reimburse them for their reasonable out-of-pocket expenses.
MCI WorldCom will mail a copy of this proxy statement/prospectus to each
holder of record of MCI WorldCom common stock and MCI WorldCom series B
preferred stock on the MCI WorldCom record date.
MacKenzie Partners, Inc. will assist in the solicitation of proxies by MCI
WorldCom. MCI WorldCom will pay MacKenzie Partners fees estimated at $10,000,
plus reimbursement of certain out-of-pocket expenses, and will indemnify
MacKenzie Partners against any losses arising out of its proxy soliciting
services on behalf of MCI WorldCom.
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THE SPRINT SPECIAL MEETING
We are furnishing this proxy statement/prospectus to stockholders of Sprint
as part of the solicitation of proxies by the Sprint board of directors for use
at the Sprint special meeting.
Date, Time and Place
We will hold the Sprint special meeting on . , . , 2000, at . a.m.,
local time, at Sprint World Headquarters, 2330 Shawnee Mission Parkway,
Westwood, Kansas.
Purpose of Sprint Special Meeting
At the Sprint special meeting, we are asking holders of record of Sprint
common stock and Sprint preferred stock entitled to vote to consider and vote
on a proposal to adopt the merger agreement between MCI WorldCom and Sprint,
providing for the merger of Sprint with and into MCI WorldCom.
The Sprint board of directors has approved the merger agreement and has
determined that the merger and the merger agreement are advisable, fair to and
in the best interests of Sprint and all of its stockholders. The Sprint board
of directors recommends that Sprint stockholders vote FOR the adoption of the
merger agreement.
Sprint Record Date; Stock Entitled to Vote; Quorum
Only holders of record of Sprint capital stock entitled to vote at the close
of business on . , the Sprint record date, are entitled to notice of and to
vote at the Sprint special meeting and any adjournments or postponements of the
Sprint special meeting. On the Sprint record date, there were approximately .
holders of record of Sprint common stock and . holders of record of Sprint
preferred stock.
A quorum will be present at the Sprint special meeting if shares
representing a majority of the votes entitled to be cast on the matter are
represented in person or by proxy. If a quorum is not present at the Sprint
special meeting, we expect that the Sprint special meeting will be adjourned or
postponed to solicit additional proxies.
The following table sets forth, as of the Sprint record date, the share
ownership, vote per share and the percentage of voting power of the holders of
Sprint capital stock entitled to vote at the Sprint special meeting:
<TABLE>
<CAPTION>
Percentage of
Series/Class of Number of Votes Per Sprint Voting
Sprint Stock Shares Outstanding Share Power(1)
--------------- ------------------ --------- -------------
<S> <C> <C> <C>
Series 1 FON . 1 . %
Series 3 FON . 1 . %
Series 1 PCS . . . %
Series 2 PCS . . . %
Series 3 PCS . . . %
FT/DT class A . . . %
First series preferred . 1 . %
Second series preferred . 1 . %
Fifth series preferred . 1 . %
Seventh series preferred . . . %
----- ------
. . %
===== ======
</TABLE>
- --------
(1) Percentages may not total due to rounding.
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<PAGE>
Votes Required
The adoption of the merger agreement requires the affirmative vote of
holders of shares representing a majority of the total voting power of Sprint
common stock and Sprint preferred stock entitled to vote at the Sprint special
meeting, voting together as a single voting group. If a Sprint stockholder
abstains from voting or does not vote (either in person or by proxy), it will
count as a vote against the adoption of the merger agreement.
Voting by Sprint Directors and Executive Officers
At the close of business on the Sprint record date, directors and executive
officers of Sprint and their affiliates (other than France Telecom and Deutsche
Telekom or their designees) owned and were entitled to vote:
. . shares of Sprint FON common stock, which represented approximately
. % of the total voting power of Sprint capital stock entitled to vote
on that date and
. . shares of Sprint PCS common stock, which represented approximately
. % of the total voting power of Sprint capital stock entitled to vote
on that date.
On the Sprint record date, directors and executive officers of Sprint and
their affiliates (other than France Telecom and Deutsche Telekom or their
designees) did not own and were not entitled to vote any shares of Sprint
preferred stock. On the Sprint record date, France Telecom and Deutsche
Telekom, each of which may be deemed to be an affiliate of Sprint, owned and
were entitled to vote all of the shares of Sprint FT/DT class A stock, Sprint
series 3 FON common stock and Sprint series 3 PCS common stock indicated in the
above table. Each Sprint director and executive officer (other than the Sprint
directors who are designees of France Telecom and/or Deutsche Telekom) has
indicated his or her present intention to vote, or cause to be voted, the
Sprint common stock owned by him or her for the adoption of the merger
agreement.
Voting of Proxies
All shares represented by properly executed proxies received in time for the
Sprint special meeting will be voted at the Sprint special meeting in the
manner specified by the holders of those proxies. Properly executed proxies
that do not contain voting instructions will be voted for the adoption of the
merger agreement.
If you are a record holder of shares of Sprint series 1 FON common stock,
Sprint series 3 FON common stock, Sprint series 1 PCS common stock, Sprint
series 2 PCS common stock, Sprint series 3 PCS common stock, Sprint FT/DT class
A stock, Sprint first series preferred stock, Sprint second series preferred
stock, Sprint fifth series preferred stock or Sprint seventh series preferred
stock, in order for your shares to be included in the vote, you must vote your
shares by one of the following means:
. in person
. by proxy by completing, signing and dating the enclosed proxy and
returning it in the enclosed postage-paid envelope or
. by telephone or via the Internet by following the instructions printed on
the enclosed proxy.
Shares of Sprint common stock or Sprint preferred stock represented at the
Sprint special meeting but not voting, including shares of Sprint common stock
or Sprint preferred stock for which proxies have been received but for which
holders of shares have abstained, will be treated as present at the Sprint
special meeting for purposes of determining the presence or absence of a quorum
for the transaction of all business.
Only shares affirmatively voted for the adoption of the merger agreement,
including properly executed proxies that do not contain voting instructions,
will be counted as votes in favor of the adoption of the merger agreement.
Brokers who hold shares of Sprint common stock or Sprint preferred stock in
street name for customers who are the beneficial owners of those shares may not
give a proxy to vote those shares without specific instructions from those
customers. These non-voted shares are referred to as "broker non-votes" and
have the same effect as votes against the adoption of the merger agreement.
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<PAGE>
The persons named as proxies by a Sprint stockholder may propose and vote
for one or more adjournments of the Sprint special meeting, including
adjournments to permit further solicitations of proxies. No proxy voted against
the proposal to adopt the merger agreement will be voted in favor of any such
adjournment or postponement.
Sprint does not expect that any matter other than the proposal to adopt the
merger agreement will be brought before the Sprint special meeting. If,
however, the Sprint board of directors properly presents other matters, the
persons named as proxies will vote in accordance with their judgment.
Revocability of Proxies
The grant of a proxy on the enclosed proxy does not preclude a Sprint
stockholder from voting in person at the Sprint special meeting. A Sprint
stockholder may revoke a proxy at any time before the vote at the Sprint
special meeting by:
. delivering to the Secretary of Sprint a duly executed revocation of proxy
. submitting a duly executed proxy to Sprint bearing a later date
. appearing at the Sprint special meeting and voting in person
. calling the toll-free number on the enclosed proxy card and changing your
vote, even if you did not previously vote by telephone or
. submitting a later vote via the Internet.
Attendance at the Sprint special meeting will not in and of itself revoke a
proxy.
Solicitation of Proxies
Sprint will bear the cost of the solicitation of proxies from its
stockholders. In addition to solicitation by mail, the directors, officers and
employees of Sprint and its subsidiaries may solicit proxies from Sprint
stockholders by telephone or other electronic means or in person. Arrangements
will also be made with brokerage houses and other custodians, nominees and
fiduciaries for the forwarding of solicitation materials to the beneficial
owners of stock held of record by these persons, and Sprint will reimburse them
for their reasonable out-of-pocket expenses.
Sprint will mail a copy of this proxy statement/prospectus to each holder of
record of Sprint common stock and Sprint preferred stock entitled to vote on
the Sprint record date.
D.F. King & Co., Inc. will assist in the solicitation of proxies by Sprint.
Sprint will pay D.F. King a fee of $20,000, plus reimbursement of certain out-
of-pocket expenses, and will indemnify D.F. King against any losses arising out
of its proxy soliciting services on behalf of Sprint.
Sprint stockholders should not send stock certificates with their proxies. A
transmittal form with instructions for the surrender of Sprint capital stock
certificates will be mailed to Sprint stockholders as soon as practicable after
completion of the merger.
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<PAGE>
THE COMPANIES
MCI WorldCom
MCI WorldCom is one of the largest telecommunications companies in the
United States, serving local, long distance and Internet customers domestically
and internationally. Organized in 1983, MCI WorldCom provides
telecommunications services to businesses, governments, telecommunications
companies and consumer customers through its networks of primarily fiber optic
cables, digital microwave and fixed and transportable satellite earth stations.
Prior to September 15, 1998, MCI WorldCom was named WorldCom, Inc.
MCI WorldCom is one of the first major facilities-based telecommunications
companies with the capability to provide consumers and businesses with high
quality local, long distance, Internet, data and international communications
services over its global networks. With service to points throughout the nation
and the world, MCI WorldCom provides telecommunications products and services
that include:
. switched and dedicated long . advanced billing systems
distance and local products
. enhanced fax and data
. dedicated and dial-up Internet connections
access
. high speed data communications
. wireless services
. facilities management
. 800 services
. local access to long distance
. calling cards companies
. private lines . local access to asynchronous
transfer mode-based backbone
. broadband data services service
. debit cards . web server hosting and
integration services
. conference calling
. dial-up networking services and
. messaging and mobility services
. interconnection via network
access points to Internet
service providers.
MCI WorldCom's core business is communications services, which include
voice, data, Internet and international services. During each of the last three
years, more than 90% of MCI WorldCom's operating revenues were derived from
communications services. MCI WorldCom is a holding company for its
subsidiaries' operations.
After the merger, MCI WorldCom will change its name to WorldCom and will be
organized into two groups:
. the WorldCom group, which will initially consist of the combined assets
and businesses of MCI WorldCom before the merger and the Sprint FON group
and
. the WorldCom PCS group, which will initially consist of the assets and
businesses of the Sprint PCS group.
MCI WorldCom's principal executive offices are located at 500 Clinton Center
Drive, Clinton, Mississippi 39056, and its telephone number is (601) 460-5600.
Additional information regarding MCI WorldCom is contained in MCI WorldCom's
filings with the Securities and Exchange Commission. See "Where You Can Find
More Information" beginning on page . .
Sprint
Sprint is a diversified telecommunications company, providing long distance,
local and wireless communications services. Sprint's business is organized in
two groups: the Sprint PCS group and the Sprint FON group.
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The Sprint PCS Group
The Sprint PCS group markets its wireless PCS telephony products and
services under the Sprint(R) and Sprint PCS(R) brand names. The Sprint PCS
group operates the only 100% digital PCS wireless network in the United States
with licenses to provide service nationwide utilizing a single frequency band
and a single technology. The Sprint PCS group owns licenses to provide service
to the entire United States population, including Puerto Rico and the U.S.
Virgin Islands. As of June 30, 1999, the Sprint PCS group, together with its
affiliates, operated PCS systems in more than 280 metropolitan markets within
the United States, including all of the 50 largest metropolitan areas. The
services offered by the Sprint PCS group and its affiliates reach areas with a
total population of more than 170 million.
The Sprint FON Group
The Sprint FON group consists of all of Sprint's businesses and assets not
included in the Sprint PCS group.
Sprint's long distance division is the nation's third-largest provider of
long distance telephone services. In this division, Sprint operates a
nationwide, all-digital long distance telecommunications network that uses
state-of-the art fiber optic and electronic technology. This division primarily
provides domestic and international voice, video and data communications
services.
Sprint's local telecommunications division consists primarily of regulated
local exchange carriers serving approximately 7.9 million access lines in 18
states. This division provides local services and access for telephone
customers and other carriers to Sprint's local exchange facilities and sells
telecommunications equipment and long distance services within specified
geographical areas.
Sprint's product distribution and directory publishing businesses consist of
wholesale distribution of telecommunications equipment and publishing and
marketing white and yellow page telephone directories.
Sprint is developing and deploying new integrated communications services,
referred to as Sprint IONSM, Integrated On-Demand Network. Sprint ION extends
Sprint's existing advanced network capabilities to the customer and enables
Sprint to provide the network infrastructure to meet customers' demands for
data, Internet and video communications services. It is also expected to be the
foundation for Sprint to provide new competitive local services.
Other activities of the Sprint FON group include:
. Sprint's interest in the Global One international strategic alliance, a
joint venture with France Telecom and Deutsche Telekom and
. Sprint's investments in EarthLink Network, Inc., an Internet service
provider, Call-Net, a long distance provider in Canada, and certain other
telecommunications investments and ventures.
Material Contracts Between MCI WorldCom and Sprint
Service Agreements
MCI WorldCom and Sprint have entered into services agreements with each
other and with their affiliates in the ordinary course of their businesses. MCI
WorldCom and its subsidiaries have been engaged in transactions with Sprint and
its subsidiaries aggregating approximately $267 million in the first six months
of fiscal year 1999, approximately $513 million in fiscal year 1998,
approximately $474 million in fiscal year 1997 and approximately $350 million
in fiscal year 1996.
Interim Commercial Arrangements
Memorandum of Understanding; Further Negotiations are Ongoing. On October 4,
1999, MCI WorldCom and Sprint entered into a memorandum of understanding that
sets forth certain material terms for
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<PAGE>
three commercial agreements entered into between them. These agreements are
referred to as the "commercial agreements" and are designed to:
. enable Sprint to purchase MCI WorldCom's international communications
products and services, in an agreement referred to as the "global
services agreement"
. provide for the purchase by the parties of local access and transport
services from each other, in an agreement referred to as the "local
telecommunications services agreement" and
. allow MCI WorldCom to offer Sprint's PCS services, in an agreement
referred to as the "PCS agreement".
After MCI WorldCom and Sprint signed the merger agreement, they began
negotiations to agree on the terms of more detailed comprehensive agreements.
While it is expected that the terms of the comprehensive agreements will be
generally consistent with the terms described in the memorandum of
understanding, negotiations could result in material changes to those terms.
Until replaced by a comprehensive agreement, each of the commercial agreements
as described in the memorandum of understanding is binding upon the parties.
Global Services Agreement. Under the global services agreement, MCI WorldCom
will provide to Sprint international and global telecommunications services
that are currently offered to others by MCI WorldCom to enable Sprint to resell
such services to its customers or utilize such services on its own behalf.
The international and global products subject to the global service
agreement will include, among other things, certain voice products, data
products, IP products, systems solutions and international private lines.
Sprint will resell and repackage these MCI WorldCom products and services and
will coordinate directly with customers for the provision of these products and
services.
Sprint will determine which services to offer its customers. The
arrangements in the global services agreement are not exclusive and there are
no minimum volume commitments by Sprint. MCI WorldCom will not restrict the
terms, conditions or pricing under which Sprint will provide or resell the
service to its customers.
The services will be provided to Sprint under MCI WorldCom's standard terms
and conditions, including its tariffs, unless otherwise agreed by Sprint and
MCI WorldCom. MCI WorldCom will provide Sprint with customer service and sales
support similar to the support that it provides itself and other resellers. All
service or product orders between MCI WorldCom and Sprint will be priced at
direct cost, which includes cost of capital and excludes any sales cost.
The term of the global services agreement is three years. MCI WorldCom and
Sprint will cooperate in a transition of customers following the termination of
the agreement. The global services agreement will contain standard default
language as well as additional termination provisions linked to certain events
that result in the termination of the merger agreement.
No portion of the memorandum of understanding or the global services
agreement that would violate any existing obligation of Sprint will be
effective until the existing obligation of Sprint has been terminated. The
parties' obligations are contingent upon each party obtaining and maintaining
all required approvals, consents, licenses and other requirements necessary to
perform their obligations.
Local Telecommunications Services Agreement. The local telecommunications
services agreement provides for the purchase by the parties of local access and
transport services. Local access and transport services are services offered by
local telecommunications carriers that enable a long distance carrier that is
carrying a telephone call to complete the call on the local carrier's network,
which is referred to as "terminating access", or that enable a long distance
carrier to accept onto its network calls that originate on the local carrier's
network, which is referred to as "originating access".
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<PAGE>
Under the local telecommunications services agreement, Sprint purchases
terminating access from MCI WorldCom in order to take advantage of MCI
WorldCom's more extensive local network and its agreements for terminating
access with various local carriers. The parties expect that the volume of
terminating Sprint telephone calls when combined with the volume of terminating
MCI WorldCom telephone calls will result in a lower price per telephone call
than either company could obtain separately. The parties may also agree that
Sprint will sell originating access to MCI WorldCom in the form of digital
subscriber line multiple access facilities, which will enable the companies to
combine their digital subscriber line volumes in a manner that leads to lower
costs than if each company had purchased the facilities separately. Entering
into agreements to provide given volumes of traffic to a carrier in order to
take advantage of a carrier's existing available telephone call carrying
capacity is a common practice in the telecommunications industry.
The price for the services is similar to that for other carriers
transporting the same kind of traffic with similar volumes. The agreement is
not exclusive and contains no volume commitments. The term of the agreement is
36 months. However, the term for providing specific facilities for a given form
of access may have a different term depending on existing agreements with other
carriers, network needs and traffic volume forecasts. In addition, the local
telecommunications services agreement contains standard default and termination
provisions as well as additional termination provisions linked to certain
events that result in the termination of the merger agreement. The local
telecommunications services agreement provides that if it is terminated, the
parties have a reasonable time to make other arrangements for acquiring the
necessary access services from other carriers in order to minimize any
disruptions to customers.
PCS Agreement. Under the PCS agreement, MCI WorldCom may offer WorldCom-
branded handsets and WorldCom-branded PCS service using the Sprint PCS network
in those parts of the United States agreed upon by the parties in the
definitive agreement.
The WorldCom-branded PCS service will be the same as the Sprint PCS service
that the Sprint PCS group makes generally available to its consumer and
business end users. MCI WorldCom will pay all direct costs of rebranding the
Sprint PCS service to WorldCom-branded PCS service.
The WorldCom PCS rate plans will be the same as the Sprint PCS group's rate
plans, including the Sprint PCS group's most favorable PCS rate plans,
generally available to its consumer and business end users in each Sprint PCS
market. MCI WorldCom may propose different rate plan offerings for sale under
the WorldCom PCS service brand, subject to Sprint's approval, which will not be
unreasonably withheld, taking into account all relevant factors.
MCI WorldCom may bundle the WorldCom PCS service with any other WorldCom-
branded service or product and may provide promotional discounts, subject to
MCI WorldCom funding such discounts. MCI WorldCom will market the WorldCom-
branded PCS service at its expense.
The term of the PCS agreement is 36 months. The PCS agreement will contain
standard default and termination provisions as well as additional termination
provisions linked to certain events that result in the termination of the
merger agreement. Upon termination of the PCS agreement, MCI WorldCom may buy
from Sprint the end user accounts produced by MCI WorldCom at fair market
value.
Other Agreements
As of the date of this proxy statement/prospectus, neither MCI WorldCom nor
Sprint is aware of any past, present or proposed material relationship between
MCI WorldCom or its directors, executive officers or affiliates, on the one
hand, and Sprint or its directors, executive officers or affiliates, on the
other hand, except as contemplated by the merger or as described above, since
the beginning of 1996.
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THE MERGER
The discussion in this proxy statement/prospectus of the merger and the
principal terms of the merger agreement dated as of October 4, 1999, between
MCI WorldCom and Sprint is not complete and is qualified in its entirety by
reference to the merger agreement, a copy of which is attached to this proxy
statement/prospectus as Annex 1 and is incorporated herein by reference.
Background to the Merger
In pursuing their strategies for enhancing stockholder value, each of MCI
WorldCom and Sprint have regularly considered opportunities for acquisitions,
joint ventures and other strategic alliances.
On a regular basis, Sprint's management team, together with King & Spalding,
Sprint's outside legal counsel, and Warburg Dillon Read, Sprint's financial
advisor, would analyze potential strategic transactions that might be available
to Sprint. The purpose of these efforts was to see if there were alternatives
that could offer superior long-term returns to Sprint stockholders over what
Sprint could achieve as a stand alone company. Sprint's management team and its
advisors evaluated potential strategic partners and analyzed possible
transaction structures, potential synergies, corporate governance matters and
other legal, regulatory and accounting issues. Potential strategic initiatives
were also discussed with the Sprint board of directors on a regular basis.
At its June 13, 1999 meeting, the Sprint board of directors discussed
preliminarily pros and cons of potential business combinations with BellSouth
Corporation, Deutsche Telekom and MCI WorldCom. At the same meeting, management
discussed strategic challenges facing Sprint. With the encouragement of the
Sprint board of directors, management pursued preliminary discussions regarding
a possible strategic transaction with BellSouth, Deutsche Telekom and MCI
WorldCom.
Over the following weeks, Sprint's management team continued to meet with
its legal and financial advisors to discuss various terms and possible
structures for possible strategic merger transactions with BellSouth, Deutsche
Telekom and MCI WorldCom, as well as a possible bilateral global alliance with
France Telecom.
Also in the spring of 1999, the relationship between Deutsche Telekom and
France Telecom, Sprint's partners in the Global One international
telecommunications joint venture, deteriorated rapidly, primarily because of
Deutsche Telekom's attempt to acquire Telecom Italia. The relationship
problems, together with other difficulties relating to the Global One joint
venture, were important factors in it becoming clear that the parties would be
unable to resolve the Global One funding deadlock that Sprint declared on March
2, 1999. Sprint's management team determined that the misalignment among the
Global One partners called into question the viability of Global One's
ownership structure. Various approaches to resolving the issue were discussed,
and Sprint and France Telecom entered into negotiations concerning a possible
new global alliance.
On July 1, 1999, and in follow up to prior conversations between the
companies, William T. Esrey, Sprint's Chairman and Chief Executive Officer, and
Ronald T. LeMay, Sprint's President, met with F. Duane Ackerman, BellSouth's
Chairman and Chief Executive Officer, and Ronald Dykes, BellSouth's Chief
Financial Officer. At the meeting, Messrs. Esrey and LeMay suggested potential
parameters for a business combination between Sprint and BellSouth.
On July 5, 1999, Messrs. Esrey and Ackerman met again to further explore the
possibility of a merger transaction between Sprint and BellSouth. The two
chairmen discussed, among other things, economic, accounting and corporate
governance issues surrounding a potential transaction.
On July 6, 1999, and in follow up to prior conversations between the
companies, Mr. Esrey met with Dr. Ron Sommer, Deutsche Telekom's Chairman, to
discuss the possibility of a business combination between Sprint and Deutsche
Telekom. Mr. Esrey and Dr. Sommer discussed potential transaction structures
and legal
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and regulatory issues. Although Deutsche Telekom proposed the framework for a
possible transaction with Sprint, no definitive offer was made. While France
Telecom and Sprint continued discussions concerning the Global One joint
venture, significant business issues remained unresolved.
In late spring of 1999, Sprint had several conversations with MCI WorldCom
about wireless and other matters, including the possibility of a business
combination between the parties. On July 15, 1999, John W. Sidgmore, the Vice
Chairman of the MCI WorldCom board of directors, informed Mr. LeMay that MCI
WorldCom was interested in discussing the possibility of a strategic merger
with Sprint.
On July 26, 1999, Messrs. Esrey and LeMay met in Kansas City, Missouri with
Bernard J. Ebbers, MCI WorldCom's President and Chief Executive Officer, and
Mr. Sidgmore. At the meeting, the parties discussed the possibility of a
combination of the two companies, as well as the potential synergies and
strategic opportunities that would be available to a combined company.
On August 3, 1999, Messrs. Esrey and Ebbers continued their preliminary
discussions regarding the possibility of a strategic merger between Sprint and
MCI WorldCom. The discussions focused primarily on issues such as transaction
structure and the relative ownership of the stockholders of MCI WorldCom and
Sprint in the combined company after a merger.
On August 10, 1999, at a regular meeting of the Sprint board of directors in
New York City, Sprint's management team informed the Sprint board of directors
of its discussions with MCI WorldCom, BellSouth and Deutsche Telekom regarding
a potential merger transaction and with France Telecom regarding a new
strategic alliance. Dr. Sommer and Michel Bon, Chairman of France Telecom,
agreed to excuse themselves from this board meeting due to the potential for
conflicts of interest in light of the ongoing discussions between Sprint and
each of their companies. In briefing the Sprint board of directors, Mr. Esrey
noted the increasing consolidation within the telecommunications industry which
was creating economies of scale for Sprint's competitors, the increasing
requirements for Sprint to make strategic investments, particularly in the area
of local access, that could reduce Sprint's financial flexibility and the
misalignment of the Global One partners and indicated that management believed
that Sprint should explore all of its strategic alternatives.
Mr. Esrey further indicated that maintaining Sprint as an independent company
might continue to be the best answer for Sprint's stockholders, but that
management felt that Sprint needed to understand its alternatives before it
could come to firm conclusions. Mr. Esrey described the discussions involving
potential merger transactions and the potential new strategic alliance with
France Telecom, and discussed the respective advantages and disadvantages of
each, focusing on matters such as strategic fit, synergies, growth potential,
quality of consideration, business conflicts or overlaps, culture and
leadership issues, regulatory issues and other factors. The Sprint board of
directors supported the pursuit of these initiatives to enhance stockholder
value and authorized the management team to continue to pursue a possible
strategic transaction.
On August 23, 1999, Messrs. LeMay and Sidgmore continued discussions on a
number of important aspects of a possible merger of MCI WorldCom and Sprint,
including potential synergies and the revenue growth potential of Sprint. On
August 26, 1999, Messrs. LeMay and Sidgmore resumed talks regarding the
relative ownership of the stockholders of MCI WorldCom and Sprint in a combined
company.
In a telephone conversation on September 2, 1999, Mr. Sidgmore discussed
with Mr. LeMay potential terms of a possible business combination between MCI
WorldCom and Sprint, including structure, relative ownership by shareholders
and certain other terms. MCI WorldCom indicated that it was contemplating a
structure in which holders of Sprint FON common stock would receive shares of
MCI WorldCom common stock and in which MCI WorldCom would create a new class of
tracking stock for the Sprint PCS business that would be issued to the holders
of Sprint PCS common stock, together with additional shares of MCI WorldCom
common stock.
On September 9, 1999, the MCI WorldCom board of directors discussed the
advantages of a potential business combination with Sprint and reviewed the
details of contacts between the two companies up to that
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date. The MCI WorldCom board of directors authorized Messrs. Ebbers and
Sidgmore to continue discussions regarding a potential business combination
between MCI WorldCom and Sprint.
In telephone conversations on September 11 and 14, 1999, Messrs. Esrey and
Ebbers discussed further the terms of a possible business combination between
MCI WorldCom and Sprint, including relative ownership by shareholders.
Also on September 14, 1999, the Sprint board of directors held a telephonic
special meeting, the sole purpose of which was to appoint a special committee
to evaluate the potential strategic transactions with MCI WorldCom, BellSouth,
Deutsche Telekom and France Telecom. The special committee consisted of each
member of the Sprint board of directors, other than Dr. Sommer and Mr. Bon, who
were not appointed to the special committee because of potential conflicts of
interest arising from the ongoing strategic discussions between Sprint and each
of their companies and from the potential effect of any merger transaction or
strategic alliance on the Global One joint venture.
On September 15, 1999, Mr. Esrey met with Mr. Ebbers and resumed discussions
concerning the terms of a possible business combination between MCI WorldCom
and Sprint, including corporate governance matters.
On September 20, 1999, the Sprint special committee held a meeting in
Westwood, Kansas to analyze the potential strategic transactions that Sprint's
management team was pursuing. At the meeting, Sprint's management team reviewed
with the Sprint special committee the rationale for the proposed merger with
MCI WorldCom. Warburg Dillon Read discussed and reviewed the financial aspects
of the potential strategic transactions with BellSouth, MCI WorldCom and
Deutsche Telekom. King & Spalding and special Delaware counsel, Morris Nichols
Arsht & Tunnell, reviewed with the directors of the Sprint special committee
their fiduciary duties, and King & Spalding presented its analysis of
regulatory matters in the potential transactions. At the conclusion of the
meeting, the Sprint special committee indicated its strong support for the
proposed merger with MCI WorldCom and authorized Sprint's management team to
continue its discussions regarding a possible merger with MCI WorldCom and to
move forward on negotiating definitive agreements.
Meetings between Sprint and MCI WorldCom and their respective legal and
financial advisors were held in Washington, D.C. on September 21 and 22, 1999,
to conduct reciprocal legal, business, accounting and financial due diligence.
On September 22, 1999, Sprint and MCI WorldCom entered into a reciprocal
confidentiality agreement with customary terms. On September 23 and 24, 1999,
representatives of MCI WorldCom, Sprint and their financial and legal advisors
discussed the structure of and certain other terms relating to a possible
merger.
On September 26, 1999, MCI WorldCom delivered the first draft of the merger
agreement to Sprint and its counsel. Additional meetings were held in New York
City on September 27, 28 and 29, 1999 to discuss open issues and to conduct
further legal, business, accounting and financial due diligence. During this
time, Sprint's management team and legal and financial advisors continued to
analyze the business, legal and regulatory issues in the potential merger of
Sprint and MCI WorldCom, including the financial impact of the transaction. In
addition, Sprint's management team and advisors met with MCI WorldCom's
management team and advisors to analyze in detail the potential synergies and
the near- and long-term value creation that would result from a merger of the
companies.
From September 30 to October 4, 1999, representatives of Sprint, MCI
WorldCom and their advisors met in New York City to negotiate the terms of the
merger agreement and various other legal, financial and regulatory issues. In
addition, certain commercial arrangements to be entered into between MCI
WorldCom and Sprint in connection with the merger were discussed between
representatives of both parties.
Before September 30, 1999, BellSouth did not provide Sprint with an offer to
pursue a potential business combination with Sprint. On September 30, 1999,
BellSouth delivered to Sprint senior management a written proposal regarding a
potential merger transaction between BellSouth and Sprint. BellSouth was
informed that
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day that the proposed terms were inadequate. Early on the morning of October 2,
1999, BellSouth delivered another written proposal to Sprint senior management.
Sprint and BellSouth entered into a reciprocal confidentiality agreement that
same day, and numerous members of Sprint and BellSouth management, as well
as their respective legal and financial advisors, met in New York City in order
to conduct further legal, business, accounting and financial due diligence.
Also on that day, Sprint delivered to BellSouth and its counsel the first draft
of a proposed merger agreement between Sprint and BellSouth. On October 3,
1999, representatives of Sprint, BellSouth and their counsel met to negotiate
the terms of a proposed merger agreement.
During the mornings of October 2 and October 3, 1999, certain members of
Sprint's management team and Warburg Dillon Read briefed Dr. Sommer and Mr. Bon
on the details of the proposed merger transactions with MCI WorldCom and
BellSouth and presented them with other information that had been received by
the Sprint special committee.
On October 2, 1999, MCI WorldCom's financial advisor contacted Sprint's
financial advisor to inquire about news reports that Sprint had received a
competing proposal from a third party, which Sprint's financial advisor
confirmed.
In the early afternoon of October 3, 1999, the Sprint special committee met
in New York City. Sprint's management team briefed the Sprint special committee
on the status of discussions with MCI WorldCom and BellSouth. Senior management
also discussed with the directors the objectives and strategic benefits, both
near- and long-term, of either a merger with MCI WorldCom or with BellSouth.
Following these discussions, the Sprint special committee meeting was suspended
in order to convene a meeting of the full Sprint board of directors.
At the meeting of the full Sprint board of directors, Sprint's senior
management, together with its legal and financial advisors, discussed with the
directors the MCI WorldCom and BellSouth proposals, as well as the potential
Deutsche Telekom merger transaction. During the meeting, Sprint's General
Counsel, together with King & Spalding and Morris Nichols Arsht & Tunnell,
reviewed with the directors the terms and conditions of the proposed merger
agreements with MCI WorldCom and BellSouth, as well as remaining open issues,
and reviewed the directors' legal duties and responsibilities. Members of
Sprint's management team addressed the current competitive environment in the
telecommunications industry and the respective benefits and risks of a
strategic combination with either BellSouth or MCI WorldCom. Warburg Dillon
Read made a financial presentation regarding both the MCI WorldCom proposed
transaction and the BellSouth proposed transaction. After a short discussion
regarding the Global One joint venture and the interests of Deutsche Telekom
and France Telecom as Sprint stockholders in connection with proposed strategic
combinations, Mr. Esrey recessed the Sprint board meeting so that the Sprint
special committee could meet.
In the late afternoon of October 3, 1999, the Sprint special committee
reconvened to continue its evaluation of the proposed transactions with MCI
WorldCom and BellSouth. The Sprint special committee analyzed and compared the
financial terms, synergies, corporate governance matters and strategic benefits
of each of the alternative transactions. The Sprint special committee
determined that the timing and momentum of the proposed MCI WorldCom and
BellSouth transactions were such that the issues surrounding the Global One
joint venture and Deutsche Telekom's and France Telecom's ownership interests
in Sprint should be resolved after the merger agreement was signed. The Sprint
special committee also addressed improving the financial terms and premiums for
the Sprint stockholders. The Sprint special committee discussed the appropriate
amount of time to give BellSouth an opportunity to make an improved offer.
Sprint's senior management and Warburg Dillon Read expressed a concern that MCI
WorldCom would rescind its offer if a significant delay occurred. Mr. Esrey
informed the Sprint special committee that he would continue to seek improved
financial terms from both MCI WorldCom and BellSouth. Following a full
discussion and comparative analysis of the BellSouth and MCI WorldCom proposed
transactions, the Sprint special committee, with the exception of Charles E.
Rice who was absent, unanimously voted to recommend the MCI WorldCom
transaction to the full
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Sprint board of directors, with the understanding that Mr. Esrey would be
seeking improved offers from each of BellSouth and MCI WorldCom and that the
Sprint special committee would reconsider if either BellSouth or MCI WorldCom
made significant changes to their respective offers that warranted revisiting
the Sprint special committee's conclusion.
In the early evening of October 3, 1999, Mr. Esrey reconvened the meeting of
the full Sprint board of directors and reported the Sprint special committee's
recommendation. The directors reviewed their reasons for recommending the MCI
WorldCom transaction, focusing primarily on the premiums being paid to Sprint
stockholders and the superior long-term shareholder value that would result
from the strategic benefits and synergies of a Sprint/MCI WorldCom merger.
Warburg Dillon Read reviewed the basis for its fairness opinion and reviewed
the financial data delivered to the Sprint board of directors earlier that day.
Following the discussion of the fairness of the MCI WorldCom proposal, the
capital stock committee of the Sprint board of directors held a meeting and
unanimously determined that the terms of the proposed MCI WorldCom merger were
fair to the holders of Sprint PCS common stock, taken as a separate class, and
the holders of Sprint FON common stock, taken as a separate class. Next, the
Sprint board of directors discussed the timing of a decision. The Sprint board
of directors voted, with one contrary vote and one abstention, against delaying
its decision by a week, as suggested by a director, but did agree to delay
taking action until the next day in order to be apprised of and consider any
improvements in either the BellSouth offer or the MCI WorldCom offer.
On October 4, 1999, Sprint's senior management and advisors continued
discussions with both MCI WorldCom and BellSouth, encouraged both parties to
improve the terms of their proposals and, as a result, both parties increased
their offers. In the late afternoon of October 4, 1999, the Sprint board of
directors reconvened in order to further evaluate and review both transactions.
The Sprint board of directors was briefed on the changes made to each of the
proposals and it received an additional financial presentation and the fairness
opinion from Warburg Dillon Read. Following the presentations and a discussion
regarding the strategic benefits of both proposed transactions and of the terms
and conditions of both merger agreements, the Sprint capital stock committee
held a meeting and unanimously determined that the terms of the proposed MCI
WorldCom merger were fair to the holders of Sprint PCS common stock, taken as a
separate class, and the holders of Sprint FON common stock, taken as a separate
class. The Sprint board of directors then resumed its meeting and the directors
discussed their reasons for concluding that the improved MCI WorldCom proposal
was superior to the improved BellSouth proposal. Following this discussion, the
Sprint board of directors, with two directors, Dr. Sommer and Mr. Bon,
abstaining and one director, Mr. Rice, absent, approved and adopted the MCI
WorldCom merger agreement and recommended that the Sprint stockholders adopt
the merger agreement.
On October 4, 1999, the MCI WorldCom board of directors held a meeting
attended by members of MCI WorldCom's senior management and representatives of
Salomon Smith Barney and Cravath, Swaine & Moore. Prior to the meeting,
Cravath, Swaine & Moore provided each member of the MCI WorldCom board of
directors with a copy of the merger agreement and with summaries of the merger
agreement and related transactions contemplated by the merger agreement.
Representatives of Salomon Smith Barney described its financial analysis with
respect to the possible combination of MCI WorldCom and Sprint, and then
delivered the oral opinion of Salomon Smith Barney, later confirmed in writing,
to the effect that, as of October 4, 1999, the FON exchange ratio and the
consideration to be received by holders of Sprint PCS common stock in the
merger, taken as a whole, were fair, from a financial point of view, to MCI
WorldCom. Following presentations regarding financial, legal, regulatory and
other aspects of the merger, the MCI WorldCom board of directors considered the
terms of the merger and the merger agreement and, after deliberation, approved
and adopted the merger agreement. During this meeting, Mr. Ebbers was contacted
by Mr. Esrey and informed that the Sprint board of directors had approved and
adopted the merger agreement.
The merger agreement and related documents were signed by MCI WorldCom and
Sprint on the night of October 4, 1999. On the morning of October 5, 1999,
before the opening of the New York Stock Exchange and The Nasdaq National
Market, MCI WorldCom and Sprint issued a joint press release announcing the
execution of the merger agreement.
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Sprint's Reasons for the Merger and the Sprint Board of Directors'
Recommendation
Reasons for the Merger
Strategic Combination. Sprint believes that the merger will provide its
stockholders superior long-term returns by creating the nation's preeminent
telecommunications company. The new company will offer a complete package of
domestic and global wired and wireless services, including local, long
distance, data, broadband and Internet services. The Sprint special committee
and the Sprint board of directors believe that the merger will enhance
stockholder value through, among other things, the following strategic
advantages:
. Expanded Capabilities. The businesses and assets of Sprint and MCI
WorldCom are highly complementary. This is largely because Sprint and MCI
WorldCom pursued different strategies in achieving success. Those
different strategies gave each company unique strengths and capabilities.
For example, MCI WorldCom pursued a strategy of acquiring broadband local
facilities, both domestically and abroad, as a means of reducing reliance
on local telephone companies owned by others to reach customers; Sprint
did not pursue this strategy on a large scale. Similarly, Sprint pursued
the construction of the only national digital wireless PCS network
operating with the same technology and frequencies; MCI WorldCom did not
pursue this strategy on a large scale.
In some other cases, the two companies took a similar strategic approach,
but in different geographic areas. For example, both Sprint and MCI
WorldCom acquired companies having broadband wireless licenses known as
MMDS, but largely in different areas of the country. The combination of
Sprint and MCI WorldCom thus gives the combined company greater
geographic coverage for MMDS, which means a greater reach for the
combined company's services. The combination of Sprint and MCI WorldCom
brings together the unique strengths of each company and fills each
other's gaps resulting from pursuing different strategies.
Sprint believes that consolidation in the telecommunications industry is
creating a group of large, vertically integrated companies that can offer
customers bundled packages of international, national and local
communications services. In addition, historical distinctions between
local and long distance services are becoming less important, and
customers are increasingly seeking to acquire multiple services from
single providers. Sprint believes that the combined company will be very
competitive because it will be strategically well positioned to offer the
full range of telecommunications products and services that customers
will require and to compete more effectively with incumbent local
exchange telephone companies and international competitors.
. Increased Financial Flexibility. Sprint believes that because of
increased size and economies of scale, the combined company will have
greater financial flexibility to fill product and infrastructure gaps,
respond to competitive pressures and implement future transactions
necessary to remain competitive in the United States and internationally.
The combined company's increased size, economies of scale and total
capabilities will also enable it to improve the cost structure for its
products and services.
Merger Price Premium. Both the Sprint special committee and the Sprint board
of directors considered the intrinsic value and historical market prices of the
Sprint FON common stock and the Sprint PCS common stock and the premiums to be
received by the holders of each of these classes of stock in the merger. The
value of WorldCom group common stock to be received by the holders of Sprint
FON common stock pursuant to the merger agreement represents a premium of
approximately 53% over the average closing price per share of Sprint FON common
stock for the 30-day period ending on October 4, 1999, if the value of the
WorldCom group common stock that is received is fixed at $76 per share (the
price used to calculate the FON exchange ratio). The value of WorldCom group
common stock to be received by the holders of Sprint PCS common stock pursuant
to the merger agreement, 0.1547 shares of WorldCom group common stock per share
of Sprint PCS common stock, based upon the closing price of MCI WorldCom common
stock as of October 4, 1999, represents a premium of approximately 16% over the
average closing price per share of Sprint PCS common stock for the 30-day
period ending on October 4, 1999. In addition, each of the Sprint special
committee and
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the Sprint board of directors considered that the rights, terms and preferences
of the WorldCom PCS group common stock to be received in the merger by the
holders of Sprint PCS common stock would be virtually identical to the rights,
terms and preferences of the Sprint PCS common stock before the merger, and
that the WorldCom PCS group common stock would continue to reflect the results
of the same assets and businesses as the Sprint PCS common stock represented
before the merger.
Efficiencies. Sprint believes that the combined company can be run more
efficiently than either company on its own and will benefit substantially from
cost savings and operating efficiencies, arising primarily from:
. savings in access costs payable to incumbent local exchange telephone
companies by increased use of dedicated access facilities and each
company's use of the other's existing local facilities
. streamlining the combined organizations, which Sprint believes can be run
with less administrative and overhead costs than two separate
organizations
. applying each company's best business practices across the operations of
the combined company
. utilizing the infrastructure of the combined company in a more efficient
manner by, among other things, increasing the flow of traffic over
existing communications networks and
. eliminating duplicate facilities and redundant operations.
In addition, Sprint believes that the combined company will benefit
substantially from revenue synergies, arising primarily from:
. enhanced revenue opportunities relating to the ability to offer a broader
range of products and services
. the stronger marketing platform to be created by combining the two
companies and
. the ability to offer PCS services through a larger combined company sales
force and selling platform.
Recommendation of the Sprint Special Committee and the Sprint Board of
Directors
At a meeting on October 3, 1999, the Sprint special committee, with the
exception of Mr. Rice who was absent, unanimously voted to recommend the merger
as contemplated on that date to the full Sprint board of directors.
At its meeting held on October 4, 1999, the Sprint capital stock committee
unanimously determined that the terms of the merger were fair to holders of
Sprint FON common stock, taken as a separate class, and fair to holders of
Sprint PCS common stock, taken as a separate class.
At its meeting held on October 4, 1999, the Sprint board of directors, with
two directors abstaining and one director absent, (1) determined that the
merger and the merger agreement are fair to and in the best interests of Sprint
and its stockholders, (2) approved the merger and the adoption of the merger
agreement and (3) determined to recommend that the stockholders of Sprint adopt
the merger agreement. Accordingly, the Sprint board has approved the merger and
adopted the merger agreement and recommends that Sprint's stockholders vote FOR
the adoption of the merger agreement.
In connection with the foregoing actions, the Sprint special committee, the
Sprint capital stock committee and the Sprint board of directors consulted with
Sprint's management team, as well as Sprint's financial advisor and legal
counsel, and considered the following material factors:
1. all the reasons described above under "--Reasons for the Merger",
including the complementary strengths of MCI WorldCom and Sprint in
domestic and foreign local services, domestic and international long
distance services and fixed and mobile wireless voice and data services.
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2. the judgment, advice and analyses of Sprint's senior management,
including their favorable recommendation of the merger and their
analysis of conditions in the telecommunications industry and the
strategic options available to Sprint, including the risks and potential
rewards associated with continuing to execute Sprint's strategic plan as
an independent entity. Such risks include the risks associated with
scale and reliance on incumbent local exchange telephone companies for
local access in a rapidly consolidating industry, and the rewards
include the ability of existing Sprint stockholders to participate in
the potential future growth and profitability of Sprint.
3. alternatives to the merger, including a possible merger with BellSouth
or Deutsche Telekom and the possibility of seeking to acquire other
companies or seeking to engage in new joint ventures or strategic
alliances. The Sprint special committee and the Sprint board of
directors concluded that a transaction with MCI WorldCom is expected to
yield greater strategic benefits than other likely alternatives because
of the ability of the combined company to offer a complete range of
telecommunications services, to operate more efficiently in light of
transaction synergies, to fund a greater number of long-term growth
projects and to compete more effectively.
4. the value of the consideration provided for in the merger agreement
relative to the intrinsic value and historical market prices of Sprint
FON common stock and Sprint PCS common stock and MCI WorldCom common
stock over the past year and relative to the multiples and valuations
paid in comparable transactions; and that Sprint's stockholders would
hold approximately 45% of the outstanding stock of the combined company
after the merger, calculated as of October 4, 1999.
5. the fact that the WorldCom PCS group common stock will continue to
represent an interest in the same group of assets and businesses
following the merger as the Sprint PCS common stock represented before
the merger.
6. comparisons of historical financial measures for Sprint and MCI
WorldCom, including earnings, business segment valuation analysis for
core segments and cash flow.
7. the prospects of Sprint to compete effectively in the future, the
prospects of MCI WorldCom based on Sprint's and Warburg Dillon Read's
due diligence and their analysis of publicly available information
including earnings estimates compiled by First Call, and Sprint's
management team's view, based on its due diligence, of the combined
company's prospects to compete effectively in the future.
8. MCI WorldCom's proven history of successfully integrating companies that
it has acquired and realizing the expected synergies, including MCI
WorldCom's acquisition of MCI Communications.
9. current industry, economic and market conditions and trends, including
the changing regulatory environment in the United States and
internationally and the likelihood of continuing consolidation and
increasing competition in the telecommunications industry and the
corresponding decrease in the number of suitable strategic merger
partners for Sprint.
10. the fact that the merger would be accounted for as a purchase,
recognizing that purchase accounting would have no impact on cash
earnings per share, although it would reduce reported earnings of the
combined company because of the need to account for and to amortize
goodwill. The Sprint special committee and the Sprint board of
directors also considered that pooling-of-interests is expected to be
eliminated as a method of accounting for merger transactions in January
2001.
11. the ability to complete the merger as a tax-free reorganization for
U.S. federal income tax purposes.
12. the presentations by and discussions with Sprint's senior management
and representatives of King & Spalding, Morris Nichols Arsht & Tunnell
and Warburg Dillon Read regarding the terms and conditions of the
merger agreement, which include restrictions on the conduct of Sprint's
business pending closing that permit Sprint generally to conduct its
business in the ordinary course during that period.
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13. the potential effect of the terms of the merger agreement with respect
to possible third-party proposals to acquire Sprint after execution of
the merger agreement, including that if any third party made a
superior proposal (as described under "The Merger Agreement--No
Solicitation") during the period beginning 60 days after the date of
the merger agreement and before the approval of the merger agreement
by the Sprint stockholders, the Sprint board of directors could
provide information to and engage in negotiations with that third
party, subject to the terms and conditions of the merger agreement.
14. while the termination fee provisions of the merger agreement could
tend to discourage alternative proposals for a business combination
with Sprint, the view of Warburg Dillon Read that these provisions
would not preclude bona fide alternative proposals; the fact that the
termination fee provisions were reciprocal and the product of
negotiations; and the fact that the size of the termination fee was
reasonable in light of the size and benefits of the merger.
15. the analyses and presentations prepared by Warburg Dillon Read, and
Warburg Dillon Read's written opinion to the effect that, as of
October 4, 1999, (1) the consideration to be received in the merger
for each class or series of Sprint common stock was fair to the
holders of those classes or series from a financial point of view, and
(2) the merger consideration was fair to Sprint's stockholders taken
as a whole from a financial point of view, in each case subject to the
various considerations set forth in the opinion.
16. the strong management team drawn from both MCI WorldCom and Sprint
that will manage WorldCom and the shared culture and entrepreneurial
vision of the management and employees of both companies developed
from their status as leading challengers to the incumbent carriers in
the United States and internationally.
17. that six members of the current Sprint board of directors would become
directors of WorldCom, as described under "--Interests of Sprint
Directors and Executive Officers in the Merger--Board of Directors".
18. that Sprint employees would generally be given equal opportunity to be
considered for jobs in the combined company along with MCI WorldCom
employees, and Sprint employees who are not offered positions in the
combined company would be entitled to receive severance benefits under
the Sprint severance plan that the Sprint board of directors believed
to be fair.
19. the fact that while WorldCom's corporate headquarters will be located
in Clinton, Mississippi, a significant presence of Sprint employees
would be maintained in the Kansas City, Missouri metropolitan area,
which will include the headquarters for the PCS group and local
telephone operations.
20. that while the merger is likely to be completed, there are risks
associated with obtaining necessary approvals and, as a result of
certain conditions to the completion of the merger, it is possible
that the merger may not be completed even if approved by the Sprint
and MCI WorldCom shareholders.
21. that although Sprint's relationships with customers, governments,
partners and employees will be affected negatively because of
uncertainty surrounding Sprint's future status and direction, the
belief of the Sprint board of directors that any negative effect would
cease once the merger is completed.
22. the risk that the synergies and benefits sought in the merger might
not be fully achieved.
23. the interests that certain executive officers and directors of Sprint
may have with respect to the merger in addition to their interests as
stockholders of Sprint generally. See "--Interests of Sprint Directors
and Executive Officers in the Merger".
In view of the wide variety of factors considered in connection with its
evaluation of the merger and the complexity of these matters, the Sprint board
of directors did not find it useful to and did not attempt to quantify, rank or
otherwise assign relative weights to these factors. The Sprint board of
directors relied on the
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analysis, experience, expertise and recommendation of Sprint's management team
and relied on Warburg Dillon Read, its financial advisor, for analyses of the
financial terms of the merger. See "--Opinion of Sprint's Financial Advisor".
In addition, the Sprint board of directors did not undertake to make any
specific determination as to whether any particular factor, or any aspect of
any particular factor, was favorable or unfavorable to its ultimate
determination, but rather the Sprint board of directors conducted an overall
analysis of the factors described above, including discussions with Sprint's
management team and legal, financial and accounting advisors. In considering
the factors described above, individual members of the Sprint board of
directors may have given different weight to different factors.
The Sprint board of directors considered all these factors as a whole, and
overall considered the factors to be favorable and to support its
determination. However, the general view of the Sprint board of directors was
that factors 14, 18, 19, 20, 21 and 22 described above were uncertainties,
risks or drawbacks relating to the merger, but that the other reasons and
factors described above were generally considered favorable.
Opinion of Sprint's Financial Advisor
The full text of the written opinion, which sets forth the assumptions made,
procedures followed and matters considered by Warburg Dillon Read, is set forth
as Annex 5 to this proxy statement/prospectus and is incorporated herein by
reference. Sprint stockholders are urged to read carefully Warburg Dillon
Read's opinion in its entirety. The summary of Warburg Dillon Read's opinion
set forth in this proxy statement/prospectus is qualified in its entirety by
reference to the full text of the opinion.
The Sprint board of directors retained Warburg Dillon Read to act as its
financial advisor in connection with the merger. At the meeting of the Sprint
board of directors held on October 4, 1999, Warburg Dillon Read delivered its
oral opinion, subsequently confirmed in writing as of the same date, to the
Sprint board of directors to the effect that, as of that date:
. the FON exchange ratio was fair, from a financial point of view, to the
holders of each series of Sprint FON common stock
. the consideration to be received by holders of Sprint PCS common stock in
the merger was fair, from a financial point of view, to the holders of
each series of Sprint PCS common stock
. the consideration to be received by holders of Sprint class A common
stock in the merger was fair, from a financial point of view, to holders
of Sprint class A common stock
. the consideration to be received by holders of Sprint class A common
stock--series DT, in the merger was fair, from a financial point of view,
to holders of Sprint class A common stock--series DT
. the consideration to be received by holders of Sprint common stock in the
merger was fair, from a financial point of view, to the holders of Sprint
common stock taken as a whole.
Warburg Dillon Read's opinion is directed to the Sprint board of directors
and relates only to the fairness from a financial point of view of the exchange
ratio for each series of Sprint common stock to the holders of each such series
and of the consideration to be received in the merger by the Sprint common
stockholders taken as a whole. Warburg Dillon Read's opinion does not address
any other aspect of the merger and does not constitute a recommendation to
Sprint FON group common stockholders or Sprint PCS group common stockholders
about how to vote at the Sprint special meeting.
The following is only a summary of the Warburg Dillon Read opinion and
should not be viewed as a substitute for the Warburg Dillon Read opinion. We
urge you to read carefully the Warburg Dillon Read opinion in its entirety.
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In connection with rendering its opinion, Warburg Dillon Read:
. reviewed certain publicly available business and historical information
relating to Sprint and MCI WorldCom
. reviewed certain internal financial information and other data relating
to the business and financial prospects of Sprint, including estimates
and financial forecasts prepared by management of Sprint
. reviewed certain internal financial information and other data relating
to the business and financial prospects of MCI WorldCom, including
estimates and financial forecasts prepared by management of MCI WorldCom
. reviewed estimates of synergies prepared by the management of Sprint and
MCI WorldCom
. discussed with members of the senior management of Sprint and MCI
WorldCom certain internal financial information and other data relating
to the business and financial prospects of Sprint and MCI WorldCom and
the estimates of synergies prepared by the management of Sprint and MCI
WorldCom
. reviewed publicly available financial and stock market data with respect
to certain other companies in lines of business that it believed to be
generally comparable to those of Sprint and MCI WorldCom
. compared the financial terms of the merger with the publicly available
financial terms of certain other transactions that it believed to be
generally relevant
. considered certain pro forma effects of the merger on MCI WorldCom's
financial statements
. reviewed a draft dated October 3, 1999 of the merger agreement and
. conducted such other financial studies, analyses and investigations, and
considered such other information, that it deemed necessary or
appropriate.
In connection with its review, Warburg Dillon Read did not independently
verify any of the foregoing information concerning Sprint or MCI WorldCom and,
with Sprint's consent, relied on its being complete and accurate in all
material respects. In that regard, with Sprint's consent, Warburg Dillon Read
assumed that the financial forecasts and estimates, including synergies
referred to above, were reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the management of Sprint and MCI
WorldCom as to their future performance and synergies. In addition, at Sprint's
direction, Warburg Dillon Read did not make any independent evaluation or
appraisal of any of the assets or liabilities of Sprint or MCI WorldCom nor was
it furnished with any such appraisals or evaluations.
Warburg Dillon Read further assumed, with Sprint's consent, that the merger
agreement would not differ in any material respect from the draft dated October
3, 1999 that it examined and that Sprint and MCI WorldCom would comply with all
material terms of the merger agreement. In addition, Sprint did not authorize
Warburg Dillon Read to, nor did Warburg Dillon Read, solicit indications of
interest in a business combination with any party; however, Warburg Dillon Read
did review the terms of a proposal relating to a business combination between
Sprint and BellSouth, as set forth in a letter from the Chairman and Chief
Executive Officer of BellSouth dated October 2, 1999, as supplemented on
October 4, 1999. The opinion did not address the relative merits of the merger
compared to any alternative transaction that might be available to Sprint;
however, Warburg Dillon Read analyzed the terms of the BellSouth proposal and
made presentations to the Sprint board of directors regarding the BellSouth
proposal.
Warburg Dillon Read's opinion is necessarily based upon economic, monetary,
market and other conditions as in effect as of the date of its opinion and does
not imply any conclusion as to the price or trading range of any series of MCI
WorldCom capital stock following the date of its opinion, which may vary
depending upon various factors, including changes in interest rates, dividend
rates, market conditions, general economic conditions and other factors that
generally influence the price of securities. In addition, Warburg Dillon Read's
opinion does not address Sprint's underlying business decisions to effect the
merger.
The following is a summary of the material portions of the financial and
comparative analyses performed by Warburg Dillon Read and presented to the
Sprint board of directors in connection with the opinion delivered to the
Sprint board of directors on October 4, 1999.
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Sprint FON Group Analysis
Historical Stock Price Performance. Warburg Dillon Read reviewed the
relationship between movements in stock prices for the period beginning on the
day following the completion of the Sprint PCS restructuring, November 24,
1998, and ending October 1, 1999 of:
. the Sprint FON group
. AT&T Corp
. MCI WorldCom and
. an index of local telephone companies which included Ameritech
Corporation, Bell Atlantic Corporation, BellSouth, GTE Corporation, SBC
Communications Inc. and U S WEST Communications, Inc.
Warburg Dillon Read noted that during the period analyzed, Sprint FON group
common stock had appreciated 56% compared to 0%, 20% and 9% for AT&T Corp.,
MCI WorldCom, and the local telephone index, respectively.
Synergies. Warburg Dillon Read reviewed the estimates of synergies expected
to result from the merger prepared by the management of each of MCI WorldCom
and Sprint. The estimates reflect only the incremental benefits expected by
management to result from the merger and exclude any revenue synergies.
Warburg Dillon Read then estimated the present value as of September 30, 1999
of the future streams of after-tax cash flows generated by these synergies by
applying a 11% discount rate and by adding an anticipated future exit value
determined by projecting a range of nominal perpetual synergy growth rates
ranging from 1.5% to 3.5%. This analysis resulted in a range of values for the
synergies of approximately $25 billion to $30 billion.
Securities Research Analysts' Future Price Targets. Warburg Dillon Read
reviewed and analyzed future public market trading price targets for Sprint
FON common stock prepared and published by a number of securities research
analysts during the period from August 20, 1999 to September 24, 1999. These
targets reflected each analyst's estimate of the future public market trading
price of Sprint FON common stock at the end of the particular time period
considered for each estimate. The price targets ranged from $47 to $68 per
share.
Sum-of-the-Parts Valuation. Warburg Dillon Read calculated the estimated
aggregate equity and per share equity value for the Sprint FON group by
separately analyzing and calculating the values of the Sprint FON group's main
business segments, including the following:
. long distance telephone division
. local telephone division
. product distribution and directory publishing business
. ION division and
. other ventures and interests (including Global One and EarthLink).
The analyses of the first four of these segments included the following
three principal valuation analyses:
. Comparable Public Companies Analysis. A comparable public companies
analysis examines the operating performance and outlook of a business
relative to a group of publicly traded peer companies to determine an
implied market trading value.
. Precedent Transactions Analysis. A precedent transactions analysis
provides a valuation range based upon publicly available financial
information for companies which have been acquired in selected recent
transactions and which are in the same or similar industries as the
business being valued.
. Discounted Cash Flow Analysis. A discounted cash flow analysis provides
insight into the value of a business based on the anticipated future
earnings and capital requirements and the net present value of the
subsequent cash flows anticipated to be generated by the assets of such
business.
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Based upon these analyses, Warburg Dillon Read calculated a valuation range
for the Sprint FON group's aggregate equity of approximately $49 to $74 per
share.
1. Sprint FON Group Long Distance Telephone Division
Comparable Public Companies Analysis. Warburg Dillon Read compared certain
financial information of the Sprint FON group's long distance telephone
division with corresponding publicly available information of AT&T Corp. and
MCI WorldCom, which Warburg Dillon Read believed to be appropriate for
comparison. For each of these companies, Warburg Dillon Read reviewed the
multiples of enterprise value -- defined as market value of equity securities
plus debt and preferred stock, less cash and the estimated value of non-long
distance assets -- to the following, with all of the estimates based on
analysts' consensus estimates:
. estimated 1999 earnings before interest, taxes, depreciation and
amortization, which is referred to as "EBITDA", finding a multiple range
of 7.8x to 13.2x and
. estimated 1999 earnings before interest and taxes, which is referred to as
"EBIT", finding a multiple range of 12.5x to 20.0x.
Warburg Dillon Read also reviewed the 1999 and 2000 price-to-earnings
trading ratios ("P/E Ratios") for these companies finding a multiple range of
18.8x to 35.9x and 16.7x to 25.0x, respectively.
Warburg Dillon Read also considered other publicly traded United States long
distance companies but did not include them in its valuation analysis because
none were deemed comparable to Sprint's long distance business from a financial
point of view due to their different growth characteristics.
Taking into account the multiples reviewed, Warburg Dillon Read derived a
range of enterprise values of $22.8 billion to $28.9 billion for the Sprint FON
group's long distance telephone division.
Precedent Transactions Analysis. Warburg Dillon Read reviewed and analyzed
certain financial, operating and stock market information relating to selected
merger transactions involving long distance telephone companies. The
transactions used in this analysis included the following precedent
transactions, which Warburg Dillon Read believed to be appropriate for
comparison:
. Global Crossing Ltd./Frontier Corporation
. Cincinnati Bell Inc./IXC Communications, Inc.
. Teleglobe Inc./Excel Communications, Inc.
. Qwest Communications International, Inc./LCI International, Inc.
. Teleport Communications Group Inc./ACC Corp.
. WorldCom, Inc./MCI Communications Corporation
. LCI International, Inc./USLD Communications Corp. and
. Excel Communications, Inc./Telco Communications Group, Inc.
For each of these transactions, Warburg Dillon Read reviewed the prices paid
and calculated the multiples of enterprise value of the target to the
following:
. latest twelve months long distance revenue, finding a multiple range of
1.8x to 3.9x
. latest twelve months long distance EBITDA, finding a multiple range of
8.0x to 34.5x and
. latest twelve months long distance EBIT, finding a multiple range of
12.1x to 44.3x.
Taking into account the multiples reviewed, Warburg Dillon Read derived a
range of enterprise values of $27.2 billion to $34.0 billion for the Sprint FON
group's long distance telephone division.
Discounted Cash Flow Analysis. Warburg Dillon Read performed a discounted
cash flow analysis for the Sprint FON group's long distance telephone division
using Sprint's management projections, assuming that the
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Sprint FON group were to continue to operate on a stand-alone basis and without
giving effect to the merger with MCI WorldCom. The discounted cash flow was
calculated assuming discount rates ranging from 10.5% to 11.5% and was
comprised of the sum of the present values of:
. the projected unlevered free cash flows for the years 1999 through 2003
and
. the anticipated future 2003 exit value based upon a range of multiples of
9.0x to 11.0x of its future 2003 EBITDA.
This analysis implies a range of enterprise values of $27.1 billion to $33.7
billion for the Sprint FON group's long distance telephone division.
2. Sprint FON Group Local Telephone Division
Comparable Public Companies Analysis. Warburg Dillon Read compared certain
financial information of the Sprint FON group's local telephone division with
corresponding publicly available information of the following local telephone
companies, which Warburg Dillon Read believed to be appropriate for comparison:
. Ameritech Corporation
. Bell Atlantic Corporation
. BellSouth Corporation
. CenturyTel, Inc.
. Cincinnati Bell Inc.
. Commonwealth Telephone Enterprises, Inc.
. GTE Corporation
. SBC Communications Inc. and
. U S WEST Communications, Inc.
For each of these companies, Warburg Dillon Read reviewed the multiples of
enterprise value -- defined as market value of equity securities plus debt and
preferred stock, less cash and the estimated value of non-local telephone
assets -- to the following:
. latest twelve months local telephone EBITDA, finding a multiple range of
6.9x to 9.4x,
. latest twelve months local telephone EBIT, finding a multiple range of
11.8x to 15.0x and
. latest twelve months access lines, finding a multiple range of $2,135 to
$4,121 per access line.
Taking into account the multiples reviewed, Warburg Dillon Read derived a
range of enterprise values of $17.4 billion to $20.5 billion for the Sprint FON
group's local telephone division.
Precedent Transactions Analysis. Warburg Dillon Read reviewed and analyzed
certain financial, operating and stock market information relating to selected
merger transactions involving local telephone companies. The transactions used
in this analysis included the following precedent transactions, which Warburg
Dillon Read believed to be appropriate for comparison:
. Qwest Communications International, Inc./U S WEST Communications, Inc.
. ALLTEL Corporation/Aliant Communications Inc.
. Bell Atlantic Corporation/GTE Corporation
. SBC Communications Inc./Ameritech Corporation
. SBC Communications Inc./Southern New England Telephone Corporation
. CenturyTel, Inc./Pacific Telecom, Inc.
. Bell Atlantic Corporation/NYNEX Corporation and
. SBC Communications Inc./Pacific Telesis Group.
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For each of these transactions, Warburg Dillon Read reviewed the prices paid
and calculated the multiples of enterprise value of the target to the
following:
. latest twelve months local telephone revenue, finding a multiple range
of 1.8x to 4.5x
. latest twelve months local telephone EBITDA, finding a multiple range of
4.5x to 10.0x
. latest twelve months local telephone EBIT, finding a multiple range of
8.6x to 17.1x and
. latest twelve months access lines, finding a multiple range of $1,321 to
$2,974 per access line.
Taking into account the multiples reviewed, Warburg Dillon Read derived a
range of enterprise values of $21.5 billion to $24.1 billion for the Sprint FON
group's local telephone division.
Discounted Cash Flow Analysis. Warburg Dillon Read performed a discounted
cash flow analysis for the Sprint FON group's local telephone division using
Sprint's management projections assuming that the Sprint FON group were to
continue to operate on a stand-alone basis and without giving effect to the
merger with MCI WorldCom. The discounted cash flow was calculated assuming
discount rates ranging from 10.0% to 11.0% and was comprised of the sum of the
present values of:
. the projected unlevered free cash flows for the years 1999 through 2003
and
. the anticipated future 2003 exit value based upon a range of multiples of
7.5x to 8.5x of its future 2003 EBITDA.
This analysis implies a range of enterprise values of $19.9 billion to $23.0
billion for the Sprint FON group's local telephone division.
3. Sprint FON Group Product Distribution and Directory Publishing Divisions
Comparable Public Companies/Precedent Transactions Analysis. Warburg Dillon
Read applied the same multiples of enterprise value to latest twelve months
EBITDA that were used to value the Sprint FON group's local telephone division
to value the Sprint FON group's product distribution and directory publishing
divisions. Taking into account the multiples reviewed, Warburg Dillon Read
derived a range of enterprise values of $1.8 billion to $2.1 billion for the
Sprint FON group's product distribution and directory publishing divisions
using a comparable public companies analysis and a range of enterprise values
of $2.1 billion to $2.4 billion using a precedent transactions analysis.
Discounted Cash Flow Analysis. Warburg Dillon Read performed a discounted
cash flow analysis for the Sprint FON group's product distribution and
directory publishing divisions using Sprint's management projections assuming
that the Sprint FON group were to continue to operate on a stand-alone basis
and without giving effect to the merger with MCI WorldCom. The discounted cash
flow was calculated assuming discount rates ranging from 10.0% to 11.0% and was
comprised of the sum of the present values of:
. the projected unlevered free cash flows for the years 1999 through 2003
and
. the anticipated future 2003 exit value based upon a range of multiples of
7.5x to 8.5x of its future 2003 EBITDA.
This analysis implies a range of enterprise values of $2.1 billion to $2.4
billion for the Sprint FON group's product distribution and publishing
business.
4. Sprint FON Group ION Division
Comparable Public Companies Analysis. Warburg Dillon Read compared certain
financial information of the Sprint FON group's ION division with corresponding
publicly available information of the following network long distance
companies, which Warburg Dillon Read believed to be appropriate for comparison:
. ITC Deltacom, Inc.
. NorthEast Optic Network, Inc. and
. Qwest Communications International, Inc.
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The Companies reviewed in this analysis also included the following
competitive local exchange carriers, also known as "CLECs":
. Allegiance Telecom, Inc. . Intermedia Communications
Inc.
. e.spire Communications, Inc.
. McLeodUSA Incorporated
. Electric Lightwave, Inc.
. MGC Communications, Inc.
. GST Telecommunications, Inc.
. NextLink Communications,
Inc.
. Hyperion Telecommunications,
Inc.
. RCN Corporation and
. ICG Communications, Inc.
. US LEC Corp.
For each of these companies, Warburg Dillon Read reviewed the multiples of
enterprise value--defined as market value of equity securities plus debt and
preferred stock, less cash--to the following, with all of the estimates based
on analysts' consensus estimates:
. estimated 2001 revenues, finding a multiple range of 2.1x to 10.8x and
. estimated 1999 net property, plant & equipment, finding a multiple range
of 1.7x to 12.4x.
Taking into account the multiples reviewed, Warburg Dillon Read derived a
range of enterprise values of $2.5 billion to $4.2 billion for the Sprint FON
group's ION division.
Precedent Transactions Analysis. Warburg Dillon Read reviewed and analyzed
certain financial, operating and stock market information relating to selected
merger transactions involving CLEC and network long distance companies. The
transactions used in this analysis included the following precedent
transactions, which Warburg Dillon Read believed to be appropriate for
comparison:
. Cincinnati Bell Inc./IXC Communications, Inc.
. AT&T Canada Corp./Metronet Communications Corp.
. AT&T Corp./Teleport Communications Group Inc.
. WorldCom, Inc./Brooks Fiber Properties, Inc.
. Brooks Fiber Properties, Inc./Metro Access Networks and
. WorldCom, Inc./MFS Communications, Inc.
For each of these transactions, Warburg Dillon Read reviewed the prices paid
and calculated the multiples of enterprise value of the target to analysts'
consensus estimates of 1999 net property, plant and equipment, finding a
multiple range of 2.4x to 9.4x.
Taking into account the multiples reviewed, Warburg Dillon Read derived a
range of enterprise values of $5.0 billion to $6.7 billion for the Sprint FON
group's ION division.
Discounted Cash Flow Analysis. Warburg Dillon Read performed a discounted
cash flow analysis for the Sprint FON group's ION division using Sprint's
management projections assuming that the Sprint FON group were to continue to
operate on a stand-alone basis and without giving effect to the merger with MCI
WorldCom. The discounted cash flow was calculated assuming discount rates
ranging from 12.0% to 14.0% and was comprised of the sum of the present values
of:
. the projected unlevered free cash flows for the years 1999 through 2003
and
. the anticipated future 2003 exit value based upon a range of multiples of
10.0x to 12.0x of its future 2003 EBITDA.
This analysis implies a range of enterprise values of $4.2 billion to $5.9
billion for the Sprint FON group's ION division.
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5. Other Ventures and Interests
Warburg Dillon Read valued Sprint's interest in Global One at . ; Sprint's
international investments in China, Brazil and Israel at 1.0x investment; and
Sprint's investments in Call-Net, EarthLink and its inter-group interest in the
Sprint PCS Group at market value as of October 1, 1999. Due to their early
stage of development, no incremental value beyond the acquisition cost was
assigned to the MMDS companies recently acquired by Sprint. This analysis
implies a range of values of $ . to $ . billion for the Sprint FON group's
other ventures and interests.
Total Sprint FON Group Valuation. By combining the stand alone valuations
for the Sprint FON group's long distance telephone division, local telephone
division, product distribution and directory publishing divisions, ION division
and its other ventures and interests described above, and making certain
adjustments for debt, preferred securities, cash and cash equivalents,
investments and option proceeds, this analysis resulted in a valuation range
for the Sprint FON group's aggregate equity of:
. $45.7 billion to $57.2 billion, or approximately $49 to $62 per share,
using the comparable public companies analysis
. $57.0 billion to $68.8 billion, or approximately $62 to $74 per share,
using the precedent transactions analysis and
. $54.4 billion to $66.6 billion, or approximately $59 to $72 per share,
using the discounted cash flow analysis.
Implied Exchange Ratios. Warburg Dillon Read calculated the implied exchange
ratios for the Sprint FON group and MCI WorldCom by utilizing the following
valuation analyses:
Historical Public Market Trading Value. The implied exchange ratio
based on closing prices of Sprint FON common stock and MCI WorldCom common
stock for the following periods ended October 1, 1999 is summarized in the
following table:
<TABLE>
<CAPTION>
Sprint FON Group/MCI WorldCom
Historical Trading Ratio
-----------------------------
<S> <C>
As of October 1, 1999.......................... 0.8085
20 Day Average................................. 0.6565
60 Day Average................................. 0.6204
90 Day Average................................. 0.6132
1999 Year-to-Date Average...................... 0.5844
November 24, 1998-to-Date Average.............. 0.5868
</TABLE>
Private Market Valuation/Public Company Valuation. The implied exchange
ratio ranged from 0.70x to 0.76x based upon a comparison of the Sprint FON
group's estimated private market valuation (using the precedent
transactions analysis and discounted cash flow analysis) to MCI WorldCom's
estimated public company valuation. This range of implied exchange ratios
was calculated by comparing the lowest estimated valuation of Sprint FON
group common stock to the lowest valuation of MCI WorldCom common stock and
the highest estimated valuation of Sprint FON group common stock to the
highest estimated valuation of MCI WorldCom common stock.
Discounted Cash Flow Valuation. The implied exchange ratio ranged from
0.59x to 0.61x based upon a comparison of the Sprint FON group's discounted
cash flow valuation to the estimated discounted cash flow valuation of MCI
WorldCom. This range of implied exchange ratios was calculated by comparing
the lowest estimated valuation of Sprint FON group common stock to the
lowest estimated valuation of MCI WorldCom common stock and the highest
estimated valuation of Sprint FON group common stock to the highest
estimated valuation of MCI WorldCom common stock.
Earnings Based Contribution Analysis. The implied exchange ratio ranged
from 0.56x to 0.82x based upon a comparison of the projected earnings,
based on management estimates for the years ending December 31, 2001
through December 31, 2003, contributed by the Sprint FON group to the
earnings
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contributed by MCI WorldCom. This range of implied exchange ratios was
calculated by comparing the lowest earnings contribution of the Sprint FON
group to the lowest earnings contribution of MCI WorldCom and the highest
earnings contribution of the Sprint FON group to the highest estimated
contribution of MCI WorldCom.
In each case, the ranges of the implied exchange ratios were compared to
the exchange ratio in the merger.
Sprint PCS Group Analysis
Historical Stock Price Performance. Warburg Dillon Read reviewed the
relationship between movements in stock prices for the period beginning on
November 24, 1998, the day after the Sprint PCS restructuring, and ending
October 1, 1999 of:
. the Sprint PCS group
. Aerial Communications, Inc.
. Nextel Communications, Inc.
. Omnipoint Corporation
. Powertel, Inc. and
. VoiceStream Wireless Corporation.
Warburg Dillon Read noted that during the period analyzed, Sprint PCS group
common stock had appreciated 346% compared to 597%, 215%, 543%, 325% and 188%
for Aerial Communications, Inc., Nextel Communications, Inc., Omnipoint
Communications, Powertel, Inc. and VoiceStream Wireless Corporation,
respectively.
Comparable Public Companies Analysis. Warburg Dillon Read compared certain
financial information of the Sprint PCS group with corresponding publicly
available information of the following PCS companies, which Warburg Dillon
Read believed to be appropriate for comparison:
. Aerial Communications, Inc.
. Nextel Communications, Inc.
. Omnipoint Corporation
. Powertel, Inc. and
. VoiceStream Wireless Corporation.
For each of these companies, Warburg Dillon Read reviewed and focused on
the multiples of enterprise value -- defined as market value of equity
securities plus debt and preferred stock, less cash -- and franchise value --
defined as enterprise value less net property, plant and equipment -- to the
following:
. licensed POPs (population in licensed territory), finding a multiple
range of $99 to $140 per POP for enterprise value and $87 to $119 per POP
for franchise value
. subscribers as of June 30, 1999, finding a multiple range of $8,555 to
$11,102 per subscriber for enterprise value and $7,107 to $9,874 per
subscriber for franchise value and
. net property, plant and equipment as of June 30, 1999, finding a multiple
range of 5.0x to 9.0x for enterprise value.
Warburg Dillon Read noted that based on the above multiples, the Sprint PCS
group was trading at a premium to the companies listed above.
Securities Research Analysts' Future Price Targets. Warburg Dillon Read
reviewed and analyzed future public market trading price targets for Sprint
PCS common stock prepared and published by a number of securities research
analysts during the period from September 9, 1999 to September 24, 1999. These
targets
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reflected each analyst's estimate of the future public market trading price of
Sprint PCS common stock at the end of the particular time period considered for
each estimate. The price targets ranged from $54 to $90 per share.
MCI WorldCom Analysis
Historical Stock Price Performance. Warburg Dillon Read reviewed the
relationship between movements in stock prices for each of the following over a
period of five years, three years, one year and the period from January 4, 1999
to October 1, 1999:
. AT&T Corp.
. the Sprint FON group
. an index of local telephony companies which included: Ameritech
Corporation; Bell Atlantic Corporation; BellSouth Corporation; GTE
Corporation; and U S WEST Communications, Inc. and
.the Standard & Poor's 500 Index.
Warburg Dillon Read noted that MCI WorldCom common stock had appreciated by
539%, 224%, 53% and 0% over the five year, three year, one year and January 4,
1999 to October 1, 1999 periods, respectively.
Securities Research Analysts' Future Price Targets. Warburg Dillon Read
reviewed and analyzed future public market trading price targets for MCI
WorldCom common stock prepared and published by a number of securities research
analysts during the period from June 16, 1999 to September 28, 1999. These
targets reflected each analyst's estimate of the future public market trading
price of MCI WorldCom common stock at the end of the particular time period
considered for each estimate. The price targets ranged from $97 to $120 per
share.
Comparable Public Companies Analysis. Warburg Dillon Read compared certain
financial information of MCI WorldCom with corresponding publicly available
information of AT&T Corp. and the Sprint FON group, which Warburg Dillon Read
believed to be appropriate for comparison. For each of these companies, Warburg
Dillon Read reviewed and focused on the following multiples, with all of the
estimates based on analysts' consensus estimates:
. estimated 1999 P/E Ratios divided by the long-term estimated growth in
earnings per share ("EPS"), finding a multiple range of 1.9x to 2.5x
. estimated 2000 P/E Ratios divided by the earnings to long-term estimated
growth in EPS, finding a multiple range of 1.6x to 2.2x
. estimated 1999 P/E Ratios divided by the sum of the long-term estimated
growth ratio in EPS and the dividend yield ("total return"), finding a
multiple range of 1.5x to 2.3x and
. estimated 2000 P/E Ratios divided by the total return, finding a multiple
range of 1.4x to 2.1x.
Taking into account the multiples reviewed, Warburg Dillon Read derived a
valuation range of $77 to $107 per share of MCI WorldCom common stock.
Discounted Cash Flow Analysis. Warburg Dillon Read performed a discounted
cash flow analysis for MCI WorldCom using MCI WorldCom's management
projections, without giving effect to the merger. The discounted cash flow was
calculated assuming discount rates ranging from 10.5% to 11.5% and was
comprised of the sum of the present values of:
. the projected unlevered free cash flows for the years 1999 though 2003
. the anticipated future 2003 exit value based upon a range of multiples of
13.0x to 15.0x estimated 2003 EBITDA and
. the value of MCI WorldCom's non-core assets and investments.
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This analysis resulted in an implied equity value for MCI WorldCom, after
making certain adjustments for debt, preferred securities, cash and cash
equivalents, investments and option proceeds, ranging from approximately $99 to
$118 per share.
Fairness Opinion Process. The preparation of a fairness opinion is a complex
process not susceptible to partial analysis or summary descriptions. Warburg
Dillon Read believes that its analyses and the summary set forth above must be
considered as a whole and that selecting portions of its analyses and the
factors considered by it, without considering all analyses and factors, could
create an incomplete view of the processes underlying the analyses set forth in
its opinion. In performing its analyses, Warburg Dillon Read made numerous
assumptions with respect to industry performance, general business, financial,
market and economic conditions and other matters, many of which are beyond the
control of Sprint or MCI WorldCom. The analyses which Warburg Dillon Read
performed are not necessarily indicative of actual values or actual future
results, which may be significantly more or less favorable than suggested by
such analyses. The analyses do not purport to be appraisals or to reflect the
prices at which a company might actually be sold or the prices at which any
securities may trade at the present time or at any time in the future.
Warburg Dillon Read is an internationally recognized investment banking firm
that provides financial services in connection with a wide range of business
transactions. As part of its investment banking business, Warburg Dillon Read
regularly engages in the valuation of companies and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and other purposes. The Sprint board of directors retained Warburg
Dillon Read based on Warburg Dillon Read's familiarity with Sprint as well as
its substantial experience in transactions such as the merger.
In the past, Warburg Dillon Read has rendered investment banking and
financial advisory services to Sprint and MCI WorldCom for which Warburg Dillon
Read received customary compensation. In addition, in the ordinary course of
its business, Warburg Dillon Read and its affiliates may actively trade the
securities of Sprint and MCI WorldCom for their own account and the accounts of
their customers and, accordingly, may at any time hold a long or short position
in their securities. Warburg Dillon Read and its affiliates, including UBS AG,
may have other business relationships with Sprint and its affiliates and MCI
WorldCom.
Pursuant to the terms of its engagement letter with Warburg Dillon Read,
Sprint has agreed to pay to Warburg Dillon Read a fee for financial advisory
services in connection with the merger equal to (1) $250,000 payable on the
execution of the engagement letter and $250,000 payable on the first business
day of each month thereafter up to a maximum of $1,000,000, (2) $10,000,000
payable on the date that Warburg Dillon Read renders its opinion to the Sprint
board of directors and (3) $62,000,000 payable upon the completion of the
merger, with any fees payable pursuant to clauses (1) and (2) above to be
credited against any fees that become payable pursuant to clause (3) above. In
addition, if Sprint receives any "termination fee", "breakup fee", "topping
fee" or other similar form of compensation under the terms of the merger
agreement, up to $40,920,000 of such fee will be payable to Warburg Dillon
Read. Sprint has also agreed to reimburse Warburg Dillon Read for its
reasonable out-of-pocket expenses, including reasonable fees and disbursements
of its legal counsel, and to indemnify Warburg Dillon Read against certain
liabilities, including certain liabilities under the federal securities laws.
MCI WorldCom's Reasons for the Merger and the MCI WorldCom Board of Directors'
Recommendation
Reasons for the Merger
The MCI WorldCom board of directors believes that the merger will produce a
dramatically more effective competitor in the global telecommunications
marketplace. The combined company will have the capital and proven marketing
strength to compete more effectively against incumbent carriers, domestically
and abroad, and to provide a full range of services to residential and business
customers on its owned, end-to-end, state-of-the-art networks. Additionally,
the MCI WorldCom board of directors expects that the combined company will
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be a leader in the fastest growing areas of global communications services,
offering innovative broadband, "all-distance" services to businesses and homes,
and nationwide digital wireless voice and data services. The combined company
is expected to have over $50 billion in 1999 revenues and will provide a
complete range of local, long distance, Internet and international
communications services.
In particular, the MCI WorldCom board of directors believes that the
combination of MCI WorldCom and Sprint will enable the combined company to:
. offer a unique broadband access alternative to both cable and traditional
telephony providers in the United States through a combination of digital
subscriber line facilities and fixed wireless access using the combined
company's "wireless cable" spectrum
. continue to lead the industry with innovative service offerings for
consumer and business customers and
. continue as an effective competitor in the wireless market in the United
States.
The MCI WorldCom board of directors has concluded that the merger will
create substantial opportunities for cost savings and operating efficiencies.
MCI WorldCom estimates that annual cash operating cost savings and operating
efficiencies of $1.9 billion are achievable in 2001, the expected first full
year of the combination, increasing to $3.0 billion in 2004. These cost savings
and operating efficiencies are anticipated primarily to result from better
utilization of the combined networks and other operational savings. In
addition, capital expenditure savings of $1.3 billion are expected in 2001 and
beyond. These savings are anticipated to result primarily from economies of
scale and procurement efficiencies. There can, however, be no assurance that
any specific level of cost savings or other operating efficiencies will be
achieved.
MCI WorldCom estimates that the cost savings and operating efficiencies set
forth below are achievable as a result of the merger. These cost saving and
operating efficiency estimates are net of the expenses MCI WorldCom estimates
will be incurred to achieve these savings. MCI WorldCom is in the process of
developing its plan to integrate the operations of Sprint which may include
certain costs. As a result of this plan, a charge, which may be material but
which cannot be quantified at this time, is expected to be recognized in the
period in which this transaction occurs.
Cost Saving and Operating Efficiency Estimates
<TABLE>
<CAPTION>
Fiscal Year Cumulative
Ended Fiscal Years
December 31, 2001 2001 to 2004
------------------ -------------
(In billions)
<S> <C> <C>
Pre-tax cash operating cost savings and
operating efficiencies
Network...................................... $0.5 $3.4
Sales, general and administrative............ 1.3 5.5
Other........................................ 0.1 0.8
---- ----
Total...................................... $1.9 $9.7
==== ====
Capital expenditure savings.................. $1.3 $5.2
==== ====
</TABLE>
Network. Network cost savings and operating efficiencies are anticipated to
be realized primarily as a result of reduced domestic and international network
costs. As a result of Sprint's and MCI WorldCom's extensive local and long
distance networks, the combined company will carry an increased proportion of
its domestic and international traffic on its own facilities resulting in a
reduction in leased line costs and access costs associated with switched
traffic. MCI WorldCom estimated the magnitude of potential cost savings in this
area using various assumptions, including:
. the magnitude of MCI WorldCom's and Sprint's projected costs for
terminating traffic domestically and internationally
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. the mix of these costs between different categories such as access,
direct access lines and leased lines and entry facilities and
. the proportion of the projected costs that net of implementation costs
could be eliminated as a result of combining MCI WorldCom's and Sprint's
activities.
Sales, General and Administrative. The increased scale of activities in the
combined company's operations will result in opportunities to reduce costs by
avoiding expenditures on duplicative activities, greater purchasing power and
the adoption of best practices in cost containment across the combined company
resulting in a reduction in sales, general and administrative expenses. MCI
WorldCom estimated the magnitude of potential cost savings in this area using
various assumptions, including:
. the magnitude of MCI WorldCom's and Sprint's sales, general and
administrative expense category such as sales, accounting and finance and
information services and
. the proportion of projected costs that net of implementation costs could
be eliminated as a result of combining MCI WorldCom's and Sprint's
activities.
Other. Other cost savings and operating efficiencies are expected to be
realized as a result of the elimination of certain duplicated overseas
initiatives and the ability to route a greater proportion of long distance and
local traffic from the Sprint PCS group's activities on the combined company's
network. MCI WorldCom estimated the magnitude of potential cash benefits in
this area using various assumptions, including:
. the magnitude of costs associated with duplicated overseas initiatives
and
. the additional proportion of the Sprint PCS group's long distance and
local traffic that could be carried on the combined company's network as
a result of the merger and the resulting benefit to the combined company.
Capital Expenditure Savings. Capital expenditure savings are expected to be
realized primarily in domestic long distance network activities. Capital
expenditures relating to the combined company's long distance activities will
be reduced as a result of avoided duplicative fixed capital expenses and the
cost benefits realized from greater purchasing efficiencies. MCI WorldCom
estimated the magnitude of potential savings in this category using various
assumptions, including:
. the magnitude of MCI WorldCom's and Sprint's long distance and other
capital expenditures and
. the proportion of the projected costs that net of implementation costs
could be eliminated as a result of combining MCI WorldCom's and Sprint's
activities.
Specific business strategies necessary to realize the anticipated cost
savings and operating efficiencies will include:
. coordinating the purchasing activities of the combined company to ensure
that potential purchasing efficiencies are achieved
. coordinating network operations to ensure that to the extent possible
economically attractive traffic is carried on the network of the combined
company domestically and overseas
. coordinating local activities of the combined company to eliminate
unnecessary duplication
. adopting best practices in cost control throughout the combined company
and
. coordinating capital expenditure programs of the combined company to
eliminate unnecessary duplication.
In addition to cost savings, the MCI WorldCom board of directors believes
that the merger offers the prospect of significant revenue benefits as a result
of churn reduction from bundling a broader range of services, cross selling to
a larger customer base and the development of new services.
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For the reasons described above, the MCI WorldCom board of directors
believes that the merger agreement and the merger are in the best interests of
MCI WorldCom and its shareholders. In reaching its conclusion, the MCI WorldCom
board of directors considered, among other things:
. the judgment, advice and analyses of its management recommending the
merger
. the financial condition, results of operations and cash flows of MCI
WorldCom and Sprint, both on a historical and a prospective basis
. the cost reductions and operating efficiencies as described above that it
believed would be available to the combined enterprise as a result of the
merger
. the many management challenges associated with successfully integrating
the businesses of two major corporations
. MCI WorldCom's successful integration of MCI Communications
. the strategic benefits of the merger and the anticipated environment in
the telecommunications industry
. the ability for MCI WorldCom to enter the wireless business in the United
States and offer a full range of services to residential and business
customers
. the terms and conditions of the merger agreement
. historical market prices and trading information with respect to MCI
WorldCom common stock and Sprint common stock
. the terms and conditions of the Sprint PCS common stock
. Salomon Smith Barney's fairness opinion dated as of October 4, 1999, and
its presentation to the MCI WorldCom board of directors, as described
under "The Merger--Opinion of MCI WorldCom's Financial Advisor"
. the likelihood of receiving regulatory clearance for the merger
. current industry, economic and market conditions and
. the percentage ownership of the combined company to be owned by holders
of MCI WorldCom common stock.
This discussion of the information and factors considered by the MCI
WorldCom board of directors in making its decision is not intended to be
exhaustive but is believed to include all material factors considered by the
MCI WorldCom board of directors. In view of the variety of factors considered
in connection with its evaluation of the proposed merger, the MCI WorldCom
board of directors did not find it practicable to and did not quantify or
otherwise assign relative weights to the specific factors considered in
reaching its determination. In addition, individual members of the MCI WorldCom
board of directors may have given different weight to different factors.
Recommendation of the MCI WorldCom Board of Directors
After careful consideration, the MCI WorldCom board of directors has
determined that the merger and the terms of the merger agreement are advisable,
fair to and in the best interests of MCI WorldCom and its shareholders and
recommends that MCI WorldCom shareholders vote FOR approval of the merger
agreement.
Opinion of MCI WorldCom's Financial Advisor
Salomon Smith Barney has acted as the financial advisor to MCI WorldCom in
connection with the merger. On October 4, 1999, Salomon Smith Barney stated in
a presentation to the MCI WorldCom board of directors its oral opinion,
subsequently confirmed in writing, that, as of such date and based upon and
subject to
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the factors and assumptions set forth in the presentation, the FON exchange
ratio and the consideration to be paid by MCI WorldCom to holders of Sprint PCS
common stock in the merger, taken as a whole, was fair, from a financial point
of view, to MCI WorldCom.
The full text of the written opinion, which sets forth the assumptions made,
procedures followed and matters considered by Salomon Smith Barney is set forth
as Annex 4 to this proxy statement/prospectus and is incorporated herein by
reference. MCI WorldCom shareholders are urged to read carefully Salomon Smith
Barney's opinion in its entirety. The summary of Salomon Smith Barney's opinion
set forth in this proxy statement/prospectus is qualified in its entirety by
reference to the full text of the opinion.
The opinion and presentation of Salomon Smith Barney to the MCI WorldCom
board of directors, in connection with which Salomon Smith Barney was requested
to evaluate, among other things, the fairness from a financial point of view of
the FON exchange ratio and consideration to be paid by MCI WorldCom to holders
of Sprint PCS common stock in the merger, taken as a whole, to MCI WorldCom,
was only one of many factors taken into consideration by the MCI WorldCom board
of directors in making its determination to approve the merger and the merger
agreement. No limitations were imposed by the MCI WorldCom board of directors
upon Salomon Smith Barney with respect to the investigation made or the
procedures followed by Salomon Smith Barney in rendering its opinion.
Salomon Smith Barney has consented to the inclusion of its written opinion
and to the inclusion of the summary of such opinion in this proxy
statement/prospectus. In giving such consent, Salomon Smith Barney does not
concede that it comes within the category of persons whose consent is required
under section 7 of the Securities Act, or the rules and regulations of the
Securities and Exchange Commission, nor does it thereby concede that it is an
expert with respect to any part of the registration statement of which this
proxy statement/prospectus is a part within the meaning of the term "experts"
as used in the Securities Act or the rules and regulations of the Securities
and Exchange Commission. Salomon Smith Barney's opinion should be read
carefully and in its entirety. It is directed only to the fairness, from a
financial point of view, of the FON exchange ratio and consideration to be paid
by MCI WorldCom to holders of Sprint PCS common stock in the merger, taken as a
whole, to MCI WorldCom, and does not address the underlying business decision
of MCI WorldCom to effect the merger or constitute a recommendation to any MCI
WorldCom shareholder as to how such holder should vote with respect to the
merger. It also does not constitute an opinion or imply any conclusion of
Salomon Smith Barney as to the likely trading range for the MCI WorldCom common
stock, Sprint FON common stock or Sprint PCS common stock following the
announcement or completion of the merger, which may vary.
In connection with rendering its opinion, Salomon Smith Barney reviewed
certain publicly available information concerning MCI WorldCom and Sprint and
certain other financial information concerning MCI WorldCom and Sprint,
including financial forecasts and estimates of synergies, that were provided to
Salomon Smith Barney by MCI WorldCom and Sprint. Salomon Smith Barney discussed
the business operations and financial conditions of MCI WorldCom and Sprint as
well as other matters Salomon Smith Barney believed to be relevant to its
inquiry, including matters relating to the obtaining of regulatory approvals
for the merger, with certain officers and employees of MCI WorldCom and Sprint.
Salomon Smith Barney also considered such other information, financial studies,
analyses, investigations and financial, economic and market criteria that it
deemed relevant.
In its review and analysis and in arriving at its opinion, Salomon Smith
Barney assumed and relied upon, without assuming any responsibility for
verification, the accuracy and completeness of the financial and other
information, including information relating to the obtaining of regulatory
approvals for the merger, reviewed by Salomon Smith Barney. With respect to MCI
WorldCom's and Sprint's financial forecasts, Salomon Smith Barney assumed that
they had been reasonably prepared on bases reflecting the best then currently
available estimates and judgments of the managements of MCI WorldCom and
Sprint, as to the future financial performance of MCI WorldCom and Sprint,
respectively. Salomon Smith Barney expressed no opinion with
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respect to such forecasts or the assumptions on which they are based. Salomon
Smith Barney assumed that the estimates of synergies had been reasonably
prepared on bases reflecting the best then currently available estimates and
judgments of the management of MCI WorldCom and Sprint. Salomon Smith Barney
expressed no opinion with respect to such estimates or the assumption on which
they were based. Salomon Smith Barney did not make, obtain or assume any
responsibility for making or obtaining any independent evaluations or
appraisals of any of the assets, including properties and facilities, or
liabilities of MCI WorldCom or Sprint. The Salomon Smith Barney opinion was
necessarily based upon conditions as they existed and could be evaluated on
October 4, 1999.
In connection with rendering its opinion to the MCI WorldCom board of
directors, Salomon Smith Barney performed certain financial analyses which it
presented to the MCI WorldCom board of directors, the material portions of
which are summarized below. Salomon Smith Barney believes that its analyses
must be considered as a whole and that selecting portions of such analyses and
the factors considered therein, without considering all such analyses and
factors, could create an incomplete view of the analyses and the process
underlying its opinion. While the conclusions reached in connection with each
analysis were considered carefully by Salomon Smith Barney in arriving at its
opinion, Salomon Smith Barney made various subjective judgments in arriving at
its opinion and did not consider it practicable to, nor did it attempt to,
assign relative weights to the individual analyses and specific factors
considered in reaching its opinion.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In
addition, the process of preparing a fairness opinion necessarily requires a
broad range of subjective judgments with respect to appropriate comparable
companies and transactions, appropriate multiples of various selected financial
data, appropriate discount rates and other financial and other factors.
Analyses and estimates of the values of companies do not purport to be
appraisals or necessarily reflect the prices at which companies or their
securities actually may be sold. No public company utilized as a comparison is
identical to MCI WorldCom or Sprint, and none of the other business
combinations utilized as a comparison is identical to the proposed merger.
Accordingly, any analysis of publicly traded comparable companies or comparable
business combinations is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies involved and other factors that could affect
the public trading value of the companies or company to which they are being
compared. The range of valuation for any particular analysis should not be
taken to be the view of Salomon Smith Barney of the actual value of MCI
WorldCom or Sprint.
The following is a summary of the material financial analyses used by
Salomon Smith Barney in connection with providing its opinion to the MCI
WorldCom board of directors. Certain of the summaries below include information
presented in tabular format. In order to fully understand such financial
analyses used by Salomon Smith Barney, the tables must be read with the text of
each summary. The tables alone do not constitute a complete description of the
financial analyses. See "Risk Factors Relating to the Merger" and "Special Note
Regarding Forward-Looking Statements".
(1) Historical Stock Price Performance
Salomon Smith Barney reviewed the relationship between movements of Sprint
FON common stock, MCI WorldCom common stock, AT&T Corporation common stock and
Qwest Communications common stock for the period from and including November
24, 1998 through September 30, 1999, the trading volume and price history of
Sprint FON common stock for the period from and including November 24, 1998
through September 30, 1999 and the trading volume and price history of MCI
WorldCom common stock for the period from January 1, 1998 through September 30,
1999. Salomon Smith Barney also reviewed the relationship between movements of
Sprint PCS common stock, Aerial Communications common stock, NEXTEL
Communications common stock, Omnipoint Corporation common stock, Powertel
common stock and VoiceStream Wireless common stock for the period from January
1, 1999 through September 30, 1999, and the trading volume and price history of
Sprint PCS common stock for the period from January 1, 1999 through September
30, 1999.
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(2) Historical Exchange Ratio Analysis
Salomon Smith Barney reviewed the implied historical exchange ratio between
MCI WorldCom common stock and Sprint FON common stock determined by dividing
the price per share of Sprint FON common stock by the price per share of MCI
WorldCom common stock for the ten, six, three and one month intervals ending
September 23, 1999, the last trading day prior to public reports regarding the
possibility of the merger. The review indicated that during this period the
closing prices of Sprint FON common stock and MCI WorldCom common stock on
September 23, 1999 implied an exchange ratio of 0.65 and indicated the
following high, low and average implied historical exchange ratios during these
periods:
<TABLE>
<CAPTION>
High Implied Low Implied Average Implied
Exchange Ratio Exchange Ratio Exchange Ratio
-------------- -------------- ---------------
<S> <C> <C> <C>
1 month 0.67 0.57 0.61
3 months 0.68 0.55 0.60
6 months 0.68 0.53 0.60
10 months 0.68 0.49 0.58
</TABLE>
(3) Synergies
Salomon Smith Barney reviewed the synergy estimates provided by the
managements of MCI WorldCom and Sprint. The synergy estimates reflect only the
incremental benefits expected by the managements of MCI WorldCom and Sprint to
result from the merger as compared to MCI WorldCom on a stand-alone basis, and
exclude any revenue synergies. Salomon Smith Barney then estimated the present
value as of September 30, 1999 of the future streams of after-tax cash flows
generated by those synergies, by applying discount rates reflecting a weighted
average cost of capital ranging from 9.25% to 10.25% per annum to such cash
flows through 2004 and by adding a terminal value determined by projecting a
range of nominal perpetual synergy growth rates ranging from -0.5% to 4.0%.
This analysis resulted in a range of values for the synergies of $25.3 billion
to $35.8 billion, representing a range of synergy value per fully diluted share
of Sprint FON common stock from approximately $27 to $39. As described above
under "--MCI WorldCom's Reasons for the Merger and the MCI WorldCom Board of
Directors' Recommendation", the estimates of achievable cost synergies are
based on numerous estimates, assumptions and judgments and are subject to
significant uncertainties. Actual results may vary from the synergy estimates
and the variations may be material.
(4) Business Division Analysis of the Sprint FON Group
Salomon Smith Barney arrived at a range of values for the Sprint FON group
by separately valuing its long distance division, its local services division
and its remaining other assets. Salomon Smith Barney utilized two principal
valuation methodologies in valuing these business divisions: a public market
analysis and a private market analysis. Public market analysis analyzes a
division's operating performance and outlook relative to a group of publicly
traded peer companies to determine an implied unaffected market trading value.
Private market analysis provides a valuation range based upon financial
information of companies in the same or similar industries as the business
division which have been acquired in selected recent transactions. No company
used in the public market or private market analyses described below is
identical to the respective business division of Sprint. Accordingly, an
analysis of the data described below necessarily involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the business divisions and other facts that could affect the
public trading value or the acquisition value of the companies to which they
are being compared.
Sprint's Long Distance Division
Public Market Analysis. Salomon Smith Barney compared certain financial
information of Sprint's long distance division with a group of companies that
Salomon Smith Barney believed to be appropriate for comparison. Salomon Smith
Barney reviewed the multiplies of firm value to estimated 2000 EBITDA, and to
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estimated 2000 EBIT, represented by the trading prices of the selected group of
companies. Using this information and other factors relevant in the valuation
of Sprint's long distance division, Salomon Smith Barney determined an
estimated 2000 EBITDA multiple range of 7.5x to 8.5x and an estimated 2000 EBIT
multiple range of 12.0x to 13.0x. This analysis resulted in a valuation of
Sprint's long distance division ranging from a low average of $22.7 billion to
a high average of $25.2 billion. Actual results of Sprint's long distance
division may vary from the EBITDA and EBIT estimates and the variations may be
material.
Private Market Analysis. Salomon Smith Barney reviewed and analyzed certain
financial, operating and stock market information relating to comparable
selected transactions involving long distance telecommunications companies.
Salomon Smith Barney reviewed the multiples of firm value to estimated forward
EBITDA represented by the transaction prices of the subject companies. Using
this information and other factors relevant in the valuation of Sprint's long
distance division, Salomon Smith Barney determined an estimated 2000 EBITDA
multiple range of 9.0x to 11.0x. This analysis resulted in a valuation of
Sprint's long distance division ranging from $27.1 billion to $33.2 billion.
Actual results of Sprint's long distance division may vary from the EBITDA
estimate and the variations may be material.
Sprint's Local Services Division
Public Market Analysis. Salomon Smith Barney compared certain financial
information of Sprint's local services division with a group of companies that
Salomon Smith Barney believed to be appropriate for comparison. Salomon Smith
Barney reviewed the multiples of firm value to estimated 2000 EBITDA, 2000
EBIT, and number of local access lines as of June 30, 1999. Using this
information and other factors relevant in the valuation of Sprint's local
services division, Salomon Smith Barney determined an estimated 2000 EBITDA
multiple range of 7.0x to 8.0x, an estimated 2000 EBIT multiple range of 12.5x
to 14.5x and an access lines multiple range of $2,500 to $2,750. This analysis
resulted in a valuation of Sprint's local services division ranging from a low
average of $20.0 billion to a high average of $22.8 billion. Actual results of
Sprint's local services division may vary from the EBITDA and EBIT estimates
and the variations may be material.
Private Market Analysis. Salomon Smith Barney reviewed and analyzed certain
financial, operating and stock market information relating to selected
transactions involving comparable local carrier companies. Salomon Smith Barney
reviewed the multiples of firm value to estimated 2000 EBITDA represented by
the share prices of the subject companies. Using this information and other
factors relevant in the valuation of Sprint's local services division, Salomon
Smith Barney determined an estimated 2000 EBITDA multiple range of 9.0x to
9.5x. This analysis resulted in a valuation of Sprint's local services division
ranging from $25.0 billion to $26.4 billion. Actual results of Sprint's local
services division may vary from the EBITDA estimates and the variations may be
material.
Sprint's Other Assets
Salomon Smith Barney performed a public market analysis and private market
analysis on Sprint's other assets, which consist of publishing, North Supply,
Global One, CLEC/ION, Call-Net, EarthLink and the Sprint FON group's inter-
group interest in the Sprint PCS group. The public market analysis of Sprint's
other assets resulted in a valuation of such assets ranging from $6.7 billion
to $7.7 billion. The private market analysis on the Sprint other assets
resulted in a valuation of such assets ranging from $7.6 billion to $8.8
billion.
Total Sprint FON Group Valuation
By combining the stand-alone valuations for Sprint's long distance division,
Sprint local services and Sprint's other assets described above and making
certain adjustments for outstanding debt, this analysis resulted in a valuation
range for the Sprint FON group's aggregate equity of $45.8 billion to $51.9
billion, or approximately $49 to $56 per share, using the public market
analysis and $56.0 billion to $64.5 billion, or approximately $60 to $70 per
share, using the private market analysis.
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(5) Discounted Cash Flow Segment Analysis of the Sprint FON Group
Salomon Smith Barney performed a discounted cash flow analysis of the Sprint
FON group's principal business segments to provide insight into the intrinsic
value of the Sprint FON group based on projected earnings and capital
requirements and cash flows generated by those business segments. The Sprint
FON group business segments analyzed included long distance, local, ION,
publishing, North Supply and corporate/other. Salomon Smith Barney estimated
the Sprint FON group segment discounted cash flow by using, for each of these
business segments, as appropriate, a discount rate reflecting a weighted
average cost of capital and selected terminal value multiples in the ranges set
forth below.
<TABLE>
<CAPTION>
Weighted Average Selected Terminal Multiples (x) /
Segment Cost of Capital (%) Perpetual Growth Rate (%)
- ------- ------------------- ---------------------------------
<S> <C> <C>
Long Distance 9.25%-10.25% 8.5x-9.5x
Local 8.75%-9.75% 8.0x-9.0x
ION 13.00%-14.00% 8.0x-10.0x
Publishing 9.00%-10.00% 8.0x-10.0x
North Supply 9.75%-10.75% 9.0x-11.0x
Corporate/Other 9.50%-10.50% 3.50%-4.50%
</TABLE>
Based on these discount rates, terminal multiples, perpetuity growth rates
and certain adjustments, and after combining the individual values to calculate
a combined value, this analysis resulted in implied per share values for Sprint
FON common stock ranging from approximately $57 to $69.
(6) Public Market Analysis of the Sprint PCS Group
Salomon Smith Barney estimated a range of values for the Sprint PCS group by
performing a public market analysis of the Sprint PCS group. Salomon Smith
Barney compared certain financial information of the Sprint PCS group with a
group of wireless companies that Salomon Smith Barney believed to be
appropriate for comparison. Salomon Smith Barney reviewed the multiples of firm
value to population, adjusted for proportionate equity interest and spectrum
ownership, in the Sprint PCS group market area as of June 30, 1999, referred to
as "Adjusted POPs", number of subscribers as of June 30, 1999, referred to as
"Subscribers", and Last Quarter Annualized Service Revenues, referred to as
"LQA Service Revenues". Using this information and other factors relevant in
the valuation of the Sprint PCS group, Salomon Smith Barney determined an
estimated Adjusted POPs multiple range of $230 to $250, an estimated
Subscribers multiple range of $9,000 to $12,000 and an estimated LQA Service
Revenues multiple range of 19.0x to 23.0x. This analysis resulted in a
valuation of the Sprint PCS group, based on Adjusted POPs of 199.2 million, 4.0
million Subscribers and LQA Service Revenues of $2.4 billion, ranging from a
low average of $42.3 billion to a high average of $50.8 billion. After making
certain adjustments for outstanding net debt, this analysis resulted in a
valuation for the Sprint PCS group's aggregate equity of $32.9 billion to $41.4
billion, or approximately $61 to $77 per share.
(7) Discounted Cash Flow of the Sprint PCS Group
Salomon Smith Barney also performed a discounted cash flow analysis of the
Sprint PCS group. Salomon Smith Barney performed this analysis using a discount
rate reflecting a weighted average cost of capital ranging from 10.5% to 11.5%
and a multiple of terminal EBITDA ranging from 11.5x to 12.5x. This analysis
resulted in implied per share values for Sprint PCS common stock ranging from
approximately $69 to $83.
(8) MCI WorldCom Valuation Analysis
Salomon Smith Barney also performed a discounted cash flow analysis of MCI
WorldCom. Salomon Smith Barney estimated the MCI WorldCom discounted cash flow
value by using a discount rate reflecting a weighted average cost of capital
ranging from 11.50% to 12.50% and a multiple of terminal EBITDA ranging from
9.5x to 11.5x. This analysis resulted in implied per share values for MCI
WorldCom common stock ranging from approximately $81 to $100.
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Salomon Smith Barney also applied projected 1999, 2000 and 2001 earnings per
share ("EPS") and EPS growth rate of MCI WorldCom common stock to a growth-
adjusted price to earnings multiple ("P/E/G") of a group of long distance
companies, including AT&T, Sprint, Qwest and Global Crossing, which Salomon
Smith Barney determined to be comparable to MCI WorldCom. Similarly, Salomon
Smith Barney applied a growth-adjusted Firm Value to EBITDA multiple, derived
from the same group of comparable long distance companies, to MCI WorldCom's
projected EBITDA and growth rate. These growth adjusted multiple analyses
yielded a price per share range for MCI WorldCom common stock of approximately
$77 to $94.
In addition, Salomon Smith Barney reviewed the recommendations and price
targets of certain Wall Street research analyst estimates. Actual results may
vary from such estimates and the variations may be material. MCI WorldCom takes
no responsibility for any of the research analyst estimates.
Salomon Smith Barney is an internationally recognized investment banking
firm that regularly engages in the valuation of companies and their securities
in connection with mergers and acquisitions, negotiated underwritings,
competitive bids, secondary distributions of listed and unlisted securities,
and corporate, estate and other purposes. MCI WorldCom retained Salomon Smith
Barney as a financial advisor because of its reputation, expertise in the
valuation of companies and substantial experience in transactions such as the
merger.
In the past Salomon Smith Barney has rendered certain investment banking
services to MCI WorldCom for which it has been paid fees. Pursuant to an
engagement letter dated September 29, 1999, MCI WorldCom agreed to pay Salomon
Smith Barney a fee of:
. $3 million upon the execution of the merger agreement
. $3 million upon receipt of requisite shareholder approvals to complete
the merger
. $24 million upon completion of the merger and
. up to $2.5 million, upon completion of the merger, in the sole discretion
of MCI WorldCom, based on Salomon Smith Barney's performance of its
obligations within the scope of its role as financial advisor.
In addition, if MCI WorldCom receives a termination fee under the terms of
the merger agreement or any profit resulting from any shares (or option to
acquire shares or assets) of Sprint acquired in connection with the proposed
merger during the term of the Salomon Smith Barney engagement letter, or within
18 months thereafter, Salomon Smith Barney will receive a termination fee equal
to the lesser of (1) 5% of all such fees or profits, net of direct out-of-
pocket expenses incurred by MCI WorldCom in connection with the proposed merger
or in obtaining such termination fees or profits, and (2) $15 million less
other amounts paid or payable under the engagement letter.
Additionally, MCI WorldCom has agreed to reimburse Salomon Smith Barney for
reasonable out-of-pocket expenses, including, without limitation, reasonable
fees and expenses of Salomon Smith Barney's legal counsel, and has also agreed
to indemnify Salomon Smith Barney and certain related persons against certain
liabilities, including liabilities under the federal securities laws, related
to or arising out of its engagement. In the ordinary course of business,
Salomon Smith Barney or its affiliates may actively trade the securities of MCI
WorldCom and Sprint for its own account and for the accounts of its customers
and, accordingly, at any time may hold a long or short position in such
securities.
Interests of Sprint Directors and Executive Officers in the Merger
In considering the recommendation of the Sprint board of directors in favor
of the merger and the merger agreement, Sprint stockholders should be aware
that certain directors and executive officers of Sprint have interests in the
merger as directors or executive officers that are different from, or in
addition to, the interests of Sprint stockholders generally, as described
below.
These additional interests relate to, among other things, the effect of the
merger on certain employment and benefit arrangements to which directors and
executive officers are parties or under which they have rights.
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These interests, to the extent material, are described below. The Sprint board
of directors recognized these interests and determined that the interests
neither supported nor detracted from the fairness of the merger to (1) the
holders of Sprint FON common stock, taken as a separate class, (2) the holders
of Sprint PCS common stock, taken as a separate class, or (3) the holders of
Sprint common stock, taken as a whole.
Board of Directors
MCI WorldCom and Sprint have agreed that the WorldCom board of directors, at
the completion of the merger, will consist of 16 members, 6 of whom will
initially be designated by Sprint from among the existing directors of Sprint.
However, if France Telecom and/or Deutsche Telekom become entitled to designate
one or more directors, then the WorldCom board of directors will be increased
by one to accommodate this additional director and each additional director
designated by France Telecom and/or Deutsche Telekom will reduce the number
that may be designated by Sprint by one. If France Telecom and/or Deutsche
Telekom become entitled to designate more than two directors, then the WorldCom
board of directors shall be increased in order to permit MCI WorldCom and
Sprint to designate additional directors to maintain the proportion of MCI
WorldCom and Sprint designees on the WorldCom board of directors described
above.
Ownership of Sprint Capital Stock; Stock Options
As of September 30, 1999, directors and executive officers of Sprint
beneficially owned:
. an aggregate of 4,243,103 shares of Sprint series 1 FON common stock (or
approximately 0.5% of the then outstanding Sprint FON common stock) and
. an aggregate of 1,180,224 shares of Sprint series 1 PCS common stock (or
approximately 0.3% of the then outstanding Sprint PCS common stock),
in each case excluding shares of Sprint series 1 FON common stock and Sprint
series 1 PCS common stock that may be acquired upon the exercise of outstanding
options.
As of September 30, 1999, directors and executive officers of Sprint held:
. options to purchase an aggregate of 16,831,802 shares of Sprint series 1
FON common stock, of which 3,107,508 were exercisable and
. options to purchase an aggregate of 4,561,716 shares of Sprint series 1
PCS common stock, of which 976,215 were exercisable.
Most of Sprint's stock option plans provide that options outstanding for a
year at the time of the Sprint special meeting will become fully vested, if not
previously vested, and exercisable upon the adoption by the Sprint stockholders
of the merger agreement, although certain options held by directors of Sprint
would not become fully vested and exercisable until completion of the merger.
As of September 30, 1999, options to purchase 9,046,014 shares of Sprint series
1 FON common stock and 2,273,247 shares of Sprint series 1 PCS common stock
held by directors and executive officers had been outstanding for a year and
would therefore vest early upon the adoption by the Sprint stockholders of the
merger agreement, unless otherwise agreed to by the individual directors and
executive officers.
As of September 30, 1999, the following executive officers owned the number
of shares of Sprint FON common stock, Sprint PCS common stock and options to
purchase shares of Sprint FON common stock and Sprint PCS common stock shown in
the table below. Assuming:
. completion of the merger
. their continued employment until the completion of the merger
. no change in their share and option ownership and
. a FON exchange ratio of 1.2228,
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the executive officers would own the number of shares of WorldCom common stock
and WorldCom series 1 PCS common stock and hold options to purchase the number
of shares of WorldCom common stock and WorldCom series 1 PCS common stock shown
in the table below:
<TABLE>
<CAPTION>
William T. Ronald T. Kevin B. Arthur B.
Esrey LeMay Brauer Krause
---------- --------- -------- ---------
<S> <C> <C> <C> <C>
Shares of Sprint FON common stock..... 2,133,267 910,255 22,290 328,875
Shares of Sprint PCS common stock..... 585,748 267,961 5,779 60,601
Options for Sprint FON common stock... 7,485,582 3,849,666 420,080 780,209
Options for Sprint PCS common stock... 1,823,175 932,492 105,665 219,164
Maximum shares of WorldCom common
stock................................ 2,699,173 1,154,512 28,150 411,522
Shares of WorldCom series 1 PCS common
stock................................ 585,748 267,961 5,779 60,601
Maximum options for WorldCom common
stock................................ 9,435,414 4,851,627 530,019 987,943
Options for WorldCom series 1 PCS
common stock......................... 1,823,175 932,492 105,665 219,164
</TABLE>
As of September 30, 1999, executive officers held an aggregate of 604,622
restricted shares of Sprint FON common stock and 151,156 restricted shares of
Sprint PCS common stock awarded under Sprint's long-term incentive compensation
plan or Sprint's 1990 restricted stock plan or received upon exercise of stock
options. Each of these plans provides that the restrictions will lapse on the
shares of restricted stock outstanding for a year at the time of adoption by
the Sprint stockholders of the merger agreement. As of September 30, 1999, the
restricted stock held by the executive officers had been outstanding for a year
and therefore the restrictions will lapse on all of these shares upon the
adoption by Sprint stockholders of the merger agreement.
Employment Agreements
MCI WorldCom has guaranteed minimum salaries and minimum short-term
incentive compensation opportunities of Mr. Esrey and Mr. LeMay for three years
following the closing of the merger. The minimum salary for each individual
will be the amount of the salary paid to him in 1999, which is expected to be
approximately $1,000,000 for Mr. Esrey and $920,400 for Mr. LeMay; the minimum
short-term incentive compensation opportunity for each will be the 1999
opportunity, which is approximately $1,600,000 for Mr. Esrey and $935,000 for
Mr. LeMay.
Sprint has contingency employment agreements with Messrs. Esrey, LeMay and
Krause and three other executive officers. These agreements are intended to
assure these executive officers of continued employment for a period of three
years following any event that constitutes a change in control of Sprint. If
the employment of any of these executive officers is involuntarily terminated
other than for "cause" or any of these executive officers terminates his
employment for "good reason" within the three-year period following a "change
in control" of Sprint, as such terms are defined in each of the contingency
employment agreements, such executives will receive the following benefits:
. the executive will continue to receive monthly salary payments for 35
months, or until the executive officer reaches age 65 if this occurs
earlier. The current annual salaries set are $1,000,000 for Mr. Esrey,
$920,400 for Mr. LeMay, $429,092 for Mr. Krause, and $3,631,294 for all
executive officers covered by these agreements as a group
. the executive will receive three payments each equal to the highest
short-term plus the highest long-term incentive compensation awards
received during the three years preceding termination, paid on the 13th,
25th and 35th months following termination. For the last three years, the
highest of these awards was $5,029,894 for Mr. Esrey, $2,927,102 for Mr.
LeMay, $1,203,120 for Mr. Krause and $11,427,839 for all executive
officers covered by these agreements as a group
. the executive will receive 35 months, or until the executive is
reemployed, whichever is shorter, of life, disability, medical and dental
insurance coverage
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. under Sprint's pension plan, retirement benefits will be determined
assuming three years of additional credited service and the usual
actuarial reduction for retiring prior to age 65 will not be imposed
. post-retirement medical benefits will be provided
. for purposes of the Sprint key management benefit plan, the executive
will be deemed to have remained a key executive, as defined in the plan,
until age 60, and will therefore be entitled to the maximum benefit
equal to 300% of the participant's highest annual salary during the
five-year period before termination
. the executive will receive any amount of company contributions under
Sprint's savings plan that are not yet vested at termination
. to the extent the executive is entitled to enhanced pension benefits
under individual pension supplemental agreements that are earned upon
the completion of additional years of service, the executive will
receive the maximum enhancement even though he has not completed those
years at the time of termination and
. if any payment under the contingency employment agreement results in the
executive officer being subject to the excise tax payable under section
4999 of the Internal Revenue Code, such executive officer will receive
additional payments so that the executive officer receives the same net
after-tax benefit as the executive officer would have received had no
excise tax been applicable.
The contingency employment agreements permit the affected executive officer
to elect to receive as a lump sum the present value of those amounts described
above in the first two items. If the employment of these executive officers is
terminated within three years after the completion of the merger, under
circumstances giving rise to the benefits described above, these executive
officers would receive, upon the making of such an election, an estimated lump
sum severance payment in the amount of $15,846,000 for Mr. Esrey, $10,116,000
for Mr. LeMay, and $4,292,000 for Mr. Krause, and an aggregate amount of
$39,596,000 for all executive officers covered by these agreements as a group.
All but four of Sprint's executive officers have signed non-competition
agreements that provide that the executive will not associate with a competitor
of Sprint for an 18-month period following termination of employment. The
restriction on competition does not apply if, within one year following a
change in control of Sprint, the employer terminates the executive officer's
employment without cause or the executive officer terminates employment upon
constructive discharge. In addition, the agreements provide that each executive
officer will receive 18 months of compensation and benefits following an
involuntary termination of employment.
Options; Other Equity Based Compensation and Employee Benefits
For a description of the treatment in the merger of options to acquire shares
of Sprint stock, other equity based compensation and employee benefits that are
also applicable to directors and executive officers of Sprint, see "--Sprint
Employee Benefits Matters" and "--Effect on Awards Outstanding Under Sprint
Stock Plans".
Indemnification; Directors' and Officers' Insurance
Under the merger agreement, MCI WorldCom has agreed that it will assume the
same obligations with respect to indemnification of directors or officers of
Sprint or its subsidiaries as were contained in the articles of incorporation
or bylaws of Sprint or its subsidiaries and any indemnification or other
agreements at the date of signing the merger agreement. In addition, MCI
WorldCom will maintain the directors' and officers' liability insurance
policies currently maintained by Sprint on terms no less favorable than those
of such policies for a period of at least six years following the merger except
that MCI WorldCom is not required to spend an amount more than 200% of the
annual premiums currently paid by Sprint in any one year.
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Retention Arrangements
In connection with the merger, Sprint is considering a special grant of
stock options to officers and director-level employees designed to retain these
individuals following the Sprint special meeting. These grants would be in
addition to the annual grants under Sprint's 1990 Stock Option Plan, which
Sprint expects to make during the first quarter of 2000. For a description of
certain other retention arrangements that are also applicable to directors and
executive officers of Sprint, see "--Sprint Employee Benefits Matters".
Form of the Merger
Subject to the terms and conditions of the merger agreement and in
accordance with Georgia law and Kansas law, at the effective time of the
merger, Sprint will be merged with and into MCI WorldCom, which will survive
the merger, and will continue its corporate existence under Georgia law. The
combined company will be referred to as WorldCom.
Merger Consideration
Sprint FON Common Stock
At the completion of the merger, holders of Sprint FON common stock will
receive the following:
. Series 1 FON Common Stock. Each outstanding share of Sprint series 1 FON
common stock will be converted into the right to receive a number of
shares of WorldCom common stock equal to the FON exchange ratio, rounded
to the nearest 1/10,000, which will be determined by dividing:
-- $76 by
-- the average (rounded to the nearest 1/10,000) of the volume weighted
averages (rounded to the nearest 1/10,000) of the trading prices of MCI
WorldCom common stock on The Nasdaq National Market, as reported by
Bloomberg Financial Markets (or such other source as MCI WorldCom and
Sprint agree in writing), for the 15 trading days randomly selected by
MCI WorldCom and Sprint together from the 30 consecutive trading days
ending on the third trading day immediately before the completion of the
merger.
However, the FON exchange ratio will not be less than 0.9400 or greater than
1.2228.
. Series 3 FON Common Stock. Each outstanding share of Sprint series 3 FON
common stock will be converted into the right to receive a number of
shares of WorldCom series 3 common stock equal to the FON exchange ratio
described under "--Series 1 FON Common Stock" above, rounded to the
nearest 1/10,000. WorldCom series 3 common stock is being created in
connection with the merger.
Sprint PCS Common Stock
At the completion of the merger, holders of Sprint PCS common stock will
receive the following:
. Series 1 PCS Common Stock. Each outstanding share of Sprint series 1 PCS
common stock will be converted into the right to receive:
-- one share of WorldCom series 1 PCS common stock and
-- 0.1547 shares of WorldCom common stock.
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. Series 2 PCS Common Stock. Each outstanding share of Sprint series 2 PCS
common stock will be converted into the right to receive:
-- one share of WorldCom series 2 PCS common stock and
-- 0.1547 shares of WorldCom series 2 common stock.
. Series 3 PCS Common Stock. Each outstanding share of Sprint series 3 PCS
common stock will be converted into the right to receive:
-- one share of WorldCom series 3 PCS common stock and
-- 0.1547 shares of WorldCom series 3 common stock.
The series of WorldCom PCS common stock are being created in connection with
the merger.
Sprint FT/DT Class A Stock
At the completion of the merger, each outstanding share of Sprint class A
common stock will be converted into the right to receive one share of WorldCom
series FT common stock and each outstanding share of Sprint class A common
stock--series DT will be converted into the right to receive one share of
WorldCom series DT common stock. For a description of the shares of WorldCom
group common stock and WorldCom PCS group common stock issuable to holders of
WorldCom class A common stock, see "Description of MCI WorldCom Capital Stock--
Common Stock--Amended WorldCom Articles of Incorporation--Shares Held by France
Telecom and Deutsche Telekom". The WorldCom class A common stock is being
created in connection with the merger.
Sprint Preferred Stock
At the completion of the merger, holders of Sprint preferred stock will
receive the following:
. First Series Preferred Stock. Each share of Sprint first series preferred
stock that is outstanding before the completion of the merger will be
redeemed by Sprint for cash at that time.
. Second Series Preferred Stock. Each share of Sprint second series
preferred stock that is outstanding before the completion of the merger
will be redeemed by Sprint for cash at that time.
. Fifth Series Preferred Stock. Each outstanding share of Sprint fifth
series preferred stock will be converted into the right to receive one
share of WorldCom series 5 preferred stock.
. Seventh Series Preferred Stock. Each outstanding share of Sprint seventh
series preferred stock will be converted into the right to receive one
share of WorldCom series 7 preferred stock. For a description of the
conversion rights of the WorldCom series 7 preferred stock, see
"Description of MCI WorldCom Capital Stock--Preferred Stock--Amended
WorldCom Articles of Incorporation--WorldCom Series 7 Preferred Stock;
Preferred Inter-Group Interest--Conversion Rights".
The WorldCom series 5 and series 7 preferred stock described above are being
created in connection with the merger.
Adjustment of FON and PCS Exchange Ratios
The FON exchange ratio, which will be determined shortly before completion
of the merger, and the PCS exchange ratio, which is 0.1547, will be
appropriately adjusted to reflect any stock split, stock dividend,
recapitalization, subdivision, reclassification, combination, exchange of
shares or similar transaction relating to the outstanding MCI WorldCom common
stock if:
. MCI WorldCom changes or establishes a record date for changing the number
of shares of MCI WorldCom common stock issued and outstanding before the
completion of the merger as a result of any of those transactions and
. the record date for any of these transactions occurs before the
completion of the merger.
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In addition, the FON exchange ratio and the PCS exchange ratio will be
appropriately adjusted to reflect any dividend or distribution if MCI WorldCom
pays, or establishes a record date for payment of, a dividend on, or makes any
other distribution in respect of, MCI WorldCom common stock.
Fractional Shares
Sprint FON common stockholders and Sprint PCS common stockholders will
receive cash for any fractional shares which they might otherwise receive in
the merger based on the closing price of MCI WorldCom common stock on The
Nasdaq National Market on the date the merger is completed.
Sprint Treasury Stock; Sprint Stock Held by MCI WorldCom; Inter-Group Interest
At the completion of the merger, each share of Sprint capital stock issued
and owned or held by Sprint or MCI WorldCom will by virtue of the merger be
canceled and retired. No stock of MCI WorldCom or other consideration will be
delivered for those shares in the merger. However, the Sprint FON group's
inter-group interest, warrant inter-group interest and preferred inter-group
interest in the Sprint PCS group will become virtually identical corresponding
interests of the WorldCom group in the WorldCom PCS group. See "Certain
Tracking Stock Matters--Inter-Group Interest--The Various Interests in the
Economic Performance of the PCS Group; Definition of Inter-Group Interest".
Conversion of Shares; Procedures for Exchange of Certificates; Fractional
Shares
The conversion of each share of Sprint capital stock into the applicable
shares of WorldCom capital stock, as described above under "--Merger
Consideration", will occur automatically at the completion of the merger. As
soon as practicable after the merger, The Bank of New York, the exchange agent,
will send a transmittal letter to each former Sprint stockholder. The
transmittal letter will contain instructions with respect to obtaining the
merger consideration in exchange for shares of Sprint capital stock. Sprint
stockholders should not send stock certificates with the enclosed proxy.
After the merger, each certificate that previously represented shares of
Sprint capital stock will represent only the right to receive the applicable
merger consideration as described above under "--Merger Consideration",
including cash for any fractional shares of MCI WorldCom common stock, or the
right to receive cash for the fair value of those shares for which appraisal
rights have been perfected.
Holders of certificates previously representing Sprint capital stock will
not be paid dividends or distributions on the WorldCom capital stock into which
their Sprint capital stock has been converted with a record date after the
merger, and will not be paid cash for any fractional shares of WorldCom common
stock, in each case until their certificates are surrendered to the exchange
agent for exchange. When their certificates are surrendered, any unpaid
dividends and any cash instead of fractional shares will be paid without
interest.
In the event of a transfer of ownership of Sprint capital stock which is not
registered in the records of Sprint's transfer agent, a certificate
representing the proper number of shares of WorldCom capital stock may be
issued to a person other than the person in whose name the surrendered
certificate is registered if the certificate representing such shares is
presented to the exchange agent, accompanied by all documents required to
evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid.
All shares of WorldCom capital stock issued upon surrender of certificates
representing the applicable shares of Sprint capital stock will be deemed to
have been issued and paid in full satisfaction of all rights relating to those
shares of Sprint capital stock. WorldCom will remain obligated, however, to pay
any dividends or make any other distributions declared or made by Sprint in
accordance with the merger agreement on shares of Sprint capital stock with a
record date before the completion of the merger and which remain unpaid at the
completion of the merger. If certificates are presented to WorldCom or the
exchange agent after the completion of the merger, they will be canceled and
exchanged as described above.
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No fractional shares of WorldCom capital stock will be issued to any Sprint
stockholder upon surrender of certificates previously representing shares of
Sprint capital stock. Each Sprint stockholder who would otherwise have been
entitled to receive a fraction of a share of WorldCom capital stock will
receive an amount in cash without interest equal to (1) the fractional part of
a share of applicable WorldCom capital stock multiplied by (2) the closing
price for a share of MCI WorldCom common stock on The Nasdaq National Market on
the closing date of the merger.
Effective Time of the Merger
The effective time of the merger will be the later of the time of the filing
of a certificate of merger with the Kansas Secretary of State and the filing of
a certificate of merger with the Georgia Secretary of State or a later time if
agreed upon by MCI WorldCom and Sprint and specified in the certificates of
merger. The filing of the certificates of merger will occur as soon as
practicable following the closing of the merger.
Listing of WorldCom Capital Stock
Before the completion of the merger, MCI WorldCom has agreed to use its
reasonable best efforts to have the shares of WorldCom common stock and
WorldCom series 1 PCS common stock issuable to applicable Sprint stockholders
in the merger approved for quotation on The Nasdaq National Market, subject to
official notice of issuance.
Delisting and Deregistration of Sprint Capital Stock
If the merger is completed, Sprint series 1 FON common stock and Sprint
series 1 PCS common stock will be delisted from the New York Stock Exchange,
and will be deregistered under the Securities Exchange Act of 1934. In
addition, upon redemption by Sprint, the Sprint first series and second series
preferred stock will be delisted from the New York Stock Exchange and will be
deregistered under the Exchange Act.
Material United States Federal Income Tax Consequences
The following discussion summarizes the material U.S. federal income tax
consequences of the merger and the amending of the WorldCom articles of
incorporation. This discussion insofar as it relates to Sprint stockholders
addresses only those of you who currently hold your Sprint stock, and will hold
your WorldCom stock received pursuant to the merger, as a capital asset within
the meaning of section 1221 of the Internal Revenue Code.
This discussion is not exhaustive as to all possible tax considerations and
does not include a discussion of any state, local or foreign tax
considerations. In addition, this discussion is intended to address only those
material U.S. federal income tax considerations that are generally applicable
to Sprint stockholders and MCI WorldCom shareholders and does not discuss all
of the aspects of U.S. federal income taxation that may be relevant to certain
classes of stockholders, including:
. insurance companies and other financial institutions
. corporations subject to the alternative minimum tax
. tax-exempt entities
. traders that use a mark-to-market method of accounting for their
securities holdings
. dealers in securities or foreign currency
. mutual funds
. small business investment companies
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. stockholders that hold their stock as part of a straddle, a hedge
against currency risk, a constructive sale or as part of a hedging or
conversion transaction
. investors in pass-through entities
. stockholders whose functional currency is not the U.S. dollar
. stockholders who acquired their stock pursuant to the exercise of
employee stock options or otherwise as compensation or through a tax-
qualified retirement plan
. corporate holders of Sprint stock who received an "extraordinary
distribution" with respect to their stock and such extraordinary
distribution remains subject to section 1059 of the Internal Revenue
Code as it existed prior to the Taxpayer Relief Act of 1997
. expatriates of the United States who are subject to U.S. federal income
tax and
. individuals who are not citizens or residents of the United States,
foreign corporations and other foreign entities.
This discussion is based upon current provisions of the Internal Revenue
Code and its legislative history, existing, temporary and currently proposed
Treasury Regulations, existing administrative rulings and practices of the
Internal Revenue Service and judicial decisions. No assurance can be given that
legislative, judicial or administrative changes will not affect the accuracy of
this discussion, possibly on a retroactive basis.
In particular, as discussed below in greater detail, Congress could enact
legislation affecting the treatment of stock with characteristics similar to
the Sprint FON common stock, Sprint PCS common stock, Sprint FT/DT class A
stock, WorldCom group common stock, WorldCom PCS group common stock and
WorldCom class A common stock, or the Treasury Department could change the
current law through the promulgation of regulations or other guidance,
including, without limitation, regulations issued pursuant to its broad
authority under section 337(d) of the Internal Revenue Code. As an example, the
Clinton administration's annual budget proposal released in February 1999
recommended changing the law with respect to new issuances of stock with
characteristics similar to the Sprint FON common stock, Sprint PCS common
stock, WorldCom group common stock or WorldCom PCS group common stock, each of
which is referred to as "Tracking Stock". The proposal to date, however, has
not been adopted into law nor included in any pending proposed legislation. Any
such change in law, which may or may not be retroactive, could alter the tax
consequences discussed below to MCI WorldCom, Sprint or their respective
shareholders and stockholders, respectively, or could affect the ability of
WorldCom to issue additional Tracking Stock following the completion of the
merger. Accordingly, no assurance can be given that the statements set forth in
this discussion will remain accurate in the future.
This discussion is not intended as a substitute for careful tax planning.
Each Sprint stockholder and MCI WorldCom shareholder is urged to consult his
own tax advisor regarding the specific tax consequences of the merger and the
amending of the articles of incorporation of MCI WorldCom, including the
federal, state, local and foreign tax consequences that may be applicable to
such shareholder.
Tax Opinions
It is a condition to the obligation of MCI WorldCom to complete the merger
that it receive a tax opinion from its counsel that provides that:
. the merger will qualify as a "reorganization" within the meaning of
section 368(a) of the Internal Revenue Code
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. MCI WorldCom and Sprint will each be a "party" to the reorganization
within the meaning of section 368(b) of the Internal Revenue Code and
. the issuance of the WorldCom group common stock, WorldCom PCS group
common stock and WorldCom class A common stock will not result in
WorldCom recognizing an amount of income or gain, or being subject to an
amount of tax, in each case that, individually or in the aggregate, is
reasonably likely to have a material adverse effect on WorldCom.
It is a condition to the obligation of Sprint to complete the merger that it
receive a tax opinion from its counsel that provides that:
. the merger will qualify as a "reorganization" within the meaning of
section 368(a) of the Internal Revenue Code
. MCI WorldCom and Sprint will each be a "party" to the reorganization
within the meaning of section 368(b) of the Internal Revenue Code and
. the WorldCom group common stock, WorldCom PCS group common stock and
WorldCom class A common stock received by the holders of each series of
Sprint FON common stock, Sprint PCS common stock and Sprint FT/DT class
A stock, as applicable, in the merger will be property permitted to be
received under section 354 of the Internal Revenue Code without the
recognition of gain.
Each opinion is subject to qualifications and is based on currently
applicable law, certain factual representations made by MCI WorldCom and Sprint
and certain assumptions. Any change in applicable law, which may or may not be
retroactive, or failure of any of such factual representations or assumptions
to be true, correct and complete in all material respects, could affect the
continuing validity of either opinion and the conclusions described below.
Assuming the merger qualifies as a "reorganization", the merger generally
will have the U.S. federal income tax consequences described below.
Material U.S. Federal Income Tax Consequences to Sprint Stockholders
Holders of Sprint FON Common Stock, Sprint PCS Common Stock, Sprint FT/DT
Class A Stock and Sprint Seventh Series Preferred Stock.
. Except with respect to any cash received in lieu of fractional shares of
WorldCom group common stock, you will not recognize income, gain or loss
in connection with your exchange of Sprint stock for the applicable
WorldCom stock pursuant to the merger.
. Your aggregated adjusted tax basis in the shares of WorldCom stock you
receive in the merger, including any fractional interest in WorldCom
group common stock, will be the same as your aggregated adjusted tax
basis in the Sprint stock, exchanged for them.
. Your holding period in the WorldCom stock you receive in the merger will
include your holding period in the Sprint stock you exchanged for them.
. You will recognize capital gain or loss in connection with any cash you
receive in lieu of a fractional share of WorldCom group common stock
based upon the difference between the amount of cash received and your
adjusted tax basis in such fractional share. Any such capital gain or
loss will be long-term if your holding period in such fractional share
is more than one year as of the completion of the merger. The
deductibility of capital losses is subject to limitations.
Holders of Sprint First Series Preferred Stock and Sprint Second Series
Preferred Stock. Before the completion of the merger, Sprint will redeem the
Sprint first series preferred stock and Sprint second series
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preferred stock. Depending on your particular circumstances, especially whether
you own or are treated as owning other shares of any series of Sprint capital
stock or WorldCom capital stock, the redemption may be treated as:
. a sale or exchange of your Sprint preferred stock taxable as capital
gain or loss or
. a distribution taxable as a dividend, which means as ordinary income.
If the redemption of your Sprint preferred stock is treated as a sale or
exchange of such stock, the amount of gain or loss will be equal to the
difference between the amount of cash received and your adjusted tax basis in
such stock and will be long-term capital gain or loss if you held such stock
for more than one year at the time of the redemption.
If the redemption of your Sprint preferred stock is treated as a
distribution, the amount received will be taxable as a dividend rather than
capital gain. In such case, the amount of such dividend will be equal to the
amount of cash received in connection with such redemption and will be eligible
for the dividends-received deduction for certain corporate U.S. holders,
subject to applicable limitations under the Internal Revenue Code.
Holders of Sprint Fifth Series Preferred Stock. If you are a holder of
Sprint fifth series preferred stock, the U.S. federal income tax consequences
are unclear due to the relatively short term to mandatory redemption of the
WorldCom series 5 preferred stock following the issuance of such stock for the
Sprint fifth series preferred stock pursuant to the merger. In particular, it
is unclear whether such a newly created instrument will constitute stock for
U.S. federal income tax purposes. If the WorldCom series 5 preferred stock
issued in exchange for the Sprint fifth series preferred stock is treated as
stock for U.S. federal income tax purposes, the exchange should have the same
U.S. federal income tax consequences as described above for holders of Sprint
FON common stock, Sprint PCS common stock, Sprint FT/DT class A stock, Sprint
first series preferred stock and Sprint seventh series preferred stock. The
U.S. federal income tax consequences of receiving the WorldCom series 5
preferred stock pursuant to the merger are unclear due to its relatively short
term to mandatory redemption following its issue. In particular, it is unclear
whether such a newly issued instrument will constitute stock for U.S. federal
income tax purposes. If the WorldCom series 5 preferred stock is not treated as
stock for U.S. federal income tax purposes, the exchange of it could be treated
as a sale or exchange taxable as capital gain or as a distribution taxable as a
dividend, which means as ordinary income, depending on your particular
circumstances.
Section 306 Stock. Stock that is received by a shareholder in connection
with a plan of reorganization such as the merger and that is not common stock
may be section 306 stock. If any stock received in the merger is considered
section 306 stock, a shareholder could recognize ordinary income on the
subsequent sale or exchange of such stock or dividend income on the redemption
of such stock.
Dissenting Holders. If you are a holder of the Sprint FT/DT class A stock,
Sprint series 3 FON common stock, Sprint series 2 PCS common stock, Sprint
series 3 PCS common stock, Sprint fifth series preferred stock or Sprint
seventh series preferred stock, you have the right to assert your appraisal
rights relating to such stock. If you receive cash in respect of a dissenting
share of such Sprint stock, you will recognize gain or loss equal to the
difference between the amount of cash received and your adjusted tax basis in
the dissenting shares. Any gain or loss attributable to the disposition of the
applicable dissenting shares will be long-term capital gain if you held such
shares for more than one year at the time of disposition.
Backup Withholding. Any cash received for fractional shares by a Sprint
stockholder may be subject to backup withholding at a 31% rate. If the
redemption of Sprint first series preferred stock or Sprint second series
preferred stock before the merger or the receipt of WorldCom series 5 preferred
stock by Sprint fifth series preferred stockholders is treated as a dividend or
capital gain, that dividend or capital gain may be subject to backup
withholding at a 31% rate if the applicable Sprint stockholder is not a
corporation. Backup withholding, in both cases, will not apply, however, to a
taxpayer who:
. furnishes a correct taxpayer identification number on IRS Form W-9 or an
appropriate substitute form and certifies on such form that he, she or
it is not subject to backup withholding
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. provides a certificate of foreign status on IRS Form W-8 or an
appropriate substitute form or
. is otherwise exempt from backup withholding.
Any amount paid as backup withholding will be credited against the
taxpayer's U.S. federal income tax liability.
Information Reporting. If you exchange your Sprint stock for WorldCom group
common stock, WorldCom group PCS common stock, WorldCom class A common stock or
WorldCom series 7 preferred stock, as applicable, in connection with the
merger, section 1.368-3 of the Treasury Regulations requires you to incorporate
into your U.S. federal income tax return, for the year in which the exchange
occurs, a complete statement of all the facts pertinent to the nonrecognition
of gain or loss in connection with such exchange including:
. the cost or other basis of the stock or securities transferred in the
exchange and
. statement of the amount of stock, securities, or other property received
in the exchange, including the fair market value, as of the date of the
exchange, of each type of stock, securities or other property received
by you.
You are also required to maintain permanent records of:
. the cost or other basis of the stock or securities transferred in the
exchange and
. the amount of stock, securities or other property or cash received in
the exchange.
All Sprint stockholders are encouraged to consult their own tax advisor to
determine the specific information that may be needed to file an income tax
return pursuant to the Treasury Regulations under section 368 of the Internal
Revenue Code.
If you receive WorldCom series 5 preferred stock pursuant to the merger and
it is treated as stock for U.S. federal income tax purposes, you must also
comply with these rules.
Material U.S. Federal Income Tax Consequences to MCI WorldCom Shareholders
MCI WorldCom's existing shareholders will not recognize any gain or loss for
U.S. federal income tax purposes as a result of either the merger or the
amended WorldCom articles of incorporation.
No IRS Ruling
Neither MCI WorldCom nor Sprint has requested a ruling from the Internal
Revenue Service on any of the U.S. federal income tax consequences of the
merger or the amending of the articles of incorporation of MCI WorldCom and, as
a result, there can be no assurance that the Internal Revenue Service will not
disagree with or challenge any of the conclusions described above. Furthermore,
the tax opinions described above are not binding on the Internal Revenue
Service or the courts.
In this regard, it should be noted that no existing authority directly
addresses the U.S. federal income tax classification of multiple classes of
stock of a single corporation, each of which is intended to relate to and track
the economic performance of separate businesses owned and operated directly or
indirectly by the issuing corporation. The IRS announced in 1987 that it was
studying and would not issue advance rulings on the classification of an
instrument that has certain voting and liquidation rights in an issuing
corporation but the dividend rights of which are determined by reference to the
earnings of a segregated portion of the issuing corporation's assets, including
assets held by a subsidiary (i.e., stock similar to the Tracking Stock). In
1997 the IRS placed such instruments on its list of areas in which rulings or
determination letters will not be issued. There are no court decisions or other
authorities that bear directly on the U.S. federal income tax classification of
such instruments or the amending of the articles of incorporation of MCI
WorldCom. It is possible, therefore, that the IRS could assert that any or all
series of WorldCom common stock represents property other than stock of
WorldCom, which is referred to as "Other Property".
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If any stock issued by WorldCom in the merger is treated as Other Property,
depending on the value of the Other Property, the entire merger could fail to
qualify as a reorganization under section 368(a) of the Internal Revenue Code,
in which event Sprint would recognize gain or loss on all of its assets
transferred to WorldCom in the merger in the amount equal to the difference
between the fair market value of the property transferred in the merger and the
basis of Sprint in the transferred assets. In addition, the stockholders of
Sprint would recognize gain or loss on any property received in the merger in
an amount equal to the difference between the fair market value of the property
transferred and their basis in the Sprint stock surrendered in the exchange.
If, on the other hand, the merger nevertheless were to constitute a
reorganization under section 368(a) of the Internal Revenue Code despite the
classification of certain stock as Other Property, the stockholders of Sprint
would recognize income as a result of the merger in an amount equal to the fair
market value of the stock constituting Other Property, but not in excess of the
amount by which the fair market value of the Sprint stock surrendered in the
merger exceeds the stockholder's basis in such stock. Such income, if any,
would be taxed as capital gain or dividend income (to the extent of the
stockholder's ratable share of Sprint's current or accumulated earnings and
profits, as calculated for U.S. federal income tax purposes) depending on the
stockholder's circumstances. It is unclear what the adverse tax consequences,
if any, would be to MCI WorldCom and its shareholders, although such
consequences could be materially adverse. Although there can be no assurance,
both Cravath, Swaine & Moore and King & Spalding believe that if the status of
any series of WorldCom common stock were challenged, a court would agree with
their conclusions that such stock represents stock of WorldCom.
This discussion is only a summary of the material U.S. federal income tax
consequences of the merger and the amending of the articles of incorporation of
MCI WorldCom and does not provide a complete analysis of such consequences. In
addition, this discussion does not address tax consequences which may vary
with, or are contingent upon, individual circumstances. Moreover, the
discussion does not address any non-income tax or foreign, state or local tax
consequences of the merger. Accordingly, you should consult your own tax
advisor to determine the particular federal, state, local or foreign income or
other tax consequences resulting from the merger and the amended WorldCom
articles of incorporation.
Regulatory Matters
Federal Communications Commission
Under the Communications Act of 1934, the Federal Communications Commission
must approve, before the completion of the merger, the transfer of control to
MCI WorldCom of Sprint and those subsidiaries of Sprint that hold FCC licenses
and authorizations. The FCC must determine whether MCI WorldCom is qualified to
control such licenses and authorizations and whether the transfer is consistent
with the public interest, convenience and necessity. MCI WorldCom and Sprint
intend to file transfer of control applications with the FCC in November 1999.
United States Antitrust
Under the Hart-Scott-Rodino Act, and the rules promulgated thereunder by the
Federal Trade Commission, the merger may not be completed until notifications
have been given and certain information furnished to the FTC and to the
Antitrust Division of the U.S. Department of Justice and the specified waiting
period has been terminated or has expired. On October 12, 1999, MCI WorldCom
and Sprint each filed notification and report forms under the Hart-Scott-Rodino
Act with the FTC and the Department of Justice. At any time before or after
completion of the merger, the Department of Justice could take such action
under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin completion of the merger or seeking
divestiture of substantial assets of MCI WorldCom or Sprint. The merger also is
subject to review under state antitrust laws and could be the subject of
challenges by private parties under the antitrust laws.
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State Regulatory Approvals
Various subsidiaries of Sprint hold licenses and service authorizations
issued by state public utility commissions. Approximately 26 state commissions
must review the transfer of control of these licenses and authorizations to MCI
WorldCom. MCI WorldCom and Sprint believe that the merger complies with
applicable state standards for approval.
Foreign Regulatory Reviews
MCI WorldCom and Sprint each conduct business in member states of the
European Union. Member state competition authorities exercise jurisdiction over
transactions that fall below the thresholds set forth in European merger
regulation 4064/89 (which grants exclusive jurisdiction to the European
Commission), but above thresholds set forth in their individual national laws.
Such national thresholds are typically based on worldwide sales and sales in
the individual member states. The national authorities will review the merger
to determine whether it is compatible with their national laws on merger
control. If a national authority concludes that the transaction is incompatible
with applicable law, it could withhold its approval or condition its approval
upon the receipt of certain undertakings by the parties, including the
divestiture of certain assets or businesses.
Transactions which exceed the thresholds set forth in European merger
regulation 4064/89 fall within the exclusive jurisdiction of the European
Commission and will be assessed to determine if they create a position of
dominance which is restrictive of competition. Similar to the position that
prevails in the member states, the European Commission can withhold its
approval or condition its approval on certain undertakings of the parties
including the divestiture of certain assets or businesses.
The parties will make appropriate filings with the relevant European
antitrust authorities in accordance with the applicable rules once review of
the relevant information has been completed.
MCI WorldCom and Sprint each conduct business in Brazil. MCI WorldCom owns
an indirect controlling interest in Empresa Brasileira de Telecomunicacoes
S.A.--Embratel, which holds a concession to provide fixed long-distance
telephony services and authorizations to provide additional telecommunications
services in Brazil. Sprint has an ownership interest in Intelig
Telecomunicacoes Ltda., which holds an authorization to provide fixed long-
distance telephony services in competition with Embratel. In these
circumstances, the merger is notifiable to the Brazilian telecommunications and
antitrust authorities, Anatel and CADE, pursuant to Articles 2 and 54, (S) 3 of
Law No. 8,884/94. The authorities will review the transaction to determine
whether it is compatible with the Brazilian antitrust law as well as the
General Telecommunications Law (GTL)--Law 9.472/97 and the General Grant Plan
(GGP)--Decree 2.534/98. If Anatel and/or CADE conclude that the transaction is
incompatible with applicable law, they could withhold their approval or
condition approval on certain undertakings by the parties, including the
divestiture of overlapping assets or operations in Brazil. On October 26, 1999,
the required notifications were filed with Anatel/CADE. A decision is
anticipated within two to three months.
MCI WorldCom and Sprint are not aware of any other foreign governmental
approvals or actions that would be required for completion of the merger.
However, MCI WorldCom and Sprint conduct business in a number of other foreign
countries, some of which have voluntary and/or post-merger notification
procedures. If any other approval or action is required, MCI WorldCom and
Sprint currently contemplate that such approval or action will be sought.
Litigation
Seven purported stockholder class action suits have been filed in state
courts in Kansas and New York against Sprint and members of the Sprint board of
directors relating to the merger. Plaintiffs in these actions allege, among
other things, that the Sprint director defendants have breached their fiduciary
duties to Sprint stockholders by failing to maximize stockholder value in
connection with entering into the merger agreement and by agreeing to certain
provisions in the merger agreement. Plaintiffs generally seek injunctive
relief, damages, costs and attorneys' fees. Sprint believes that the claims are
without merit and intends to defend these actions vigorously.
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Accounting Treatment
The merger is expected to be accounted for using purchase accounting with
MCI WorldCom being deemed to have acquired Sprint.
Appraisal Rights
Sprint
Sprint is a Kansas corporation. Section 17-6712 of the Kansas General
Corporation Code provides appraisal rights under certain circumstances to
stockholders of a Kansas corporation that is involved in a business
combination.
If the merger is completed and you are the record holder of any of the
classes and series of Sprint capital stock, listed below, that are issued and
outstanding immediately before the completion of the merger, you will be
entitled to appraisal rights under the Kansas General Corporation Code if you
objected to the merger in writing and otherwise complied with section 17-6712
of the Kansas General Corporation Code. Holders of record of the following
classes and series of Sprint capital stock will be eligible to demand appraisal
rights in connection with the merger:
. Sprint class A common stock
. Sprint class A common stock--series DT
. Sprint series 3 FON common stock
. Sprint series 2 PCS common stock
. Sprint series 3 PCS common stock
. Sprint fifth series preferred stock and
. Sprint seventh series preferred stock.
The following is a summary of the material aspects of section 17-6712 of the
Kansas General Corporation Code and is qualified in its entirety by the full
text of section 17-6712, which we have reprinted in its entirety as Annex 6 to
this proxy statement/prospectus. You should read Annex 6 carefully. Failure to
follow the steps required by section 17-6712 for perfecting appraisal rights
may result in the loss of such rights.
To perfect appraisal rights under Kansas law with respect to your eligible
Sprint shares, you:
. must not vote in favor of the proposal to adopt the merger agreement, or
must not have been entitled to vote on this proposal and
. must deliver to Sprint, before the vote on the proposal to adopt the
merger agreement at the Sprint special meeting, a written objection to
the merger which reasonably informs Sprint of the identity of the holder
of record of the eligible Sprint shares as well as the intention of the
holder of record to demand an appraisal of the fair value of the eligible
Sprint shares so held.
In order not to vote in favor of the proposal to adopt the merger agreement,
you must:
. not return a proxy and not vote in person in favor of the proposal to
adopt the merger agreement
. return a proxy with the "Against" or "Abstain" box checked
. vote in person against the proposal to adopt the merger agreement or
. register in person an abstention from the proposal to adopt the merger
agreement.
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In addition, if you wish to assert your appraisal rights, you must be the
record holder of your Sprint shares on the date that your written objection to
the merger is delivered to Sprint. Only a holder of record is entitled to
assert appraisal rights for the shares of stock registered in that holder's
name. Moreover, to preserve your appraisal rights, you must continue to hold
your eligible Sprint shares through the completion of the merger. Accordingly,
if you are the record holder of eligible Sprint shares on the date the written
objection to the merger is made, but subsequently transfer these shares before
the completion of the merger, you will lose any right to appraisal for these
shares.
A person having a beneficial interest in eligible Sprint shares that are
held of record in the name of another person, such as a broker or nominee, must
act promptly to cause the record holder to follow the steps summarized below
properly and in a timely manner to perfect his or her appraisal rights.
All written notices of your intent to demand payment for your eligible
Sprint shares must be mailed or delivered, and received before the vote on the
adoption of the merger agreement at the Sprint stockholders' meeting, to:
Sprint Corporation
2330 Shawnee Mission Parkway
Westwood, Kansas 66205
Attention: Don A. Jensen, Vice President and Secretary
Alternatively, a written objection may be delivered to Sprint's secretary at
the Sprint special meeting before the vote on the proposal to adopt the merger
agreement.
Within 10 days after the completion of the merger, WorldCom, as the
surviving corporation, will mail to each Sprint stockholder who properly
delivered to Sprint a written objection to the merger and who did not vote in
favor of the proposal to adopt the merger agreement, which we refer to as a
"dissenting stockholder", written notice that the merger has been completed. If
you desire to pursue your rights as a dissenting stockholder, then within
20 days from the date on which WorldCom mailed the notice to you, you must
demand in writing the payment of the value of your eligible Sprint shares from
WorldCom. WorldCom must then pay you the value of your eligible Sprint shares
determined as of the effective date of the merger, exclusive of any element of
value arising from the expectation or accomplishment of the merger.
If, within 30 days following the 20-day period provided for dissenting
stockholders to demand payment for their eligible Sprint shares, WorldCom and
any dissenting stockholder fail to agree on the value of the holder's shares,
then either WorldCom or any dissenting stockholder may, within four months
after the expiration of that 30-day period, file a petition with the district
court of Kansas and demand a determination by an appraiser or appraisers
appointed by the district court of the value of the eligible Sprint shares. All
dissenting stockholders whose demands for payment remain unsettled will be
parties to the appraisal proceeding. WorldCom is not under any obligation, and
has no present intention, to file a petition for appraisal of the value of the
eligible Sprint shares. Accordingly, it is the obligation of the holders of
eligible Sprint shares to initiate all necessary actions to perfect their
rights to an appraisal of the value of their Sprint shares by the district
court of Kansas.
If you are a dissenting stockholder and timely file a petition for an
appraisal and serve a copy of the petition upon WorldCom, then WorldCom must
file with the clerk of the Kansas district court a list containing the names
and addresses of the Sprint stockholders who have properly demanded appraisal
of their eligible Sprint shares and with whom agreements as to the value of
their eligible Sprint shares have not been reached. After notice is delivered
to the dissenting stockholders, as required by section 17-6712 of the Kansas
General Corporation Code, the district court may conduct a hearing on such
petition to determine those Sprint stockholders that have properly complied
with section 17-6712 and that have become entitled to appraisal rights.
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After the hearing, the court will appoint one or more appraisers to
determine the value of the eligible Sprint shares of all of the dissenting
stockholders entitled to appraisal rights. In determining the value of the
eligible shares, the appraisers will value these shares as of the effective
time of the merger without regard to any element of value arising from the
expectation or accomplishment of the merger, and the appraisers will base their
valuation upon such investigation as seems proper to them. The appraisers must
give all interested parties a reasonable opportunity to submit pertinent
evidence of the value of the eligible Sprint shares. After receiving the report
of the appraisers, the court will then determine the value of the eligible
Sprint shares of all of the dissenting stockholders and will direct payment of
that value, together with such interest as the court orders, if any, to the
appropriate parties. The costs of the appraisal, including reasonable fees and
expenses of the appraisers, but not including fees and expenses of counsel and
experts retained by any party, will be assessed against the parties as the
court deems equitable. In any case, however, the cost of mailing and publishing
the required notices of the proceedings will be assessed against WorldCom.
At the time of appointing the appraisers, the court will require you to
submit your stock certificates to the clerk of the court, to be held by the
clerk pending the appraisal proceedings. If you fail to comply with that
direction, the court will dismiss the appraisal proceedings as to you.
You should be aware that in seeking appraisal of your eligible Sprint
shares, the value as determined under section 17-6712 of the Kansas General
Corporation Code could be more than, the same as, or less than the
consideration you are entitled to receive under the terms of the merger
agreement.
Any Sprint stockholder who has duly demanded appraisal in compliance with
section 17-6712 of the Kansas General Corporation Code will not, after the
completion of the merger, be entitled to vote those eligible Sprint shares or
to receive payment of dividends or other distributions with respect to those
eligible Sprint shares, except for dividends or distributions payable to
holders of record of eligible Sprint shares at a date prior to the completion
of the merger and with certain other limited exceptions, as set forth in
section 17-6712(i) of the Kansas General Corporation Code.
Any Sprint stockholder who properly objects to the merger but fails to
perfect, or effectively withdraws or loses, his or her right to appraisal of
his or her eligible Sprint shares will then have the right to receive the
consideration for his or her eligible Sprint shares in accordance with the
terms of the merger agreement. In addition, any Sprint stockholder who has
properly demanded appraisal of his or her eligible Sprint shares under
section 17-6712 of the Kansas General Corporation Code may only withdraw that
demand and accept the consideration offered by the merger agreement if the
stockholder receives the written consent of WorldCom.
MCI WorldCom
MCI WorldCom is a Georgia corporation. Sections 14-2-1301 to 14-2-1332 of
the Georgia Business Corporation Code provide dissenters' rights, sometimes
referred to as "appraisal rights", under certain circumstances to shareholders
of a Georgia corporation that is involved in a business combination.
If the merger is completed and you are the record holder of shares of MCI
WorldCom series B preferred stock that are issued and outstanding immediately
before the completion of the merger, you will be entitled to dissenters' rights
under Georgia law if you deliver a written notice to MCI WorldCom of your
intent to demand payment for your shares of MCI WorldCom series B preferred
stock and otherwise comply with the dissenters' rights provisions of the
Georgia Business Corporation Code referred to above.
The following is a summary of the material aspects of section 14-2-1301 to
14-2-1332 of the Georgia Business Corporation Code and is qualified in its
entirety by the full text of sections 14-2-1301 to 14-2-1332, which we have
reprinted in their entirety as Annex 7 to this proxy statement/prospectus. You
should read Annex 7 in its entirety. Failure to follow the steps required by
the dissenters' rights provisions for perfecting dissenters' rights may result
in the loss of such rights.
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To perfect your dissenters' rights under Georgia law with respect to your
shares of MCI WorldCom series B preferred stock, you:
. must not vote for the proposal to approve the merger agreement and
. must deliver to MCI WorldCom a written notice of your intent to demand
payment for your shares of MCI WorldCom series B preferred stock before
the shareholder vote to approve the merger agreement is taken at the MCI
WorldCom special meeting.
In order not to vote in favor of the proposal to approve the merger
agreement, you must:
. not return a proxy and not vote in person in favor of the proposal to
approve the merger agreement
. return a proxy with the "Against" or "Abstain" box checked
. vote in person against the proposal to approve the merger agreement or
. register in person an abstention from the proposal to approve the merger
agreement.
In addition, if you wish to assert your dissenters' rights, you must be the
record holder of your shares of MCI WorldCom series B preferred stock on the
date the written notice of your intent to demand payment for your shares is
made, and you must continue to hold these shares through the completion of the
merger. Only a holder of record is entitled to assert dissenters' rights for
the shares of MCI WorldCom series B preferred stock registered in that holder's
name. However, a record shareholder may assert dissenters' rights as to fewer
than all the shares registered in his or her name only if he or she dissents
with respect to all shares beneficially owned by any one beneficial shareholder
and notifies MCI WorldCom in writing of the name and address of each person on
whose behalf he or she is asserting dissenters' rights.
A person having a beneficial interest in shares of MCI WorldCom series B
preferred stock that are held of record in the name of another person, such as
a broker or nominee, must act promptly to cause the record holder to follow the
steps summarized below properly and in a timely manner to perfect his or her
dissenters' rights.
All written notices of your intent to demand payment for your shares of MCI
WorldCom series B preferred stock must be mailed or delivered, and received
before the vote on the approval of the merger agreement at the MCI WorldCom
shareholders meeting, to:
MCI WORLDCOM, Inc.
10777 Sunset Office Drive
Suite 330
St. Louis, Missouri 63127
Attention: P. Bruce Borghardt, Esq.
Alternatively, a written notice of intent to demand payment may be delivered
to MCI WorldCom's secretary at the MCI WorldCom special meeting before the vote
on the proposal to approve the merger agreement.
Within 10 days after the completion of the merger, WorldCom will deliver to
each holder of MCI WorldCom series B preferred stock who properly delivered a
written notice of intent to demand payment for his or her shares and who did
not vote in favor of the proposal to approve the merger agreement, which is
referred to as a "dissenting shareholder", a written notice that the merger has
become effective, accompanied by the full text of Annex 7 to this proxy
statement/prospectus. This notice will:
. state where the dissenting shareholders' payment demand must be sent and
where and when certificates for shares of MCI WorldCom series B preferred
stock must be deposited
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. inform holders of uncertificated shares to what extent transfer of the
shares of MCI WorldCom series B preferred stock will be restricted after
the payment demand is received and
. set a payment demand date by which WorldCom must receive the payment
demand, which may not be fewer than 30 nor more than 60 days after the
date the written notice to the dissenting shareholders is delivered.
If you are a dissenting shareholder and desire to pursue your rights as a
dissenting shareholder, you have until the payment demand date to demand
payment for your shares of MCI WorldCom series B preferred stock and deposit
your share certificates in accordance with the terms of the above notice. A
holder of MCI WorldCom series B preferred stock who demands payment and
deposits his or her share certificates retains all other rights as a holder of
these shares until payment for the shares is received in accordance with the
procedure described below.
Within 10 days of the receipt by WorldCom of the payment demand, WorldCom
must offer to pay to each dissenting shareholder the amount WorldCom estimates
to be the fair value of the shares of MCI WorldCom series B preferred stock
plus accrued interest. The dissenting shareholder will then have 30 days to
respond to WorldCom's offer. Dissenting shareholders who accept WorldCom's
offer will receive payment for their shares within 60 days of the offer. A
dissenting shareholder will be deemed to have accepted WorldCom's offer if the
shareholder fails to respond within the 30 days.
If the dissenting shareholder believes that the amount offered by WorldCom
is less than the fair value of his or her shares or that the interest due is
incorrectly calculated, then the dissenting shareholder may notify WorldCom in
writing of his or her own estimate of the fair value of these shares and the
amount of interest due and demand payment of such estimate.
If WorldCom and a dissenting shareholder fail to agree on the value of the
shares of such holder's MCI WorldCom series B preferred stock, then WorldCom
will commence a proceeding within 60 days after receiving the payment demand
and petition the superior court in Georgia to determine the fair value of the
dissenting shareholders' stock and the accrued interest thereon. All dissenting
shareholders whose demands for payment remain unsettled will be parties to this
action. WorldCom will serve a copy of the petition for the proceeding upon each
dissenting shareholder as required by Georgia law.
In the proceeding to determine the value of the dissenting shareholders'
shares, the court may appoint one or more appraisers to receive evidence and
recommend a decision on the fair value of the shares of the MCI WorldCom series
B preferred stock. The costs of the appraisal, including reasonable fees and
expenses of the appraisers, but not including fees and expenses of attorneys
and experts retained by any party, will be assessed against WorldCom, except
that the court may assess the costs against some or all of the dissenting
shareholders, in amounts the court finds equitable, to the extent the
shareholders acted arbitrarily or not in good faith in demanding payment for
their shares of MCI WorldCom series B preferred stock. The court may also
assess the fees and expenses of attorneys and experts against WorldCom, if it
finds that WorldCom did not substantially comply with the requirements
discussed above, or against either party if it finds that such party acted
arbitrarily or not in good faith with respect to dissenters' rights. If the
court finds that the services of attorneys for any dissenting shareholder were
of substantial benefit to other dissenting shareholders, and that the fees for
those attorneys should not be assessed against WorldCom, the court may award to
such attorneys reasonable fees to be paid out of amounts awarded to the
dissenting shareholders who were so benefited. Each dissenting shareholder made
a party to the proceeding is entitled to judgment for the amount which the
court finds to be the fair value of his shares of MCI WorldCom series B
preferred stock, plus interest to the date of judgment.
The fair value of the shares of MCI WorldCom series B preferred stock under
the Georgia Business Corporation Code means the value of the shares immediately
before the merger, excluding any appreciation or depreciation in anticipation
of the merger, and may be more than, the same or less than the value of the MCI
WorldCom series B preferred stock after the merger.
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Sprint Employee Benefits Matters
During the one-year period following the completion of the merger, MCI
WorldCom will maintain employee benefit plans, programs and policies for the
employees of Sprint and its subsidiaries which, in the aggregate, are
substantially comparable to the plans, programs and policies provided by Sprint
before the completion of the merger, other than Sprint's employee stock
purchase plan. During this one-year period, salaries and wages will not be
reduced by MCI WorldCom except upon violations of MCI WorldCom's applicable
policies or upon the failure to satisfy any generally applicable performance
standards for similarly situated MCI WorldCom employees. Participants' accounts
under all unfunded Sprint plans which are designed to track the performance of
Sprint capital stock will be converted at the completion of the merger so as to
track WorldCom capital stock in the same manner that Sprint capital stock is
converted into WorldCom capital stock under the merger agreement.
During the second one-year period following the completion of the merger,
employees of Sprint and its subsidiaries will be eligible to participate in
employee benefit plans, programs and policies which, in the aggregate, are
substantially comparable to those maintained for similarly situated employees
of MCI WorldCom. Employees of Sprint and its subsidiaries will receive past
service credit under each applicable MCI WorldCom plan in which they become
eligible to participate following the completion of the merger.
MCI WorldCom will waive any active employment requirement and pre-existing
limitation under any MCI WorldCom employee benefit plan made available to
Sprint employees after the completion of the merger to the extent waived under
the corresponding Sprint plan before the completion of the merger. MCI WorldCom
has also agreed to recognize the dollar amount of all expenses incurred by each
employee of Sprint or its subsidiaries for purposes of satisfying any co-
payment, co-insurance and deductible requirements for the year in which such
individual becomes eligible under the relevant welfare benefit plans in which
they will be eligible to participate from and after the completion of the
merger and any such co-payment, co-insurance or deductible requirements for
such year will be no greater than under the applicable Sprint plan.
Any Sprint employee who is involuntarily terminated without cause in
connection with the merger at any time within one year following the completion
of the merger will receive severance benefits under or consistent with Sprint's
existing severance policies.
Sprint may, in its discretion:
. make an offer in calendar year 2000 to its eligible employees to
purchase shares of Sprint FON common stock and Sprint PCS common stock
under Sprint's employee stock purchase plan, which offer will be in
accordance with the provisions of Sprint's employee stock purchase plan
as they currently exist in the ordinary course of business consistent
with past practice
. issue shares of Sprint FON common stock required by Sprint's automatic
dividend reinvestment plan
. issue Sprint FON common stock and Sprint PCS common stock to the Sprint
retirement savings plan, the Sprint retirement savings plan for
bargaining unit employees, and the Centel retirement savings plan for
bargaining unit employees, in each case consistent with the requirements
of the plan as they currently exist and
. issue shares of Sprint FON common stock and Sprint PCS common stock
under Sprint's special award stock plan in accordance with past
practice, not to exceed 5,000 shares in the aggregate for each of Sprint
FON common stock and Sprint PCS common stock.
The merger agreement provides that Sprint will create an employee retention
pool of up to $100 million which may be used to implement cash retention
incentives for certain Sprint employees before the closing, to be paid 50% at
the closing and 50% six months after the closing, or upon their termination
without cause during the six-month period. The participants eligible for this
pool will be Sprint employees who are not recipients of retention stock
options, as described above under "--Interests of Sprint Directors and
Executive Officers in the
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Merger--Retention Arrangements", except with the consent of MCI WorldCom. The
merger agreement also provides that further details of this pool including, but
not limited to, increasing the amount above $100 million, will be determined by
Sprint as soon as practicable after the execution of the merger agreement, and
will be subject to the approval of MCI WorldCom.
MCI WorldCom has agreed that Sprint may issue shares of Sprint FON common
stock and Sprint PCS common stock pursuant to Sprint's 1997 long-term incentive
program, which allows outside directors to invest their fees in Sprint FON
common stock and Sprint PCS common stock, Sprint's employees stock purchase
plan, Sprint's retirement savings plan, Sprint's retirement savings plan for
bargaining unit employees, the Centel retirement savings plan for bargaining
unit employees and Sprint's special award stock plan, each in accordance with
past practices.
Effect on Awards Outstanding Under Sprint Stock Plans
Under the merger agreement, upon completion of the merger, MCI WorldCom will
assume each stock option plan of Sprint. Under the merger agreement,
immediately before the merger, each outstanding option to acquire shares of
Sprint common stock under such plans will be amended and converted, on the same
terms and conditions as were applicable under such stock option as follows:
. each Sprint stock option to acquire Sprint FON common stock will be
converted into an option to acquire the number of shares of WorldCom
common stock equal to the number of shares of Sprint FON common stock
originally subject to such option multiplied by the FON exchange ratio,
rounded up to the nearest whole share, at an exercise price per share
equal to the exercise price for the shares of Sprint FON common stock
originally subject to such Sprint option divided by the FON exchange
ratio, rounded up to the nearest whole cent, and
. each Sprint stock option to acquire Sprint PCS common stock will be
converted into an option to acquire an equivalent number of shares of
WorldCom series 1 PCS common stock at the same exercise price as the
exercise price for such Sprint PCS common stock, plus an amount of
WorldCom common stock, for no additional consideration, equal to the
number of shares of Sprint PCS common stock originally subject to such
option multiplied by the PCS exchange ratio, which is 0.1547, and
rounded up to the nearest whole share.
Resale of WorldCom Capital Stock
WorldCom capital stock issued in the merger will not be subject to any
restrictions on transfer arising under the Securities Act, except for shares
issued to any Sprint stockholder who may be deemed to be an "affiliate" of MCI
WorldCom or Sprint for purposes of Rule 145 under the Securities Act. The
merger agreement requires Sprint to use reasonable efforts to cause its
affiliates to enter into agreements in connection with restrictions on
affiliates under Rule 145 under the Securities Act on or before the completion
of the merger. This proxy statement/prospectus does not cover resales of
WorldCom capital stock received by any person upon completion of the merger,
and no person is authorized to make any use of this proxy statement/prospectus
in connection with any resale.
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THE MERGER AGREEMENT
The following description summarizes the material provisions of the merger
agreement. You are urged to read carefully the merger agreement, which is
attached as Annex 1 to this proxy statement/prospectus.
Conditions to the Completion of the Merger
Each party's obligation to effect the merger is subject to the satisfaction
or waiver of various conditions which include, in addition to other closing
conditions, the following:
. holders of shares of MCI WorldCom common stock and MCI WorldCom series B
preferred stock, voting together as a single group, representing a
majority of all the votes entitled to be cast at the MCI WorldCom
special meeting having approved the merger agreement
. holders of shares of Sprint common stock and Sprint preferred stock,
voting together as a single group, representing a majority of all the
votes entitled to be cast at the Sprint special meeting having voted to
adopt the merger agreement
. the waiting period applicable to the merger under the Hart-Scott-Rodino
Act having expired or been terminated; provided, however, that this
provision will not be available to any party whose failure to fulfill
its obligations under the merger agreement shall have been the cause of
or shall have resulted in the failure to obtain such expiration or
termination
. all approvals for the merger from the Federal Communications Commission
and state public utility commissions having been obtained, except where
the failure to obtain such approvals would not, individually or in the
aggregate, reasonably be expected to materially impair MCI WorldCom's
and Sprint's ability to achieve the overall benefits expected to be
realized from the completion of the merger; provided, however, that this
provision will not be available to any party whose failure to fulfill
its obligations under the merger agreement shall have been the cause of
or shall have resulted in such failure
. any required clearance of the merger by European antitrust authorities
having been obtained; provided, however, that this provision will not be
available to any party whose failure to fulfill its obligations under
the merger agreement shall have been the cause of or shall have resulted
in the failure to obtain such clearance
. no laws being adopted or promulgated and no temporary restraining order,
preliminary or permanent injunction or other order issued by any court
or other governmental entity of competent jurisdiction being in effect
having the effect of making the merger illegal or otherwise prohibiting
the completion of the merger; provided, however, that this provision
will not be available to any party whose failure to fulfill its
obligations under the merger agreement shall have been the cause of or
shall have resulted in such order or injunction
. the shares of WorldCom common stock and WorldCom series 1 PCS common
stock issuable to Sprint stockholders in the merger having been approved
for quotation on The Nasdaq National Market, subject to official notice
of issuance and
. the registration statement on Form S-4, of which this proxy
statement/prospectus forms a part, having been declared effective by the
Securities and Exchange Commission under the Securities Act and not
being the subject of any stop order or threatened or pending proceedings
seeking a stop order.
In addition, each party's obligation to effect the merger is further subject
to the satisfaction or waiver of the following additional conditions:
. the representations and warranties regarding the capital structure of the
other party set forth in the merger agreement being true and correct in
all material respects on the date of the merger agreement and on the date
on which the merger is to be completed as if made as of such time or, if
such representations and warranties expressly relate to an earlier date,
then as of such date
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. the other representations and warranties of the other party set forth in
the merger agreement being true and correct on the date of the merger
agreement and on the date on which the merger is to be completed as if
made as of such time or, if such representations and warranties expressly
relate to an earlier date, then as of such date, except where the failure
of these representations and warranties to be so true and correct,
without giving effect to any limitation as to "materiality" or "material
adverse effect", individually or in the aggregate, does not have, and is
not reasonably likely to have, a material adverse effect on the party
making the representations and warranties
. the other party to the merger agreement having performed or complied in
all material respects with all material agreements and covenants required
to be performed by it or complied with under the merger agreement on or
before the date on which the merger is to be completed
. with respect only to Sprint's obligation to effect the merger, Sprint
having received from King & Spalding on the date on which the
registration statement is declared effective by the Securities and
Exchange Commission and on the date on which the merger is to be
completed, an opinion, in each case dated as of such respective date, to
the effect that: (1) the merger will qualify as a reorganization within
the meaning of section 368(a) of the Internal Revenue Code, (2) MCI
WorldCom and Sprint will each be a "party" to that reorganization within
the meaning of section 368(b) of the Internal Revenue Code and (3) the
WorldCom group common stock, WorldCom PCS group common stock, WorldCom
class A common stock received in the merger by Sprint common stockholders
is properly permitted to be received under section 354 of the Internal
Revenue Code without the recognition of gain
. with respect only to MCI WorldCom's obligation to effect the merger, MCI
WorldCom having received from Cravath, Swaine & Moore on the date on
which the registration statement is declared effective by the Securities
and Exchange Commission and on the date on which the merger is to be
completed, an opinion, in each case dated as of such respective date, to
the effect that: (1) the merger will qualify as a reorganization within
the meaning of section 368(a) of the Internal Revenue Code, (2) MCI
WorldCom and Sprint will each be a "party" to that reorganization within
the meaning of section 368(b) of the Internal Revenue Code and (3) the
issuance of WorldCom group common stock, WorldCom PCS group common stock,
WorldCom class A common stock to Sprint common stockholders in the merger
will not result in MCI WorldCom recognizing an amount of income or gain
or being subject to an amount of tax, in each case that individually or
in the aggregate is reasonably likely to have a material adverse effect
on MCI WorldCom
. with respect only to Sprint's obligation to effect the merger, there not
having been any material adverse change in MCI WorldCom since the date of
the merger agreement and
. with respect only to MCI WorldCom's obligation to effect the merger,
there not having been any material adverse change in Sprint since the
date of the merger agreement.
The merger agreement provides that a "material adverse change" or "material
adverse effect" means, when used with respect to Sprint or MCI WorldCom, any
adverse change, circumstance or effect that, individually or in the aggregate
with all other adverse changes, circumstances and effects, is or is reasonably
likely to be materially adverse to the business, financial condition or results
of operations of Sprint and its subsidiaries, taken as a whole, or MCI WorldCom
and its subsidiaries, taken as a whole, other than any change, circumstance or
effect:
. relating to or resulting from the economy or securities markets in
general
. relating to or resulting from the industries in which MCI WorldCom or
Sprint operate and not uniquely relating to MCI WorldCom or Sprint or
. resulting from the announcement or existence of the merger agreement and
the transactions contemplated by the merger agreement.
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No Solicitation
In the merger agreement, each of MCI WorldCom and Sprint has agreed that it
will not, nor will it permit any of its subsidiaries to, nor will it authorize
or permit any of its directors, officers or employees or any investment
banker, financial advisor, attorney, accountant or other representative
retained by it or any of its subsidiaries to, directly or indirectly through
another person:
. solicit, initiate or knowingly encourage (including by way of furnishing
information), or knowingly take any other action to facilitate, the
making of any competing proposal, as described below or
. participate in any discussions or negotiations regarding any competing
proposal;
provided, however, that if, at any time during the period beginning on
December 4, 1999 and ending on the date the vote required to be obtained
from such party's stockholders in connection with the merger has been
obtained, such party's board of directors, in the exercise of its fiduciary
duties, determines in good faith, after consultation with outside counsel,
that to do otherwise would not be in the best interests of its
stockholders, then such party and its representatives may, in response to a
superior proposal, as described below, which did not result from a breach
of such provision, and subject to providing prior or contemporaneous notice
of its decision to take such action to the other party:
. furnish under a customary confidentiality agreement information about
such party and its subsidiaries to any person making a superior proposal
and/or
. participate in discussions or negotiations regarding such superior
proposal.
The merger agreement provides that:
. the term "competing proposal", when used in connection with a proposal
for either party, means any bona fide proposal or offer from any person
relating to any direct or indirect acquisition or purchase of 20% or
more of the assets of such party and its subsidiaries, taken as a whole,
or 20% or more of the combined voting power of the shares of common
stock of such party, any tender offer or exchange offer that if
consummated would result in any person beneficially owning 20% or more
of the combined voting power of the shares of common stock of such
party, or any merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction
involving such party or any of its subsidiaries in which the other party
thereto or its stockholders will own 20% or more of the combined voting
power of the parent entity resulting from any such transaction, other
than the transactions contemplated by the merger agreement
. the term "superior proposal", when used in connection with a superior
proposal for Sprint, means (1) any proposal made by a third party
relating to any direct or indirect acquisition or purchase of 50% or
more of the assets of Sprint and its subsidiaries, taken as a whole, or
50% or more of the combined voting power of the shares of Sprint common
stock, any tender offer or exchange offer that if consummated would
result in any person beneficially owning 50% or more of the combined
voting power of the shares of Sprint common stock or any merger,
consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving Sprint or any of its
subsidiaries in which the other party thereto or its stockholders will
own 40% or more of the combined voting power of the parent entity
resulting from any such transaction and (2) otherwise on terms which the
Sprint board of directors determines in its good faith judgment (based
on the advice of a financial advisor of nationally recognized
reputation), taking into account the person making the proposal and the
legal, financial, regulatory and other aspects of the proposal deemed
appropriate by the Sprint board of directors, (A) would be more
favorable than the merger to Sprint's stockholders taken as a whole, (B)
is reasonably capable of being completed and (C) for which financing, to
the extent required, is then committed or is reasonably capable of being
obtained by such third party and
. the term "superior proposal", when used in connection with a superior
proposal for MCI WorldCom, means (1) (A) any proposal made by a third
party relating to any direct or indirect acquisition or purchase of 50%
or more of the assets of MCI WorldCom and its subsidiaries, taken as a
whole, or 50%
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or more of the combined voting power of the shares of MCI WorldCom common
stock, any tender offer or exchange offer that if consummated would result
in any person beneficially owning 50% or more of the combined voting power
of the shares of MCI WorldCom common stock, or (B) any merger,
consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving MCI WorldCom or any of its
subsidiaries in which the other party thereto or its shareholders will own
50% or more of the combined voting power of the shares of the parent
entity resulting from any such transaction and representatives of such
other party shall represent a majority of the board of directors of such
parent entity, and (2) otherwise on terms which the MCI WorldCom board of
directors determines in its good faith judgment (based on the advice of a
financial advisor of nationally recognized reputation), taking into
account the person making the proposal and the legal, financial,
regulatory and other aspects of the proposal deemed appropriate by the MCI
WorldCom board of directors, (A) would be more favorable than the merger
to MCI WorldCom's shareholders taken as a whole, (B) is reasonably capable
of being completed and (C) for which financing, to the extent required, is
then committed or is reasonably capable of being obtained by such third
party.
None of the board of directors of MCI WorldCom or Sprint or any committee
thereof will:
. withdraw, or propose publicly to withdraw, in a manner adverse to the
other party, the approval or recommendation by such board of directors or
such committee of the merger or the merger agreement
. modify, or propose publicly to modify, in a manner adverse to the other
party, the approval or recommendation of such board of directors or such
committee of the merger or the merger agreement
. approve or recommend, or propose publicly to approve or recommend, any
competing proposal or
. approve or recommend, or propose to approve or recommend, or execute or
enter into, any letter of intent, agreement in principle, merger
agreement, acquisition agreement, option agreement or other similar
agreement or propose publicly or agree to do any of the foregoing related
to any competing proposal;
provided, however, that at any time during the period beginning on December
4, 1999 and ending on the date the vote required to be obtained from such
party's stockholders in connection with the merger has been obtained, in
response to a superior proposal which did not result from a breach of the
"no solicitation" provisions described above, if such party's board of
directors, in the exercise of its fiduciary duties, determines in good
faith, after consultation with outside counsel, that to do otherwise would
not be in the best interests of its stockholders, such party's board of
directors may:
. modify or propose publicly to modify, in a manner adverse to the other
party, the approval or recommendation of the merger or the merger
agreement by such party's board of directors and/or
. terminate the merger agreement (and concurrently with or after such
termination, if it so chooses, cause such party to enter into any
acquisition agreement with respect to any superior proposal), but only at
a time that is (1) during the period beginning on December 4, 1999 and
ending on the date the vote required to be obtained from such party's
stockholders in connection with the merger has been obtained and (2)
after the fourth business day (or the second calendar day in the case of
a material amendment to a superior proposal) after such party's receipt
of written notice advising it that such other party's board of directors
is prepared to accept a superior proposal (or any material amendment),
specifying the material terms and conditions of such superior proposal
(or any material amendment) and identifying the person making such
superior proposal (or any material amendment).
The merger agreement also provides that each party will promptly advise the
other of any competing proposal or any inquiry or request for information
relating to that competing proposal, the material terms and conditions of such
competing proposal or request and the identity of the person making such
competing proposal or request. Each party will promptly keep the other
reasonably informed of the status (including amendments) of any competing
proposal or request.
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Termination
The merger agreement may be terminated at any time prior to the effective
time of the merger, whether before or after the stockholder approvals have been
obtained at the special meetings:
1. by mutual written consent of MCI WorldCom and Sprint
2. by MCI WorldCom or Sprint, if the merger has not been completed by
December 31, 2000; provided, however, that this right to terminate the
merger agreement will not be available to any party whose failure to
fulfill its obligations under the merger agreement shall have been the
cause of or shall have resulted in the failure of the merger to be
completed by December 31, 2000
3. by MCI WorldCom or Sprint, if the MCI WorldCom shareholders have not
approved the merger agreement at an MCI WorldCom shareholders meeting
or at any adjournment or postponement of any such meeting
4. by MCI WorldCom or Sprint, if the Sprint stockholders have not adopted
the merger agreement at a Sprint stockholders meeting or at any
adjournment or postponement of any such meeting
5. by MCI WorldCom or Sprint, if (1) any governmental entity issues an
order, decree or ruling or takes any other action permanently
restraining, enjoining or otherwise prohibiting the transactions
contemplated by the merger agreement and such order, decree, ruling or
other action has become final and nonappealable, or (2) any
governmental entity has failed to issue an order, decree or ruling or
take any other action, in each case which is necessary to fulfill the
conditions to the merger described in the third, fourth and fifth
bullet points under the first paragraph of "--Conditions to the
Completion of the Merger" and such denial of a request to issue such
order, decree, ruling or take such other action shall have become final
and nonappealable; provided, however, that the right to terminate the
merger agreement under this provision will not be available to any
party whose failure to comply with its obligations under the merger
agreement has caused or resulted in such action or inaction
6. by MCI WorldCom or Sprint, if the other party has breached or failed to
perform any of its representations, warranties, covenants or other
agreements contained in the merger agreement, which breach or failure
to perform would give rise to the failure of a condition described in
the first, second or third bullet points under the second paragraph of
"--Conditions to the Completion of the Merger" and has not been or
cannot be cured within 45 calendar days of receiving notice from the
other party of the breach or failure to perform
7. by Sprint, at any time during the period beginning on December 4, 1999
and ending on the date the vote of holders of Sprint capital stock
required to adopt the merger agreement has been obtained, in response
to a superior proposal which did not otherwise result from a breach by
Sprint of the provisions of the merger agreement described above under
"--No Solicitation", if Sprint has complied with certain notice
requirements and has paid the termination fee
8. by MCI WorldCom, at any time during the period beginning on December 4,
1999 and ending on the date the votes of holders of MCI WorldCom
capital stock required to approve the merger agreement have been
obtained, in response to a superior proposal which did not otherwise
result from a breach by MCI WorldCom of the provisions of the merger
agreement described above under "--No Solicitation", if MCI WorldCom
has complied with certain notice requirements and has paid the
termination fee
9. by MCI WorldCom, if Sprint modifies or proposes publicly to modify, in
a manner adverse to MCI WorldCom, the approval or recommendation of the
merger or the merger agreement by the Sprint board of directors or
10. by Sprint, if MCI WorldCom modifies or proposes publicly to modify, in
a manner adverse to Sprint, the approval or recommendation of the
merger or the merger agreement by the MCI WorldCom board of directors.
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Termination Fees
MCI WorldCom
MCI WorldCom must pay Sprint a $2.5 billion termination fee if:
1. at any time before the date the votes of holders of MCI WorldCom capital
stock required to approve the merger agreement have been obtained, MCI
WorldCom or its shareholders receive a competing proposal or a third
party publicly announces an intention to make a competing proposal for
MCI WorldCom and MCI WorldCom or Sprint then terminates the merger
agreement for the reason described in paragraph 2 (without an MCI
WorldCom special meeting having occurred) or the reason described in
paragraph 3 above under "--Termination"
2. MCI WorldCom terminates the merger agreement for the reason described in
paragraph 8 above under "--Termination" or
3. Sprint terminates the merger agreement for the reason described in
paragraph 10 above under "--Termination";
provided, however, that no termination fee will be payable under the
situations described in paragraph 1 or 3 above unless, within 12 months of
termination of the merger agreement, MCI WorldCom enters into a definitive
agreement concerning, or approves or completes (A) any proposal made by a
third party relating to any direct or indirect acquisition or purchase of
50% or more of the assets of MCI WorldCom and its subsidiaries, taken as a
whole, or 50% or more of the combined voting power of the shares of MCI
WorldCom common stock, any tender offer or exchange offer that if
consummated would result in any Person beneficially owning 50% or more of
the combined voting power of the shares of MCI WorldCom common stock, or
(B) any merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving MCI WorldCom or
any of its subsidiaries in which the other party thereto or its
shareholders will own 50% or more of the combined voting power of the
shares of the parent entity resulting from any such transaction and
representatives of such other party shall represent a majority of the board
of directors of such parent entity.
Sprint
Sprint must pay MCI WorldCom a $2.5 billion termination fee if:
1. at any time before the date the vote of holders of Sprint capital stock
required to adopt the merger agreement has been obtained, Sprint or its
stockholders receive a competing proposal or a third party publicly
announces an intention to make a competing proposal for Sprint and MCI
WorldCom or Sprint then terminates the merger agreement for the reason
described in paragraph 2 (without a Sprint special meeting having
occurred) or the reason described in paragraph 4 above under "--
Termination"
2. Sprint terminates the merger agreement for the reason described in
paragraph 7 above under "--Termination" or
3. MCI WorldCom terminates the merger agreement for the reason described in
paragraph 9 above under "--Termination";
provided, however, that no termination fee will be payable under the
situations described in paragraph 1 or 3 above unless, within 12 months of
termination of the merger agreement, Sprint enters into a definitive
agreement concerning, or approves or completes (A) any proposal made by a
third party relating to any direct or indirect acquisition or purchase of
50% or more of the assets of Sprint and its subsidiaries, taken as a whole,
or 50% or more of the combined voting power of the shares of Sprint common
stock, any tender offer or exchange offer that if consummated would result
in any person beneficially owning 50% or more of the combined voting power
of the shares of Sprint common stock or (B) any merger, consolidation,
business combination, recapitalization, liquidation, dissolution or similar
transaction
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involving Sprint or any of its subsidiaries in which the other party
thereto or its stockholders will own 40% or more of the combined voting
power of the parent entity resulting from any such transaction.
The merger agreement further provides that if MCI WorldCom or Sprint fails
to pay any termination fee due, it must pay the costs and expenses in
connection with any action taken to collect payment, together with interest on
the amount of the termination fee.
Conduct of Business Pending the Merger
Sprint
Under the merger agreement, Sprint has agreed that, from the date of the
merger agreement until the completion of the merger, except (1) to the extent
MCI WorldCom shall otherwise consent in writing, which consent shall not be
unreasonably withheld or delayed, or (2) to the extent not reasonably
practicable in light of the announcement or existence of the merger agreement
and the transactions contemplated by the merger agreement, it will and will
cause its subsidiaries taken as a whole to carry on its business in the usual,
regular and ordinary course in all material respects, in substantially the same
manner as conducted before the date of the merger agreement, and shall use all
reasonable efforts to maintain its rights and franchises and preserve its
relationships with customers, suppliers and others having business dealings
with it with the objective to minimize the impairment of its ongoing business.
In addition, Sprint has agreed that, from the date of the merger agreement
until the completion of the merger, subject to certain exceptions and except to
the extent MCI WorldCom shall otherwise consent in writing, which consent shall
not be unreasonably withheld or delayed, neither it nor any of its subsidiaries
may:
. declare or pay any dividends on or make other distributions in respect of
any of its capital stock, other than (1) the declaration and payment of
regular quarterly cash dividends not in excess of $0.125 per share of
Sprint FON common stock, and any corresponding cash dividends on shares
held by holders of Sprint class A common stock or Sprint class A common
stock--series DT, and regular dividends required by the terms of the
Sprint preferred stock and (2) dividends by a wholly owned subsidiary of
Sprint to its parent
. split, combine or reclassify any of its capital stock or issue or
authorize or propose the issuance of any other securities in respect of,
in lieu of or in substitution for, shares of its capital stock except for
any such transaction by a wholly owned subsidiary of Sprint which remains
a wholly owned subsidiary of Sprint after the completion of such
transaction
. repurchase, redeem or otherwise acquire any shares of its capital stock
or any securities convertible into or exercisable for any shares of its
capital stock except for the purchase by Sprint of its common stock in
the ordinary course of business consistent with past practice in
connection with Sprint's benefit plans and certain other exceptions
. issue, deliver or sell, or authorize or propose the issuance, delivery or
sale of, any shares of its capital stock, any other voting securities or
any securities convertible into or exercisable for, or any rights,
warrants or options to acquire, any such securities, other than the
issuance of Sprint common stock (and associated Sprint preferred stock
purchase rights) upon exercise of stock options or in connection with
rights under other stock-based benefit plans, the issuance of Sprint
capital stock upon the conversion of other Sprint securities, issuances
by a wholly owned subsidiary of Sprint of capital stock to such
subsidiary's parent, issuances in accordance with Sprint's rights
agreement, issuances of stock options in connection with regular option
grants by Sprint or issuances of stock options for new hires or issuances
of restricted stock, in each case in the ordinary course of business
consistent with past practice under Sprint's benefit plans, the issuance
of shares of Sprint capital stock pursuant to purchase rights or
preemptive rights held by Sprint stockholders under the terms of the
instruments or agreements in effect on the date of the merger agreement
or the issuance of Sprint capital stock pursuant to acquisitions
permitted by the merger agreement
96
<PAGE>
. amend the articles of incorporation or bylaws of Sprint
. acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or a substantial portion of
the assets of, or by any other manner, any business or any person, other
than acquisitions of assets used in the operation of the business of
Sprint and its subsidiaries in the ordinary course of business consistent
with past practice, internal reorganizations or consolidations involving
existing Sprint subsidiaries or the creation of certain new Sprint
subsidiaries, so long as such permitted activities could not reasonably
be expected to result in (1) any of the conditions to the merger not
being satisfied or (2) a material delay in the satisfaction of any of the
conditions to the merger
. sell, lease, encumber or otherwise dispose of, or agree to sell, lease,
encumber or otherwise dispose of, any of its assets, other than in the
ordinary course of business consistent with past practice and, in any
event, which are not material, individually or in the aggregate, to
Sprint and its subsidiaries taken as a whole, or internal reorganizations
or consolidations involving existing Sprint subsidiaries
. incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of Sprint or any
of its subsidiaries, guarantee any debt securities of another person,
enter into any "keep well" or other agreement to maintain any financial
statement condition of another person or enter into any arrangement
having the economic effect of any of the foregoing, except for short-term
borrowings, senior bank or similar bank financing or, subject to prior
consultation with MCI WorldCom, any other indebtedness incurred by Sprint
or any of its subsidiaries with a maturity date not to exceed five years
from the date of its original issuance incurred in the ordinary course of
business consistent with past practice or intercompany indebtedness
between Sprint and any of its wholly owned subsidiaries or between such
wholly owned subsidiaries
. make any loans or advances to any other person other than employee loans
or advances made by Sprint in the ordinary course of business consistent
with past practice and loans or advances made between Sprint and any of
its wholly owned subsidiaries or between such wholly owned subsidiaries
. make any investments in any person other than investments in wholly owned
subsidiaries and investments in the ordinary course of business
consistent with past practice and, in any event, which are not material,
individually or in the aggregate, to Sprint
. enter into any new material line of business outside its core businesses,
as defined in Sprint's articles of incorporation
. make or agree to make any new capital expenditures other than capital
expenditures made or agreed to be made in the ordinary course of business
not in excess of specified amounts agreed to by MCI WorldCom and Sprint
. take any action that would prevent or impede the merger from qualifying
as a reorganization under section 368 of the Internal Revenue Code
. take any action that would, or that could reasonably be expected to,
result in (1) any of the conditions to the merger not being satisfied or
(2) a material delay in the satisfaction of any of the conditions to the
merger
. change Sprint's fiscal year or, subject to certain exceptions, make any
material change in its methods of accounting in effect at December 31,
1998
. take any action that would cause certain representations and warranties
in the merger agreement to no longer be true or
. authorize, commit or agree to take any of the foregoing actions.
97
<PAGE>
MCI WorldCom
Under the merger agreement, MCI WorldCom has agreed that, from the date of
the merger agreement until the completion of the merger, except (1) to the
extent Sprint shall otherwise consent in writing, which consent shall not be
unreasonably withheld or delayed, or (2) to the extent not reasonably
practicable in light of the announcement or existence of the merger agreement
and the transactions contemplated by the merger agreement, it will and will
cause its subsidiaries taken as a whole to carry on its business in the usual,
regular and ordinary course in all material respects, in substantially the same
manner as conducted before the date of the merger agreement, and shall use all
reasonable efforts to maintain its rights and franchises and preserve its
relationships with customers, suppliers and others having business dealings
with it with the objective to minimize the impairment of its ongoing business.
In addition, MCI WorldCom has agreed that, from the date of the merger
agreement until the completion of the merger, subject to certain exceptions and
except to the extent Sprint shall otherwise consent in writing, which consent
shall not be unreasonably withheld or delayed, neither it nor any of its
subsidiaries will:
. repurchase, redeem or otherwise acquire any shares of its capital stock
or any securities convertible into or exercisable for MCI WorldCom
capital stock except for the purchase by MCI WorldCom of MCI WorldCom
capital stock (and associated MCI WorldCom preferred stock purchase
rights) in the ordinary course of business consistent with past practice
in connection with share options, share incentive schemes, profit sharing
schemes or other MCI WorldCom benefit plans or repurchases of MCI
WorldCom common stock in open market or privately negotiated transactions
. acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or all or a substantial
portion of the assets of any business or any other person, in any event
(1) with a value in excess of an amount equal to 20% of the market
capitalization of MCI WorldCom for any one acquisition and 30% thereof
for all acquisitions before the completion of the merger, or (2) that
could reasonably be expected to result in any of the conditions to the
merger not being satisfied or a material delay in the satisfaction of any
of the conditions to the merger
. enter into any new material line of business outside its existing core
businesses
. sell, lease, encumber or otherwise dispose of all or substantially all of
any material line of business for MCI WorldCom and its subsidiaries taken
as a whole
. take any action that would prevent or impede the merger from qualifying
as a reorganization under section 368 of the Internal Revenue Code
. take any action that would, or that could reasonably be expected to,
result in (1) any of the conditions to the merger not being satisfied or
(2) a material delay in the satisfaction of any of the conditions to the
merger
. take any action that would cause certain representations and warranties
in the merger agreement to no longer be true or
. authorize, commit or agree to take any of the foregoing actions.
Amendment; Extension and Waiver
Subject to applicable law:
. the merger agreement may be amended by the parties in writing at any
time, except that after the merger agreement has been adopted by Sprint
stockholders or approved by MCI WorldCom shareholders, no amendment which
by law or in accordance with the rules of The Nasdaq National Market or
the New York Stock Exchange requires further approval by Sprint
stockholders or MCI WorldCom shareholders shall be made without such
further approval and
. at any time prior to the completion of the merger, a party may, by
written instrument signed on behalf of such party, extend the time for
performance of any of the obligations or acts of the other party to the
98
<PAGE>
merger agreement, waive any inaccuracies in the representations and
warranties of the other party contained in the merger agreement or in any
related document and waive compliance by the other party with any
agreement or condition in the merger agreement.
Expenses
Whether or not the merger is completed, all fees and expenses incurred in
connection with the merger, the merger agreement and the transactions
contemplated by the merger agreement, including the solicitation of stockholder
approval, will be paid by the party incurring such fees or expenses, except
that MCI WorldCom and Sprint will share equally the expenses incurred in
connection with filing, printing and mailing of this proxy statement/prospectus
and the registration statement of which it is a part, including Securities and
Exchange Commission filing fees, and the filing fees for the premerger
notification and report forms under the Hart-Scott-Rodino Act and for any
filings with the European Commission.
Representations and Warranties
The merger agreement contains customary representations and warranties of MCI
WorldCom and Sprint relating to, among other things:
. corporate organization and similar corporate matters
. subsidiaries
. capital structure
. authorization, execution, delivery, performance and enforceability of,
and required consents, approvals, orders and authorizations of
governmental authorities relating to, the merger agreement and related
matters
. documents filed with the Securities and Exchange Commission, the accuracy
of information contained in those documents and the absence of
undisclosed liabilities
. the accuracy of information supplied in connection with this proxy
statement/prospectus and the registration statement of which it is a part
. absence of material changes or events
. compliance with applicable laws
. with respect to Sprint only, absence of changes in Sprint's benefit plans
. matters relating to the Employee Retirement Income Security Act of 1974
and certain employment agreements
. filing of tax returns and payment of taxes
. required stockholder vote
. satisfaction of certain state takeover statutes' requirements in Georgia
and Kansas
. engagement and payment of fees of brokers, investment bankers, finders
and financial advisors
. receipt of fairness opinions from financial advisors
. intellectual property and year 2000 matters
. outstanding and pending litigation and
. no amendment of the rights agreements.
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<PAGE>
Other Agreements
Each of MCI WorldCom and Sprint has agreed to use its reasonable best efforts
to:
. take, or cause to be taken, all actions and to do, or cause to be done,
all things necessary, proper or advisable under applicable laws and
regulations to complete the merger
. obtain and maintain all approvals, consents, waivers, registrations,
permits, authorizations, clearances and other confirmations required to
be obtained from any third party and/or any governmental entity that are
reasonably necessary to complete the merger
. cooperate in all respects with each other in connection with any filing
or submission and in connection with any investigation or other inquiry,
including any proceeding initiated by a private party
. promptly inform the other party of any communication received by such
party from, or given by such party to, the FCC, state public utility
commissions, the Department of Justice or any other governmental entity
and any material communication received or given in connection with any
proceeding by a private party
. permit the other party to review any communications given by it to, and
consult with each other in advance to the extent practicable of any
meeting or conference with, the FCC, state public utility commissions,
the Department of Justice or any such other governmental entity or, in
connection with a proceeding by a private party, with any other person
. to the extent permitted by the FCC, state public utility commissions,
the Department of Justice or such other applicable governmental entity
or other person, give the other party the opportunity to attend and
participate in such meetings and conferences
. contest and resist any administrative or judicial action or proceeding,
including any proceeding by a private party, that is instituted, or
threatened to be instituted, challenging any transaction contemplated by
the merger agreement or any statute, rule, regulation, executive order,
decree, injunction or administrative order that is enacted, entered,
promulgated or enforced by a governmental entity which would make the
merger illegal or would otherwise prohibit or materially impair or delay
the completion of the merger and
. have vacated, lifted, reversed or overturned any decree, judgment,
injunction or other order that is in effect and that prohibits, prevents
or restricts the completion of the merger and to have any statute, rule,
regulation, executive order, decree, injunction or administrative order
repealed, rescinded or made inapplicable.
The merger agreement provides that neither MCI WorldCom nor Sprint is
required to agree to or effect any divestiture or take any other action if
doing so would, individually or in the aggregate, reasonably be expected to
materially impair the parties' ability to achieve the overall benefits expected
to be realized from the completion of the merger.
Amendments to the MCI WorldCom Articles of Incorporation
The merger agreement provides that the articles of incorporation of MCI
WorldCom, as in effect immediately prior to the merger, will be amended upon
completion of the merger to:
. incorporate the provisions of the Sprint articles of incorporation
relating to the Sprint capital stock as provided in Annex 2 to this
proxy statement/prospectus and
. increase the amount of authorized common stock of WorldCom to
7,500,000,000 and the amount of authorized WorldCom preferred stock to
75,000,000.
See "Description of MCI WorldCom Capital Stock" and "Comparison of Rights of
MCI WorldCom Shareholders and Sprint Stockholders". The form of the amended
WorldCom articles of incorporation is attached as Annex 2 to this proxy
statement/prospectus.
100
<PAGE>
Amendments to the MCI WorldCom Bylaws
The merger agreement provides that the MCI WorldCom bylaws, as in effect
immediately before the merger, will be amended upon completion of the merger
to:
. incorporate the provisions of the Sprint capital stock committee that
are currently contained in the Sprint bylaws and
. incorporate the provisions relating to the rights of the holders of
Sprint FT/DT class A stock that are currently contained in the Sprint
bylaws.
See "Description of MCI WorldCom Capital Stock" and "Comparison of Rights of
MCI WorldCom Shareholders and Sprint Stockholders". The form of the amended
WorldCom bylaws is attached as Annex 3 to this proxy statement/prospectus.
Certain Corporate Governance and Capital Structure Matters
In addition, the merger agreement provides that upon completion of the
merger:
. the board of directors of WorldCom, as the surviving corporation, will be
constituted as described under "The Merger--Interests of Sprint Directors
and Executive Officers in the Merger--Board of Directors"
. WorldCom will adopt tracking stock policies virtually identical to the
current Sprint tracking stock policies as described below under "Certain
Tracking Stock Matters"
. WorldCom will assume the Sprint tax sharing agreement and
. the WorldCom rights agreement will be modified to account for (1) the
creation of the WorldCom PCS group common stock and (2) the rights of the
holders of the Sprint FT/DT class A stock contained in the Sprint rights
plan.
101
<PAGE>
COMPARATIVE STOCK PRICES AND DIVIDENDS
MCI WorldCom common stock is quoted on The Nasdaq National Market under the
trading symbol "WCOM". Sprint series 1 FON common stock and Sprint series 1 PCS
common stock are listed on the New York Stock Exchange under the trading
symbols "FON" and "PCS", respectively. At the completion of the merger, MCI
WorldCom expects that the WorldCom series 1 PCS common stock will be approved
for quotation on The Nasdaq National Market, subject to official notice of
issuance.
The following table sets forth, for the periods indicated, the high and low
sale prices per share of MCI WorldCom common stock on The Nasdaq National
Market and Sprint series 1 FON common stock and Sprint series 1 PCS common
stock on the New York Stock Exchange. For current price information, you are
urged to consult publicly available sources. MCI WorldCom has never paid
dividends on its common stock. Sprint has historically paid regular quarterly
dividends of $0.125 per share on Sprint series 1 FON common stock. WorldCom
does not intend to pay dividends on either the WorldCom group common stock or
the WorldCom PCS group common stock.
<TABLE>
<CAPTION>
MCI WorldCom Sprint Series 1 FON Sprint Series 1 PCS
Common Stock Common Stock Common Stock
------------- ------------------- -------------------
High Low High Low High Low
------ ------ ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
1997:
First Quarter.......... $27.88 $21.75 $ 20.71 $ 16.47 $ -- $ --
Second Quarter......... 32.97 21.25 22.88 18.23 -- --
Third Quarter.......... 37.75 29.88 22.83 19.09 -- --
Fourth Quarter......... 39.88 28.50 26.44 21.26 -- --
1998:
First Quarter.......... 44.88 28.00 33.25 24.20 -- --
Second Quarter......... 48.44 41.63 33.36 28.57 -- --
Third Quarter.......... 57.88 40.00 35.48 27.13 -- --
Fourth Quarter......... 75.75 39.00 42.32 30.59 23.38 14.06
1999:
First Quarter.......... 94.25 69.00 50.09 36.58 48.31 20.88
Second Quarter......... 96.75 80.31 57.18 48.38 60.75 41.50
Third Quarter.......... 91.38 71.88 55.69 42.50 78.25 52.94
Fourth Quarter (through
. ).................. . . . . . .
</TABLE>
102
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements
give effect to the merger of MCI WorldCom and Sprint under the purchase method
of accounting. These pro forma statements are presented for illustrative
purposes only. The pro forma adjustments are based upon available information
and certain assumptions that management believes are reasonable. The pro forma
condensed combined financial statements do not purport to represent what the
results of operations or financial position of MCI WorldCom would actually have
been if the merger and related transactions had in fact occurred on such dates,
nor do they purport to project the results of operations or financial position
of MCI WorldCom for any future period or as of any date, respectively.
Under the purchase method of accounting, tangible and identifiable
intangible assets acquired and liabilities assumed are recorded at their
estimated fair values. The excess of the purchase price, including estimated
fees and expenses related to the merger, over the net assets acquired is
classified as goodwill on the accompanying unaudited pro forma condensed
combined balance sheet. The estimated fair values and useful lives of assets
acquired and liabilities assumed are based on a preliminary valuation and are
subject to final valuation adjustments which may cause certain of the
intangibles to be amortized over a shorter life than the goodwill amortization
period of 20 years.
The unaudited pro forma condensed combined balance sheet as of June 30, 1999
was prepared by combining the balance sheet at June 30, 1999 for MCI WorldCom
with the balance sheet at June 30, 1999 for Sprint, giving effect to the merger
as though it had been completed on June 30, 1999.
The unaudited pro forma condensed combined statements of operations for the
periods presented were prepared by combining MCI WorldCom's statements of
operations for the year ended December 31, 1998, and the six months ended June
30, 1999, with Sprint's statements of income for the year ended December 31,
1998, and the six months ended June 30, 1999, respectively, giving effect to
the merger as though it had occurred on January 1, 1998. These unaudited pro
forma condensed combined financial data do not give effect to any restructuring
costs or to any potential cost savings or other operating efficiencies that
could result from the Sprint merger.
The consolidated historical financial statements of MCI WorldCom and Sprint
for the year ended December 31, 1998, are derived from audited consolidated
financial statements incorporated by reference in this proxy
statement/prospectus. The condensed consolidated historical financial
statements of MCI WorldCom and Sprint for the six months ended June 30, 1999,
are derived from unaudited condensed consolidated financial statements
incorporated by reference in this proxy statement/prospectus.
You should read the financial information in this section along with MCI
WorldCom's and Sprint's historical consolidated financial statements and
accompanying notes incorporated by reference in this proxy
statement/prospectus. See "Where You Can Find More Information" beginning on
page ..
103
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET (1)
As of June 30, 1999
(In millions)
<TABLE>
<CAPTION>
WorldCom
MCI WorldCom Sprint Pro Forma Pro Forma
Historical (2) Historical (2) Adjustments Combined
-------------- -------------- ----------- ---------
<S> <C> <C> <C> <C>
Current assets............. $10,096 $ 4,596 $ -- $ 14,692
Property, plant and
equipment, net............ 24,564 20,176 -- 44,740
Goodwill, net.............. 42,090 4,780 (4,780)(3) 143,435
101,345 (3)
Other intangibles, net..... 4,110 3,987 -- 8,097
Other assets............... 5,713 2,560 -- 8,273
------- ------- -------- --------
Total assets........... $86,573 $36,099 $ 96,565 $219,237
======= ======= ======== ========
Current liabilities........ $16,839 $ 5,665 $ -- $ 22,504
Long-term debt............. 13,550 12,822 -- 26,372
Other liabilities.......... 4,702 3,615 -- 8,317
Minority interests......... 2,435 -- -- 2,435
Mandatorily redeemable
preferred stock........... 798 10 (10)(4) 808
10 (5)
Shareholders' equity
Preferred stock.......... -- -- -- --
Common stock............. 19 -- 9 (5) 28
Class A common stock..... -- 216 (216)(4) 216
216 (5)
FON common stock......... -- 1,574 (1,574)(4) --
PCS common stock......... -- 430 (430)(4) 430
430 (5)
PCS preferred stock...... -- 247 (247)(4) 247
247 (5)
Paid in capital.......... 51,197 8,778 (8,778)(4) 160,847
109,650 (5)
Retained earnings
(deficit)............... (2,901) 2,965 (2,965)(4) (2,901)
Other.................... (66) (223) 223 (4) (66)
------- ------- -------- --------
Total
shareholders' equity.. 48,249 13,987 96,565 158,801
------- ------- -------- --------
Total liabilities and
shareholders' equity.. $86,573 $36,099 $ 96,565 $219,237
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
104
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (1)
For the Six Months Ended June 30, 1999
(In millions, except per share data)
<TABLE>
<CAPTION>
WorldCom WorldCom PCS
Sprint FON Group Sprint PCS Group
MCI WorldCom Group Pro Forma Pro Forma Group Pro Forma Pro Forma Intergroup
Historical (2) Historical (2) Adjustments Combined Historical (2) Adjustments Combined Eliminations
-------------- -------------- ----------- --------- -------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues......... $17,945 $8,416 $ (267)(6) $26,094 $ 1,340 $ -- $ 1,340 $(111)(7)
Operating
expenses:
Line costs...... 8,053 3,865 (267)(6) 11,651 1,041 -- 1,041 (111)(7)
Selling, general
and
administrative.. 4,490 2,057 -- 6,547 1,115 -- 1,115 --
Goodwill
amortization... 604 21 (21)(9) 2,071 47 (47)(9) 1,067 --
1,467 (8) 1,067 (8)
Depreciation and
other
amortization... 1,539 1,000 -- 2,539 672 -- 672 --
------- ------ ------- ------- ------- ------- ------- -----
Operating income
(loss).......... 3,259 1,473 (1,446) 3,286 (1,535) (1,020) (2,555) --
Other income
(expense):
Interest
expense........ (496) (94) -- (590) (321) -- (321) 9 (7)
Other........... 16 (66) -- (50) 30 -- 30 (9)(7)
------- ------ ------- ------- ------- ------- ------- -----
Income (loss)
before income
taxes and
minority
interests....... 2,779 1,313 (1,446) 2,646 (1,826) (1,020) (2,846) --
Provision
(benefit) for
income taxes.... 1,195 521 -- 1,716 (666) -- (666) --
------- ------ ------- ------- ------- ------- ------- -----
Income (loss)
before minority
interests....... 1,584 792 (1,446) 930 (1,160) (1,020) (2,180) --
Minority
interests....... 20 -- -- 20 -- -- -- --
------- ------ ------- ------- ------- ------- ------- -----
Income (loss)
before
extraordinary
items........... 1,604 792 (1,446) 950 (1,160) (1,020) (2,180) --
Distributions on
subsidiary trust
mandatorily
redeemable
preferred
securities...... 32 -- -- 32 -- -- -- --
Preferred
dividend
requirements.... -- (3) -- (3) 7 -- 7 --
------- ------ ------- ------- ------- ------- ------- -----
Net income (loss)
applicable to
common
shareholders
before
extraordinary
items........... $ 1,572 $ 795 $(1,446) $ 921 $(1,167) $(1,020) $(2,187) $ --
======= ====== ======= ======= ======= ======= ======= =====
Weighted average
number of shares
issued and
outstanding:
Basic........... 1,855 865 989 2,844 446 446 446
======= ====== ======= ======= ======= ======= =======
Diluted......... 1,930 884 1,009 2,939 446 446 446
======= ====== ======= ======= ======= ======= =======
Earnings (loss)
per share (10):
Basic........... $ 0.85 $ 0.92 $ 0.32 $ (2.62) $ (4.90)
======= ====== ======= ======= =======
Diluted......... $ 0.81 $ 0.90 $ 0.31 $ (2.62) $ (4.90)
======= ====== ======= ======= =======
<CAPTION>
WorldCom
Consolidated
------------
<S> <C>
Revenues......... $27,323
Operating
expenses:
Line costs...... 12,581
Selling, general
and
administrative.. 7,662
Goodwill
amortization... 3,138
Depreciation and
other
amortization... 3,211
------------
Operating income
(loss).......... 731
Other income
(expense):
Interest
expense........ (902)
Other........... (29)
------------
Income (loss)
before income
taxes and
minority
interests....... (200)
Provision
(benefit) for
income taxes.... 1,050
------------
Income (loss)
before minority
interests....... (1,250)
Minority
interests....... 20
------------
Income (loss)
before
extraordinary
items........... (1,230)
Distributions on
subsidiary trust
mandatorily
redeemable
preferred
securities...... 32
Preferred
dividend
requirements.... 4
------------
Net income (loss)
applicable to
common
shareholders
before
extraordinary
items........... $(1,266)
============
</TABLE>
The accompanying notes are an integral part of this statement.
105
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (1)
For the Year Ended December 31, 1998
(In millions, except per share data)
<TABLE>
<CAPTION>
WorldCom WorldCom PCS
MCI Sprint Group Sprint PCS Group
WorldCom FON Group Pro Forma Pro Forma Group Pro Forma Pro Forma Intergroup
Historical (2) Historical (2) Adjustments Combined Historical (2) Adjustments Combined Eliminations
-------------- -------------- ----------- --------- -------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues......... $17,678 $16,017 $ (305)(6) $33,390 $ 1,225 $ -- $ 1,225 $(108)(7)
Operating
expenses:
Line costs...... 8,416 7,601 (305)(6) 15,712 1,294 -- 1,294 (108)(7)
Selling, general
and
administrative.. 4,312 3,741 -- 8,053 1,532 -- 1,532 --
Goodwill
amortization... 634 41 (41)(9) 3,567 16 (16)(9) 2,134 --
2,933 (8) 2,134 (8)
Depreciation and
other
amortization... 1,566 1,874 -- 3,440 774 -- 774 --
In-process
research and
development and
other charges.. 3,725 -- -- 3,725 179 -- 179 --
------- ------- ------- ------- ------- ------- ------- -----
Operating income
(loss).......... (975) 2,760 (2,892) (1,107) (2,570) (2,118) (4,688) --
Other income
(expense):
Interest
expense........ (637) (318) -- (955) (491) -- (491) 81 (7)
Other........... 41 32 -- 73 1,429 -- 1,429 (81)(7)
------- ------- ------- ------- ------- ------- ------- -----
Income (loss)
before income
taxes and
minority
interests....... (1,571) 2,474 (2,892) (1,989) (1,632) (2,118) (3,750) --
Provision
(benefit) for
income taxes.... 876 934 -- 1,810 (542) -- (542) --
------- ------- ------- ------- ------- ------- ------- -----
Income (loss)
before
extraordinary
items........... (2,447) 1,540 (2,892) (3,799) (1,090) (2,118) (3,208) --
Minority
interests....... (93) -- -- (93) -- -- -- --
------- ------- ------- ------- ------- ------- ------- -----
Income (loss)
from continuing
operations...... (2,540) 1,540 (2,892) (3,892) (1,090) (2,118) (3,208) --
Distributions on
subsidiary trust
mandatorily
redeemable
preferred
securities...... 18 -- -- 18 -- -- -- --
Preferred
dividend
requirements.... 13 -- -- 13 2 -- 2 --
------- ------- ------- ------- ------- ------- ------- -----
Net income (loss)
applicable to
common
shareholders
before
extraordinary
items........... $(2,571) $ 1,540 $(2,892) $(3,923) $(1,092) $(2,118) $(3,210) $ --
======= ======= ======= ======= ======= ======= ======= =====
Weighted average
number of shares
issued and
outstanding:
Basic........... 1,274 974 2,248 416 416
======= ======= ======= ======= =======
Diluted......... 1,274 974 2,248 416 416
======= ======= ======= ======= =======
Earnings (loss)
per
share (10):
Basic........... $ (2.02) $ (1.75) $ (7.72)
======= ======= =======
Diluted......... $ (2.02) $ (1.75) $ (7.72)
======= ======= =======
<CAPTION>
WorldCom
Consolidated
------------
<S> <C>
Revenues......... $34,507
Operating
expenses:
Line costs...... 16,898
Selling, general
and
administrative.. 9,585
Goodwill
amortization... 5,701
Depreciation and
other
amortization... 4,214
In-process
research and
development and
other charges.. 3,904
------------
Operating income
(loss).......... (5,795)
Other income
(expense):
Interest
expense........ (1,365)
Other........... 1,421
------------
Income (loss)
before income
taxes and
minority
interests....... (5,739)
Provision
(benefit) for
income taxes.... 1,268
------------
Income (loss)
before
extraordinary
items........... (7,007)
Minority
interests....... (93)
------------
Income (loss)
from continuing
operations...... (7,100)
Distributions on
subsidiary trust
mandatorily
redeemable
preferred
securities...... 18
Preferred
dividend
requirements.... 15
------------
Net income (loss)
applicable to
common
shareholders
before
extraordinary
items........... $(7,133)
============
</TABLE>
The accompanying notes are an integral part of this statement.
106
<PAGE>
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
1. The unaudited pro forma financial data do not give effect to any
restructuring costs or to any potential cost savings or other operating
efficiencies that could result from the merger. MCI WorldCom is in the
process of developing its plan to integrate the operations of Sprint which
may include certain exit costs. As a result of this plan, a charge, or
increase to purchase cost, which may be material but which cannot be
quantified at the date of this proxy statement/prospectus, is expected to be
recognized in the period in which such exit plan has been approved by the
appropriate level of management. Furthermore, the unaudited pro forma
financial data do not reflect any expense of intangible assets attributable
to the value of any in-process research and development projects of Sprint
at the time of the merger. However, MCI WorldCom intends to undertake a
study to determine the allocation of the total purchase price to the various
assets acquired, including in-process research and development, and the
liabilities assumed. To the extent that a portion of the purchase price is
allocated to in-process research and development projects of Sprint, a
charge would be recognized in the period in which the merger occurs. The
unaudited pro forma financial data are not necessarily indicative of the
operating results or financial position that would have occurred had the
merger been completed at the dates indicated, nor are they necessarily
indicative of future operating results or financial position. The purchase
accounting adjustments made in connection with the development of the
unaudited pro forma condensed combined financial statements are preliminary
and have been made solely for purposes of developing such pro forma
financial information.
2. These columns represent historical results of operations and financial
position. On September 14, 1998, MCI WorldCom completed the merger with MCI
Communications. The merger with MCI Communications was accounted for as a
purchase and therefore the operating results for MCI Communications are not
reflected in the historical results of MCI WorldCom prior to September 14,
1998. See "Additional Unaudited Pro Forma Presentation".
In November 1998, Sprint stockholders approved the formation of the Sprint
FON group and the Sprint PCS group and the creation of the Sprint FON common
stock and the Sprint PCS common stock. The Sprint PCS common stock was
designed to reflect the performance of Sprint's domestic wireless personal
communication services (PCS) operations. The Sprint FON common stock was
designed to reflect the performance of all of Sprint's other operations.
The following table presents a reconciliation of Sprint's consolidated
results of operations for the six months ended June 30, 1999 (in millions):
<TABLE>
<CAPTION>
Sprint Sprint
FON PCS Intergroup Sprint
Group Group Eliminations Consolidated
------ ------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues......................... $8,416 $ 1,340 $(111) $9,645
Line costs....................... 3,865 1,041 (111) 4,795
Selling, general and
administrative.................. 2,057 1,115 -- 3,172
Goodwill amortization............ 21 47 -- 68
Depreciation and other
amortization.................... 1,000 672 -- 1,672
------ ------- ----- ------
Operating income (loss).......... 1,473 (1,535) -- (62)
Other income (expense):
Interest expense............... (94) (321) 9 (406)
Other.......................... (66) 30 (9) (45)
------ ------- ----- ------
Income (loss) before income
taxes........................... 1,313 (1,826) -- (513)
Provision (benefit) for income
taxes........................... 521 (666) -- (145)
------ ------- ----- ------
Income (loss) before
extraordinary items............. 792 (1,160) -- (368)
Preferred dividends.............. (3) 7 -- 4
------ ------- ----- ------
Net income (loss) applicable to
common shareholders before
extraordinary items............. $ 795 $(1,167) $ -- $ (372)
====== ======= ===== ======
</TABLE>
107
<PAGE>
The following table presents a reconciliation of Sprint's consolidated
results of operations for the year ended December 31, 1998 (in millions):
<TABLE>
<CAPTION>
Sprint Sprint
FON PCS Intergroup Sprint
Group Group Eliminations Consolidated
------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues........................ $16,017 $ 1,225 $(108) $17,134
Line costs...................... 7,601 1,294 (108) 8,787
Selling, general and
administrative................. 3,741 1,532 -- 5,273
Goodwill amortization........... 41 16 -- 57
Depreciation and other
amortization................... 1,874 774 -- 2,648
In-process research and
development.................... -- 179 -- 179
------- ------- ----- -------
Operating income (loss)......... 2,760 (2,570) -- 190
Other income (expense):
Interest expense.............. (318) (491) 81 (728)
Other......................... 32 1,429 (81) 1,380
------- ------- ----- -------
Income (loss) before income
taxes and minority interests... 2,474 (1,632) -- 842
Provision (benefit) for income
taxes.......................... 934 (542) -- 392
------- ------- ----- -------
Income (loss) from continuing
operations..................... 1,540 (1,090) 450
Preferred dividends............. -- 2 -- 2
------- ------- ----- -------
Net income (loss) applicable to
common shareholders before
extraordinary items............ $ 1,540 $(1,092) $ -- $ 448
======= ======= ===== =======
</TABLE>
108
<PAGE>
3. This adjustment reflects the excess of consideration over net assets
acquired. The following is a calculation (in millions, except per share
data):
<TABLE>
<S> <C>
Sprint FON common stock outstanding at June 30, 1999.............. 781
Shares issuable upon conversion of Sprint FT/DT class A stock
outstanding at June 30, 1999 (represents the right to one share
of Sprint series 3 FON common stock)............................. 86
Shares issuable (treasury stock method) upon exercise of Sprint
FON stock options................................................ 21
Shares issuable upon conversion of Sprint first and second series
preferred stock.................................................. 2
--------
Sprint FON common stock assumed outstanding at June 30, 1999...... 890
Assumed FON exchange ratio per share.............................. 1.0640
--------
WorldCom group common stock assumed to be issuable for Sprint FON
common stock..................................................... 947
--------
Sprint PCS common stock outstanding at June 30, 1999.............. 429
Shares issuable upon conversion of Sprint FT/DT class A stock
outstanding at June 30, 1999 (represents the right to one-half
share of one share of Sprint series 3 PCS common stock).......... 43
Shares issuable (treasury stock method) upon exercise of Sprint
PCS stock options................................................ 10
Shares issuable (treasury stock method) upon exercise of Sprint
PCS warrants..................................................... 8
Shares issuable upon conversion of Sprint seventh series preferred
stock............................................................ 8
Shares issuable upon conversion of Sprint first and second series
preferred stock.................................................. 1
--------
Sprint PCS common stock assumed outstanding at June 30, 1999...... 499
PCS exchange ratio per share...................................... .1547
--------
WorldCom PCS group common stock assumed to be issuable for Sprint
PCS common stock................................................. 77
--------
Total WorldCom group common stock assumed to be issuable.......... 1,024
WorldCom group common stock assumed average price based on the MCI
WorldCom common stock average closing price before and after the
merger was announced............................................. $71.4271
--------
$ 73,141
--------
Total WorldCom PCS group common stock assumed to be issuable...... 499
WorldCom PCS group common stock assumed average price based on the
average closing price of Sprint series 1 PCS common stock before
and after the merger was announced............................... $ 74.47
--------
$ 37,161
Estimated transaction costs....................................... 250
--------
Total consideration............................................... 110,552
Elimination of Sprint's historical goodwill at June 30, 1999...... 4,780
Historical net book value at June 30, 1999 of Sprint net assets
acquired......................................................... (13,987)
--------
Excess of consideration over net assets acquired.................. $101,345
========
</TABLE>
The determination of the fair value for Sprint capital stock has been based
upon the assumed FON exchange ratio. The actual FON exchange ratio may vary
as described in this proxy statement/prospectus. For securities other than
the Sprint FON common stock and the Sprint PCS common stock, their fair
values were determined based upon the securities into which they convert.
The total consideration will be allocated to the assets and liabilities of
Sprint based on their estimated fair value. The excess of consideration
over the historical book value of Sprint's net assets acquired has been
preliminarily allocated to goodwill. A final allocation of the purchase
price to the assets acquired and liabilities assumed of Sprint is dependent
upon certain valuations and studies that have not progressed to a stage
where there is sufficient information to make such an allocation in the
accompanying pro forma financial information. These valuations are expected
to be completed around the effective date of the merger. MCI WorldCom's
management believes the consideration in excess of the historical book
value of Sprint's net assets acquired primarily comprises goodwill and
other intangible assets. To the extent that a portion of the purchase price
is allocated to in-process research and development projects for which
technological feasibility has not been established and the technology has
no future alternative use, a charge would be recognized in the period in
which the merger occurs (See Note 1).
109
<PAGE>
4. These adjustments represent the elimination of Sprint's stockholders'
equity accounts and the Sprint first series preferred stock and the Sprint
second series preferred stock.
5. These adjustments represent the issuance of:
(a) approximately 897 million shares of WorldCom group common stock at an
assumed FON exchange ratio of 1.064 shares of WorldCom group common
stock for each share of Sprint FON common stock outstanding and 0.1547
shares of WorldCom group common stock for each share of Sprint PCS
common stock outstanding. The actual FON exchange ratio may vary as
described in this proxy statement/prospectus.
(b) approximately 499 million shares of WorldCom PCS group common stock
for the shares of Sprint PCS common stock outstanding.
(c) approximately 86 million shares of WorldCom class A common stock for
the shares of Sprint FT/DT class A stock outstanding. Each share of
WorldCom class A common stock represents the right to (1) a number of
shares of WorldCom series 3 common stock equal to the sum of (A) the
FON exchange ratio plus (B) 0.5 multiplied by 0.1547, or 0.07735, and
(2) 0.5 shares of WorldCom series 3 PCS common stock.
(d) approximately 95 shares of WorldCom series 5 preferred stock for the
shares of Sprint fifth series preferred stock outstanding.
(e) approximately 247,000 shares of WorldCom series 7 preferred stock for
the shares of Sprint seventh series preferred stock outstanding.
6. These estimated adjustments eliminate the revenues and corresponding line
costs attributable to the intercompany transactions between MCI WorldCom
and Sprint.
7. These adjustments eliminate the intergroup transactions between Sprint's
FON and PCS groups.
8. This entry reflects the adjustment to amortization for the effect of the
excess of consideration over net assets acquired in the merger. For
purposes of the unaudited pro forma condensed combined financial
statements, the excess consideration has been amortized over an estimated
life of 20 years. MCI WorldCom's management currently believes that amounts
allocated to goodwill will be amortized over a life not to exceed 25 years
while other intangible assets may be amortized over shorter periods
consequently reducing net income reported by WorldCom. Assuming an
estimated useful life of 10 years, each $1 billion of consideration
allocated to intangible assets other than goodwill would have the effect of
decreasing net income by approximately $31 million annually. A final
determination of the lives attributable to the intangible assets has not
yet been made (See Note 1). As discussed in Note 3, a portion of the excess
consideration may be allocated to certain in-process research and
development projects. To the extent amounts are allocated to certain in-
process research and development projects, pro forma amortization expense
would be ratably reduced accordingly. For example, if $500 million were
allocated to in-process research and development projects, it would have
the effect of increasing net income in subsequent periods by approximately
$25 million.
Excess consideration and the related amortization expense was allocated
between Sprint's FON and PCS groups based upon the amount of consideration
to be issued to each group and their respective net assets at June 30,
1999. Additionally, since the value of WorldCom group common stock to be
exchanged for Sprint FON common stock is subject to a collar, the final
determination of the value of WorldCom group common stock to be exchanged
may not be known until completion of the merger. For purposes of the
unaudited pro forma condensed combined financial statements, the total
consideration and related amortization is based upon a value of $76.00 per
share for each share of Sprint FON common stock exchanged, which represents
the value of the WorldCom group common stock to be exchanged if the average
closing price of MCI WorldCom common stock is greater than $62.15 and less
than $80.85 before
110
<PAGE>
the completion of merger. If the average closing price per share of MCI
WorldCom common stock equals or exceeds $80.85, the FON exchange ratio will
be 0.9400; and if it equals or is less than $62.15, the FON exchange ratio
will be 1.2228.
9. These entries represent the estimated elimination of Sprint's historical
goodwill amortization.
10. Pro forma per share data are based on the number of shares of WorldCom
common and common equivalent shares that would have been outstanding had
the merger occurred on the earliest date presented.
For the year ended December 31, 1998, Sprint calculated its earnings per
share on a consolidated basis until the Sprint FON common stock and Sprint
PCS common stock were created as part of the November 1998 Sprint PCS
restructuring. From that time forward, earnings per share was computed
individually for the Sprint FON group and the Sprint PCS group. Sprint
reported diluted earnings per share of $1.96 before extraordinary items on
a consolidated basis for 1998 before the November 1998 Sprint PCS
restructuring. For the period from the November 1998 Sprint PCS
restructuring through December 31, 1998, the Sprint FON group reported
diluted earnings per share of $0.14 and the Sprint PCS group reported a
loss of $(1.26) per share before extraordinary items.
In September 1999, the Financial Accounting Standards Board issued an
exposure draft related to business combinations and intangible assets. This
exposure draft will permit companies to present basic and diluted earnings
per share before goodwill charges. This exposure draft has not been
finalized and the impact of the final statement, when issued, may be
significantly different from the presentation displayed below. Pro forma
per share data before goodwill charges have been presented for purposes of
additional analysis and are based on the number of WorldCom common and
common equivalent shares that would have been outstanding had the merger
occurred on the earliest date presented. Goodwill amortization, net of
taxes, is excluded from these amounts.
<TABLE>
<CAPTION>
For the Six Months Ended June
30, 1999
--------------------------------
WorldCom WorldCom
Group PCS Group
MCI WorldCom Pro Forma Pro Forma
Historical Combined Combined
------------ --------- ---------
<S> <C> <C> <C>
Earnings (loss) per share before goodwill
charges:
Basic.................................. $ 1.16 $ 1.03 $(2.62)
Diluted................................ $ 1.11 $ 1.00 $(2.62)
<CAPTION>
For the Year Ended December 31,
1998
--------------------------------
WorldCom WorldCom
Group PCS Group
MCI WorldCom Pro Forma Pro Forma
Historical Combined Combined
------------ --------- ---------
<S> <C> <C> <C>
Earnings (loss) per share before goodwill
charges:
Basic.................................. $(1.56) $(0.20) $(2.63)
Diluted................................ $(1.56) $(0.20) $(2.63)
</TABLE>
111
<PAGE>
ADDITIONAL UNAUDITED PRO FORMA PRESENTATION
The following unaudited additional pro forma presentation illustrates the
effect of the Sprint merger and the merger with MCI Communications on the
results of operations of MCI WorldCom for the year ended December 31, 1998, as
if the transactions had occurred on January 1, 1998. The additional pro forma
presentation is presented for purposes of additional analysis due to the
significance of the merger of MCI Communications Corporation and WorldCom, Inc.
On September 14, 1998, WorldCom, Inc., through a wholly owned subsidiary,
merged with MCI Communications. As a result of the MCI merger, each outstanding
share of MCI common stock was converted into the right to receive 1.2439 shares
of MCI WorldCom common stock, or approximately 755 million shares of MCI
WorldCom common stock in the aggregate, and each share of MCI class A common
stock outstanding (all of which were held by British Telecommunications plc)
was converted into the right to receive $51.00 in cash or approximately $7
billion in the aggregate. The MCI merger was accounted for using the purchase
method of accounting.
This additional pro forma presentation should be read in conjunction with
the historical financial statements of MCI WorldCom, Sprint and MCI
Communications, which are incorporated by reference in this proxy
statement/prospectus.
The additional pro forma presentation is presented for comparative purposes
only and is not intended to be indicative of actual results had the
transactions occurred as of the date indicated above nor does it purport to
indicate results which may be attained in the future. This additional unaudited
pro forma condensed combined statement of operations does not give effect to
any restructuring costs or to any potential cost savings or other operating
efficiencies that could result from the Sprint merger.
The consolidated historical financial statements of MCI WorldCom and Sprint
for the year ended December 31, 1998, are derived from audited consolidated
financial statements incorporated by reference in this proxy
statement/prospectus.
112
<PAGE>
ADDITIONAL UNAUDITED PRO FORMA PRESENTATION (1)
For the Year Ended December 31, 1998
(In millions, except per share data)
<TABLE>
<CAPTION>
WorldCom
MCI WorldCom Sprint FON Group Sprint PCS
Adjusted Group Pro Forma Pro Forma Group Pro Forma
Historical (2) Historical (2) Adjustments Combined Historical (2) Adjustments
--------------- -------------- ----------- --------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues......... $31,968 $16,017 $ (513)(3) $47,472 $ 1,225 $ --
Operating
expenses:
Line costs...... 15,390 7,601 (513)(3) 22,478 1,294 --
Selling, general
and
administrative.. 8,850 3,741 -- 12,591 1,532 --
Goodwill
amortization... 1,128 41 (41)(10) 4,061 16 (16)(10)
2,933 (9) 2,134 (9)
Depreciation and
other
amortization... 3,135 1,874 -- 5,009 774 --
In-process
research and
development and
other charges.. 3,725 -- -- 3,725 179 --
------- ------- ------- ------- ------- -------
Operating income
(loss).......... (260) 2,760 (2,892) (392) (2,570) (2,118)
Other income
(expense):
Interest
expense........ (1,149) (318) -- (1,467) (491) --
Other........... 122 32 -- 154 1,429 --
------- ------- ------- ------- ------- -------
Income (loss)
before income
taxes and
minority
interests....... (1,287) 2,474 (2,892) (1,705) (1,632) (2,118)
Provision
(benefit) for
income taxes.... 1,057 934 -- 1,991 (542) --
------- ------- ------- ------- ------- -------
Income (loss)
before minority
interests....... (2,344) 1,540 (2,892) (3,696) (1,090) (2,118)
Minority
interests....... (126) -- -- (126) -- --
------- ------- ------- ------- ------- -------
Income (loss)
before
extraordinary
items........... (2,470) 1,540 (2,892) (3,822) (1,090) (2,118)
Distributions on
subsidiary trust
mandatorily
redeemable
preferred
securities...... 60 -- -- 60 -- --
Preferred
dividend
requirements.... 13 -- -- 13 2 --
------- ------- ------- ------- ------- -------
Net income (loss)
applicable to
common
shareholders
before
extraordinary
items........... $(2,543) $ 1,540 $(2,892) $(3,895) $(1,092) $(2,118)
======= ======= ======= ======= ======= =======
Weighted average
number of shares
issued and
outstanding:
Basic........... 1,795 974 2,769 416
======= ======= ======= =======
Diluted......... 1,795 974 2,769 416
======= ======= ======= =======
Earnings (loss)
per
share (11):
Basic........... $ (1.42) $ (1.41)
======= =======
Diluted......... $ (1.42) $ (1.41)
======= =======
<CAPTION>
WorldCom PCS
Group
Pro Forma Intergroup WorldCom
Combined Eliminations Consolidated
------------ ------------- ------------
<S> <C> <C> <C>
Revenues......... $ 1,225 $(108)(8) $48,589
Operating
expenses:
Line costs...... 1,294 (108)(8) 23,664
Selling, general
and
administrative.. 1,532 -- 14,123
Goodwill
amortization... 2,134 -- 6,195
Depreciation and
other
amortization... 774 -- 5,783
In-process
research and
development and
other charges.. 179 -- 3,904
------------ ------------- ------------
Operating income
(loss).......... (4,688) -- (5,080)
Other income
(expense):
Interest
expense........ (491) 81 (8) (1,877)
Other........... 1,429 (81)(8) 1,502
------------ ------------- ------------
Income (loss)
before income
taxes and
minority
interests....... (3,750) -- (5,455)
Provision
(benefit) for
income taxes.... (542) -- 1,449
------------ ------------- ------------
Income (loss)
before minority
interests....... (3,208) -- (6,904)
Minority
interests....... -- -- (126)
------------ ------------- ------------
Income (loss)
before
extraordinary
items........... (3,208) -- (7,030)
Distributions on
subsidiary trust
mandatorily
redeemable
preferred
securities...... -- -- 60
Preferred
dividend
requirements.... 2 -- 15
------------ ------------- ------------
Net income (loss)
applicable to
common
shareholders
before
extraordinary
items........... $(3,210) $ -- $(7,105)
============ ============= ============
Weighted average
number of shares
issued and
outstanding:
Basic........... 416
============
Diluted......... 416
============
Earnings (loss)
per
share (11):
Basic........... $ (7.72)
============
Diluted......... $ (7.72)
============
</TABLE>
The accompanying notes are an integral part of this statement.
113
<PAGE>
ADDITIONAL UNAUDITED PRO FORMA PRESENTATION (1)
For the Year Ended December 31, 1998
(In millions, except per share data)
<TABLE>
<CAPTION>
MCI Historical(2)
January 1, 1998 MCI WorldCom
MCI WorldCom through Pro Forma Adjusted
Historical(2) September 14, 1998 Adjustments Historical
------------- ------------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenues................ $17,678 $15,109 $(819)(3) $31,968
Operating expenses:
Line costs............ 8,416 7,793 (819)(3) 15,390
Selling, general and
administrative....... 4,312 4,538 -- 8,850
Goodwill
amortization......... 634 29 465 1,128
Depreciation and other
amortization......... 1,566 1,847 140 (4) 3,135
(418)(5)
In-process research
and development and
other charges........ 3,725 -- -- 3,725
------- ------- ----- -------
Operating income
(loss)................. (975) 902 (187) (260)
Other income (expense):
Interest expense...... (637) (193) (319)(6) (1,149)
Other................. 41 81 -- 122
------- ------- ----- -------
Income (loss) before
income taxes and
minority interests..... (1,571) 790 (506) (1,287)
Provision (benefit) for
income taxes........... 876 277 (96)(7) 1,057
------- ------- ----- -------
Income (loss) before
minority interests..... (2,447) 513 (410) (2,344)
Minority interests...... (93) (33) -- (126)
------- ------- ----- -------
Income (loss) before
extraordinary items.... (2,540) 480 (410) (2,470)
Distributions on
subsidiary trust
manditorily redeemable
preferred securities... 18 42 -- 60
Preferred dividend
requirements........... 13 -- -- 13
------- ------- ----- -------
Net income (loss)
applicable to common
shareholders before
extraordinary items.... $(2,571) $ 438 $(410) $(2,543)
======= ======= ===== =======
Weighted average number
of shares outstanding:
Basic................. 1,274 1,795
======= =======
Diluted............... 1,274 1,795
======= =======
Earnings (loss) per
share (11)
Basic................. $ (2.02) $ (1.42)
======= =======
Diluted............... $ (2.02) $ (1.42)
======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
114
<PAGE>
Notes to Additional Unaudited Pro Forma Presentation
1. The unaudited pro forma financial data do not give effect to any potential
cost savings or other operating efficiencies that could result from the
merger with Sprint or the merger with MCI Communications. MCI WorldCom is in
the process of developing its plan to integrate the operations of Sprint
which may include certain exit costs. As a result of this plan, a charge, or
increase to purchase cost, which may be material but which cannot now be
quantified, is expected to be recognized in the period in which such exit
plan has been approved by the appropriate level of management. Furthermore,
the unaudited pro forma financial data do not reflect any expense of
intangible assets attributable to the value of any in-process research and
development projects of Sprint at the time of the Sprint merger. However,
MCI WorldCom intends to undertake a study to determine the allocation of the
total purchase price to the various assets acquired, including in-process
research and development, and the liabilities assumed. To the extent that a
portion of the purchase price is allocated to in-process research and
development projects of Sprint, a charge, which may be material, would be
recognized in the period in which the Sprint merger occurs. The unaudited
pro forma financial data are not necessarily indicative of the operating
results or financial position that would have occurred had the Sprint merger
or the MCI merger been completed at the dates indicated, nor are they
necessarily indicative of future operating results or financial position.
The purchase accounting adjustments made in connection with the development
of the unaudited pro forma condensed combined financial statements are
preliminary and have been made solely for purposes of developing such pro
forma financial information.
2. These columns represent historical results of operations. The MCI historical
column includes MCI Communications' results of operations through September
14, 1998, the date of the MCI merger. The results of operations for MCI
Communications since September 14, 1998 are included in the MCI WorldCom
historical column. The MCI adjusted historical column assumes the MCI merger
occurred on January 1, 1998.
In November 1998, Sprint stockholders approved the formation of the Sprint
FON group and the Sprint PCS group and the creation of the Sprint FON common
stock and the Sprint PCS common stock. The Sprint PCS common stock was
intended to reflect the performance of Sprint's domestic wireless personal
communication services (PCS) operations. The Sprint FON common stock was
intended to reflect the performance of all of Sprint's other operations.
3. These adjustments eliminate the revenues and corresponding line costs
attributable to the intercompany transactions between MCI WorldCom, Sprint
and MCI Communications, as well as the elimination of MCI Communications'
Internet backbone facilities and wholesale and retail Internet business that
was sold in connection with the MCI merger.
4. This entry reflects the adjustment to depreciation and amortization for the
effect of the excess of the purchase price over net assets acquired in the
MCI merger. The purchase price in the MCI merger was allocated based on
estimated fair values at the date of acquisition. This resulted in an excess
of purchase price over net asset acquired of which $3.1 billion was
allocated to in-process research and development and $1.7 billion to
developed technology, which will be depreciated over 10 years on a straight-
line basis. The remaining excess has been allocated to goodwill and
tradename, which are being amortized over 40 years on a straight-line basis.
5. This entry reflects the adjustment to depreciation expense for the effect of
the fair value adjustment of MCI Communications' property, plant and
equipment based on an evaluation of depreciated replacement cost.
6. This adjustment represents the recognition of interest expense on the
additional borrowings of MCI WorldCom to finance the cash payment of
approximately $7 billion to the holder of the MCI class A common stock and
transaction costs of $500 million (which includes a $465 million inducement
fee paid
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to British Telecommunications). The interest expense was calculated based
on MCI WorldCom's incremental borrowing rate of 6.0% under its credit
facilities at December 31, 1998. A change of 1/8% in the incremental rate
would affect interest expense by $9.3 million for the year ended December
31, 1998.
7. Income tax expense has been adjusted to reflect an estimated combined tax
rate of 47%.
8. These adjustments eliminate the intergroup transactions between Sprint's
FON and PCS groups.
9. This entry reflects the adjustment to amortization for the effect of the
excess of consideration over net assets acquired in the merger with Sprint.
For purposes of the unaudited pro forma condensed combined financial
statements, the excess consideration has been amortized over an estimated
life of 20 years. MCI WorldCom's management currently believes that amounts
allocated to goodwill will be amortized over a life not to exceed 25 years
while other intangible assets may be amortized over shorter periods
consequently reducing net income reported by MCI WorldCom. Assuming an
estimated useful life of 10 years, each $1 billion of consideration
allocated to intangible assets other than goodwill would have the effect of
decreasing net income by approximately $31 million annually. A final
determination of the lives attributable to the intangible assets has not
yet been made (See Note 1). As discussed in Note 1, a portion of the excess
consideration may be allocated to certain in-process research and
development projects. To the extent amounts are allocated to certain in-
process research and development projects, pro forma amortization expense
would be ratably reduced accordingly. For example, if $500 million were
allocated to in-process research and development projects, it would have
the effect of increasing net income in subsequent periods by approximately
$25 million.
Excess consideration and the related amortization expense was allocated
between Sprint's FON and PCS groups based upon the amount of consideration
to be issued to each group and their respective net assets at June 30,
1999. Additionally, since the value of WorldCom group common stock to be
exchanged for Sprint FON common stock is subject to a collar, the final
determination of the value of WorldCom group common stock to be exchanged
may not be known until completion of the merger. For purposes of the
unaudited pro forma financial statements, the total consideration and
related amortization is based upon a value of $76.00 per share for each
share of Sprint FON common stock exchanged, which represents the value of
the WorldCom common stock to be exchanged if the average closing price of
MCI WorldCom common stock is greater than $62.15 and less than $80.85
before the completion of the merger. If the average closing price per share
of MCI WorldCom common stock equals or exceeds $80.85, the FON exchange
ratio will be 0.9400; and if it equals or is less than $62.15, the FON
exchange ratio will be 1.2228.
10.These entries represent the estimated elimination of Sprint's historical
goodwill amortization.
11.Pro forma per share data are based on the number of MCI WorldCom common and
common equivalent shares that would have been outstanding had the Sprint
merger and MCI merger occurred at the date indicated.
For the year ended December 31, 1998, Sprint calculated its earnings per
share on a consolidated basis until the Sprint FON common stock and Sprint
PCS common stock were created as part of the November 1998 Sprint PCS
restructuring. From that time forward, earnings per share were computed
individually for the Sprint FON group and Sprint PCS group. Sprint reported
diluted earnings per share of $1.96 before extraordinary items on a
consolidated basis for 1998 before the November 1998 Sprint PCS
restructuring. For the period from the November 1998 Sprint PCS
restructuring through December 31, 1998, the Sprint FON group reported
diluted earnings per share of $0.14 and the Sprint PCS group reported a
loss of $(1.26) per share before extraordinary items.
In September 1999, the Financial Accounting Standards Board issued an
exposure draft related to business combinations and intangible assets. This
exposure draft will permit companies to present basic and diluted
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earnings per share before goodwill charges. This exposure draft has not
been finalized and the impact of the final statement, when issued, may be
significantly different from the presentation displayed below. Pro forma
per share data before goodwill charges have been presented for purposes of
additional analysis and are based on the number of WorldCom common and
common equivalent shares that would have been outstanding had the Sprint
merger occurred on the earliest date presented. Goodwill amortization, net
of taxes, is excluded from these amounts.
<TABLE>
<CAPTION>
For the Year Ended December 31,
1998
-----------------------------------
WorldCom WorldCom PCS
MCI WorldCom Group Group
Adjusted Pro Forma Pro Forma
Historical Combined Combined
------------ --------- ------------
<S> <C> <C> <C>
Earnings (loss) per share before
goodwill charges:
Basic............................... $(0.82) $0.02 $(2.63)
Diluted............................. $(0.82) $0.02 $(2.63)
</TABLE>
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CERTAIN TRACKING STOCK MATTERS
Inter-Group Interest
As of September 30, 1999, the total number of notional shares of Sprint PCS
common stock intended to track the performance of the Sprint PCS group was
approximately 475,875,200.
Although the Sprint PCS group will be re-named the WorldCom PCS group in
the merger, the merger will not affect the total number of notional shares
that are designed to reflect the economic performance of this group. The total
number of notional shares will have increased to some extent before the merger
occurs as Sprint continues to issue shares of Sprint PCS common stock upon
exercise of employee stock options or for other reasons.
The Various Interests in the Economic Performance of the PCS Group;
Definition of Inter-Group Interest
After the merger, assuming that the number of existing notional shares
designed to reflect the performance of the WorldCom PCS group does not change
from the number on September 30, 1999, these shares will consist of:
. the cable holders' shares of WorldCom series 2 PCS common stock,
representing 46.1% of the total
. the shares owned by France Telecom and Deutsche Telekom, representing
11.8% of the total, which will consist of shares of WorldCom series 3 PCS
common stock owned and shares of WorldCom series 3 PCS common stock
issuable with respect to their shares of WorldCom series FT common stock
or WorldCom series DT common stock, respectively
. the WorldCom series 1 PCS common stock, representing 41.7% of the total
and
. the WorldCom group's "inter-group interest", representing the remaining
unissued 0.4% of the total.
"Inter-group interest" is the term used for the WorldCom group's ownership
of the WorldCom PCS group. It is similar to the WorldCom group holding shares
of WorldCom PCS group common stock. MCI WorldCom expects the inter-group
interest to be eliminated over time as certain employee stock options are
exercised for, and shares of convertible preferred stock are converted into,
shares of WorldCom PCS group common stock. The WorldCom group's inter-group
interest may, however, increase in the future. See "--Future Inter-Group
Interest".
The WorldCom PCS group will not acquire an inter-group interest in the
WorldCom group.
The WorldCom group will also own a warrant inter-group interest, with the
same terms as the warrants to acquire Sprint PCS common stock (or, after the
merger, WorldCom PCS group common stock) that are held by the cable holders,
to acquire an additional inter-group interest in the WorldCom PCS group. As of
September 30, 1999, this warrant inter-group interest entitled the Sprint FON
group to acquire the equivalent of 12,452,831 additional shares in inter-group
interest. In addition, the WorldCom group will own a preferred inter-group
interest that is convertible into an additional inter-group interest in the
WorldCom PCS group. The terms on which this preferred inter-group interest
will be convertible will be the same as those of the WorldCom series 7
preferred stock, which will be held by the cable holders and will be
convertible into WorldCom series 2 PCS common stock. As of September 30, 1999,
the preferred inter-group interest entitled the Sprint FON group to acquire
inter-group interest equivalent to 9,074,748 shares of Sprint PCS common
stock. See "Description of MCI WorldCom Capital Stock--Warrants" and "--
Preferred Stock--Amended WorldCom Articles of Incorporation--WorldCom Series 7
Preferred Stock; Preferred Inter-Group Interest". Upon exercise or conversion,
the warrant inter-group interest and preferred inter-group interest will not
reflect the shares of WorldCom group common stock that will be issuable on
exercise and conversion of the warrants and the WorldCom series 7 preferred
stock.
No Vote
An inter-group interest in the WorldCom PCS group, because it represents an
interest between two business groups within WorldCom, will not be represented
by outstanding shares of WorldCom PCS group common stock and, accordingly,
will not be voted on any matter, including any matter requiring the vote of
the holders of WorldCom PCS group common stock as a separate class. However,
the market value attributable to
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any inter-group interest should be reflected in the market value of the
WorldCom group common stock, which in turn would affect the aggregate voting
power represented by the WorldCom group common stock on any matter on which
holders of WorldCom group common stock and WorldCom PCS group common stock vote
together as a single group. See "Comparison of Rights of MCI WorldCom
Shareholders and Sprint Stockholders--Voting Rights".
Potential Increase or Decrease
In accordance with the amended WorldCom articles of incorporation, transfers
of businesses or assets from the WorldCom group to the WorldCom PCS group that
are designated by the WorldCom board of directors to be treated as an equity
contribution by the WorldCom group to the WorldCom PCS group will result in an
increase in the WorldCom group's inter-group interest in the WorldCom PCS
group.
The inter-group interest may also decrease. For example, the WorldCom board
of directors may also determine to sell WorldCom PCS common stock, in public
offerings or private transactions, out of the inter-group interest. This would
reduce the inter-group interest, and the cash received for those shares would
be allocated to the WorldCom group.
The Tracking Stock Policies and the Capital Stock Committee
At or before the completion of the merger, the WorldCom board of directors
will adopt and intends to follow the tracking stock policies that have been
adopted by the Sprint board of directors. This discussion summarizes the
material terms of the tracking stock policies.
General
The WorldCom board of directors will resolve all material matters as to
which the holders of WorldCom group common stock and the holders of WorldCom
PCS group common stock may have potentially divergent interests. The WorldCom
board of directors, or the capital stock committee of the WorldCom board of
directors acting on its behalf, will resolve these matters in a manner that it
determines to be in the best interests of WorldCom and all of its common
stockholders, after giving fair consideration to the potentially divergent
interests and all other relevant interests of the holders of the separate
classes of the WorldCom group common stock, the WorldCom PCS group common stock
and the WorldCom class A common stock. Pursuant to the tracking stock policies,
the relationship between the WorldCom group and the WorldCom PCS group and the
means by which the terms of any material transaction between them will be
determined will be governed by a process of fair dealing. The WorldCom board of
directors will not recommend any transaction that would result in a change in
control or any strategic merger without first determining that the terms of
such transaction are fair to holders of WorldCom PCS group common stock, taken
as a separate class, and the holders of the WorldCom group common stock, taken
as a separate class.
Capital Stock Committee
The amended WorldCom bylaws will include provisions establishing a capital
stock committee. The WorldCom board of directors will delegate to the capital
stock committee the authority to, and the capital stock committee will,
interpret, make determinations under, and oversee the implementation of the
tracking stock policies. All material commercial transactions between the
WorldCom group and the WorldCom PCS group, including any transaction that
results in a change in the size of any inter-group interest held by the
WorldCom group in the WorldCom PCS group, will be on commercially reasonable
terms and will be subject to the review and approval of the capital stock
committee. If such review occurs before the transaction is undertaken and such
transaction is disapproved, the transaction will not proceed. If such review
occurs after such transaction is undertaken and such transaction is
disapproved, appropriate actions will be taken to reinstate the pre-existing
circumstances to the fullest extent practicable. In making any and all
determinations in connection with the tracking stock policies, either directly
or by appropriate delegation of authority, the members of the WorldCom
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board of directors and the capital stock committee will act in a fiduciary
capacity and pursuant to legal guidance concerning their respective obligations
under applicable law. The tracking stock policies will provide that the capital
stock committee will have the authority to engage the services of accountants,
investment bankers, appraisers, attorneys and other service providers to assist
it in discharging its duties.
Each member of the capital stock committee will be an independent director.
Pursuant to the amended WorldCom bylaws, the capital stock committee will
have the powers, authority and responsibilities as the WorldCom board of
directors may delegate to it in connection with the adoption of general
policies governing the relationship between business groups or otherwise,
including but not limited to:
. the business and financial relationships between the WorldCom group and
the WorldCom PCS group
. dividends in respect of, and transactions by WorldCom or the WorldCom
group in, shares of WorldCom PCS group common stock and
. any other matters arising in connection with the relationships or
transactions described in the previous two items.
The amended WorldCom articles of incorporation will provide that the
provisions of the amended WorldCom bylaws regarding the capital stock committee
will not be amended before November 23, 2002 by the WorldCom board of directors
without the affirmative vote of holders of (1) a majority of the votes
represented by the outstanding WorldCom group common stock, WorldCom PCS group
common stock and WorldCom class A common stock, voting together as a single
class, and (2) a majority of the votes represented by the outstanding WorldCom
PCS group common stock and the WorldCom class A common stock, voting together
as a single class, as set forth under "Comparison of Rights of MCI WorldCom
Shareholders and Sprint Stockholders--Voting Rights--Sprint--Sprint PCS Common
Stock and Sprint FT/DT Class A Stock Voting as a Class".
Scope of the WorldCom PCS Group; Allocation of Business Opportunities and
Operations
The amended WorldCom articles of incorporation will set forth the entities
that will initially comprise the WorldCom PCS group. The tracking stock
policies will provide that any business conducted by WorldCom for offering or
providing (1) domestic wireless mobile telephony services and (2) any other
domestic PCS services will be allocated to the WorldCom PCS group. In addition,
the tracking stock policies will provide that all acquisitions of domestic PCS
licenses will be allocated to the WorldCom PCS group. To the extent such
businesses or licenses are acquired by the WorldCom group, the WorldCom board
of directors will arrange for an allocation or transfer of such assets to the
WorldCom PCS group as soon as reasonably practicable at a price equivalent to
the fair market value of such businesses or licenses. However, in no event will
such allocation or transfer be required at a time that would adversely affect
the availability of pooling-of-interests accounting. These provisions of the
tracking stock policies will not preclude the formation of commercially
reasonable contracts or other arrangements between the WorldCom PCS group and
the WorldCom group or any other group that may be created in the future for
sales agency, resale or any other arrangement for businesses conducted by
either the WorldCom group or the WorldCom PCS group. Except as provided above,
the WorldCom board of directors may allocate business opportunities and
operations to the WorldCom group, the WorldCom PCS group or to any other group
as it considers in the best interests of WorldCom and its shareholders as a
whole.
For these purposes:
. "domestic wireless mobile telephony services" means communications
services provided through the use of a wireless connection from the user
to a domestic terrestrial telecommunications network that is capable of
and generally utilized by WorldCom for handing-off calls from one
wireless cell to another and from one wireless sector within a cell to
another and which is intended to allow the continuation of a user's
single conversation, without interruption, as the user travels between
cells and/or sectors within such network
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. "domestic" means geographically within the United States or the District
of Columbia, Puerto Rico and the U.S. Virgin Islands
. "domestic PCS license" means a license within domestic areas, granted by
the FCC or other applicable authority, to use the electromagnetic
spectrum between 1850MHz and 1910MHz and between 1930MHz and 1990MHz, or
such other electromagnetic spectrum as may be allocated by the FCC in
exchange for the surrender of licenses to operate in these frequency
ranges and
. "domestic PCS services" means any services offered or provided within a
domestic geographic area under a domestic PCS license.
Relationship Between Groups; Long Distance Pricing
All material commercial transactions between the WorldCom group and the
WorldCom PCS group will be on commercially reasonable terms and will be subject
to the review and approval of the capital stock committee. With respect to
pricing of long distance services (whether from one calling area to another, or
within a calling area) purchased by the WorldCom PCS group for purposes of
enabling WorldCom PCS group customers to complete wireless calls (whether
billed separately or as part of other charges), services will be provided at
the best price offered by the WorldCom group to third parties in similar
situations when taking into account all relevant factors, such as volumes,
peak/off-peak usage and length of commitment. The WorldCom PCS group will be
permitted to acquire private line capacity from the WorldCom group to self-
provision long distance services to the extent that such self-provisioning can
be accomplished on terms more favorable to the WorldCom PCS group, and will be
at the best price offered by the WorldCom group to third parties in similar
situations, when taking into account all relevant factors.
Transfers of assets from the WorldCom group to the WorldCom PCS group that
are designated by the WorldCom board of directors to be treated as an equity
contribution by the WorldCom group to the WorldCom PCS group will result in an
increase in the inter-group interest held by the WorldCom group in the WorldCom
PCS group.
Pursuant to the tracking stock policies, the WorldCom PCS group will not
acquire an inter-group interest in the WorldCom group or in any other group.
Transfers of assets from the WorldCom PCS group to the WorldCom group will not
be treated as creating an inter-group interest of the WorldCom PCS group in the
WorldCom group, but may be treated as a reduction of any existing inter-group
interest of the WorldCom group in the WorldCom PCS group, but not below zero.
All other transfers of assets between one group and another group, not
designated by the WorldCom board of directors as equity transfers and not
pursuant to a contract for the provision of goods or services between the
groups, will be accompanied by:
. the transfer by the transferee group to the transferor group of other
assets
. the creation of inter-group debt owed by the transferee group to the
transferor group or
. the reduction of inter-group debt owed by the transferor group to the
transferee group, in each case in an amount having a fair market value,
in the judgment of the WorldCom board of directors, equivalent to the
fair market value of the assets transferred by the transferor group.
Notwithstanding the above, the tracking stock policies will provide that
neither the WorldCom group nor any other group will acquire in one transaction
or in a series of related transactions a significant portion of the assets of
the WorldCom PCS group without receiving the consent of the holders of a
majority of the outstanding shares of WorldCom PCS group common stock, voting
as a separate class, and the consent of the holders of a majority of the
outstanding shares of WorldCom group common stock or stock of such other group,
voting as a separate class. A "significant portion of the assets of the
WorldCom PCS group" is defined as more than 33% of the assets of the WorldCom
PCS group, based on the fair market value of the assets, both tangible and
intangible, of the WorldCom PCS group as of the time that the proposed
transaction is approved by the WorldCom board of directors.
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Any inter-group transaction that results in a change in the size of any
inter-group interest held by the WorldCom group or any other group in the
WorldCom PCS group will be subject to the review and approval of the capital
stock committee. If such review occurs before such transaction is undertaken
and such transaction is disapproved, the transaction will not proceed. If such
review occurs after such transaction is undertaken and such transaction is
disapproved, appropriate actions will be taken to reinstate the pre-existing
circumstances to the fullest extent practicable.
The tracking stock policies will provide that WorldCom will not engage in
any transactions including mergers, consolidations, recapitalizations or
similar transactions that have the effect of circumventing the rights of the
holders of WorldCom PCS group common stock with respect to the time restriction
and the benefit of the premium payable or procedure to ensure fairness on
WorldCom's exercise of its right to convert outstanding shares of WorldCom PCS
group common stock to WorldCom group common stock, or the benefit of the
provisions of the amended WorldCom articles of incorporation limiting
redemptions of the WorldCom PCS group common stock in exchange for shares of a
subsidiary--a "spin off" of the WorldCom PCS group--until November 23, 2000
unless approved by the holders of a majority of the outstanding shares of
WorldCom PCS group common stock, voting as a separate class. These provisions
will not apply to any transaction involving a third party, the terms of which
have been determined in advance by either the WorldCom board of directors or
the capital stock committee to be fair to holders of WorldCom PCS group common
stock, taken as a separate class, and holders of WorldCom group common stock,
taken as a separate class. The tracking stock policies will also provide that
WorldCom will not acquire a number of shares of WorldCom series 1 PCS common
stock such that, immediately after the acquisition, the number of shares
outstanding is less than approximately 156.8 million.
Allocation of Federal and State Income Taxes
Federal and state income taxes incurred by WorldCom which are determined on a
consolidated, combined or unitary basis will be allocated between the groups in
accordance with a tax sharing agreement to be assumed by WorldCom in the
merger. These allocations will be based principally on the taxable income and
tax credits contributed by each group. Such allocations to or from the WorldCom
PCS group are intended to reflect its actual incremental cumulative effect,
positive or negative, on WorldCom's federal and state taxable income and
related tax liability and tax credit position, subject to certain adjustments.
Tax benefits that cannot be used by a group generating those benefits but can
be used on a consolidated basis will be credited to the group that generated
such benefits. Accordingly, the amounts of taxes payable or refundable, which
will be allocated to each group, may not necessarily be the same as that which
would have been payable or refundable had the group filed a separate income tax
return. WorldCom expects that significant payments pursuant to the tax sharing
agreement will be made from the WorldCom group to the WorldCom PCS group in the
near future, in light of the substantial operating losses that the WorldCom PCS
group is expected to incur during this time. Tax sharing payments between the
groups will be accrued as of the end of the tax period to which they relate.
The tax sharing agreement includes a procedure pursuant to which tax sharing
payments to or from the WorldCom PCS group will be calculated excluding the
effect of any cumulative combined net loss or credit of (1) all new businesses
directly or indirectly acquired by the Sprint FON group after May 26, 1998 (or
the WorldCom group after the merger) individually having an acquisition cost in
excess of $500 million, taking into account the amount of any liabilities
assumed by the acquiror or to which the acquired business is subject, and (2)
all other groups except to the extent that another group reflects one or more
profitable core business(es) of the WorldCom group that exists on the date of
creation of the WorldCom group. We refer to this as the "stacking procedure".
The initial tax sharing agreement, including the stacking procedure, applies
to tax years ending on or before December 31, 2001, and shall not be modified,
suspended or rescinded, nor will additions or exceptions be made to the tax
sharing agreement, for such periods. For subsequent periods, the WorldCom board
of directors will adopt a tax sharing arrangement that will be designed to
allocate WorldCom's tax benefits and burdens fairly between the WorldCom PCS
group and the WorldCom group. WorldCom expects that tax benefits that cannot be
used by a group generating those benefits but can be used on a consolidated
basis will
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continue to result in payments to the group that generated such benefits based
on the value of such benefits to WorldCom on a consolidated basis. In addition,
WorldCom expects that tax benefits, if any, pertaining to tax loss or tax
credit carry forwards generated by a group but not utilized as of the
expiration of the initial tax sharing agreement will continue to result in
payments to the group that generated such benefits based on the value of such
benefits to WorldCom on a consolidated basis when such tax benefits are
utilized. WorldCom has not determined whether or not it will continue to
utilize the stacking procedure for tax years ending after December 31, 2001.
Allocation of Group Financing
Loans from WorldCom or any member of the WorldCom group to any member of the
WorldCom PCS group will be made at interest rates and on other terms and
conditions substantially equivalent to the interest rates and other terms and
conditions that the WorldCom PCS group would be able to obtain from third
parties, including the public markets, as a direct or indirect wholly owned
subsidiary of WorldCom, but without the benefit of any guaranty by WorldCom or
any member of the WorldCom group. This policy contemplates that these loans
will be made on the basis set forth above regardless of the interest rates and
other terms and conditions on which WorldCom or members of the WorldCom group
may have acquired the subject funds. The provisions of this policy will only
apply before December 31, 2001 and will not be modified, suspended or
rescinded, nor will any exception be made to such provisions, before December
31, 2001. WorldCom currently does not expect that the tracking stock policies
provision regarding allocation of debt expense will be amended in any material
way after December 31, 2001.
Dividend Policy
The WorldCom board of directors will periodically consider appropriate
dividend policies and practices relating to future dividends on the WorldCom
group common stock and the WorldCom PCS group common stock. The WorldCom board
of directors does not expect to declare any dividends on the WorldCom group
common stock or the WorldCom PCS group common stock in the foreseeable future.
For a discussion of the dividend provisions that will be included in the
tracking stock policies, see "Description of MCI WorldCom Capital Stock--Common
Stock--Amended WorldCom Articles of Incorporation--Dividend Rights and
Restrictions".
Policies May Be Modified or Rescinded at Any Time
Unless otherwise provided above, the tracking stock policies may be
modified, suspended or rescinded, and additional policies may be adopted, or
exceptions made to such policies in connection with particular facts and
circumstances, all as the WorldCom board of directors may determine consistent
with its fiduciary duties to WorldCom and all its common shareholders at any
time with or without the approval of WorldCom's shareholders, although MCI
WorldCom has no present intention to change the tracking stock policies after
the merger. Any determination of the WorldCom board of directors to modify,
suspend or rescind such policies, or to make exceptions thereto or adopt
additional policies, including any such decision that would have disparate
impacts upon holders of WorldCom group common stock and WorldCom PCS group
common stock, would be made by the WorldCom board of directors in a manner
consistent with its fiduciary duties to WorldCom and all of its common
shareholders after giving fair consideration to the potentially divergent
interests and all other relevant interests of the holders of the separate
classes of common stock of WorldCom, including the holders of WorldCom group
common stock and the holders of WorldCom PCS group common stock.
Future Inter-Group Interest
The WorldCom group will have a small inter-group interest in the WorldCom
PCS group, as well as the warrant inter-group interest and the preferred inter-
group interest. Under the tracking stock policies, however, the WorldCom board
of directors could determine to contribute cash, businesses or other property
of the
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WorldCom group, as additional equity, to the WorldCom PCS group. The WorldCom
board of directors could also from time to time purchase shares of WorldCom PCS
group common stock in the open market with cash or other property of the
WorldCom group. In such event, the WorldCom group would hold a larger inter-
group interest, representing an interest in the common equity value of WorldCom
attributable to the WorldCom PCS group.
The tracking stock policies will provide that the WorldCom PCS group cannot
have an inter-group interest in the WorldCom group, and the amended WorldCom
articles of incorporation do not make provision for that kind of inter-group
interest. In similarly restricting the Sprint PCS group from creating an inter-
group interest in the Sprint FON group, the Sprint board of directors
determined that, because of the disparity in the relative sizes, based upon
asset values, between the two groups and the effects that an interest in the
Sprint FON group could have on the value of the Sprint PCS common stock, an
inter-group interest held by the Sprint PCS group in the Sprint FON group could
adversely affect the ability of the Sprint PCS common stock to reflect the
separate performance of the Sprint PCS group.
If an inter-group interest exists and additional shares of WorldCom PCS
group common stock are subsequently issued by WorldCom, the WorldCom board of
directors would determine:
. the number of shares of WorldCom PCS group common stock issued for the
account of the WorldCom group with respect to the inter-group interest,
the net proceeds of which will be reflected entirely in the financial
statements of the WorldCom group and
. the number of shares of WorldCom PCS group common stock issued for the
account of the WorldCom PCS group as an additional equity interest in the
WorldCom PCS group, the net proceeds of which will be reflected entirely
in the financial statements of the WorldCom PCS group.
As additional shares of WorldCom PCS group common stock are issued for the
account of the WorldCom group, the inter-group interest would decrease. After
all shares of WorldCom PCS group common stock issuable with respect to the
inter-group interest are issued, shares of WorldCom PCS group common stock
could no longer be issued for the account of the WorldCom group without
incurring an inter-group debt owed by the WorldCom group.
If an inter-group interest exists and the WorldCom PCS group common stock is
issued as a distribution on the WorldCom group common stock, the distribution
would be treated as a distribution of shares issuable with respect to the
inter-group interest, and, as a result, the inter-group interest would
decrease.
If an inter-group interest exists and WorldCom repurchases shares of
WorldCom PCS group common stock with cash or property of the WorldCom group,
the inter-group interest of the WorldCom group would increase accordingly.
However, if the cash for the repurchase of shares of WorldCom PCS group common
stock came from the WorldCom PCS group, there would be no increase in the
inter-group interest.
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ARRANGEMENTS WITH CERTAIN SPRINT STOCKHOLDERS
The following description summarizes certain arrangements between Sprint and
the investors described below, which are reflected in Sprint's articles of
incorporation, bylaws and in certain agreements. In the merger, WorldCom will
provide rights to these investors that are virtually identical to the rights
described in this section. The following description is a summary only and is
qualified by the specific terms of the arrangements described, which are
incorporated into this proxy statement/prospectus by reference. You should read
carefully the amended WorldCom articles of incorporation and bylaws, which are
attached as Annexes 2 and 3 to this proxy statement/prospectus.
France Telecom and Deutsche Telekom
France Telecom and Deutsche Telekom own a combined approximate 20% equity
investment in Sprint. The merger agreement provides that WorldCom will assume
in the merger certain obligations of Sprint to these investors contained in
Sprint's articles of incorporation, bylaws and certain agreements described
below.
On October 8, 1999, France Telecom and Deutsche Telekom each made filings on
Schedule 13D with the Securities and Exchange Commission indicating that,
although in the near term they may retain their aggregate voting power in
Sprint at 20%, in the longer term neither of them intended as of the filing
date to remain a stockholder of Sprint. France Telecom and Deutsche Telekom
also indicated in these filings that, should the merger be completed and should
they elect not to exercise appraisal rights, neither intended as of the date of
the filing to remain a stockholder of the surviving corporation in the merger.
Summary of Securities Held
France Telecom and Deutsche Telekom currently own shares of Sprint series 3
FON common stock, Sprint series 3 PCS common stock and either Sprint class A
common stock (in France Telecom's case) or Sprint class A common stock--series
DT (in Deutsche Telekom's case). We refer to these two series of Sprint class A
stock as "Sprint FT/DT class A stock". We refer to all of the classes and
series of Sprint capital stock owned by France Telecom and Deutsche Telekom as
"Sprint FT/DT stock". In the merger, France Telecom and Deutsche Telekom will
receive WorldCom capital stock for their Sprint capital stock as set forth
above under "What Sprint Stockholders Will Receive in the Merger" on page 1.
Based on the number of outstanding shares of Sprint capital stock, MCI
WorldCom capital stock and an assumed FON exchange ratio of . , in each case
on the Sprint record date, France Telecom and Deutsche Telekom will own shares
of WorldCom capital stock after the merger that represent voting power of
approximately . % of WorldCom's total voting power.
Rights of France Telecom and Deutsche Telekom Contained in Sprint's Articles
of Incorporation
Sprint FT/DT Class A Stock Represents Equity in the Sprint FON Group and the
Sprint PCS Group. Sprint's articles of incorporation provide that each share of
Sprint FT/DT class A stock represents, among other things, an equity interest
in the Sprint FON group and an equity interest in the Sprint PCS group. Each
share of Sprint FT/DT class A stock entitles the holder to have one share of
Sprint series 3 FON common stock and one-half of a share of Sprint series 3 PCS
common stock issued to the holder. For a description of the amount of shares of
WorldCom group common stock and WorldCom PCS group common stock issuable in
respect of the WorldCom class A common stock, see "Description of MCI WorldCom
Capital Stock--Common Stock--Amended WorldCom Articles of Incorporation--Shares
Held by France Telecom and Deutsche Telekom".
Voting. The Sprint series 3 FON common stock and the Sprint series 3 PCS
common stock have most of the same voting rights as the publicly traded Sprint
series 1 FON common stock and Sprint series 1 PCS common stock, respectively.
In addition, these shares are voted together, and together with the Sprint
FT/DT class A stock, to elect directors to the Sprint board of directors.
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Board Representation. France Telecom and Deutsche Telekom, through their
ownership of Sprint FT/DT stock are generally entitled to representation on
Sprint's board of directors equal to the percent of Sprint's voting power that
they own, rounded up or down to the nearest whole number of directors, and are
entitled to elect a minimum of two directors generally so long as they own or
have the right to acquire shares representing an aggregate of at least 10% of
Sprint's total voting power. A total of three directors on the current Sprint
board of directors are elected by the holders of Sprint FT/DT stock. Holders of
Sprint FT/DT stock are also collectively entitled (with limited exceptions) to
one representative on each committee of Sprint's board of directors.
We refer to the percentage of shares that France Telecom and Deutsche
Telekom own and have the right to acquire together as their "ownership
percentage".
Dividends and Liquidation. For information about the dividend, liquidation
and other terms of the Sprint FT/DT stock, see "Description of MCI WorldCom
Capital Stock--Common Stock--Amended WorldCom Articles of Incorporation".
Conversion of Sprint FT/DT Stock. Under certain circumstances and subject to
certain exceptions, shares of Sprint FT/DT stock will automatically convert
into shares of Sprint series 1 FON common stock and Sprint series 1 PCS common
stock. A conversion of this kind would leave France Telecom and Deutsche
Telekom in substantially the same economic position but would deprive them of
their special rights as holders of Sprint FT/DT stock, including the right to
elect a director or directors to the Sprint board of directors and the
disapproval rights described below. The circumstances triggering an automatic
conversion include:
. reduction in the ownership percentage below certain specified levels and
in certain circumstances for certain periods of time
. breach by France Telecom or Deutsche Telekom of certain provisions of
their investment agreements with Sprint
. breach by France Telecom or Deutsche Telekom of certain provisions of
the Global One joint venture agreement
. occurrence of a change of control of Sprint
. failure of France Telecom and Deutsche Telekom to maintain required
relative ownership interests with respect to their ownership of Sprint
FT/DT stock (see "--Equity Purchase Rights--Ownership Ratios") and
. unauthorized transfers of Sprint FT/DT stock.
We use the term "change of control of Sprint" to mean:
. a decision by the board of directors to sell control of Sprint or not to
oppose a third party tender offer for its voting securities representing
more than 35% of the total voting power of Sprint or
. a change in the identity of a majority of Sprint's board of directors
due to
--a proxy contest, or the threat to engage in a proxy contest, or the
election of directors by the holders of Sprint's preferred stock, if
any, or
--any unsolicited tender, exchange or other purchase offer that has not
been approved by a majority of the Sprint independent directors.
Neither a strategic merger involving Sprint, such as the merger, nor any
transaction between Sprint and France Telecom and/or Deutsche Telekom is deemed
to be a change of control of Sprint.
Transfer Restrictions
The stockholders' agreement among Sprint, France Telecom and Deutsche
Telekom provides that France Telecom and Deutsche Telekom may not transfer any
equity interests in Sprint until January 31, 2001, subject to certain
exceptions. The stockholders' agreement also provides for certain other
transfer restrictions thereafter.
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However, France Telecom and Deutsche Telekom's shares of Sprint series 3 PCS
common stock that were acquired after February 1999, when Sprint completed the
initial public offering of the Sprint PCS common stock, are not subject to any
restrictions on transfer before January 31, 2001, except the following, which
also apply to all other shares of Sprint FT/DT stock:
. until the aggregate ownership percentage of France Telecom and Deutsche
Telekom is less than 3.5% of the total voting power of Sprint, France
Telecom and Deutsche Telekom may not transfer any of their Sprint shares
to a holder of more than 5% of the voting power of Sprint, after giving
effect to such transfer, other than in an underwritten public offering
. in connection with a public offering of their shares of Sprint FT/DT
stock, neither France Telecom nor Deutsche Telekom may to the best of
its knowledge (1) sell more than 2% of the outstanding voting power of
Sprint to any person or group that, before such sale, owned 3% or more
of the voting power of Sprint, (2) sell more than 5% of the outstanding
voting power of Sprint to any person or group or (3) sell to a person or
group required under section 13(d) of the Exchange Act to file a
Schedule 13D with respect to Sprint or to a person or group who, as a
result of such sale, would become a Schedule 13D filer and
. in general, during any time when the aggregate ownership percentage of
France Telecom and Deutsche Telekom is greater than 5%, but less than
9%, these investors may not transfer shares of Sprint FT/DT stock
representing more than 1% of the voting power of Sprint to any one
person or group in any transaction or series of transactions, except in
connection with an underwritten public offering, and may not transfer
shares, other than in a public offering, to any major competitor of
Sprint.
Disapproval Rights
Pursuant to Sprint's articles of incorporation and the stockholders'
agreement, if Sprint takes any of the actions set forth in the next paragraph
before January 31, 2001 and the action is disapproved by France Telecom and
Deutsche Telekom, the transfer restrictions on France Telecom and Deutsche
Telekom's shares will terminate, except that the restrictions on transfers to
large holders will continue. The actions which, if taken notwithstanding
disapproval by France Telecom and Deutsche Telekom, trigger termination of the
transfer restrictions are:
. subject to certain exceptions, divestitures by Sprint of assets with a
fair market value in excess of 20% of Sprint's market capitalization
. subject to certain exceptions, Sprint's acquisition of either (1)
certain telecommunications, information technology and related
businesses for a cost exceeding 20% of Sprint's market capitalization or
(2) other types of businesses that have a cost exceeding 5% of Sprint's
market capitalization
. Sprint's issuance of any securities with class voting rights and
disapproval rights as extensive as or more extensive than the rights
granted to the holders of Sprint FT/DT stock
. the declaration of extraordinary cash dividends or cash distributions to
stockholders during any one year in excess of 5% of Sprint's market
capitalization and
. Sprint's issuance of securities representing 30% or more of its total
voting power, except that transfer restrictions do not terminate in this
case if France Telecom and Deutsche Telekom exercise their equity
purchase rights as described in "--Equity Purchase Rights".
France Telecom and Deutsche Telekom may also disapprove certain changes to
Sprint's governing documents and certain fundamental business transactions
proposed to be effected by Sprint, including:
. any merger or other business combination involving Sprint that results
in a change of control of Sprint, unless the surviving corporation
expressly assumes Sprint's obligations to the holders of Sprint FT/DT
stock with respect to the assets of Sprint related to its long distance
business and the provisions of the
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registration rights agreement and agrees to be bound by the rights of France
Telecom, Deutsche Telekom and their affiliates to control the Global One
joint venture following certain occurrences and
. any merger or other business combination involving Sprint that does not
result in a change of control of Sprint, unless Sprint survives as the
parent entity, or the surviving corporation expressly assumes Sprint's
obligations to the holders of Sprint FT/DT stock.
Until January 31, 2006, any action taken or transaction entered into by
Sprint that would result in, or is taken for the purpose of encouraging or
facilitating, certain competitors of France Telecom, Deutsche Telekom or the
Global One joint venture owning 10% or more of the outstanding voting power of
Sprint may not be undertaken if it is disapproved by the holders of Sprint
FT/DT stock, unless it is a strategic merger such as the merger.
Rights with Respect to Sprint's Long Distance Assets
The sale of a cumulative amount of 5% or more of the fair market value of
Sprint's long distance assets may not be consummated by Sprint if it is
disapproved by the holders of Sprint FT/DT stock and the sale occurs before the
earliest of:
. January 31, 2001
. the date on which section 310 of the Communications Act no longer
prohibits the ownership by France Telecom and Deutsche Telekom of the
long distance assets
. the date on which France Telecom and Deutsche Telekom elect to accept
Sprint's offer to sell all of its interest in the Global One joint
venture following a change of control of Sprint and
. the date on which Sprint and certain subsidiaries of Sprint exercise
their right to sell all of their Global One joint venture interests to
France Telecom and Deutsche Telekom following a change of control of
Sprint.
Until January 31, 2006, if a disposition of long distance assets by Sprint
would result in the disposition of a total of 30% or more of the value of
Sprint's long distance assets since July 31, 1995, then France Telecom and
Deutsche Telekom have a right of first offer with respect to the assets of
which Sprint proposes to dispose, unless this right of first offer has
otherwise terminated.
Change of Control Provisions
If Sprint decides to (1) sell all or substantially all of its assets or (2)
sell control of Sprint in a way that results in a 35% or larger stockholder in
the resulting entity, France Telecom and Deutsche Telekom may participate in
that process on a basis no less favorable than that granted any other
participant. If a third party makes a tender offer for not less than 35% of the
voting power of Sprint and the terms of such tender offer do not permit France
Telecom and Deutsche Telekom to sell an equal or greater percentage of their
shares of Sprint FT/DT stock as Sprint's other stockholders are collectively
permitted to sell, then upon the purchase by such third party in the tender
offer of 35% or more of the voting power of Sprint, the holders of Sprint FT/DT
stock may require Sprint to purchase at the tender offer price the capital
stock that such holders were unable to tender on the same basis as Sprint's
other stockholders, unless the holders of Sprint FT/DT stock may receive
publicly traded securities or cash in a business combination transaction
required to be effected within 90 days after the close of the tender offer.
In the case of a change of control of Sprint, France Telecom and Deutsche
Telekom obtain rights giving them greater control over the Global One joint
venture. If Sprint decides to (1) sell all or substantially all of its assets
or (2) sell control of Sprint in a way that results in a 35% or larger
stockholder in the resulting entity, France Telecom and Deutsche Telekom
generally may sell their shares of Sprint FT/DT stock in the proposed
transaction free of any transfer restriction, except for transfers to large
holders, and if Sprint decides to (a) sell
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all or substantially all of its assets or (b) sell control of Sprint in a way
that results in a 35% or larger stockholder in the resulting entity, the
standstill provisions affecting France Telecom and Deutsche Telekom will
terminate.
Equity Purchase Rights
Under their stockholders' agreement with Sprint, France Telecom and Deutsche
Telekom have the right to acquire additional shares when Sprint issues voting
stock. These rights, referred to as "equity purchase rights", enable these
investors to maintain their voting power in Sprint at the level in effect
immediately before Sprint issues the new voting stock. Since making their
investments, France Telecom and Deutsche Telekom have generally maintained a
20% voting interest in Sprint. Their equity purchase rights apply to any
issuance, including shares issued when options or warrants are exercised, or
when any Sprint convertible security is converted into Sprint common stock. If
the merger is completed, France Telecom and Deutsche Telekom will have equity
purchase rights that will permit them to acquire additional shares of WorldCom
capital stock to maintain an aggregate voting interest of 20%.
Shares of Sprint FT/DT stock owned by France Telecom and Deutsche Telekom
automatically convert to shares of Sprint series 1 FON common stock or Sprint
series 1 PCS common stock when sold to third parties. Equity purchase rights do
not apply when Sprint issues shares as a result of a conversion triggered by a
sale by either France Telecom or Deutsche Telekom.
Issuances of Sprint FON Common Stock. So long as the ownership percentage of
France Telecom and Deutsche Telekom collectively equals 10% or greater, when
Sprint issues new shares of Sprint FON common stock or other voting securities
to any third party, each of France Telecom and Deutsche Telekom is permitted,
subject to certain restrictions, to maintain its proportionate ownership of
Sprint's voting power (based on its ownership percentage) by purchasing
additional shares of Sprint series 3 FON common stock from Sprint. The purchase
price for these new shares is generally the average price paid by the third
party.
Issuances of Sprint PCS Common Stock. If Sprint issues Sprint series 1 PCS
common stock or Sprint series 2 PCS common stock, France Telecom and Deutsche
Telekom are permitted to purchase shares of Sprint series 3 PCS common stock.
In this case, France Telecom and Deutsche Telekom have up to two years to
exercise these rights. If they exercise these rights during the 45-day period
after the event triggering these rights, the purchase price equals the market
price of a share of Sprint series 1 PCS common stock on the date of the
issuance giving rise to their rights. If they do not exercise these rights
during this 45-day period, then the purchase price per share equals the higher
of (1) the market price of a share of Sprint series 1 PCS common stock on the
date of the issuance giving rise to the equity purchase right and (2) the
market price of a share of Sprint series 1 PCS common stock on the date of
exercise of the equity purchase right.
Issuance of Sprint FON Common Stock or Sprint PCS Common Stock Upon Exercise
of Employee Benefit Plan Options. When France Telecom and Deutsche Telekom
exercise equity purchase rights as a result of Sprint's issuance of shares of
Sprint FON common stock or Sprint PCS common stock pursuant to employee benefit
plans, contracts or other employee arrangements, the purchase price equals:
. if the employee arrangement was not in existence on or before April 26,
1996, the market price per share of the Sprint series 1 FON common stock
or the Sprint series 1 PCS common stock, as applicable, on the date of
the issuance giving rise to equity purchase rights or
. if the employee arrangement was in existence on or before April 26, 1996,
a price per share equal to the average price that France Telecom and
Deutsche Telekom have paid for their shares of Sprint FON common stock
and Sprint PCS common stock. The average price includes a price that
these investors are deemed to have paid for the shares of Sprint FON
common stock and Sprint PCS common stock underlying their shares of
Sprint FT/DT class A stock. The deemed price is based on a fraction of
the actual price that was paid for the share of Sprint FT/DT class A
stock. The fraction is determined,
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generally, by the relative market prices of the Sprint series 1 FON common
stock and the Sprint series 1 PCS common stock in the ten trading days
after November 23, 1998, the date of the Sprint PCS restructuring.
Issuances of Other Kinds of Shares. If equity purchase rights are exercised
due to Sprint's issuance of voting securities other than Sprint FON common
stock or Sprint PCS common stock, France Telecom and Deutsche Telekom must
purchase shares of both of these classes so that they retain the proportion of
each class owned at the time. The purchase price per share for these shares is
the market price of a share of Sprint series 1 FON common stock or Sprint
series 1 PCS common stock, as applicable, on the date of the issuance that
gave rise to equity purchase rights.
Limitation on Class of Shares That May Be Purchased. In general, if equity
purchase rights are triggered by an issuance of Sprint FON common stock, only
Sprint series 3 FON common stock may be purchased upon exercise of these
rights. Similarly, if equity purchase rights are triggered by an issuance of
Sprint PCS common stock, only Sprint series 3 PCS common stock may be
purchased upon exercise of these rights. However, Sprint series 3 FON common
stock may be purchased, subject to certain conditions, when Sprint issues (1)
regular-vote Sprint PCS common stock or regular-vote Sprint seventh series
preferred stock as a result of a cable holder transferring or converting its
low-voting shares or (2) Sprint PCS common stock as a result of the exercise
of the Sprint PCS warrants. In this case, the purchase price of the Sprint
series 3 FON common stock for France Telecom and Deutsche Telekom equals the
then-current market price of a share of Sprint series 1 FON common stock. The
maximum amount of Sprint series 3 FON common stock which may be purchased
under these circumstances, either in a single purchase or in the aggregate
through purchases over time, is $300 million.
Method of Payment. Generally, if the purchase price for shares acquired
upon exercise of equity purchase rights is less than $200 million, then
payment is made in cash. Any portion of the purchase price that exceeds $200
million is payable in installments, with a note issued to Sprint to evidence
the promise to pay.
Certain Automatic Exercises; Other Special Equity Purchase Rights. Each of
France Telecom and Deutsche Telekom may suffer adverse tax consequences if the
percentage of overall voting power of Sprint represented by its shares falls
below 10%. If either investor's ownership falls below this level, the
stockholders' agreement provides for the automatic exercise of equity purchase
rights and issuance to France Telecom and Deutsche Telekom of shares of Sprint
FT/DT stock which they are entitled to purchase pursuant to these rights.
Special equity purchase rights apply if the ownership percentage of France
Telecom and Deutsche Telekom is diluted to less than 10% as a result of a
transaction resulting in the issuance of 30% or more of the voting power of
Sprint or, until January 31, 2006, if a major competitor of France Telecom or
Deutsche Telekom obtains securities representing 20% or more of the voting
power of Sprint as a result of a strategic merger.
Ability to Purchase Outside Equity Purchase Rights. If France Telecom and
Deutsche Telekom are diluted due to an issuance by Sprint, they are permitted
to purchase shares in the open market as an alternative to purchasing shares
from Sprint to maintain their voting percentage interest in Sprint. However,
pursuant to their standstill agreement with Sprint, France Telecom and
Deutsche Telekom in the aggregate are not permitted to increase their overall
voting power in Sprint above 20%.
Record Date Blackout Purchases. If anti-fraud rules prohibit France Telecom
and Deutsche Telekom from purchasing shares of Sprint FON common stock or
Sprint PCS common stock from third parties in the open market during a ten
trading day period beginning on the ninth trading day before a record date for
either a meeting of Sprint's stockholders or the payment of dividends with
respect to Sprint FT/DT stock, then the
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holders of Sprint FT/DT stock (subject to certain conditions) have limited
additional rights to purchase Sprint series 3 FON common stock and/or Sprint
series 3 PCS common stock from Sprint in order to increase their beneficial
ownership to 20% of Sprint's total voting power.
Automatic Exercise of Equity Purchase Rights with Respect to Conversions. As
long as France Telecom and Deutsche Telekom may exercise their equity purchase
rights, they must exercise their rights to purchase from Sprint shares of
Sprint series 3 PCS common stock upon, and simultaneously with, any issuance of
regular-vote Sprint series 1 PCS common stock resulting from the conversion of
low-vote Sprint series 2 PCS common stock, but only when this type of issuance
occurs during a period beginning on the fifth day prior to a record date
relating to a vote of Sprint's stockholders or the payment of dividends to
Sprint's stockholders and ending on the day following the record date. This
provision also applies upon certain transfers of Sprint seventh series
preferred stock. This provision terminates with respect to any holder of Sprint
FT/DT stock upon delivery by that holder to Sprint of a notice to that effect.
Exclusionary Tender Offers. France Telecom and Deutsche Telekom have certain
protections if the Sprint board determines not to oppose a tender offer by a
person, other than France Telecom, Deutsche Telekom or their respective
affiliates, for not less than 35% of the voting power of Sprint which does not
permit the holder of Sprint FT/DT stock to sell an equal or greater percentage
of their shares as the other holders of Sprint FT/DT stock are permitted to
sell. We refer to this kind of tender offer as an "exclusionary tender offer".
Upon the purchase of securities representing not less than 35% of Sprint's
voting power in an exclusionary tender offer, France Telecom and Deutsche
Telekom may sell to Sprint all but not less than all of the shares that they
were unable to tender on the same basis as the other Sprint stockholders, at
the same price per share that was paid in the tender offer. France Telecom and
Deutsche Telekom do not have these rights, however, if, at the termination of
the period during which tenders may be made into the tender offer, they may
receive, in exchange for all the shares of each class and/or series of Sprint
FT/DT stock corresponding to the classes and/or series of stock subject to the
tender offer, publicly-traded securities with an aggregate fair market value,
and/or cash in an amount, not less than the aggregate price per share of the
Sprint series 1 FON common stock and/or Sprint series 1 PCS common stock, as
the case may be, paid pursuant to the tender offer in a back-end transaction
required to be effected within 90 days after the close of the tender offer.
Ownership Ratios. France Telecom and Deutsche Telekom have agreed that
. the ratio of (1) the overall voting power of Sprint held by France
Telecom or Deutsche Telekom to (2) the overall voting power of the other
will not be greater than 3 to 2
. the ratio of (1) the overall voting power of Sprint represented by the
shares of Sprint series 3 FON common stock together with shares of Sprint
FON common stock issuable with respect to the Sprint FT/DT class A stock
of either France Telecom or Deutsche Telekom to (2) the overall voting
power represented by the corresponding shares held by the other will not
be greater than 4 to 1 and
. the ratio of (1) the overall voting power of Sprint represented by the
shares of Sprint series 3 PCS common stock together with shares of Sprint
PCS common stock issuable with respect to the Sprint FT/DT class A stock
of either France Telecom or Deutsche Telekom to (2) the overall voting
power represented by the corresponding shares held by the other will not
be greater than 4 to 1.
Under both the stockholders' agreement and the Sprint articles of
incorporation, France Telecom and Deutsche Telekom have agreed that if any
ratio set forth immediately above is exceeded for more than 60 days after
notice is provided, then each share of Sprint FT/DT stock outstanding will
automatically convert into the applicable number of shares of Sprint series 1
FON common stock or Sprint series 1 PCS common stock, as the case may be, and
the rights of France Telecom and Deutsche Telekom to elect directors and
exercise disapproval rights and the right of France Telecom and Deutsche
Telekom to participate in a proposed change of control of Sprint terminate.
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Standstill Agreement
Sprint, France Telecom and Deutsche Telekom have entered into a standstill
agreement. If the merger occurs, WorldCom will assume all of Sprint's
obligations under the standstill agreement and each of WorldCom, France Telecom
and Deutsche Telekom will have rights and obligations that are virtually
identical to the rights and obligations summarized in this section.
Pursuant to the standstill agreement, each of France Telecom and Deutsche
Telekom has agreed that, before July 31, 2010, it will not directly or
indirectly acquire, offer to acquire, or agree to acquire, by purchase or
otherwise, beneficial ownership of any Sprint capital stock such that the
Sprint capital stock beneficially owned in the aggregate by France Telecom and
Deutsche Telekom and their respective affiliates and associates would represent
in the aggregate more than 20% of the votes represented by the outstanding
Sprint capital stock.
Percentage Limitations. In addition, each of France Telecom and Deutsche
Telekom has agreed that, before July 31, 2010, it will not directly or
indirectly acquire, offer to acquire, or agree to acquire, by purchase or
otherwise, beneficial ownership of any Sprint FON common stock or Sprint PCS
common stock such that the Sprint FON common stock or the Sprint PCS common
stock, as the case may be, beneficially owned in the aggregate by France
Telecom and Deutsche Telekom and their respective affiliates and associates,
including the Sprint FON common stock and the Sprint PCS common stock
underlying the Sprint FT/DT class A stock, would represent in the aggregate
more than 33% of the votes represented by the outstanding Sprint FON common
stock or Sprint PCS common stock, including as outstanding the shares of Sprint
FON common stock and Sprint PCS common stock underlying the Sprint FT/DT class
A stock.
After July 31, 2010, the 20% limitation on the ownership of outstanding
Sprint capital stock increases to 30%, as long as the ownership does not exceed
80% of the foreign ownership limitation. "Foreign ownership limitation" means
the maximum aggregate percentage of the Sprint capital stock that may be owned
of record or voted by aliens under section 310(b)(4) of the Communications Act
of 1934, without this ownership or voting resulting in the possible loss, or
possible failure to secure the renewal or reinstatement, of any license or
franchise of any governmental authority held by Sprint or any of its affiliates
to conduct any portion of the business of Sprint or the affiliate, as the
maximum aggregate percentage may be increased from time to time by amendments
to section 310 of the Communications Act or by actions of the FCC.
France Telecom and Deutsche Telekom and their respective affiliates
generally may, subject to the Sprint rights plan, increase their beneficial
ownership beyond the applicable percentage limitations to the extent required
to match the percentage ownership of Sprint capital stock owned by any other
stockholder; provided that the beneficial ownership of France Telecom and
Deutsche Telekom and their respective affiliates does not exceed 33% of the
voting power represented by either the outstanding Sprint FON common stock or
the outstanding Sprint PCS common stock or 80% of the foreign ownership
limitation.
In addition, neither France Telecom nor Deutsche Telekom violate the
beneficial ownership restrictions if their beneficial ownership of Sprint
capital stock exceeds the applicable percentage limitations:
. due to an acquisition of Sprint capital stock by Sprint, unless France
Telecom and Deutsche Telekom have previously been notified of this
acquisition
. due to purchases by France Telecom and Deutsche Telekom of Sprint capital
stock in reliance on information regarding the number of shares
outstanding of Sprint capital stock provided by Sprint to France Telecom
and Deutsche Telekom, unless France Telecom and Deutsche Telekom have
previously been notified that this information is incorrect
. in general, if the limitation was exceeded inadvertently, by no more than
0.5%, and the acquisitions which resulted in France Telecom, Deutsche
Telekom and their respective affiliates and associates exceeding the
percentage limitation were undertaken in good faith
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. as a result of any readjustment in the relative voting power of Sprint
FON common stock and Sprint PCS common stock in accordance with the terms
of Sprint's articles of incorporation or
. as a result of a redemption or conversion of any Sprint PCS common stock
pursuant to Sprint's articles of incorporation.
Registration Rights Agreement
France Telecom and Deutsche Telekom, as holders of Sprint FT/DT stock, have
entered into a registration rights agreement with Sprint. If the merger occurs,
WorldCom will assume all of Sprint's obligations under the registration rights
agreement and each of WorldCom, France Telecom and Deutsche Telekom will have
rights and obligations that are virtually identical to the rights and
obligations described in this section.
In practical terms, registration rights become relevant as to particular
shares only when the shares are no longer subject to transfer restrictions.
Pursuant to the investment agreements among Sprint, France Telecom and Deutsche
Telekom, none of the shares of Sprint FT/DT stock held by France Telecom and
Deutsche Telekom may be transferred prior to January 31, 2001, subject to
certain exceptions, except for the shares of Sprint series 3 PCS common stock
that were acquired after the completion of the initial public offering of
Sprint PCS common stock. For a more comprehensive discussion of these
restrictions, see "--Transfer Restrictions".
Demand Registrations. France Telecom and Deutsche Telekom have the right to
require Sprint to register their shares for sale under the Securities Act.
Except for sales after the merger permitted under Rule 145 under the Securities
Act, registration is necessary in order for these investors to complete a
public offering of their shares.
The holders of a majority of the Sprint FT/DT stock may demand one
registration in any 12 month period, up to a maximum of ten registrations.
Sprint is responsible for the registration expenses in connection with the
first seven of these registrations. The holders of the Sprint FT/DT stock
requesting registration are responsible for the registration expenses in
connection with the remaining three registrations.
Piggyback Registration. France Telecom or Deutsche Telekom have the right to
require Sprint to register their shares, subject to certain exceptions and
limitations, when Sprint is registering shares for sale on its own behalf or
for sale by another stockholder. These rights do not apply to registrations on
Forms S-4 or S-8, registrations in connection with an exchange offer, or
offerings solely to Sprint's existing stockholders or pursuant to dividend
reinvestment plans or dividend reinvestment and stock purchase plans.
Limitations. Sprint is not required to effect any registration unless the
market value of the stock requested to be registered exceeds $200 million,
unless the registration relates to shares of Sprint series 3 PCS common stock
that were acquired after the completion of the initial public offering of
Sprint PCS common stock. If a request is made to register these shares of
Sprint series 3 PCS common stock, (1) the aggregate market value of these
shares must exceed $100 million on the date of delivery of the request for
registration and (2) the registration must involve the lesser of (A) shares
with an aggregate market value of at least $200 million on the date of delivery
of the request for registration and (B) all of the shares of Sprint series 3
PCS common stock owned by France Telecom and Deutsche Telekom.
Demand Registration Priorities. In general, where France Telecom and
Deutsche Telekom have demanded that Sprint register some of their shares, the
underwriter for an underwritten offering may decide that it must cut back the
total number of shares to be sold in the offering. This would happen if the
shares to be sold in the offering by France Telecom and Deutsche Telekom,
together with shares to be sold in the offering by Sprint or other Sprint
stockholders, exceeds the number that can be sold within a price range
acceptable to France Telecom and Deutsche Telekom.
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If Sprint or other Sprint investors are also selling shares in an
underwritten offering where the underwriter determines to cut back the total
number of shares offered, then the rule for deciding which shares to be sold in
the offering have priority is the following:
. the shares to be sold by France Telecom and Deutsche Telekom have first
priority
. any shares to be sold by the cable holders have second priority
. any shares to be sold by Sprint have third priority or, in some cases,
second priority along with the cable holders' shares and
. shares to be sold by any other investors of Sprint have last priority.
Sprint has the option to move its priority to an equal status with that of
France Telecom and Deutsche Telekom. During the cable holders' preference
period, which is the period beginning May 22, 1999 and ending on the earlier of
(1) the date upon which the cable holders have completed registered public
offerings of their Sprint PCS common stock with an aggregate public offering
price of $2 billion or (2) May 22, 2000, it is possible that the cable holders'
shares will also have equal priority with that of France Telecom and Deutsche
Telekom. At other times, the cable holders would be next in priority to that of
Sprint and France Telecom and Deutsche Telekom. Other investors with
registration rights, if any, would have priorities behind these.
If Sprint elects the option to have an equal priority with France Telecom
and Deutsche Telekom, and the underwriters in fact cut back the number of
shares to be offered, as described above, then the registration will not count
toward the maximum of ten registrations provided to France Telecom and Deutsche
Telekom under the registration rights agreement.
In general, France Telecom and Deutsche Telekom will not have first priority
when exercising piggyback registration rights. If the cable holders are
exercising piggyback registration rights in the same offering, the number of
shares that they will be entitled to have registered will be reduced on a pro
rata basis with France Telecom and Deutsche Telekom, except that during the
cable holders' preference period, they will have first priority when exercising
piggyback registration rights.
Notwithstanding these priorities, if at any time Sprint proposes to effect a
registration as described in this section and France Telecom and Deutsche
Telekom may dispose of their securities pursuant to Rule 144(k) (or any
successor provision) under the Securities Act, the priorities described above
will be changed so that the securities proposed to be included by the selling
stockholders have the lowest priority of all securities proposed to be
registered in this registration.
Other Provisions. The registration rights agreement contains other
provisions addressing Sprint's ability to effect other public offerings near
the effectiveness of demand or incidental registrations, the filing of all
reports required to be filed by Sprint under the Securities Act and the
Exchange Act, and indemnification and contribution provisions.
[Information concerning Global One joint venture to be provided.]
The Cable Holders
In November 1998, Sprint issued shares of Sprint series 2 PCS common stock
to Tele-Communications, Inc., Comcast Corporation and Cox Communications, Inc.
and certain of their affiliates in exchange for their interests in certain
joint ventures that form a part of the existing Sprint PCS group. In March
1999, Tele-Communications, Inc. transferred its shares of Sprint series 2 PCS
common stock to a trust. We refer to that trust, Comcast Corporation, Cox
Communications, Inc., as well as their affiliates that currently hold shares of
Sprint series 2 PCS common stock, collectively as the "cable holders".
The cable holders have various rights and obligations under agreements with
Sprint, which will be assumed by WorldCom upon completion of the merger.
Equity Purchase Rights
The cable holders that hold Sprint PCS common stock have certain rights to
purchase additional shares of Sprint series 2 PCS common stock from Sprint. If
the merger is completed, the cable holders will have equity
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purchase rights with respect to WorldCom that are comparable to those described
in this section. These rights are summarized below:
. If Sprint issues shares of Sprint PCS common stock in exchange for cash,
then each cable holder has the right to purchase from Sprint enough
shares of Sprint series 2 PCS common stock for the cable holder to avoid
any reduction in its percentage economic interest in the Sprint PCS
group, as in effect immediately before the issuance. The price per share
would equal the purchase price paid for the shares of Sprint PCS common
stock that gave rise to the equity purchase right, net of any
underwriting discounts if they were issued in a public offering.
. If Sprint issues, in exchange for cash, options, warrants or other
securities that are convertible into shares of Sprint PCS common stock,
then each cable holder has the right to purchase from Sprint enough of
the same kind of options, warrants or other securities for the cable
holder to avoid any reduction in its percentage economic interest in the
Sprint PCS group, as in effect immediately before the issuance. The
purchase price for each unit would equal the purchase price paid for the
units that gave rise to the equity purchase right, net of any
underwriting discounts if they were issued in a public offering.
. If the Sprint FON group contributes cash or other assets to the Sprint
PCS group in exchange for an increase in the Sprint FON group's inter-
group interest, then each cable holder has the right to purchase from
Sprint enough shares of Sprint series 2 PCS common stock to avoid any
reduction in its percentage economic interest in the Sprint PCS group, as
in effect immediately before the contribution. The purchase price for the
Sprint series 2 PCS common stock would be based on the per unit price
used by the Sprint board of directors or its capital stock committee in
determining the appropriate adjustment to the Sprint FON group's inter-
group interest as a result of the contribution.
. If the Sprint FON group contributes to the Sprint PCS group cash or other
assets in exchange for an inter-group interest that is convertible into
or exchangeable for an inter-group interest in the Sprint PCS group, then
each cable holder has the right to purchase from Sprint enough securities
having generally the same terms as that inter-group interest to avoid any
reduction in its percentage economic interest in the Sprint PCS group, as
in effect immediately before the contribution. The purchase price per
share would be based on the corresponding per unit price used by the
Sprint board of directors or its capital stock committee in determining
the appropriate adjustment to the Sprint FON group's inter-group interest
as a result of the contribution.
The cable holders will not have any equity purchase right with respect to
shares of Sprint PCS common stock issued pursuant to the following:
. exercises of the warrants
. conversion of the Sprint seventh series preferred stock
. qualified or non-qualified employee and director benefit plans,
arrangements or contracts (including stock purchase plans)
. dividend reinvestment plans
. conversion rights under capital stock of Sprint outstanding as of May 26,
1998 or
. purchase rights that are exercised by France Telecom and Deutsche Telekom
as a result of the issuance of Sprint PCS common stock in connection with
any of the matters described in the preceding items. In addition, a cable
holder will have no equity purchase rights when France Telecom or
Deutsche Telekom exercises equity purchase rights that are triggered by
sales of Sprint series 2 PCS common stock by the cable holder.
The equity purchase rights of a cable holder will terminate at the same time
as the standstill agreement between Sprint and that cable holder terminates.
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If a cable holder does not exercise equity purchase rights, or purchases
fewer securities than it is entitled to purchase upon an exercise, then that
cable holder will be entitled to purchase, in open market purchases or
otherwise from a third party, a number of shares of Sprint series 1 PCS common
stock equal to the number of shares of Sprint series 2 common stock that the
cable holder had the right to purchase but did not purchase. In cases where an
issuance of convertible securities gave rise to the equity purchase right, the
right in this paragraph is adjusted so that the number of shares of Sprint
series 1 PCS common stock that can be purchased is equal to the number of
shares underlying the convertible security.
Standstill Agreement
Sprint has entered into a standstill agreement with each cable holder. If
the merger occurs, WorldCom will assume all of Sprint's obligations under these
standstill agreements, and WorldCom and each cable holder will have rights and
obligations that are comparable to the rights and obligations summarized in
this section.
General. Each cable holder has agreed that before November 23, 2008, it will
not acquire any Sprint voting securities if, as a result, the cable holder
would own shares with more than 1.5% of the voting power of all Sprint capital
stock, assuming for this purpose that all shares of Sprint series 2 PCS common
stock have the same voting rights as the Sprint series 1 PCS common stock. Each
cable holder has also agreed that it will cause its affiliates not to purchase
shares that would cause the affiliate, together with the cable holder, to
violate this provision.
Under this provision, each cable holder is currently prohibited from
purchasing any Sprint voting securities except as provided below. The above
provisions of the standstill agreements do not prohibit the cable holders from:
. exercising their equity purchase rights
. acquiring additional shares of Sprint series 2 PCS common stock upon
conversion of shares of the Sprint seventh series preferred stock or
. acquiring additional shares of Sprint series 2 PCS common stock upon
exercise of the Sprint PCS warrants.
In addition, the cable holders have agreed to not propose, participate in or
assist others in any:
. acquisition of Sprint voting securities or other equity interests in
Sprint that would result in breach of the restriction on purchase
described above
. tender offer for Sprint voting securities
. merger, consolidation, share exchange or business combination involving
Sprint or any material portion of its business or any purchase of all or
any substantial part of the assets of Sprint or any material portion of
its business
. recapitalization, restructuring, liquidation, dissolution or other
extraordinary transaction with respect to Sprint or any material portion
of its business or
. solicitation of proxies under the Exchange Act.
Nothing will prevent any cable holder, however, from selling, transferring,
tendering or otherwise disposing of shares of capital stock of Sprint to any
person at any time or from voting on, tendering into or receiving the benefit
of any transaction described in the second, third and fourth items above, in
the same manner as any other non-initiating holder of publicly traded common
stock of Sprint.
The cable holders have also agreed in general, and subject to certain
exceptions, not to take the following actions, which are referred to as
"prohibited actions":
. propose any matter for submission to a vote of stockholders of Sprint or
any of its affiliates
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. form, join or participate in a group, as defined under the Exchange Act,
with respect to any Sprint voting securities, except as may arise from
the exercise of rights and performance of duties contemplated by the
agreements executed in connection with the November 1998 Sprint PCS
restructuring
. grant any proxy with respect to any Sprint voting securities to any
person not designated by Sprint
. deposit any Sprint voting securities in a voting trust or subject any
Sprint voting securities to any similar arrangement
. execute any written stockholder consent with respect to Sprint voting
securities
. take any other action to seek to affect the control of the management or
the Sprint board of directors or any of Sprint's affiliates
. enter into any discussions, negotiations, arrangements or understandings
with any person with respect to any of the foregoing, or advise, assist,
encourage or seek to persuade others to take any action with respect to
any of the foregoing
. disclose to any person any intention, plan or arrangement inconsistent
with the foregoing or form any the intention which would result in the
cable holder being required to make any the disclosure in any filing with
a governmental authority or being required by applicable law to make a
public announcement with respect thereto or
. request Sprint to amend or waive any provision of their respective
standstill agreement, Sprint's rights agreement or Sprint's articles of
incorporation or bylaws.
The cable holders are permitted to take certain actions if they disagree
with a covered proposal, defined below, made by Sprint to its stockholders:
. either alone or with others, solicit proxies with respect to Sprint in
response or opposition to the covered proposal
. make a proposal opposing the covered proposal for submission to a vote of
Sprint stockholders
. form, join in or participate in a group, as defined under the Exchange
Act, with respect to any Sprint voting securities for the sole purpose of
responding to or opposing the covered proposal
. grant a proxy with respect to any Sprint voting securities to any person
with specific instructions from the cable holder as to the voting of the
Sprint voting securities with respect to the covered proposal and
. subject any Sprint voting securities to an arrangement or agreement with
respect to the voting of the Sprint voting securities on the covered
proposal.
A covered proposal means a proposal by Sprint to its stockholders:
. for a merger or similar transaction
. to modify or amend either Sprint's articles of incorporation or the
provisions of Sprint's bylaws relating to its capital stock committee in
a manner that would adversely affect the rights of the holders of Sprint
series 1 PCS common stock or Sprint series 2 PCS common stock
. for the issuance of Sprint voting securities
. for the sale of substantially all assets or a dissolution or liquidation
of Sprint or
. for any other matter that would require approval of the holders of Sprint
PCS common stock, voting as a separate class.
Subject to the following paragraph, each cable holder may issue press
releases and make other public communications to the financial community and to
its stockholders and make other public statements made in the ordinary course
of business relating to its investment in Sprint, in each case as it reasonably
deems
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appropriate and customary. Before making a press release or other
communication, each cable holder will use reasonable efforts to consult with
Sprint in good faith regarding the form and content of the communication, and
will use reasonable efforts to coordinate the communication with any decisions
reached by Sprint with respect to disclosures relating to the matters.
Notwithstanding the prior paragraph, unless required by applicable law or
permitted by the provisions relating to rejected covered proposals above, the
cable holder may not make any press release, public announcement or other
public communication with respect to a prohibited action without the prior
written consent of the Chairman of Sprint or by a resolution of a majority of
the directors of Sprint. Each cable holder is permitted to make public
communications that are required by law, except for public communications
required as a result of, or relating to, activities undertaken by the cable
holder in violation of the standstill agreement. Nothing in this or the prior
paragraph will prevent the taking of any actions relating to a covered proposal
described above.
Transfers to Affiliates or Associates. Each cable holder may transfer shares
of capital stock of Sprint to its affiliates only if, before the transfer, the
transferee delivers to Sprint a signed standstill agreement in the form of the
standstill agreement executed by the cable holder. If and to the extent that
the cable holder elects to transfer shares of Sprint series 2 PCS common stock
to one of its associates without the shares automatically converting into
shares of Sprint series 1 PCS common stock, the cable holder may effect the
transfer only if, before the transfer, the transferee executes and delivers to
Sprint a standstill agreement in the form of the standstill agreement executed
by the cable holder.
Permitted Activities. Nothing in the standstill agreements will prevent any
cable holder from (1) selling, transferring, tendering or otherwise disposing
of shares of capital stock of Sprint to any person at any time or from voting
on, tendering into or receiving the benefit of certain transactions in the same
manner as any other noninitiating holder of Sprint voting securities, or (2)
taking any actions necessary or appropriate for the cable holder to exercise
their rights under any of their other agreements with Sprint.
Termination. The standstill agreements terminate:
. upon the consent of each party in writing
. upon a change of control of Sprint, which will not occur as a result of
the merger
. if the cable holder's Sprint securities no longer represent more than one
and one half percent (1.5%) of the total Sprint voting power, assuming
for this purpose that all shares of Sprint series 2 PCS common stock have
the same voting rights as the shares of Sprint series 1 PCS common stock
or
. upon the occurrence of certain other events.
As to a holder that is an affiliate or an associate of a cable holder and
that has executed a standstill agreement, the agreement will terminate, in
addition to the above circumstances, when the holder ceases to be an affiliate
(or associate, as applicable) of a cable holder and all shares of Sprint series
2 PCS common stock held by the party have converted to Sprint series 1 PCS
common stock.
Registration Rights Agreement
Sprint and the cable holders have entered into a registration rights
agreement. Pursuant to the registration rights agreement, Sprint has agreed to
register the shares of Sprint PCS group common stock issued to the cable
holders for sale under the Securities Act, as described below. If the merger
occurs, WorldCom will assume all of Sprint's obligations under the registration
rights agreement and WorldCom and each cable holder will have rights and
obligations that are comparable to the rights and obligations summarized in
this section.
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Registration rights can be exercised by any of the following persons with
respect to each cable holder. The following are referred to as that cable
holder's "stockholder group":
. the cable holder
. any affiliates of the cable holder who own registrable securities
(defined below) and
. any other entity:
-- to which all or a portion of the registrable securities are
transferred by any entity that was, immediately before the transfer, a
member of the cable holder's stockholder group
-- that continues to hold the registrable securities
-- to which the transferring member of the stockholder group has assigned
any of its registration rights in accordance with the registration
rights agreement and
-- who has executed a registration rights agreement in connection with
the transfer of the registrable securities.
There are three stockholder groups: one for each cable holder.
The term "registrable securities" means, generally:
. Sprint PCS group common stock owned by a stockholder group
. securities that are issuable with respect to the shares referred to in
the item above and
. ""derivative securities", meaning any registrable securities that
underlie any cable holder securities, the value of which relates to or is
based upon registrable securities, to the extent that the registrable
securities require registration by Sprint.
Registrable securities, once acquired by a member of a stockholder group,
cease to be registrable securities when they are disposed of in accordance with
a registration statement that has become effective under the Securities Act and
in certain other circumstances.
Demand Registration Rights. The cable holders may require Sprint to register
under the Securities Act all or a portion of their registrable securities for
offer or sale, including the offer or sale of registrable securities upon
issuance or settlement of any derivative security. This is referred to as a
"demand registration".
Number of Demand Registrations. The TCI stockholder group is entitled to six
demand registrations, the Cox stockholder group is entitled to four demand
registrations and the Comcast stockholder group is entitled to three demand
registrations. In addition, each stockholder group is entitled to one demand
registration to be used in connection with the delivery or sale of registrable
securities upon settlement of a derivative security. In general, a demand
registration must request the registration of at least $200 million of Sprint
PCS common stock, before any underwriting or brokerage discounts and
commissions, subject to certain exceptions.
Timing of Demand Registrations. Pursuant to the registration rights
agreement, Sprint may be required to effect demand registrations every three
months for an initial period and thereafter every six months as described
below. Following the effectiveness of a registration statement filed pursuant
to a demand registration, Sprint will not be required to file a registration
statement pursuant to a demand registration until:
. before the stockholder groups have sold registrable securities and/or
derivative securities having an aggregate offering price of $2 billion,
excluding transfers solely between or among the stockholders of the cable
holders and their affiliates, the three month anniversary of the date of
the applicable demand notice which satisfied the minimum amount and
. thereafter, the six month anniversary of the date of the applicable
demand notice.
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Road Show Participation. In connection with demand registrations, the cable
holders have the right under most circumstances to require Sprint management to
cooperate with selling efforts, including cooperating with customary due
diligence investigations and participating in marketing the offered securities
in road show presentations.
Underwriters; Limitation in Underwritten Offerings. In any demand
registration for an underwritten offering other than an offering of derivative
securities, a co-lead joint "book running" underwriter will be selected by each
of Sprint and the sellers of 50% or more of the securities to be sold by
stockholder groups exercising demand registration rights.
If the book running managing underwriters of any underwritten public
offering determine that the number of shares to be offered exceeds the number
that could be sold without having an adverse effect on the offering (including
the price at which the registrable securities may be sold), then the number of
shares to be offered will be reduced to an amount recommended by the co-lead
joint book running underwriters. Any the required reductions will be made:
. first, from the securities proposed to be sold by persons who are not
part of a stockholder group other than France Telecom or Deutsche
Telekom
. second, from securities proposed to be registered pursuant to incidental
registration rights held by France Telecom and Deutsche Telekom
(together with securities being offered for the account of Sprint)
. third, from securities proposed to be registered by members of
stockholder groups registering shares pursuant to their incidental
registration rights and
. last, from the shares to be registered by stockholder groups initiating
the demand registration.
Piggyback Registration Rights. The cable holders have piggyback registration
rights, meaning that they have the right to request that their shares be
included in an offering of Sprint PCS common stock that is initiated by Sprint
or another Sprint stockholder. This does not apply to:
. registration statements filed by Sprint relating to shares issued in a
merger, consolidation, acquisition or similar transaction
. registration statements on Form S-8 or
. registration statements filed in connection with an exchange offer or
any offering of securities solely to Sprint's existing stockholders or
otherwise pursuant to a dividend reinvestment plan, stock purchase plan
or other employee benefit plan.
Special Priority as to Third Party Demands. We refer to the "priority
period" as the period ending on the earlier of (1) the date upon which the
stockholder groups have sold registrable securities with an aggregate offering
price of at least $2 billion or (2) May 22, 2000. During the priority period,
if Sprint proposes to register securities for its own account due to another
stockholder exercising demand registration rights (other than France Telecom or
Deutsche Telekom), each stockholder group will be entitled to exercise a right
to one of its demand registrations. If this right is exercised, the demand
registration proceeds as with any other demand registration by a stockholder
group, meaning that the cable holder shares would have priority over all
others, and the demand registration by the other stockholder is treated as
though it had not occurred.
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DESCRIPTION OF MCI WORLDCOM CAPITAL STOCK
The following is a summary of the material terms of (1) the capital stock of
MCI WorldCom under its existing articles of incorporation, bylaws and rights
agreement and (2) the capital stock of WorldCom under its amended articles of
incorporation, bylaws and rights agreement which will be in effect immediately
after the merger is completed. The following also summarizes relevant
provisions of the Georgia Business Corporation Code, which we refer to as
Georgia law. The terms of the existing MCI WorldCom articles of incorporation,
the amended WorldCom articles of incorporation, the existing MCI WorldCom
bylaws, the amended WorldCom bylaws, the existing MCI WorldCom rights agreement
and the amended WorldCom rights agreement, as well as the terms of Georgia law,
are more detailed than the general information provided below. Therefore, you
should carefully consider the actual provisions of those documents. If you
would like to read the existing MCI WorldCom articles of incorporation, the
existing MCI WorldCom bylaws or the existing MCI WorldCom rights agreement,
these documents are on file with the Securities and Exchange Commission, as
described under the heading "Where You Can Find More Information" beginning on
page . . Additional information regarding the capital stock of MCI WorldCom is
contained under the heading "Comparison of Rights of MCI WorldCom Shareholders
and Sprint Stockholders" beginning on page .. The amended WorldCom articles of
incorporation and bylaws are attached as Annexes 2 and 3 to this proxy
statement/prospectus.
General
Existing MCI WorldCom Articles of Incorporation
Under the existing MCI WorldCom articles of incorporation, the authorized
capital stock of MCI WorldCom consists of 5,000,000,000 shares of common stock,
par value $.01 per share, and 50,000,000 shares of preferred stock, par value
$.01 per share.
Amended WorldCom Articles of Incorporation
Under the amended WorldCom articles of incorporation, the authorized capital
stock of WorldCom will consist of 7,500,000,000 shares of common stock, divided
into several classes or series having various par values, and 75,000,000 shares
of preferred stock, par value $.01 per share, divided into several series.
Common Stock
Existing MCI WorldCom Articles of Incorporation
The existing MCI WorldCom articles of incorporation provide for one class of
common stock, par value $.01 per share. All of the outstanding shares of MCI
WorldCom common stock are fully paid and nonassessable. As of September 30,
1999, 1,880,219,054 shares of MCI WorldCom common stock were outstanding.
Voting Rights. Each holder of MCI WorldCom common stock is entitled to cast
one vote for each share held of record, voting together with holders of MCI
WorldCom series B preferred stock, on all matters submitted to a vote of
shareholders, including the election of directors. Holders of MCI WorldCom
common stock have no cumulative voting rights.
Dividends. Holders of MCI WorldCom common stock are entitled to receive
dividends or other distributions when, as and if declared by the MCI WorldCom
board of directors. The right of the MCI WorldCom board of directors to declare
dividends, however, is subject to the rights of any holders of MCI WorldCom
preferred stock and the availability of sufficient funds under Georgia law to
pay dividends.
Liquidation Rights. In the event of the dissolution of MCI WorldCom, MCI
WorldCom common shareholders will share ratably in the distribution of all
assets that remain after it pays all of its liabilities and satisfies its
obligations to the holders of any preferred stock, as provided in the existing
MCI WorldCom articles of incorporation.
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Preemptive and Other Rights. Holders of MCI WorldCom common stock have no
preemptive rights to purchase or subscribe for any stock or other securities of
MCI WorldCom. In addition, there are no conversion rights or redemption or
sinking fund provisions with respect to the MCI WorldCom common stock.
The MCI WorldCom board of directors may issue additional shares of
authorized common stock without shareholder approval. If they decide to issue
shares to persons friendly to current MCI WorldCom management, they could
render more difficult or discourage an attempt to obtain control of MCI
WorldCom by means of a merger, tender offer, proxy contest or otherwise. This
could protect the continuity of MCI WorldCom's management and possibly deprive
shareholders of an opportunity to sell their shares of MCI WorldCom common
stock at prices higher than the prevailing market prices. Any additional shares
also could be used to dilute the stock ownership of persons seeking to obtain
control of MCI WorldCom.
Listing. MCI WorldCom common stock is quoted on The Nasdaq National Market
under the symbol "WCOM".
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Amended WorldCom Articles of Incorporation
General. Under the amended WorldCom articles of incorporation, the common
stock of WorldCom will consist of three classes: the WorldCom group common
stock, the WorldCom PCS group common stock and the WorldCom class A common
stock. Each class of the common stock of WorldCom will be divided into multiple
series with various par values, as shown in the table below.
<TABLE>
<CAPTION>
Series and Par Referred to In
Value and Number of This Proxy
Authorized Statement/
Class Shares Prospectus As Holders Listing
----- ------------------- -------------- ---------------- ----------------
<S> <C> <C> <C> <C>
WorldCom Group Common WorldCom group
Stock common stock
Common Stock, par WorldCom Public The Nasdaq
value $.01 per common stock National Market
share, . shares
Common Stock, WorldCom Cable holders N/A
Series 2, par value series 2
$.01 per share, common stock
500,000,000 shares
Common Stock, WorldCom France Telecom, N/A
Series 3, par value series 3 Deutsche Telekom
$.01 per share, common stock
1,200,000,000
shares
WorldCom PCS Group WorldCom PCS
Common Stock group common
stock
PCS Common Stock, WorldCom Public The Nasdaq
Series 1, par value series 1 PCS National Market
$1.00 per share, common stock (1)
1,250,000,000
shares
PCS Common Stock, WorldCom Cable holders N/A
Series 2, par value series 2 PCS
$1.00 per share, common stock
500,000,000 shares
PCS Common Stock, WorldCom France Telecom, N/A
Series 3, par value series 3 PCS Deutsche Telekom
$1.00 per share, common stock
600,000,000 shares
WorldCom Class A Common WorldCom class
Stock A common stock
Class A Common WorldCom France Telecom N/A
Stock, Series FT, series FT
par value $2.50 per common stock
share, 50,000,000
shares
Class A Common WorldCom Deutsche Telekom N/A
Stock, Series DT, series DT
par value $2.50 per common stock
share, 50,000,000
shares
</TABLE>
- --------
N/A--not applicable
(1) Sprint series 1 PCS common stock is listed on the New York Stock Exchange.
MCI WorldCom expects that the WorldCom series 1 PCS common stock issued in
the merger will be quoted on The Nasdaq National Market.
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"Tracking" Stocks. MCI WorldCom intends that the WorldCom group common stock
will be designed to reflect the performance of the WorldCom group and that the
WorldCom PCS group common stock will be designed to reflect the performance of
the WorldCom PCS group.
Common Stock Structure Similar to Sprint's. After the merger, WorldCom's
capital structure will be virtually identical to Sprint's current structure.
Except to the extent that there are differences between Kansas law and Georgia
law, which are believed to be immaterial:
. WorldCom common stock will be virtually identical to the existing MCI
WorldCom common stock
. each of the WorldCom series 2 common stock and the WorldCom series 3
common stock will be virtually identical to the Sprint series 2 FON
common stock and the Sprint series 3 FON common stock
. each of the three series of WorldCom PCS group common stock will be
virtually identical to the corresponding series of Sprint PCS common
stock and
. each of the two series of WorldCom class A common stock will be
virtually identical to the corresponding series of Sprint FT/DT class A
stock.
Conversion of WorldCom Series 2 PCS Common Stock. The WorldCom series 2 PCS
common stock issued in the merger will automatically convert into WorldCom
series 1 PCS common stock when it is transferred by a cable holder to a person
who is not a cable holder or an affiliate of the cable holders. The WorldCom
series 2 PCS common stock also will automatically convert into WorldCom series
1 PCS common stock when the total number of votes represented by the
outstanding shares of WorldCom series 2 PCS common stock, calculated as though
the WorldCom series 2 PCS common stock has the same vote per share as the
WorldCom series 1 PCS common stock, is below 1% of the total outstanding voting
power of the WorldCom capital stock for more than 90 consecutive days.
WorldCom Series 2 Common Stock. As is the case with the Sprint series 2 FON
common stock, the WorldCom series 2 common stock will be held only by the cable
holders. WorldCom series 2 common stock will convert into WorldCom common stock
under the same circumstances in which WorldCom series 2 PCS common stock
converts into WorldCom series 1 PCS common stock, as described in the preceding
paragraph.
Shares Held by France Telecom and Deutsche Telekom. Sprint issued shares of
Sprint FT/DT class A stock only to France Telecom and Deutsche Telekom, and
WorldCom will issue any additional shares of WorldCom class A common stock only
to these holders, or to certain of their majority owned subsidiaries.
Each share of WorldCom class A common stock will entitle the holder
initially to have the following WorldCom capital stock issued to such holder:
. a number of shares of WorldCom series 3 common stock equal to the sum of
(1) the FON exchange ratio plus (2) 0.5 multiplied by 0.1547, or
0.07735, and
. 0.5 shares of WorldCom series 3 PCS common stock.
The issuance of the underlying shares of WorldCom series 3 common stock or
WorldCom series 3 PCS common stock will not change the number of outstanding
shares of WorldCom class A common stock. Instead, it reduces the number of
underlying shares that the holder is entitled to have issued, which in turn
affects the per share dividend rights, voting rights and liquidation rights of
the WorldCom class A common stock. In addition, the par value of the shares of
WorldCom class A common stock is reduced by the aggregate par value of any
underlying shares that are issued.
Voting Rights. The voting rights of the WorldCom group common stock,
WorldCom PCS group common stock and WorldCom class A common stock will be
virtually identical to the voting rights of the corresponding class or series
of Sprint common stock. See "Comparison of Rights of MCI WorldCom Shareholders
and Sprint Stockholders" for a description of these voting rights.
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Dividend Rights and Restrictions. Dividends on the WorldCom group common
stock, WorldCom PCS group common stock and WorldCom class A common stock will
be paid when, as and if declared by the WorldCom board of directors. It is not
anticipated that any dividends on the WorldCom group common stock, the WorldCom
PCS group common stock or the WorldCom class A common stock will be declared in
the foreseeable future.
The WorldCom board of directors may declare dividends on the WorldCom group
common stock and not the WorldCom PCS group common stock, or it may declare
dividends on the WorldCom PCS group common stock and not the WorldCom group
common stock. The WorldCom board of directors may also declare dividends on
both the WorldCom group common stock and the WorldCom PCS group common stock,
in equal or unequal amounts, without regard to dividends previously paid or the
then-relative voting power per share of the WorldCom group common stock and the
WorldCom PCS group common stock.
If the WorldCom board of directors declares a dividend on one series of the
WorldCom group common stock, it must declare the same dividend on all three
series of WorldCom group common stock. In addition, it must declare an
equivalent dividend on the WorldCom group common stock underlying the
outstanding WorldCom class A common stock. If the WorldCom board of directors
declares a dividend on one series of the WorldCom PCS group common stock, it
must declare the same dividend on all three series of WorldCom PCS group common
stock. In addition, it must declare an equivalent dividend on the WorldCom
class A common stock with reference to the WorldCom PCS group common stock
underlying the outstanding WorldCom class A common stock.
Dividends on the WorldCom group common stock, the WorldCom PCS group common
stock and the WorldCom class A common stock may be declared only out of net
income or earned surplus of WorldCom. Net losses of either the WorldCom group
or the WorldCom PCS group, and dividends and distributions on, or repurchases
of, WorldCom group common stock, WorldCom PCS group common stock or WorldCom
class A common stock, will reduce funds legally available for the payment of
dividends on all three classes of common stock. WorldCom's board of directors
may declare dividends on any class of common stock to be paid out of the
property or assets of either business group.
The MCI WorldCom board of directors will adopt, before the completion of the
merger, tracking stock policies identical to those of Sprint. The tracking
stock policies will require that:
. dividends on the WorldCom group common stock, including the WorldCom
group common stock underlying the WorldCom class A common stock, may be
paid only out of the lesser of (1) the funds of WorldCom legally
available for the payment of dividends and (2) the WorldCom group
available dividend amount, which is similar to the amount of assets that
would be available for the payment of dividends on the WorldCom group
common stock if the WorldCom group were a separate company and
. dividends on the WorldCom PCS group common stock, including the WorldCom
PCS group common stock underlying the WorldCom class A common stock, may
be paid only out of the lesser of (1) the funds of WorldCom legally
available for the payment of dividends and (2) the WorldCom PCS group
available dividend amount, which is similar to the amount of assets that
would be available for the payment of dividends on the WorldCom PCS
group common stock if the WorldCom PCS group were a separate company.
Under the tracking stock policies, the WorldCom board of directors will not
be permitted to declare a dividend or distribution consisting of shares of
WorldCom group common stock on the WorldCom PCS group common stock. The
WorldCom board of directors may only declare a dividend or distribution of
shares of WorldCom PCS group common stock on the WorldCom group common stock if
the shares to be issued represent an inter-group interest of the WorldCom group
in the WorldCom PCS group.
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Before any dividends on any class of common stock of WorldCom may be paid or
declared and set apart for payment, WorldCom must pay or declare and set apart
for payment full cumulative dividends on all outstanding series of WorldCom
preferred stock.
If WorldCom fails to purchase the WorldCom series 5 preferred stock upon
tender by the holders, it is precluded from declaring or paying dividends on
any class of common stock until it has deposited the funds necessary for the
purchase of the WorldCom series 5 preferred stock.
Upon the issuance of a new series of WorldCom preferred stock, the WorldCom
board of directors may provide for other dividend restrictions on the common
stock that are applicable to that series of WorldCom preferred stock.
Redemption of Common Stock. The amended WorldCom articles of incorporation
will permit in certain circumstances the redemption of shares of WorldCom group
common stock, WorldCom PCS group common stock and WorldCom class A common
stock, held by aliens, as such term is defined in the Communications Act, if
necessary to comply with the foreign ownership limitations set forth in section
310 of the Communications Act. The provisions permit in certain circumstances
WorldCom group common stock, WorldCom PCS group common stock and WorldCom class
A common stock to be redeemed at a price equal to the fair market value of the
shares, except that the redemption price in respect of shares purchased by any
alien within one year of the redemption date would not, unless otherwise
determined by the WorldCom board of directors, exceed the purchase price paid
for those shares by the alien.
Conversion of the WorldCom PCS Group Common Stock at the Option of
WorldCom. At any time after November 23, 2001, the WorldCom board of directors
may convert all of the shares of WorldCom series 1 PCS common stock into shares
of WorldCom common stock. If and when this conversion takes place, the WorldCom
board of directors must convert the WorldCom series 2 PCS common stock into
WorldCom series 2 common stock and the WorldCom series 3 PCS common stock into
WorldCom series 3 common stock. In addition, the unissued shares of WorldCom
PCS group common stock underlying the WorldCom class A common stock will
convert into unissued shares of WorldCom group common stock on an equivalent
basis.
If the conversion takes place before November 23, 2002, each share of
WorldCom series 1 PCS common stock will convert into the number of shares of
WorldCom common stock equal to 110% of the ratio of the average closing price
of one share of WorldCom series 1 PCS common stock to the average closing price
of one share of WorldCom common stock computed as of the fifth trading day
before the date that notice of conversion is sent to holders of WorldCom PCS
group common stock. WorldCom must compute this ratio over a 60-trading day
period if the 20-trading day period normally used to determine the average
closing price is less than 90% of the ratio as determined over a 60-day trading
day period.
If the conversion takes place on or after November 23, 2002, the WorldCom
board of directors will determine the conversion ratio, subject to the
requirement that under the tracking stock policies, the WorldCom board of
directors must make independent determinations as to the fairness of the
conversion ratio to the holders of the WorldCom group common stock, taken as a
separate class, and to the holders of the WorldCom PCS group common stock,
taken as a separate class. MCI WorldCom believes that any determination made by
its board of directors as to the fairness of the conversion ratio would be made
taking into account the relative values (each calculated using the same basis)
of the WorldCom group common stock and the WorldCom PCS group common stock, and
would not include a control premium for the WorldCom PCS group common stock
(such as the premium being paid in the merger).
Mandatory Dividend, Redemption or Conversion of WorldCom PCS Group Common
Stock Upon Certain Dispositions of Assets. If WorldCom disposes of all of the
assets of the WorldCom PCS group, or if it disposes of at least 80% of the
assets of the WorldCom PCS group on a then-current market value basis, it must
use the net proceeds to pay a dividend on the WorldCom PCS group common stock
or redeem the WorldCom PCS group common stock, or it must convert the WorldCom
PCS group common stock into WorldCom group common stock. There are certain
exceptions to this rule; for example, WorldCom will not
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have to pay a dividend on the WorldCom PCS group common stock, redeem the
WorldCom PCS group common stock or convert the WorldCom PCS group common stock
into WorldCom group common stock when it receives, in exchange for the assets,
primarily equity securities of an entity engaged, or proposing to engage, in a
business similar or complementary to the business of the WorldCom PCS group.
If the board of directors determines to convert the WorldCom PCS group
common stock into WorldCom group common stock, WorldCom will convert each share
of WorldCom PCS group common stock into a number of shares of WorldCom group
common stock at a ratio equal to 110% of the average of the high and low
reported sale prices of one share of WorldCom series 1 PCS common stock to the
average of the high and low reported sale prices of one share of WorldCom
common stock computed over a 10-trading day period beginning on the 101st
trading day after the completion of the disposition. Appropriate adjustments
are made if an ex-dividend date or an effective date for a subdivision or
combination of the relevant shares occurs during the measurement period.
If the WorldCom board of directors instead determines to pay a dividend on
the WorldCom PCS group common stock or redeem the WorldCom PCS group common
stock, WorldCom will distribute to holders of WorldCom PCS group common stock
and to holders of WorldCom class A common stock, based on the WorldCom PCS
group common stock underlying the WorldCom class A common stock, cash or
securities, other than common equity securities of WorldCom, or other property,
or a combination of cash and securities and other property, equal to the fair
value of the net proceeds after deducting amounts necessary to pay transaction
costs, taxes on the disposition, liabilities of the WorldCom PCS group, and any
amount corresponding to any inter-group interest that the WorldCom group holds
in the WorldCom PCS group. If the payment of the dividend or redemption price
occurs before November 23, 2001, the WorldCom board of directors may also
convert each share of WorldCom PCS group common stock remaining outstanding
into shares of WorldCom group common stock on the same basis as the conversion
of WorldCom PCS group common stock into WorldCom group common stock after
November 23, 2001 and before November 23, 2002 described above under "--
Conversion of the WorldCom PCS Group Common Stock at the Option of WorldCom".
The conversion of WorldCom PCS group common stock into WorldCom group common
stock can occur under these circumstances only if the conversion date occurs
prior to the first anniversary of the payment of the dividend or redemption
price.
Redemption of the WorldCom PCS Group Common Stock in Exchange for Stock of a
Subsidiary. WorldCom may redeem all of the outstanding shares of WorldCom PCS
group common stock in exchange for the outstanding shares of common stock of
one or more wholly owned subsidiaries that hold all of the assets and
liabilities attributed to the WorldCom PCS group if the following conditions
are met:
. holders of shares of WorldCom series 2 PCS common stock and WorldCom
series 3 PCS common stock must receive shares of common stock of such
subsidiary that have equivalent voting power on a per share basis to
shares received by holders of WorldCom series 1 PCS common stock
. the redemption must be approved by the affirmative vote of holders of a
majority of the shares of WorldCom PCS group common stock and WorldCom
class A common stock, to the extent the WorldCom class A common stock
represents unissued shares of WorldCom PCS group common stock, voting
together as a single class, if the redemption occurs before November 23,
2000 and
. either the redemption must be tax free to holders of WorldCom PCS group
common stock or an arrangement must exist such that holders of WorldCom
PCS group common stock, net of related taxes, are in a position
substantially equivalent economically to the position they would be in
if the redemption were tax free.
Liquidation Rights. In the event of the liquidation of WorldCom, the prior
rights of creditors and the aggregate liquidation preference of any WorldCom
preferred stock then outstanding must first be satisfied. Holders of WorldCom
group common stock, WorldCom PCS group common stock and WorldCom class A common
stock will be entitled to share in the remaining assets of WorldCom in
accordance with the per share
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liquidation units attributable to each class or series of common stock. Holders
of WorldCom group common stock would have no special claim to the assets
attributed to the WorldCom group, and holders of WorldCom PCS group common
stock would have no special claim to the assets attributed to the WorldCom PCS
group. The liquidation units attributable to each class of common stock are as
follows:
. each share of WorldCom group common stock is attributed . liquidation
units
. each share of WorldCom PCS group common stock is attributed
approximately . liquidation units
. each share of a series of WorldCom class A common stock is entitled to a
number of liquidation units equal to the sum of the liquidation units
associated with the unissued shares of WorldCom group common stock and
the unissued shares of WorldCom PCS group common stock underlying that
series of WorldCom class A common stock at the time of the liquidation,
divided by the aggregate number of outstanding shares of that series of
WorldCom class A common stock.
The number of liquidation units for each share of WorldCom group common
stock and each share of WorldCom PCS group common stock will be adjusted for
stock splits, reverse stock splits and other corporate events affecting the
WorldCom group common stock or the WorldCom PCS group common stock.
Preemptive Rights. Under the amended WorldCom articles of incorporation, no
holder of shares of WorldCom group common stock, WorldCom PCS group common
stock, WorldCom class A common stock or any other capital stock of WorldCom is
entitled to preemptive rights, other than the equity purchase rights of France
Telecom, Deutsche Telekom and the cable holders as described under
"Arrangements with Certain Sprint Stockholders--France Telecom and Deutsche
Telekom--Equity Purchase Rights" and "--The Cable Holders--Equity Purchase
Rights".
Determinations by the WorldCom Board of Directors. Any determination made by
the WorldCom board of directors under any of the provisions described under
"Description of MCI WorldCom Capital Stock" will be final and binding on all
shareholders of WorldCom, except as may be otherwise required by law.
Preferred Stock
Existing MCI WorldCom Articles of Incorporation
The MCI WorldCom board of directors is authorized to issue shares of
preferred stock at any time, without shareholder approval. It has the authority
to determine all aspects of those shares, including the following:
. the designation and number of shares
. the dividend rate and preferences, if any, which dividends on that
series of preferred stock will have compared to any other class or
series of capital stock of MCI WorldCom
. the voting rights, if any
. the voluntary and involuntary liquidation preferences
. the conversion or exchange privileges, if any, applicable to that series
. the redemption price or prices and the other terms of redemption, if
any, applicable to that series and
. sinking fund provisions.
Any of these terms could have an adverse effect on the availability of
earnings for distribution to the holders of MCI WorldCom common stock or for
other corporate purposes. Voting rights of holders of preferred stock could
adversely affect the voting power of common shareholders and could have the
effect of delaying, deferring or impeding a change of control of MCI WorldCom.
This could protect the continuity of MCI WorldCom's management and possibly
deprive shareholders of an opportunity to sell their shares of common stock at
prices higher than the prevailing market prices.
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The above information regarding preferred stock will not be affected by the
merger.
As of September 30, 1999, the MCI WorldCom board of directors had designated
shares of the following series of MCI WorldCom preferred stock:
. 94,992 shares of MCI WorldCom series A 8% cumulative convertible
preferred stock, of which no shares were outstanding
. 15,000,000 shares of MCI WorldCom series B convertible preferred stock,
of which 11,190,244 shares were outstanding
. 3,750,000 shares of MCI WorldCom series C $2.25 cumulative convertible
exchangeable preferred stock, of which no shares were outstanding--these
shares were issued on October 1, 1999 upon the completion of MCI
WorldCom's acquisition of SkyTel Communications, Inc. and
. 5,000,000 shares of MCI WorldCom series 3 junior participating preferred
stock, of which no shares were outstanding--these shares were designated
in connection with the adoption of the existing MCI WorldCom rights
agreement.
Series B Preferred Stock
Dividends. Holders of MCI WorldCom series B preferred stock are entitled to
receive cumulative dividends when, as and if declared by the board of directors
out of funds legally available for such dividends. Cumulative dividends accrue
from the issue date of the shares of MCI WorldCom series B preferred stock at
the rate per share of $0.0775 per annum. Those dividends must be paid before
any dividends can be set apart for or paid upon the MCI WorldCom common stock
or any other stock ranking as to dividends junior to MCI WorldCom series B
preferred stock in any year.
Dividends are only payable in cash, except for payment of accrued but unpaid
dividends upon conversion or redemption of MCI WorldCom series B preferred
stock, as described below. MCI WorldCom is not permitted to set apart for or
pay upon the MCI WorldCom common stock any extraordinary cash dividend, as
described below, unless at the same time MCI WorldCom sets apart for or pays
upon all shares of MCI WorldCom series B preferred stock an amount of cash per
share of MCI WorldCom series B preferred stock equal to the extraordinary cash
dividend that would have been paid in respect of that share if the holder had
converted his or her share of MCI WorldCom series B preferred stock into shares
of MCI WorldCom common stock immediately before the record date for the
extraordinary cash dividend.
The term "extraordinary cash dividend" means, with respect to any cash
dividend or cash distribution paid on any date, the amount, if any, by which
all cash dividends and cash distributions on the MCI WorldCom common stock paid
during the consecutive 12-month period ending on and including that date
exceeds, on a per share of MCI WorldCom common stock basis, 10% of the average
daily closing price of the common stock over that 12-month period.
Voting Rights. Holders of MCI WorldCom series B preferred stock are entitled
to cast one vote per share on all matters submitted to a vote of shareholders,
including the election of directors. Holders of MCI WorldCom series B preferred
stock and holders of MCI WorldCom common stock vote together as a single class,
unless otherwise provided by law or the existing MCI WorldCom articles of
incorporation. The approval of at least a majority of the votes entitled to be
cast by holders of issued and outstanding shares of MCI WorldCom series B
preferred stock is required to adversely change the rights, preferences or
privileges of MCI WorldCom series B preferred stock. For this purpose, the
authorization or issuance of any series of preferred stock with preference or
priority over, or being on a parity with, MCI WorldCom series B preferred stock
as to the right to receive either dividends or amounts distributable upon
liquidation, dissolution or winding up of MCI WorldCom will not be deemed to
affect adversely MCI WorldCom series B preferred stock.
Conversion Rights. Holders of MCI WorldCom series B preferred stock have the
right to convert any or all of their shares, at any time, into shares of MCI
WorldCom common stock at a rate of 0.0973912 shares of
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MCI WorldCom common stock for each share of MCI WorldCom series B preferred
stock, subject to adjustment. Upon any conversion, the holder will also be
entitled to receive all accrued and unpaid dividends on the shares of MCI
WorldCom series B preferred stock surrendered for conversion, which will be
payable in cash or, at the option of MCI WorldCom, in shares of MCI WorldCom
common stock, based on their fair market value.
Redemption Provisions. The MCI WorldCom series B preferred stock is not
redeemable by MCI WorldCom before September 30, 2001. After that time, MCI
WorldCom will have the right to redeem any or all of the shares of MCI WorldCom
series B preferred stock at a redemption price of $1.00 per share plus an
amount equal to all accrued and unpaid dividends thereon. MCI WorldCom has the
option to pay any or all of the redemption price, including accrued dividends,
in cash or in shares of MCI WorldCom common stock, based on their fair market
value.
Adjustment for Consolidation or Merger. In order to protect the interests of
holders of MCI WorldCom series B preferred stock, the existing MCI WorldCom
articles of incorporation provide for customary adjustments of the conversion
price, redemption price and related terms in the case of certain mergers,
consolidations or other capital transactions. No such adjustment will be
required in connection with the merger.
Liquidation Rights. In the event of any liquidation, dissolution or winding
up of MCI WorldCom, holders of MCI WorldCom series B preferred stock are
entitled to receive a liquidation preference for each share out of the assets
of MCI WorldCom in an amount equal to the sum of $1.00 plus all accrued and
unpaid dividends.
Series C Preferred Stock
Dividends. Holders of MCI WorldCom series C preferred stock are entitled to
receive, when, as and if declared by the MCI WorldCom board of directors out of
funds of MCI WorldCom legally available therefor, cash dividends at the annual
rate of $2.25 per share, payable in four equal quarterly installments,
commencing on January 15, 2000. The first quarterly dividend of MCI WorldCom
series C preferred stock payable on January 15, 2000 will be equal to $0.5625
per share. Dividends on MCI WorldCom series C preferred stock are cumulative
and accrue without interest.
If dividends are not paid in full on the MCI WorldCom series C preferred
stock and any other preferred stock ranking on a parity as to dividends with
the MCI WorldCom series C preferred stock, other than MCI WorldCom series B
preferred stock, all dividends paid or declared and set aside for payment upon
the shares will be paid or declared and set aside for payment pro rata. As a
result, in all cases the amount of dividends declared per share will bear the
same ratio to each other that accrued and unpaid dividends per share on the
shares bear to each other. Except as described above, unless all accrued and
unpaid dividends on the MCI WorldCom series C preferred stock have been paid or
declared and set aside for payment, neither dividends nor other distributions
may be made upon the MCI WorldCom common stock or on any other stock ranking
junior to or on a parity with the MCI WorldCom series C preferred stock as to
dividends, except for dividends paid solely in:
. MCI WorldCom common stock
. other capital stock ranking junior as to dividends to MCI WorldCom
series C preferred stock and
. rights to acquire the foregoing stock.
In addition, no shares of MCI WorldCom common stock or any other stock
ranking junior to or on a parity with the MCI WorldCom series C preferred stock
as to dividends may be redeemed, purchased or otherwise acquired by MCI
WorldCom, unless all accrued and unpaid dividends on the MCI WorldCom series C
preferred stock have been paid or declared and set aside for payment.
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Voting Rights. Unless otherwise required by law, holders of MCI WorldCom
series C preferred stock will have no voting rights except as follows. If at
any time the equivalent of six quarterly dividends payable on the MCI WorldCom
series C preferred stock are accrued and unpaid and in arrears, the number of
directors of MCI WorldCom will be increased by two and the holders of all
outstanding shares of MCI WorldCom series C preferred stock, and any capital
stock ranking on a parity as to dividends with the shares of MCI WorldCom
series C preferred stock and having similar voting rights, will be entitled to
elect an additional two directors to serve until all dividends accrued and
unpaid have been paid or declared and funds have been set aside to provide for
payment in full.
In addition, without the vote or consent of holders of at least a majority
of shares of the MCI WorldCom series C preferred stock then outstanding, MCI
WorldCom may not:
. create, issue or increase the authorized number of shares of any class
or series of stock ranking senior to the MCI WorldCom series C preferred
stock either as to dividends or upon liquidation, dissolution or winding
up, or any security convertible into or exercisable or exchangeable for
such stock or
. amend, alter or repeal any of the provisions of the existing MCI
WorldCom articles of incorporation so as to affect adversely any right,
preference, privilege or voting power of MCI WorldCom series C preferred
stock.
Conversion Rights. Holders of MCI WorldCom series C preferred stock may, at
any time, convert their shares into shares of MCI WorldCom common stock. The
number of shares of MCI WorldCom common stock issuable upon conversion of each
share of MCI WorldCom series C preferred stock will be equal to the quotient
obtained by dividing $50.00 by the conversion price in effect on the date of
conversion. The conversion price currently is $175.37. However, the conversion
price will be adjusted and readjusted from time to time. Except as may be
provided by the MCI WorldCom board of directors, upon conversion, MCI WorldCom
is not obligated to make any payment or adjustment with respect to dividends
accrued on MCI WorldCom series C preferred stock unless the holder of the
shares being converted was the record holder of such shares on the record date
for the payment of such dividends. Upon conversion of MCI WorldCom series C
preferred stock, MCI WorldCom will make no payment or adjustment whatsoever
relating to dividends accrued on the MCI WorldCom common stock issuable upon
conversion.
Optional Redemption. MCI WorldCom will have the option to redeem shares of
MCI WorldCom series C preferred stock, in whole or in part, at any time out of
funds legally available therefor, at the per share redemption prices set forth
below in effect on the date fixed for redemption during the relevant 12-month
period beginning on October 15 of the years shown below, plus any accrued and
unpaid dividends to the redemption date.
<TABLE>
<CAPTION>
If Redeemed During Redemption Price
12-Month Period Beginning Per Share
------------------------- ----------------
<S> <C>
October 15, 1999.......................................... $50.75
October 15, 2000.......................................... 50.50
October 15, 2001.......................................... 50.25
October 15, 2002 and thereafter........................... 50.00
</TABLE>
Any holder of shares of MCI WorldCom series C preferred stock selected for
redemption may, at any time before the close of business on the third business
day preceding the redemption date, give written notice of the conversion of any
of those shares.
Exchangeability. MCI WorldCom will have the option on any dividend payment
date to issue MCI WorldCom 4.5% Convertible Subordinated Debentures due 2003,
which we refer to as the exchange debentures, in exchange for the MCI WorldCom
series C preferred stock. MCI WorldCom can only exercise this option in whole
and not in part. The right of MCI WorldCom to exercise this option is subject
to certain conditions.
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If MCI WorldCom exercises this exchange option, holders of shares of MCI
WorldCom series C preferred stock will be entitled to receive $50.00 principal
amount of exchange debentures for each share of MCI WorldCom series C preferred
stock. However, the exchange debentures will only be issued in denominations of
$1,000 and integral multiples of $1,000. MCI WorldCom will pay cash for any
amounts that are not an integral multiple of $1,000. MCI WorldCom will mail
written notice of its intention to exchange to each holder of record of the MCI
WorldCom series C preferred stock not less than 30 nor more than 60 days before
the date fixed for the exchange. The exchange debentures have terms and
conditions substantially similar to the MCI WorldCom series C preferred stock.
MCI WorldCom may not exercise this exchange option if all dividends accrued
and payable on MCI WorldCom series C preferred stock have not been paid or
declared before the exchange date and funds have not been set aside to provide
for payment in full of the dividends. In addition, the exchange of the MCI
WorldCom series C preferred stock for the exchange debentures must comply with
any relevant covenants in MCI WorldCom's then existing bank loan and other debt
agreements.
Redemption Upon a Fundamental Change. If a fundamental change, such as
certain mergers involving MCI WorldCom, occurs, each holder of MCI WorldCom
series C preferred stock will have the right to require MCI WorldCom to
repurchase any or all of his or her shares, which have an aggregate liquidation
value that is a multiple of $50.00, at a price per share equal to $50.00, plus
accrued and unpaid dividends to the repurchase date. MCI WorldCom will have the
option to pay all or any part of the repurchase price upon a fundamental change
in shares of MCI WorldCom common stock or any successor corporation. The merger
will not constitute a fundamental change.
Adjustment for Consolidation or Merger. In case of:
. any consolidation or merger of MCI WorldCom with any other entity, other
than a wholly owned subsidiary of MCI WorldCom
. any sale or transfer of all or substantially all of the assets of MCI
WorldCom or
. any share exchange pursuant to which all of the outstanding shares of
MCI WorldCom common stock are converted into other securities or
property,
MCI WorldCom will provide holders of shares of MCI WorldCom series C preferred
stock then outstanding with the right to convert their shares into the kind and
amount of shares of stock and other securities and property receivable upon
that transaction by a holder of the number of shares of MCI WorldCom common
stock into which their shares could have been converted immediately before the
completion of that transaction. If, in connection with one of those
transactions, holders of shares of MCI WorldCom common stock are entitled to
elect to receive either securities, cash or other assets upon completion of the
transaction, MCI WorldCom will provide each holder of MCI WorldCom series C
preferred stock with the right to make such an election to receive these assets
on the same terms and conditions applicable to holders of shares of MCI
WorldCom common stock. No such adjustment wil be required in connection with
the merger.
Liquidation Rights. In the event of any liquidation, dissolution or winding
up of MCI WorldCom, the holders of MCI WorldCom series C preferred stock are
entitled to receive out of assets of MCI WorldCom a liquidation preference in
the amount of $50.00 per share of MCI WorldCom series C preferred stock plus
any accrued and unpaid dividends.
Amended WorldCom Articles of Incorporation
Under the amended WorldCom articles of incorporation, the above series of
preferred stock will remain authorized with identical terms. In addition, the
following additional series of preferred stock will be authorized:
. 95 shares of WorldCom series 5 preferred stock, par value $.01 per share
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. 300,000 shares of WorldCom series 7 preferred stock, convertible, par
value $.01 per share and
. 1,250,000 shares of WorldCom series 8 junior participating preferred
stock, par value $.01 per share--these shares will be designated in
connection with the amended WorldCom rights agreement (see "Comparison
of Rights of MCI WorldCom Shareholders and Sprint Stockholders--Rights
Plans--WorldCom").
WorldCom Series 5 Preferred Stock
Designation. The official designation of the WorldCom series 5 preferred
stock will be "Series 5 Preferred Stock".
Dividends. Holders of WorldCom series 5 preferred stock will be entitled to
receive when, as and if declared by the WorldCom board of directors, out of
funds legally available for payment, cumulative cash dividends at an annual
rate of 6.0% of the stated value, or $6,000 per share, payable quarterly.
Rank. The WorldCom series 5 preferred stock will rank on a parity with the
WorldCom series B preferred stock and WorldCom series C preferred stock as to
dividends and upon liquidation.
Voting Rights; Ability to Appoint Directors. Holders of WorldCom series 5
preferred stock will be entitled to one vote per share, generally voting
together as a single class with the holders of all other classes and series of
WorldCom capital stock, other than WorldCom series C preferred stock.
If no dividends or less than full cumulative dividends on the WorldCom
series 5 preferred stock have been paid for four consecutive dividend periods,
or if unpaid dividends have cumulated to an amount equal to full cumulative
dividends for six quarterly dividend periods, then the holders of the WorldCom
series 5 preferred stock will have voting power, as a class, to elect the
smallest number of directors to the WorldCom board of directors that
constitutes a majority of the directors to be elected. This right to elect a
majority of directors will continue until full cumulative dividends for all
past quarterly dividend periods and for the current quarterly dividend period
have been paid or declared and set aside for payment.
Non-Convertible. The WorldCom series 5 preferred stock will not be
convertible into or exchangeable for stock of any other class or classes of
WorldCom capital stock.
Liquidation Rights. In any liquidation, dissolution or winding up of
WorldCom, holders of the WorldCom series 5 preferred stock will be entitled to
receive out of the assets of WorldCom available for distribution to
shareholders, before any distribution of the assets shall be made to the
holders of any WorldCom common stock, the sum of $100,000 per share, plus an
amount equal to cumulative accrued and unpaid dividends to the date of
distribution.
Repurchase by WorldCom. The holders of the WorldCom series 5 preferred
stock may tender all, but not less than all, of their shares to WorldCom for
purchase at a price per share equal to $100,000 per share plus accrued
dividends to the date of repurchase. Holders must provide written notice of
any tender at least six months before the tender is to be completed.
Redemption. If the holders have not tendered all shares of WorldCom series
5 preferred stock to WorldCom for purchase pursuant to the provisions
described under "--Repurchase by WorldCom" before March 14, 2003, then
WorldCom will redeem all of the outstanding shares for an amount equal to
$100,000 per share plus accrued dividends to the date of repurchase.
Listing. The WorldCom series 5 preferred stock will not be listed on any
exchange or quotation service.
WorldCom Series 7 Preferred Stock; Preferred Inter-Group Interest
Designation; Authorized Shares. The official designation of the WorldCom
series 7 preferred stock will be "Series 7 Preferred Stock--Convertible".
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Dividends. Holders of WorldCom series 7 preferred stock will be entitled to
receive, when, as and if declared by the WorldCom board of directors out of
funds of WorldCom legally available for payment, cumulative cash dividends
payable quarterly at the rate of $6.73 per share. Dividends will be cumulative
whether or not in any dividend period there are funds of WorldCom legally
available for the payment of dividends. Holders of WorldCom series 7 preferred
stock will be entitled to receive full accumulated cash dividends for all
quarterly dividend periods before any dividends on WorldCom common stock or any
other stock of WorldCom that is junior to the WorldCom series 7 preferred stock
as to dividends can be paid or declared.
Rank. The WorldCom series 7 preferred stock will rank junior as to dividends
and upon liquidation to shares of the WorldCom series 5 preferred stock, the
WorldCom series B preferred stock and WorldCom series C preferred stock, and
any WorldCom preferred stock that will be designated as senior to the WorldCom
series 7 preferred stock as to dividends or upon liquidation. The WorldCom
series 7 preferred stock will have a preference as to dividends and upon
liquidation over WorldCom common stock and any other kind of WorldCom capital
stock that will rank junior to the WorldCom series 7 preferred stock as to
dividends or upon liquidation.
Voting Rights. Each outstanding share of the WorldCom series 7 preferred
stock will be entitled to a number of votes equal to the number of votes that
could be cast by the holder of that number of shares of the series of WorldCom
PCS group common stock into which the share of WorldCom series 7 preferred
stock could be converted.
Except as described below, holders of WorldCom series 7 preferred stock will
be entitled to vote on all matters on which the holders of WorldCom common
stock will be entitled to vote, except as otherwise required by law. Holders of
WorldCom series 7 preferred stock will vote together as a single class with the
holders of all other classes or series of WorldCom capital stock, other than
WorldCom series C preferred stock. A two-thirds vote of all shares of WorldCom
series 7 preferred stock that are entitled to vote will be necessary in order
to change any of the provisions of the WorldCom articles of incorporation,
including any certificate of designation or any similar document relating to
any series of WorldCom preferred stock, in a way that would materially and
adversely affect the voting powers, preferences, rights, powers or privileges,
qualifications, limitations and restrictions of the WorldCom series 7 preferred
stock. However, neither of the following will require this special two-thirds
vote:
. the creation, issuance or increase in the amount of authorized shares of
any series of WorldCom preferred stock or
. the consummation of any transaction in which the voting powers,
preferences, rights, powers or privileges, qualifications, limitations
and restrictions of the WorldCom series 7 preferred stock are preserved.
Conversion Rights. The WorldCom series 7 preferred stock will be convertible
at any time at the option of the holder into:
. shares of WorldCom series 2 PCS common stock plus, for no additional
consideration, shares of WorldCom series 2 common stock, if the holder
is a cable holder or an affiliate of a cable holder or
. shares of WorldCom series 1 PCS common stock plus, for no additional
consideration, shares of WorldCom common stock, if the holder is not a
cable holder or an affiliate of a cable holder.
Shares of WorldCom series 7 preferred stock initially will be convertible
into an aggregate of 8,019,895 shares of WorldCom PCS group common stock and,
for no additional consideration, an aggregate of 1,240,677 shares of WorldCom
group common stock. The number of shares issuable is determined by applying a
conversion price, initially set at $30.75. Cash will be issued in lieu of
fractional shares.
Conversion Price Adjustments. The conversion price will be subject to
adjustment upon the occurrence of certain events, including:
. the payment by WorldCom of dividends, or the making of other
distributions, with respect to WorldCom PCS group common stock payable
in shares of WorldCom PCS group common stock
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. subdivisions, combinations and reclassifications of WorldCom PCS group
common stock
. the issuance of rights allowing holders of WorldCom PCS group common
stock to purchase shares of WorldCom PCS group common stock for a price
per share that is less than the then-current market price of WorldCom
series 1 PCS common stock and
. the distribution to the holders of WorldCom PCS group common stock of
any of WorldCom's assets, debt securities or any rights or warrants to
purchase securities, excluding cash dividends on the WorldCom PCS group
common stock that do not exceed specified levels.
If WorldCom consolidates with, merges with or into, or sells all or
substantially all of its property and assets to another person, each share of
WorldCom series 7 preferred stock thereafter will entitle its holder to
receive upon conversion of his or her shares of WorldCom series 7 preferred
stock the number of shares of capital stock or other securities or property
which the holder of a number of shares of WorldCom PCS group common stock into
which the share of WorldCom series 7 preferred stock would have been converted
immediately before the transaction.
Liquidation Rights. After payments to holders of senior securities, in a
liquidation, dissolution or winding up of WorldCom the holders of WorldCom
series 7 preferred stock will be entitled to receive out of the assets of
WorldCom available for distribution to shareholders, before any distribution
of the assets is made to the holders of WorldCom common stock or any other
stock ranking junior to the WorldCom series 7 preferred stock upon
liquidation, a $1,000 per share liquidation preference, plus accumulated
unpaid dividends, whether or not declared.
Redemption. If not converted by the holder or earlier redeemed by WorldCom
as provided below, the WorldCom series 7 preferred stock will become
mandatorily redeemable on November 23, 2008 at the redemption price of $1,000
for each share outstanding, plus an amount in cash equal to all accrued but
unpaid dividends. Before this obligation is discharged:
. dividends on any remaining outstanding shares of WorldCom series 7
preferred stock will continue to accrue and be added to the dividend
payable to the holder and
. WorldCom may not declare or pay any dividend or make any distribution on
any equal or junior stock.
Subject to certain exceptions, shares of WorldCom series 7 preferred stock
will not be redeemable before November 23, 2001. WorldCom may at its option
redeem the WorldCom series 7 preferred stock, in whole or in part, after
November 23, 2001 at a price equal to the liquidation preference per share
plus any accumulated unpaid dividends, whether or not declared. If less than
all the outstanding WorldCom series 7 preferred stock is to be redeemed, the
shares to be redeemed will be selected pro rata as nearly as practicable or by
lot, or by such other method as may be determined by the WorldCom board of
directors to be equitable, without regard to whether the shares to be redeemed
are convertible into WorldCom series 1 PCS common stock or WorldCom series 2
PCS common stock.
Listing. The WorldCom series 7 preferred stock will not be listed on any
exchange or quotation system.
Preferred Inter-Group Interest. The preferred inter-group interest will
have terms equivalent to the WorldCom series 7 preferred stock, as summarized
above and as will be set forth in the amended WorldCom articles of
incorporation relating to the WorldCom series 7 preferred stock. WorldCom will
effect any changes to the preferred inter-group interest as may be necessary
to reflect any changes to the terms, rights, powers and privileges of the
WorldCom series 7 preferred stock.
Provisions Applicable to All Series of WorldCom Preferred Stock
No dividend will be permitted to be declared on any series of WorldCom
preferred stock unless dividends have been declared or paid on all shares of
WorldCom preferred stock that:
. are entitled to cumulative dividends and
. which rank equally as to dividends with the series in question.
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Preemptive Rights; Sinking Funds. No holder of WorldCom preferred stock will
have any preemptive rights. No series of WorldCom preferred stock will be
subject to any sinking fund or other obligation of WorldCom to set aside funds
in order to redeem shares.
Special Voting Rights of the WorldCom Preferred Stock. Under the amended
WorldCom articles of incorporation, the WorldCom preferred stock will be
entitled to vote as a class with respect to certain matters affecting
preferences of the WorldCom preferred stock or creating prior ranking stock.
Warrants
In connection with the Sprint PCS restructuring, Sprint issued warrants to
acquire shares of Sprint PCS common stock to the cable holders and their
affiliates and also reserved for the Sprint FON group a warrant inter-group
interest to acquire additional inter-group interests in the Sprint PCS group
that has terms equivalent to the warrants issued to the cable holders. Upon
completion of the merger, WorldCom will assume these warrants.
The Warrants
The warrants will be freely transferable by the cable holders. Subject to
adjustment, as described below, each warrant will be exercisable for a share of
WorldCom PCS group common stock at any time before November 23, 2003 at an
initial exercise price of approximately $24.02. A total of 12,452,831 shares of
WorldCom PCS group common stock and 1,926,453 shares of WorldCom group common
stock will be issuable upon exercise of the warrants.
Each warrant will represent the right to purchase:
. one share of WorldCom series 2 PCS common stock, plus, for no additional
consideration, 0.1547 shares of WorldCom series 2 common stock, if the
holder of the warrant is a cable holder or an affiliate of a cable
holder or
. one share of WorldCom series 1 PCS common stock, plus, for no additional
consideration, 0.1547 shares of WorldCom common stock, if the holder is
not a cable holder or an affiliate of a cable holder.
The exercise price for the warrants may be paid in cash or by requesting
that WorldCom withhold a number of shares of WorldCom PCS group common stock
issuable upon exercise of the warrants.
Exercise Price Adjustments. The exercise price and the number of shares of
WorldCom PCS group common stock issuable upon exercise of the warrants will be
subject to adjustment on the occurrence of certain events, including:
. the payment by WorldCom of dividends, or the making of other
distributions, with respect to WorldCom PCS group common stock payable
in shares of WorldCom PCS group common stock
. subdivisions, combinations and reclassifications of the WorldCom PCS
group common stock
. the issuance of rights allowing holders of WorldCom PCS group common
stock to purchase shares of WorldCom PCS group common stock, or
securities convertible into WorldCom PCS group common stock, for a price
per share that is less than the then-current market price of WorldCom
series 1 PCS common stock and
. the distribution to holders of WorldCom PCS group common stock of any of
WorldCom's assets, debt securities or any rights to purchase securities,
excluding cash dividends on the WorldCom PCS group common stock that do
not exceed specified levels.
If WorldCom consolidates or merges with, or sells all or substantially all
of its property and assets to, another person, each holder of a warrant will be
entitled to receive upon exercise of his or her warrant the number of shares of
capital stock or other securities or property which the holder of a number of
shares of WorldCom PCS group common stock for which the warrant could have been
exercised immediately before the transaction would have been entitled to
receive.
Conversion of the WorldCom PCS Group Common Stock. If the WorldCom PCS group
common stock is converted by WorldCom, then after the conversion holders of
outstanding warrants will be entitled to receive
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upon exercise of their warrants, in lieu of shares of WorldCom PCS group common
stock, the kind and amount of shares of stock and other securities and property
receivable in the conversion by a holder of the number of shares of WorldCom
PCS group common stock for which the warrant could have been exercised
immediately before the effective date of the conversion.
Dividends; Voting; Other Rights. Holders of unexercised warrants will not be
entitled to receive dividends or other distributions with respect to the
WorldCom PCS group common stock, receive notice of any meeting of the
shareholders of WorldCom, consent to any action of the shareholders of
WorldCom, receive notice of any other shareholder meeting, or exercise any
other rights as shareholders of WorldCom. Any warrants that are not exercised
on or prior to November 23, 2003 will terminate.
Listing. The warrants will not be listed on any exchange or quotation
system.
Warrant Inter-Group Interest
The WorldCom group will have an inter-group interest in the WorldCom PCS
group that will have terms equivalent to the warrants, which we refer to as the
warrant inter-group interest.
WorldCom will authorize and reserve for issuance the number of shares of
WorldCom series 1 PCS common stock and WorldCom series 2 PCS common stock that
may be issuable upon the exercise of all outstanding warrants and the
conversion of the warrant inter-group interest.
Transfer Agent
The transfer agent and registrar for the MCI WorldCom common stock is, and
the transfer agent for the WorldCom group common stock, WorldCom PCS group
common stock, the WorldCom class A common stock and the WorldCom preferred
stock will be, The Bank of New York, 101 Barclay Street--12W, New York,
New York 10286.
Anti-Takeover Considerations
Georgia law and the amended WorldCom articles of incorporation and bylaws
will contain a number of provisions which may have the effect of discouraging
transactions that involve an actual or threatened change of control. For a
description of the provisions, see "Comparison of Rights of MCI WorldCom
Shareholders and Sprint Stockholders--Number and Election of Directors", "--
Removal of Directors", "--Amendments to Articles of Incorporation", "--
Amendments to Bylaws", "--Rights Plans", "--State Anti-Takeover Statutes" and
"--Business Combination Restrictions".
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COMPARISON OF RIGHTS OF MCI WORLDCOM SHAREHOLDERS
AND SPRINT STOCKHOLDERS
The rights of MCI WorldCom shareholders are currently governed by Georgia
law, the existing MCI WorldCom articles of incorporation, the existing MCI
WorldCom bylaws and the existing MCI WorldCom rights agreement. The rights of
Sprint stockholders are currently governed by Kansas law, the Sprint articles
of incorporation, the Sprint bylaws and the Sprint rights plan. Upon completion
of the merger, Sprint stockholders will become holders of WorldCom capital
stock and their rights will be governed by Georgia law, the amended WorldCom
articles of incorporation, the amended WorldCom bylaws and the amended WorldCom
rights agreement.
The following summarizes the material differences between the rights of MCI
WorldCom shareholders and the rights of Sprint stockholders, but does not
purport to be a complete statement of all such differences, or a complete
description of the specific provisions referred to in this summary. The
following also describes the material rights of WorldCom shareholders after the
merger. See "Description of MCI WorldCom Capital Stock" and "Where You Can Find
More Information". The amended WorldCom articles of incorporation and bylaws
are attached as Annexes 2 and 3 to this proxy statement/prospectus.
Capitalization
MCI WorldCom
MCI WorldCom's authorized capital stock is described above under
"Description of MCI WorldCom Capital Stock--Common Stock--Existing MCI WorldCom
Articles of Incorporation" and "--Preferred Stock--Existing MCI WorldCom
Articles of Incorporation".
Sprint
Sprint's authorized capital stock consists of:
. 100,000,000 shares of Sprint class A common stock and 100,000,000 shares
of Sprint class A common stock, series DT
. 2,500,000,000 shares of Sprint series 1 FON common stock, 500,000,000
shares of Sprint series 2 FON common stock and 1,200,000,000 shares of
Sprint series 3 FON common stock
. 1,250,000,000 shares of Sprint series 1 PCS common stock, 500,000,000
shares of Sprint series 2 PCS common stock and 600,000,000 shares of
Sprint series 3 PCS common stock
. 20,000,000 shares of preferred stock, without par value, of which:
--1,742,853 shares have been designated as Sprint first series preferred
stock, which will be redeemed by Sprint before the completion of the
merger
--8,758,472 shares have been designated as Sprint second series preferred
stock, which will be redeemed by Sprint before the completion of the
merger
--95 shares have been designated as Sprint fifth series preferred stock
--1,500,000 shares have been designated as Sprint sixth series junior
participating preferred stock and have been reserved for issuance upon
exercise of the Sprint rights distributed to holders of Sprint FON
common stock and Sprint FT/DT class A stock pursuant to the Sprint
rights plan
--300,000 shares have been designated as Sprint seventh series preferred
stock and
--1,250,000 shares have been designated as Sprint eighth series junior
participating preferred stock and have been reserved for issuance upon
exercise of the Sprint rights distributed to holders of Sprint PCS
common stock and Sprint FT/DT class A stock pursuant to the Sprint
rights plan.
Sprint's total common equity value is represented by the sum of the
outstanding shares of Sprint FON common stock, Sprint PCS common stock and
Sprint FT/DT class A stock. The total common equity value of
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the Sprint FON group is represented by the outstanding shares of Sprint FON
common stock and Sprint FT/DT class A stock, to the extent that the latter
represents an equity interest in the Sprint FON group. The total common equity
value of the Sprint PCS group is represented by the outstanding shares of
Sprint PCS common stock and Sprint FT/DT class A stock, to the extent that the
latter represents an equity interest in the Sprint PCS group. Sprint FT/DT
class A stock represents, among other things, an equity interest in each of the
Sprint FON group and the Sprint PCS group.
WorldCom
WorldCom's authorized capital stock is described above under "Description of
MCI WorldCom Capital Stock--Common Stock--Amended WorldCom Articles of
Incorporation", "--Preferred Stock--Amended WorldCom Articles of Incorporation"
and "--Warrants".
Voting Rights
MCI WorldCom
Each holder of MCI WorldCom common stock may cast one vote for each share
held of record on all matters submitted to a vote of shareholders, including
the election of directors. Holders of MCI WorldCom common stock have no
cumulative voting rights.
Each holder of MCI WorldCom series B preferred stock may cast one vote per
share on all matters submitted to a vote of the shareholders, including the
election of directors. Holders of MCI WorldCom series B preferred stock and
holders of MCI WorldCom common stock vote together as a single class on all
matters presented to MCI WorldCom shareholders for their action, except as
provided by law and by the next sentence. The approval of at least a majority
of the votes entitled to be cast by holders of outstanding shares of MCI
WorldCom series B preferred stock voting as a class is required to amend, alter
or repeal the preferences, special rights or other powers or terms of MCI
WorldCom series B preferred stock so as to adversely affect the rights,
preferences or privileges of MCI WorldCom series B preferred stock.
Holders of MCI WorldCom series C preferred stock have no voting rights,
except that a majority of the outstanding shares of MCI WorldCom series C
preferred stock voting as a separate class must approve any of the following:
. the creation, issuance or increase in the number of authorized shares of
any class or series of stock ranking prior to MCI WorldCom series C
preferred stock as to dividends or upon liquidation
. any amendment of the MCI WorldCom articles of incorporation that would
adversely affect the rights, preferences or privileges of MCI WorldCom
series C preferred stock or
. as otherwise required by law.
In addition, if at any time six quarterly dividends payable on MCI WorldCom
series C preferred stock are accrued and unpaid and in arrears, the number of
MCI WorldCom directors will be increased by two and holders of MCI WorldCom
series C preferred stock, and any shares of stock ranking on a parity with MCI
WorldCom series C preferred stock as to dividends upon which like voting powers
have been conferred, voting as a single class, may elect these additional
directors to serve until all dividends have been paid or declared and funds
have been set aside to provide for payment in full.
Sprint
Holders of Sprint FON common stock, Sprint PCS common stock, Sprint FT/DT
class A stock, Sprint first series preferred stock, Sprint second series
preferred stock, Sprint fifth series preferred stock and Sprint seventh series
preferred stock vote together as a single class on most matters. For these
votes, holders have the following numbers of votes per share:
. Sprint series 1 FON common stock, Sprint series 3 FON common stock,
Sprint first series preferred stock, Sprint second series preferred stock
and Sprint fifth series preferred stock have one vote per share
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. Sprint series 1 PCS common stock and Sprint series 3 PCS common stock
have a vote per share, which we refer to as the "PCS vote per share",
that equals the average closing price of a share of Sprint series 1 PCS
common stock divided by that of a share of Sprint series 1 FON common
stock calculated over the 20 trading days ending with the tenth trading
day before the record date for determining the stockholders entitled to
vote
. Sprint series 2 FON common stock, if any such shares are outstanding, has
1/10th of one vote per share
. Sprint series 2 PCS common stock has 1/10th of the PCS vote per share and
. Sprint FT/DT class A stock has a vote per share equal to the number of
votes represented by the Sprint FON common stock and the Sprint PCS
common stock underlying a share of Sprint FT/DT class A stock.
The relative voting power of Sprint FON common stock and Sprint series 1 PCS
common stock fluctuate in relation to the relative market values of Sprint
series 1 FON common stock and Sprint series 1 PCS common stock.
Sprint FON Common Stock and Sprint FT/DT Class A Stock Voting as a Class. On
each matter to be voted on by holders of Sprint FON common stock and Sprint
FT/DT class A stock voting together as a single class, each series of Sprint
FON common stock has one vote per share, and Sprint FT/DT class A stock has a
number of votes per share equal to the votes possessed by the shares, or
fraction of a share, of Sprint series 3 FON common stock underlying each share
of Sprint FT/DT class A stock.
Sprint PCS Common Stock and Sprint FT/DT Class A Stock Voting as a Class. On
each matter to be voted on by holders of Sprint PCS common stock and Sprint
FT/DT class A stock voting together as a single class, each series of Sprint
PCS common stock has one vote per share, and Sprint FT/DT class A stock has a
number of votes per share equal to the votes possessed by the shares, or
fraction of a share, of Sprint series 3 PCS common stock underlying each share
of Sprint FT/DT class A stock.
Sprint FON Common Stock Voting as a Class. On each matter to be voted on by
holders of Sprint FON common stock voting as a separate class, all series have
one vote per share. If a particular series of Sprint FON common stock, such as
Sprint series 1 FON common stock, is voting as a separate series, each share is
entitled to one vote.
Sprint PCS Common Stock Voting as a Class. On each matter to be voted on by
holders of Sprint PCS common stock voting as a separate class, all series have
one vote per share. If a particular series of Sprint PCS common stock, such as
Sprint series 1 PCS common stock, is voting as a separate series, each share is
entitled to one vote.
Sprint FT/DT Stock Voting as a Class. On each matter to be voted on by
holders of Sprint FT/DT stock voting as a separate class, each share of Sprint
series 3 FON common stock has one vote, each share of Sprint series 3 PCS
common stock will have the PCS vote per share, and each share of Sprint FT/DT
class A stock has a number of votes per share equal to the sum of the votes
possessed by the shares, or fraction of a share, of Sprint series 3 FON common
stock and Sprint series 3 PCS common stock underlying each share of Sprint
FT/DT class A stock.
Non-Sprint FT/DT Stock Voting as a Class. On each matter to be voted on by
the holders of Sprint series 1 FON common stock, Sprint series 2 FON common
stock, Sprint series 1 PCS common stock and Sprint series 2 PCS common stock
voting as a separate class, each share of Sprint series 1 FON common stock is
entitled to one vote per share, each share of Sprint series 2 FON common stock
is entitled to 1/10th of one vote per share, each share of Sprint series 1 PCS
common stock is entitled to the PCS vote per share and each share of Sprint
series 2 PCS common stock is entitled to 1/10th of the PCS vote per share.
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Matters Requiring Class Votes. The Sprint articles of incorporation provide
that the affirmative vote of holders of a majority of the voting power
represented by the outstanding Sprint FON common stock and Sprint FT/DT class A
stock voting together as a single class is required to adopt any amendment to
the Sprint articles of incorporation that would:
. increase or decrease the number of authorized shares of Sprint FON
common stock
. increase or decrease the par value of shares of Sprint FON common stock
or
. change the powers, preference or special rights of the shares of Sprint
FON common stock so as to affect them adversely.
The Sprint articles of incorporation also provide that the affirmative vote
of holders of a majority of the voting power represented by the outstanding
Sprint PCS common stock and Sprint FT/DT class A stock voting together as a
single class is required:
. to adopt any amendment to the Sprint articles of incorporation that
would:
-- increase or decrease the number of authorized shares of Sprint PCS
common stock
-- increase or decrease the par value of shares of Sprint PCS common
stock or
-- change the powers, preference or special rights of the shares of
Sprint PCS common stock so as to affect them adversely
. to amend the provisions of the Sprint bylaws relating to the capital
stock committee before November 23, 2002 or
. to approve the redemption of Sprint PCS common stock in exchange for
stock of a subsidiary of Sprint before November 23, 2000. This kind of
transaction is sometimes referred to as a "spin-off".
The tracking stock policies adopted by the Sprint board of directors provide
that the consent of holders of a majority of the outstanding shares of Sprint
PCS common stock, voting as a separate class, and the consent of the holders of
a majority of the outstanding shares of Sprint FON common stock, voting as a
separate class, is required to approve any acquisition by the Sprint FON group
of more than 33% of the assets of the Sprint PCS group.
Special Adjustment in Voting Power of the Sprint FT/DT Stock. Under the
Sprint articles of incorporation, if there is an increase in the per share vote
of any Sprint voting securities due to the transfer of the voting securities,
and the increase occurs on or after the tenth trading day preceding a record
date for purposes of determining the stockholders entitled to vote or to
receive the payment of a dividend, then the per share vote of the Sprint FT/DT
stock will be increased. The vote per share will be increased so that the
percentage of voting power of Sprint represented by the shares of Sprint FT/DT
stock held by each holder of Sprint FT/DT stock will not be diluted as a result
of the increase in votes due to the transfer of voting securities until the day
immediately following the date of the stockholders meeting or the date of the
dividend payment. An adjustment of this kind could be triggered, for example,
when Sprint series 2 PCS common stock is transferred by a cable holder to a
person who is not an affiliate of the cable holder. In this kind of transfer,
the Sprint series 2 PCS common stock is automatically converted into Sprint
series 1 PCS common stock, which has a higher per share vote.
Special Voting Rights of the Sprint FT/DT Stock. Under the Sprint articles
of incorporation, holders of Sprint FT/DT stock have certain class voting
rights, including the right to elect their own directors to the Sprint board of
directors and to disapprove certain transactions. See "Arrangements with
Certain Sprint Stockholders--France Telecom and Deutsche Telekom--Rights of
France Telecom and Deutsche Telekom Contained in Sprint's Articles of
Incorporation--Board Representation", "--Disapproval Rights" and "--Rights with
Respect to Sprint's Long Distance Assets".
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WorldCom
The voting rights applicable to the WorldCom capital stock will be the same
as described above under "--Voting Rights--Sprint" for the corresponding series
or class of Sprint capital stock, except that the voting rights applicable to
the WorldCom series B and series C preferred stock will be the same as
described above under "--Voting Rights--MCI WorldCom".
Number and Election of Directors
MCI WorldCom
Under Georgia law, directors are elected at each annual shareholders
meeting, unless the articles of incorporation or a bylaw adopted by the
shareholders provide that their terms are staggered. The articles of
incorporation may authorize the election of all or certain directors by one or
more classes or series of shares. The articles of incorporation or bylaws also
may allow the shareholders or the board of directors to fix or change the
number of directors. However, under Georgia law, a decrease in the number of
directors will not shorten an incumbent director's term.
The existing MCI WorldCom bylaws provide that the number of members of the
board of directors is fixed by the board of directors, but cannot be less than
three. Currently, the MCI WorldCom board of directors has 16 members. Neither
the existing MCI WorldCom articles of incorporation nor the existing MCI
WorldCom bylaws provide for a staggered board of directors.
The existing MCI WorldCom bylaws provide that directors are 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. No class or series of MCI WorldCom
shares may elect any director solely by vote of such class or series, except
that holders of MCI WorldCom series C preferred stock may elect two directors
if dividends remain unpaid for six quarters, as described above under "--Voting
Rights--MCI WorldCom".
Under Georgia law, shareholders do not have cumulative voting rights for the
election of directors unless the articles of incorporation so provide. The
existing MCI WorldCom articles of incorporation do not provide for cumulative
voting.
Sprint
Under Kansas law, directors are elected at each annual meeting of
stockholders. The articles of incorporation may authorize the election of
certain directors by one or more classes or series of shares and the articles
of incorporation or bylaws may provide for staggered terms for directors.
The Sprint articles of incorporation and bylaws provide that the number of
directors may be fixed by the Sprint board of directors, but cannot be less
than 10 or more than 20 members, unless increased to more than 20 to enable
holders of Sprint FT/DT stock or Sprint preferred stock to elect additional
directors, as described below. Currently, the Sprint board of directors has 11
members.
The Sprint articles of incorporation and bylaws provide for a staggered
board of directors, consisting of three classes of directors, with respect to
the directors elected by holders of Sprint capital stock, but not with respect
to directors elected by holders of either Sprint FT/DT stock or Sprint
preferred stock voting separately by class or series. Under the Sprint articles
of incorporation and bylaws, at each annual meeting of stockholders, the
successors of the class of directors whose term expires at the meeting are
elected to hold office for a three-year term, which expires at the annual
meeting of stockholders held in the third year following the year of their
election. If the number of directors, other than directors elected by holders
of either Sprint FT/DT stock, or Sprint preferred stock voting separately by
class or series, changes, any increase or decrease is apportioned among the
classes so as to maintain the number of directors in each class as nearly equal
as possible.
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Holders of Sprint FT/DT stock may elect a certain number of directors to the
Sprint board of directors. See "Arrangements with Certain Sprint Stockholders--
France Telecom and Deutsche Telekom--Rights of France Telecom and Deutsche
Telekom Contained in Sprint's Articles of Incorporation--Board Representation".
All other Sprint directors are elected by holders of Sprint series 1 FON common
stock, Sprint series 1 PCS common stock, Sprint series 2 PCS common stock,
Sprint first series preferred stock, Sprint second series preferred stock,
Sprint fifth series preferred stock and Sprint seventh series preferred stock,
voting together as a single class.
If a director elected by holders of any class or series of Sprint preferred
stock having the right, voting separately by class or series, to elect
directors, referred to as a Sprint preferred stock director, is an alien, or
after election becomes an alien, the effect of which would be that the number
of aliens then serving on the Sprint board of directors, including this Sprint
preferred stock director, would constitute more than the maximum number of
aliens permitted on the Sprint board of directors under section 310 of the
Communications Act, then the total number of directors will automatically
increase by the smallest number necessary to enable holders of Sprint FT/DT
stock, and the directors elected by holders of Sprint FT/DT stock in the case
of vacancies, to elect aliens as directors to the fullest extent that these
holders are entitled to elect directors without violating the requirements of
section 310 of the Communications Act.
If a Sprint preferred stock director is not an independent director, or
after election ceases to be an independent director, the effect of which would
be that the independent directors then serving on the Sprint board of directors
would not constitute a majority of the Sprint board of directors, then the
total number of directors will automatically increase by the smallest number
necessary so that the number of directors then serving on the Sprint board of
directors who are not independent directors, including this Sprint preferred
stock director and any vacancies which holders of Sprint FT/DT stock have a
right to fill, constitute less than a majority of the Sprint board of
directors.
If at any time six quarterly dividends payable on Sprint first series
preferred stock and/or Sprint second series preferred stock are in arrears, the
number of directors on the Sprint board of directors will be increased by two
and holders of all of the Sprint preferred stock, voting together as a single
class, may elect these additional directors to serve until all dividends in
arrears have been paid.
If no dividends or less than full cumulative dividends on the Sprint fifth
series preferred stock are paid for each of four consecutive dividend periods,
or if arrearages in the payment of dividends on this stock cumulate up to an
amount equal to the full cumulative dividends on this stock for six quarterly
dividend periods, then holders of Sprint fifth series preferred stock may,
acting alone at all meetings held for the election of Sprint directors, elect
the smallest number constituting a majority of the directors then to be
elected. This ability terminates when full cumulative dividends for all past
quarterly dividend periods and the current quarterly dividend period are paid
or declared and set apart for payment.
Under Kansas law, stockholders do not have cumulative voting rights for the
election of directors unless the articles of incorporation so provide. The
Sprint articles of incorporation do not provide for cumulative voting rights
for the election of directors.
WorldCom
The number and election of WorldCom directors will be governed by the
provisions described above under "--Number and Election of Directors--MCI
WorldCom", except for two differences. First, the WorldCom board of directors
will initially consist of 10 directors designated by MCI WorldCom and 6
directors designated by Sprint. See "The Merger--Interests of Sprint Directors
and Executive Officers in the Merger--Board of Directors". Second, holders of
WorldCom class A common stock will have rights to elect a certain number of
directors and, in certain circumstances, holders of WorldCom series 5 preferred
stock will have the right to elect a majority of the directors then to be
elected. See "--Voting Rights--Sprint--Special Voting Rights of the Sprint
FT/DT Stock" and "Description of MCI WorldCom Capital Stock--Preferred Stock--
Amended WorldCom Articles of Incorporation--WorldCom Series 5 Preferred Stock".
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Vacancies on the Board of Directors
MCI WorldCom
Under Georgia law, either shareholders or directors may fill any vacancies
on the board of directors, unless the articles of incorporation or bylaws
approved by the shareholders specifically regulate the filling of any such
vacancies. However, if the vacant directorship was held by a director elected
by a voting group, only holders of shares of that voting group or the remaining
directors elected by that voting group are entitled to vote to fill such
vacancy. A director elected to fill a vacancy is elected for the unexpired term
of his or her predecessor in office. However, the term of a director elected by
the board to fill a vacancy created by an increase in the number of directors
only continues until the next election of directors by shareholders and until
his or her successor is elected and qualified.
The existing MCI WorldCom bylaws provide that any vacancy on the MCI
WorldCom board of directors caused by an increase in the number of directors by
action of the shareholders will be filled by the shareholders in the same
manner as at an annual meeting. Any vacancy created by an increase in the
number of directors by action of the board of directors or by the removal or
resignation of a director will be filled by the affirmative vote of a majority
of the remaining directors, except that a class of shareholders may fill a
vacancy created by the removal or resignation of a director elected by that
class. Currently, no directors are elected by a separate class or series of
shares of MCI WorldCom capital stock.
Sprint
Under Kansas law, unless the articles of incorporation or bylaws provide
otherwise, vacancies on the board of directors may be filled by a majority of
the directors then in office. However, if the vacant directorship was held by a
director elected by a voting group, then such vacancy may be filled by a
majority of the remaining directors elected by that voting group. If at the
time of filling any vacancy, the directors then in office constitute less than
a majority of the whole board, as constituted immediately before the creation
of the vacancies, the district court, upon application of any stockholder or
stockholders holding at least 10% of the total number of shares outstanding
entitled to vote for such directors, may order an election to be held to fill
any such vacancies by the stockholders.
The Sprint articles of incorporation provide that any vacancy on the Sprint
board of directors may be filled by the affirmative vote of a majority of the
directors elected by the same class or classes of stockholders that would be
entitled to elect a director to fill such vacancy if the annual meeting of
stockholders were held on the date on which the vacancy occurred. So long as
any Sprint FT/DT stock is outstanding, a vacancy that would be filled by
holders of Sprint capital stock, other than holders of Sprint FT/DT stock, may
not be filled with a person who, upon his or her election, would not be an
independent director or would be an alien, as the case may be, if the effect of
such election would be that less than a majority of the Sprint board of
directors following such election would be independent directors, or that the
number of aliens who would then be serving on the Sprint board of directors
would constitute more than the maximum number of aliens permitted on the Sprint
board of directors under section 310 of the Communications Act.
Any additional director of any class of Sprint capital stock elected to fill
a vacancy resulting from an increase in the number of directors of such class
will hold office for a term that will coincide with the remaining term of the
directors of that class and until his or her successor has been elected and
qualified. A decrease in the number of directors will not shorten the term of
any incumbent director, except that if (1) terms of the directors elected by
holders of Sprint FT/DT stock terminate because all outstanding shares of
Sprint FT/DT stock convert into Sprint series 1 FON common stock and Sprint
series 1 PCS common stock, as applicable, or (2) the number of directors that
holders of Sprint FT/DT stock may elect decreases in accordance with the terms
of the Sprint articles of incorporation, then in either case the terms of the
incumbent directors elected by holders of FT/DT stock will cease immediately. A
director elected to fill a vacancy not resulting from an increase in the number
of directors will serve for the remainder of the full term of such director's
predecessor and until his or her successor has been elected and qualified.
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WorldCom
The provisions described above under "--Vacancies on the Board of
Directors--MCI WorldCom" will apply to filling vacancies on the WorldCom board
of directors, except that the amended WorldCom articles of incorporation will
include provisions relating to vacancies of directors elected by holders of
WorldCom class A common stock that are virtually identical to those relating to
vacancies of directors elected by holders of Sprint FT/DT stock, which are
described above under "--Vacancies on the Board of Directors--Sprint".
Removal of Directors
MCI WorldCom
Georgia law provides that one or more directors may be removed with or
without cause by a majority of the votes entitled to be cast, unless:
. the articles of incorporation or a bylaw adopted by the shareholders
provides that directors may be removed only for cause
. the directors have staggered terms, in which case directors may be
removed only for cause, unless the articles of incorporation or a bylaw
adopted by the shareholders provides otherwise or
. a director is elected by a particular voting group of shareholders, in
which case that director may be removed only by the requisite vote of
that voting group.
In addition, if cumulative voting is authorized, a director may not be
removed if the number of votes sufficient to elect him or her under cumulative
voting is voted against his or her removal. The existing MCI WorldCom articles
of incorporation do not authorize cumulative voting.
Georgia law also provides that a director may be removed by shareholders
only at a meeting called for the purpose of removing the director, and the
meeting notice must state that the purpose of the meeting is the removal of the
director.
The existing MCI WorldCom bylaws provide that any or all directors may be
removed with or without cause. Because directors' terms are not staggered and
no particular voting group of shareholders has the authority to elect a
director, other than holders of MCI WorldCom series C preferred stock when
dividends are in arrears as described above, any or all MCI WorldCom directors
may be removed with or without cause by a majority vote of shares of MCI
WorldCom capital stock, other than the MCI WorldCom series C preferred stock.
Holders of MCI WorldCom series C preferred stock have the sole right to remove
any director that they elect.
Sprint
Kansas law provides that both the entire board of directors and an
individual director may be removed with or without cause by holders of a
majority of the shares then entitled to vote at an election, unless:
. the board of directors is staggered, in which case the directors may only
be removed for cause, unless otherwise provided in the articles of
incorporation
. the corporation has cumulative voting, in which case no director may be
removed without cause if the votes cast against his or her removal would
be sufficient to elect the director if cumulatively voted at an election
of the class of directors of which the director is a part, although the
Sprint articles of incorporation do not authorize cumulative voting, or
. if holders of any class or series are entitled to elect one or more
directors, in which case only holders of the outstanding shares of that
class or series may vote on the removal of those directors for cause.
The Sprint articles of incorporation generally provide that a director,
other than a director elected by holders of Sprint FT/DT stock or Sprint
preferred stock having the right, voting separately by class or series, to
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elect directors, may be removed only for cause by a majority of the votes
represented by shares of the class or classes of stockholders that were
entitled to elect the director. A director elected by holders of Sprint FT/DT
stock may be removed:
. with or without cause by a majority of the votes represented by shares
of Sprint FT/DT stock or
. with cause by the affirmative vote of holders of two-thirds of the votes
represented by shares of Sprint capital stock entitled to general voting
power, voting together as a single class.
If a director, other than a director elected by holders of Sprint FT/DT
stock, who was not, at the time of his election to the Sprint board of
directors, an alien and who subsequently becomes an alien, the effect of which
would be that the number of aliens then serving on the Sprint board of
directors, including this director, would constitute more than the maximum
number of aliens permitted on the Sprint board of directors under section 310
of the Communications Act, then this director must automatically be removed
from the Sprint board of directors upon his or her change in status.
So long as any Sprint FT/DT stock is outstanding, if an independent director
elected by holders of Sprint capital stock, other than a director elected by
holders of Sprint FT/DT stock or Sprint preferred stock having the right,
voting separately by class or series, to elect directors, subsequently ceases
to be an independent director, the effect of which would be that the
independent directors then serving on the Sprint board of directors would not
constitute a majority of the Sprint board of directors, then this director will
automatically be removed from the Sprint board of directors upon his or her
change in status.
WorldCom
The provisions described above under "--Removal of Directors--MCI WorldCom"
will apply to the removal of directors from the WorldCom board of directors,
except that the amended WorldCom articles of incorporation will include
provisions relating to the removal of directors elected by holders of WorldCom
class A common stock or WorldCom preferred stock, voting separately by class or
series, that are virtually identical to those relating to the removal of
directors elected by holders of Sprint FT/DT stock or Sprint preferred stock,
voting separately by class or series, which are described under "--Removal of
Directors--Sprint".
Amendments to Articles of Incorporation
MCI WorldCom
Under Georgia law, the MCI WorldCom board of directors may only make
relatively technical amendments to the existing MCI WorldCom articles of
incorporation without shareholder approval, except that the MCI WorldCom board
of directors may amend the MCI WorldCom articles of incorporation to create and
establish the rights and preferences of additional classes or series of stock
because this is permitted by the MCI WorldCom articles of incorporation.
Otherwise, the affirmative vote of a majority of the votes entitled to be cast
on an amendment by each voting group entitled to vote on the amendment is
required to amend the articles of incorporation, unless a higher vote is
required by Georgia law, the articles of incorporation or the board of
directors. Unless a shareholder vote on the amendment is not required under
Georgia law, holders of the outstanding shares of a class are entitled to vote
as a separate class on a proposed amendment that would:
. increase or decrease the aggregate number of authorized shares of such
class
. effect an exchange or reclassification of all or part of the shares of
the class into shares of another class, or an exchange or
reclassification of all or part of the shares of another class into
shares of the class
. change the designation, rights, preferences or limitations of all or
part of the shares of the class
. alter or change the powers, preferences or special rights of the shares
of the class so as to affect them adversely or
. cancel, redeem, or repurchase all or part of the shares of the class.
If any proposed amendment requiring shareholder approval would affect any
series of a class of shares in one or more of the ways set forth above, but
would not effect the entire class, then only the shares of the series so
affected by the amendment shall be entitled to vote as a separate voting group
on the amendment.
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Neither the existing MCI WorldCom articles of incorporation provides for nor
has the MCI WorldCom board of directors authorized a super-majority percentage
of any voting group for the amendment of the existing MCI WorldCom articles of
incorporation.
Sprint
Under Kansas law, an amendment to the articles of incorporation of a
corporation requires the approval and recommendation of the board of directors,
the approval of holders of a majority of the outstanding stock entitled to vote
upon the proposed amendment and a majority of the outstanding stock of each
class entitled to vote upon the proposed amendment as a class. Holders of the
outstanding shares of a class are entitled to vote as a separate class on a
proposed amendment that would:
. increase or decrease the aggregate number of authorized shares of such
class
. increase or decrease the par value of the shares of such class or
. alter or change the powers, preferences or special rights of the shares
of such class, so as to affect them adversely.
If any proposed amendment would alter or change the powers, preferences or
special rights of one or more series of any class so as to affect them
adversely, but would not so affect the entire class, then only the shares of
the series so affected by the amendment are considered a separate class.
The Sprint articles of incorporation may be amended in accordance with
Kansas law, except that certain provisions of the Sprint articles of
incorporation regarding holders of Sprint FT/DT stock may be amended in any
manner that would not adversely alter or change the powers, preferences or
rights of holders of shares of Sprint capital stock (other than Sprint FT/DT
stock) by the Sprint board of directors with the affirmative vote of holders of
at least two-thirds of the votes represented by the outstanding shares of
Sprint FT/DT stock, voting as a single class, and without the affirmative vote
of holders of shares of the other classes and series of Sprint capital stock.
In addition, certain provisions of the Sprint bylaws that affect holders of
Sprint FT/DT stock may not be affected by the adoption of any provisions to the
Sprint articles of incorporation without the affirmative vote of holders of
record of a majority of the votes represented by the shares of Sprint FT/DT
stock then outstanding.
WorldCom
The provisions described above under "--Amendments to Articles of
Incorporation--MCI WorldCom" will apply to amendments to the WorldCom articles
of incorporation, except that the WorldCom articles of incorporation will
include provisions with respect to the rights of the holders of WorldCom class
A common stock that are virtually identical to those with respect to the
holders of Sprint FT/DT stock, which are described above under "--Amendments to
Articles of Incorporation--Sprint".
Amendments to Bylaws
MCI WorldCom
Georgia law provides that, unless a corporation's articles of incorporation,
applicable law or a particular bylaw approved by shareholders provides
otherwise, either the directors or shareholders may amend the bylaws. The
existing MCI WorldCom bylaws allow the directors or shareholders to amend or
repeal the bylaws, and neither the articles of incorporation nor the bylaws
restrict the authority of either the shareholders or the directors to amend or
repeal the bylaws. A United States district court interpreting Georgia law has
ruled that shareholders of publicly held corporations cannot adopt bylaw
amendments that restrict the power of the board of directors to manage the
corporation.
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Sprint
Under Kansas law, unless otherwise provided in the articles of
incorporation, the power to adopt, amend or repeal the bylaws is vested in the
board of directors. However, this power is subject to the right of the
stockholders to adopt, amend and repeal the bylaws.
The Sprint articles of incorporation and bylaws permit the Sprint board of
directors to adopt, amend or repeal the bylaws, except that:
. certain provisions of the Sprint bylaws that affect holders of Sprint
FT/DT class A stock may not be amended or otherwise affected, including
by the adoption of any amendments to the Sprint articles of
incorporation, without the affirmative vote of holders of record of a
majority of the votes represented by the shares of Sprint FT/DT class A
stock then outstanding and
. before November 23, 2002, the section of the Sprint bylaws that addresses
the capital stock committee of the Sprint board of directors may not be
amended or otherwise affected, including by the adoption of any
provisions to the Sprint articles of incorporation, without the
affirmative vote of holders of record of (1) a majority of the votes
represented by the shares of Sprint PCS common stock (and any shares of
Sprint FT/DT class A stock to the extent they represent an equity
interest in the Sprint PCS group) then outstanding, voting together as a
single class, and (2) a majority of the votes represented by the shares
of Sprint capital stock, voting together as a single class.
WorldCom
The provisions described above under "--Amendments to Bylaws--MCI WorldCom"
will apply to amendments to the WorldCom bylaws, except that the WorldCom
articles of incorporation and bylaws will include provisions regarding amending
the WorldCom bylaws in a manner affecting the holders of WorldCom class A
common stock or the WorldCom capital stock committee that are virtually
identical to those relating to the holders of Sprint FT/DT class A stock or the
Sprint capital stock committee that are described above under "--Amendments to
Bylaws--Sprint".
Action by Written Consent
MCI WorldCom
Subject to certain requirements, Georgia law provides that any action
required or permitted to be taken at a shareholders' meeting may be taken
without a meeting if the action is taken by all the shareholders entitled to
vote on the action, or, if so provided in the articles of incorporation, by
persons who would be entitled to vote at a meeting shares having the voting
power to cast not less than the minimum number of votes that would be necessary
to authorize the action at a meeting at which all shareholders entitled to vote
were present and voted. The action must be evidenced by one or more written
consents describing the action taken, signed by shareholders entitled to take
action without a meeting.
The existing MCI WorldCom articles of incorporation do not provide for the
consent of a lesser number of shares with respect to an action by written
consent. Therefore, action without a shareholders' meeting requires the written
consent of all of MCI WorldCom shareholders entitled to vote on the action.
Sprint
Kansas law provides that, unless otherwise provided in the articles of
incorporation, any action that could be taken by the stockholders at a meeting
may be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action taken, is signed by all holders of
outstanding stock entitled to vote on the action. The Sprint articles of
incorporation do not provide otherwise.
WorldCom
The provisions regarding the rights of holders of WorldCom capital stock to
act by written consent will be identical to those rights of holders of MCI
WorldCom capital stock that are described above under "--Action by Written
Consent--MCI WorldCom".
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Notice of Shareholder Action
MCI WorldCom
Under MCI WorldCom's bylaws, in order for a shareholder to nominate a
candidate for director, timely notice of the nomination must be given to and
received by MCI WorldCom 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. However, if the date
of the annual meeting is advanced by more than 30 days or delayed by more than
60 days from that anniversary date, then such notice must be given by the
shareholder and received by MCI WorldCom not earlier than 150 days before the
annual meeting and not later than the close of business on the later of the
120th day before the annual meeting or the 10th day following the day on which
public announcement of the meeting is first made. In some cases, notice may be
delivered and received later if the number of directors to be elected to the
MCI WorldCom board of directors is increased. The shareholder submitting the
notice of nomination must describe various matters as specified in the bylaws,
including the name, age and address of each proposed nominee, his or her
occupation, and the class and number of shares held by the nominee.
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 MCI WorldCom's notice of meeting. Nominations for persons for election to
the board of directors at a special meeting for which the election of directors
is a stated purpose in the notice of meeting may be made by any shareholder who
complies with the notice and other requirements of the bylaws. If MCI WorldCom
calls a special meeting of shareholders to elect one or more directors, any
shareholder may nominate a candidate, if notice from the shareholder is given
and received not earlier than 150 days before the special meeting and not later
than the close of business on the later of the 120th day before the special
meeting or the 10th day following the day on which public announcement of the
meeting and/or of the nominees proposed by MCI WorldCom is first made. The
notice from the shareholder must also include the same information described
above.
In order for a shareholder to bring other business before an annual meeting,
timely notice must be given to and received by MCI WorldCom within the time
limits described above. The shareholder's notice must include a description of
the proposed business, which must be a proper subject for action by the
shareholders, the reasons for conducting such business and other matters
specified in the bylaws.
Proposals of other business may be considered at a special meeting requested
in accordance with the bylaws only if the requesting shareholder gives and MCI
WorldCom receives a notice containing the same information as required for an
annual meeting at the time the meeting is requested.
Sprint
The Sprint bylaws require that for nominations for the election of
directors, a stockholder must give advance written notice of his or her nominee
to Sprint's secretary not less than 50 days nor more than 75 days prior to the
stockholders' meeting. If less than 65 days' notice of the stockholders'
meeting is given, the stockholder's notice must be received no later than the
close of business on the 15th day following the day on which notice of the
stockholders' meeting was mailed or made public.
In addition, for business to be properly brought before a stockholders'
meeting, other than a separate meeting of holders of Sprint FT/DT stock, a
stockholder must give advance written notice of his or her proposed business to
Sprint's secretary not less than 50 days nor more than 75 days prior to the
stockholders' meeting. If less than 65 days' notice of the stockholders'
meeting is given, the stockholder's notice must be received no later than the
close of business on the 15th day following the day on which notice of the
stockholders' meeting was mailed or made public.
WorldCom
The provisions described above under "--Notice of Shareholder Action--MCI
WorldCom" will govern the rights of holders of WorldCom capital stock regarding
notice of shareholder action.
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Special Meetings of Shareholders
MCI WorldCom
Georgia law allows the board of directors or any person authorized in the
corporation's articles of incorporation or bylaws to call special meetings of
shareholders. Generally, a special meeting may also be called by holders of at
least 25% of all votes entitled to be cast on any issue proposed to be
considered at the special meeting, or any other percentage as may be provided
in the corporation's articles of incorporation or bylaws.
The MCI WorldCom bylaws provide that a special meeting may be called by the
MCI WorldCom board of directors or the President of MCI WorldCom, and shall be
called by the President of MCI WorldCom at the request of holders of not less
than 40% of all the votes entitled to be cast on any issue proposed to be
considered at the proposed special meeting. Shareholders requesting a special
meeting 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
provide the same information as would be required for such a proposal at an
annual meeting.
Sprint
Under Kansas law, a special meeting of stockholders may be called by the
board of directors or by other persons authorized to do so by the articles of
incorporation or the bylaws. The Sprint bylaws provide that a special meeting
of holders of any one or more classes of Sprint capital stock may be called at
any time by the chairman, the president or the board of directors, and will be
called by the chairman, the president or the secretary upon the written request
of holders of a majority of the outstanding shares of stock of such class or
classes entitled to vote. Pursuant to Sprint's bylaws, notice of the time,
place and purpose of special meetings must be mailed to each stockholder at
least 20 days before the date of the special meeting.
WorldCom
The provisions described above under "--Special Meetings of Shareholders--
MCI WorldCom" will govern the rights of holders of WorldCom capital stock
regarding special meetings.
Limitation of Personal Liability of Directors
MCI WorldCom
Georgia law provides that a corporation's articles of incorporation may
include a provision eliminating or limiting the personal liability of a
director to the corporation or its shareholders for monetary damages for any
action taken, or any failure to take action, as a director. But no provision in
the articles of incorporation can eliminate or limit the monetary liability of
a director for:
. misappropriation of corporate business opportunities
. acts or omissions which involve intentional misconduct or a knowing
violation of law
. unlawful distributions or
. any transaction in which the director receives an improper personal
benefit.
The existing MCI WorldCom articles of incorporation limit the personal
liability of directors for monetary damages to the fullest extent permissible
under Georgia law.
Sprint
Kansas law provides that the articles of incorporation may limit or
eliminate the personal liability of directors for monetary damages for breach
of a fiduciary duty as a director, except for:
. breaches of the director's duty of loyalty to the corporation or its
stockholders
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law
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. unlawful dividends, stock purchases or redemptions or
. any transaction from which the director derived an improper personal
benefit.
The Sprint articles of incorporation limit the personal liability of
directors for monetary damages to the fullest extent permissible under Kansas
law.
WorldCom
The provisions described above under "--Limitation of Personal Liability of
Directors--MCI WorldCom" will apply to the provisions in the amended WorldCom
articles of incorporation regarding limitation of the personal liability of
WorldCom's directors.
Indemnification of Directors and Officers
MCI WorldCom
Georgia law provides that a Georgia corporation may indemnify an individual
who is a party to a proceeding because he or she is or was a director against
liability incurred in the proceeding if that individual acted in good faith and
the individual reasonably believed:
. in the case of conduct in his or her official capacity, that such
conduct was in the best interests of the corporation
. in all other cases, that such conduct was at least not opposed to the
best interests of the corporation and
. in the case of any criminal proceeding, that there was no reasonable
cause to believe his or her conduct was unlawful.
A corporation may not indemnify a director under Georgia law:
. in connection with a proceeding by or in the right of the corporation,
except for reasonable expenses incurred in connection with the
proceeding if it is determined that the director has met the standard of
conduct above or
. in connection with any other proceeding with respect to conduct for
which the director was adjudged liable on the basis that he or she
received an improper personal benefit.
Before a corporation may indemnify a director under Georgia law, a
determination must be made that the director has met the relevant standard of
conduct described above. This determination must be made:
. by the board of directors by the majority vote of a quorum of
disinterested directors
. by the majority vote of a committee consisting of two or more
disinterested directors appointed by such a vote
. by special legal counsel that is selected by a vote of the disinterested
directors or a committee thereof in the manner set forth above, or if
there are fewer than two disinterested directors, by special legal
counsel that is selected by the entire board of directors or
. by the shareholders, but shares owned by or voted under the control of a
director who is not a disinterested director may not vote on the
determination.
Under Georgia law, a disinterested director is a director who is not a party
to the proceeding with respect to which indemnification is sought and does not
have a relationship with the director seeking indemnification which
relationship would reasonably be expected to exert influence on the director's
judgment with respect to the determination being made.
In addition, a corporation is authorized to indemnify a director made a
party to a proceeding without regard to the limitations above if such
indemnification has been authorized by the articles of incorporation or a
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bylaw, contract or resolution approved by a majority of the shareholders
entitled to vote. Shares owned or voted under the control of a director who at
the time does not qualify as a disinterested director that would be covered by
the authorization may not be voted on the authorization. But the corporation
may not authorize indemnification for a director adjudged liable of any of the
acts or omissions described above under "--Limitation of Personal Liability of
Directors--MCI WorldCom".
Georgia law also provides that, to the extent that a director has been
wholly successful on the merits or otherwise in defense of any proceeding, the
corporation shall indemnify the director against reasonable expenses incurred
in connection with any such proceeding. A corporation may also advance funds to
pay for reasonable expenses incurred by a director in defending a proceeding
before the final disposition of the proceeding if the director affirms in
writing his or her good faith belief that he or she has met the standard of
conduct for indemnification and the director undertakes in writing to repay any
funds advanced if it is ultimately determined that the director is not entitled
to indemnification.
Georgia law also provides that a corporation has authority to indemnify
officers to the same extent as directors. One distinction for officer
indemnification, however, is that Georgia law does not require shareholder
approval for indemnification of officers without regard to the limitations
specified previously for directors, subject in all cases to public policy
exceptions described above under "--Limitation of Personal Liability of
Directors--MCI WorldCom". A person who is both an officer and a director is
treated, for indemnification purposes, as a director.
The existing MCI WorldCom articles of incorporation and bylaws authorize
indemnification to the fullest extent permitted by Georgia law, except for
certain additional shareholder approved indemnification permitted under Georgia
law.
Sprint
Under Kansas law, a corporation may indemnify a director or officer who is
or was a party, or is threatened to be made a party, to any suit or proceeding
because the person is or was a director or officer of the corporation against
liability incurred in connection with the proceeding if such person acted in
good faith and in a manner reasonably believed to be in, or not opposed to, the
best interests of the corporation and, with respect to any criminal proceeding,
had no reasonable cause to believe the conduct was unlawful.
A corporation may not indemnify a director or officer in connection with any
proceeding in which the director or officer has been adjudged to be liable to
the corporation unless and only to the extent that the court in which the
proceeding was brought determines that, in view of all the circumstances of the
case, the director or officer is fairly and reasonably entitled to indemnity
for such expenses which the court deems proper.
Kansas law provides that any indemnification of a director or officer,
unless ordered by a court, is subject to a determination that the director or
officer has met the applicable standard of conduct. The determination will be
made:
. by the majority vote of the directors who are not parties to such
proceeding, even though less than a quorum
. if there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion or
. by the stockholders.
Kansas law also provides that to the extent that a present or former
director or officer of a corporation has been successful on the merits or
otherwise in defense of the proceeding, the director or officer must be
indemnified against expenses actually and reasonably incurred in connection
with any claim. A corporation may also advance payment for expenses incurred by
a director or officer defending a proceeding before the final disposition of
the proceeding if the director or officer undertakes to repay the amount if it
is ultimately determined that the director or officer is not entitled to
indemnification.
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The Sprint bylaws provide that (1) Sprint will indemnify its directors and
officers to the fullest extent allowed by law and (2) the indemnification and
rights granted under the bylaws shall not be deemed exclusive of any other
indemnification, rights or limitations of liability under any bylaw, agreement,
vote of stockholders or disinterested directors or otherwise, and that they
shall continue although such person has ceased to be a director or officer of
Sprint.
WorldCom
The provisions described above under "--Indemnification of Directors and
Officers--MCI WorldCom" will govern the indemnification of WorldCom's directors
and officers.
Dividends
MCI WorldCom
Georgia law provides that the board of directors may authorize and the
corporation may make any distributions to its shareholders subject to
restrictions in the articles of incorporation; provided that no distribution
may be made if, after giving it effect:
. the corporation would not be able to pay its debts as they become due or
. the corporation's total assets would be less than the sum of its total
liabilities plus the amount that would be needed to satisfy the
preferential rights upon dissolution of the shareholders whose
preferential rights are superior to those receiving the distribution.
The right of the MCI WorldCom board of directors to declare dividends on its
common stock is subject to the rights of holders of MCI WorldCom preferred
stock and the availability of sufficient funds under Georgia law to make
distributions to its shareholders.
Sprint
Kansas law provides that the board of directors may authorize and pay
dividends so long as such dividends come out of the corporation's surplus or,
in the case where there is no surplus, from the corporation's net profits from
the current or preceding fiscal year. Dividends may not be paid out of net
profits if, after the payment of the dividend, the corporation's capital would
be less than the capital represented by the issued and outstanding stock of all
classes having a preference upon the distribution of assets.
The Sprint articles of incorporation provide that dividends may be declared
and paid on Sprint FON common stock, Sprint PCS common stock and Sprint FT/DT
class A stock out of the funds of Sprint legally available for this purpose.
However, the Sprint tracking stock policies affect Sprint's ability to declare
dividends, and the Sprint articles of incorporation also limit Sprint's ability
to make certain share distributions.
WorldCom
The rights of holders of WorldCom capital stock regarding dividends will be
governed by Georgia law, as described above under "--Dividends--MCI WorldCom",
and as described in detail above under "Description of MCI WorldCom Capital
Stock--Common Stock--Amended WorldCom Articles of Incorporation--Dividend
Rights and Restrictions" and "--Preferred Stock".
Appraisal Rights
MCI WorldCom
Georgia law provides that a shareholder is entitled to dissent from, and
obtain payment of the fair value of his or her shares in the event of, any of
the following corporate actions:
. a plan of merger, if (1) approval of the merger by shareholders is
required and the shareholder is entitled to vote on the merger or (2) the
corporation is a subsidiary that is merged with its parent that owns at
least 90% of the outstanding shares of the subsidiary
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. a share exchange, if the shareholder is entitled to vote on the exchange
. a sale or exchange of all or substantially all of the assets of a
corporation if a shareholder vote is required, except for a sale pursuant
to a court order or a sale for cash in which all the proceeds will be
distributed to the shareholders within one year after the sale
. an amendment of the articles of incorporation that materially and
adversely affects certain rights of a dissenter's shares or
. any other action taken pursuant to a shareholder vote to the extent that
Georgia law, the articles of incorporation, bylaws or a resolution of the
board of directors provides that shareholders are entitled to dissent and
obtain payment for their shares.
In no event, however, will a shareholder be entitled to dissenters' rights
under Georgia law for shares of any class or series which are listed on a
national securities exchange or held of record by more than 2,000 shareholders,
unless:
. in the case of a merger or share exchange, shareholders are required to
accept for their shares anything except shares of the surviving
corporation or another publicly held corporation which at the effective
date of the merger or share exchange are either listed on a national
securities exchange or held of record by more than 2,000 shareholders,
except for cash payments in lieu of fractional shares or
. the articles of incorporation or a resolution of the board of directors
approving the transaction provides otherwise.
Sprint
Kansas law provides that a stockholder of a Kansas corporation is generally
entitled to demand an appraisal and to obtain payment of the fair value of his
or her shares in the event of certain mergers, except that, unless the articles
of incorporation otherwise provide, this right to demand an appraisal does not
apply to holders of shares of any class or series of stock which are either:
. listed on a national securities exchange or designated as a national
market system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or
. held of record by not less than 2,000 holders.
In addition, appraisal rights shall not apply to any of the shares of stock of
the corporation surviving a merger if the merger did not require approval of
the stockholders of that corporation.
Appraisal rights are available for holders of shares of any class or series
of stock of a Kansas corporation if holders are required by the terms of the
merger or consolidation agreement to accept in exchange for their stock
anything except:
. stock or stock and cash in lieu of fractional shares of the corporation
surviving or resulting from the merger or consolidation
. stock or stock and cash in lieu of fractional shares of any other
corporation which, at the effective time of the merger or consolidation,
will be listed on a national securities exchange or held of record by at
least 2,000 holders or
. a combination of the above.
WorldCom
The dissenters' rights of WorldCom shareholders will be governed by Georgia
law, as described above under "--Appraisal Rights--MCI WorldCom".
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Preemptive Rights
MCI WorldCom
Georgia law does not provide for preemptive rights to shareholders to
acquire a corporation's unissued stock except with respect to corporations
meeting extremely narrow criteria. However, preemptive rights may be expressly
granted to the shareholders in a corporation's articles of incorporation. MCI
WorldCom does not meet the narrow criteria for which its shareholders are
statutorily provided preemptive rights. The existing MCI WorldCom articles of
incorporation do not provide for preemptive rights, although they do not
prohibit MCI WorldCom from granting, contractually or otherwise, the right to
purchase additional securities of MCI WorldCom.
Sprint
Kansas law does not provide for preemptive rights to acquire a corporation's
unissued stock, but preemptive rights may be provided to stockholders in a
corporation's articles of incorporation. While the Sprint articles of
incorporation do not provide for preemptive rights, they also do not prohibit
Sprint from granting, contractually or otherwise, the right to purchase
additional securities of Sprint. As previously discussed, Sprint has granted
certain contractual equity purchase rights to France Telecom, Deutsche Telekom
and the cable holders. See "Arrangements with Certain Sprint Stockholders--
France Telecom and Deutsche Telekom--Equity Purchase Rights" and "--The Cable
Holders--Equity Purchase Rights".
WorldCom
The provisions described above under "--Preemptive Rights--MCI WorldCom"
will apply to WorldCom and the amended WorldCom articles of incorporation, and
the equity purchase rights described above under "--Preemptive Rights--Sprint"
will be assumed by WorldCom upon completion of the merger.
Special Redemption Provisions
MCI WorldCom
The existing MCI WorldCom articles of incorporation contain provisions
allowing MCI WorldCom to redeem shares of its capital stock from some foreign
shareholders in order to enable it to continue to hold certain common carrier
radio licenses. These provisions are intended to cause MCI WorldCom to remain
in compliance with the Communications Act, and related regulations.
Under these provisions, if the percentage of capital stock owned by foreign
shareholders exceeds 20%, or such other percentage as may be specified by the
Communications Act and related regulations, MCI WorldCom has the right to
redeem the excess shares held by them at a specified amount based on then
recent trading prices. After MCI WorldCom determines that any excess shares
exist, those excess shares will not be considered outstanding for purposes of
determining the vote required on any matter submitted to shareholders of MCI
WorldCom. Similarly, those excess shares will not have the right to receive any
dividends or other distributions, including distributions in liquidation. The
redemption price may be paid in cash, securities or a combination of both. MCI
WorldCom may require confirmation of citizenship from any record or beneficial
holders of shares, or any transferee, as a condition to registration or
transfer of those shares.
The Sprint articles of incorporation permit the redemption of shares of
Sprint series 1 FON common stock, Sprint series 2 FON common stock, Sprint
series 1 PCS common stock, Sprint series 2 PCS common stock and, in certain
circumstances, Sprint FT/DT stock, held by aliens, as such term is defined in
the Communications Act, if necessary to comply with the foreign ownership
limitations set forth in section 310 of the Communications Act. The provisions
permit Sprint series 1 FON common stock, Sprint series 2 FON common stock,
Sprint series 1 PCS common stock, Sprint series 2 PCS common stock and, in
certain circumstances, Sprint FT/DT stock to be redeemed at a price equal to
the fair market value of the shares,
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except that the redemption price in respect of shares purchased by any alien
within one year of the redemption date would not, unless otherwise determined
by the Sprint board of directors, exceed the purchase price paid for those
shares by the alien.
WorldCom
For a description of the special redemption provisions relating to WorldCom
capital stock after the merger, see "Description of MCI WorldCom Capital
Stock--Common Stock--Amended WorldCom Articles of Incorporation--Redemption of
Common Stock".
Rights Plans
MCI WorldCom
MCI WorldCom has adopted a shareholder rights plan pursuant to a rights
agreement with The Bank of New York as rights agent. The following description
of the rights agreement is subject in its entirety to the terms and conditions
of the existing MCI WorldCom rights agreement. You should read the existing MCI
WorldCom rights agreement carefully. See "Where You Can Find More Information"
beginning on page . .
Exercisability of Rights. Under the rights agreement, one right, which we
refer to as an MCI WorldCom right, attaches to each share of MCI WorldCom
common stock outstanding and, when exercisable, entitles the registered holder
to purchase from MCI WorldCom one one-thousandth of a share of MCI WorldCom
series 3 preferred stock at an initial purchase price of $160, subject to the
customary antidilution adjustments. For a description of the terms of the MCI
WorldCom series 3 preferred stock, see "--Series 3 Preferred Stock".
The MCI WorldCom rights will not become exercisable until the earlier of:
. 10 business days following a public announcement that a person or group
has become the beneficial owner of securities representing 15% or more of
the voting power of MCI WorldCom voting stock
. 10 business days after MCI WorldCom first determines that a person or
group has become the beneficial owner of securities representing 15% or
more of the voting power of MCI WorldCom voting stock or
. 10 business days, or such later date as may be determined by the MCI
WorldCom board of directors, following the commencement of, or the
announcement of an intention to commence, a tender offer or exchange
offer that would result in a person or group becoming the beneficial
ownership of securities representing 15% or more of the voting power of
MCI WorldCom voting stock (or such later date as the MCI WorldCom board
of directors may determine, but in no event later than the date that any
person or group actually becomes such an owner).
Additionally, at any time a person or a group has become the beneficial
owner of securities representing 15% or more of the voting power of MCI
WorldCom voting stock and MCI WorldCom has registered the securities subject to
the MCI WorldCom rights under the Securities Act, the flip-in or flip-over
features of the MCI WorldCom rights or, at the discretion of the MCI WorldCom
board of directors, the exchange features of the MCI WorldCom rights, may be
exercised by any holder, except for such person or group. A summary description
of each of these features follows:
"Flip In" Feature. In the event a person or group becomes the beneficial
owner of securities representing 15% or more of the voting power of MCI
WorldCom voting stock, each holder of an MCI WorldCom right, except for such
person or group, will have the right to acquire, upon exercise of the MCI
WorldCom right, instead of one one-thousandth of a share of MCI WorldCom series
3 preferred stock, shares of MCI WorldCom common stock having a value equal to
twice the exercise price of the MCI WorldCom right. For example, if we assume
that the initial purchase price of $160 is in effect on the date that the flip-
in feature of the MCI WorldCom right is exercised, any holder of an
MCI WorldCom right, except for the person or group that has become the
beneficial owner of securities representing 15% or more of the voting power of
MCI WorldCom voting stock, can exercise his or her MCI WorldCom right by paying
MCI WorldCom $160 in order to receive from MCI WorldCom shares of common stock
having a value equal to $320.
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"Exchange" Feature. At any time after a person or group becomes the
beneficial owner of securities representing 15% or more, but less than 50%, of
the voting power of the MCI WorldCom voting stock, the MCI WorldCom board of
directors may, at its option, exchange all or some of the MCI WorldCom rights,
except for those held by such person or group, for MCI WorldCom common stock at
an exchange ratio of one share of common stock per MCI WorldCom right, subject
to adjustment, and cash instead of fractional shares, if any. Use of this
exchange feature means that eligible MCI WorldCom rights holders would not have
to pay a purchase price before receiving shares of MCI WorldCom common stock.
"Flip Over" Feature. In the event MCI WorldCom is acquired in a merger or
other business combination transaction or 50% or more of the assets or earning
power of MCI WorldCom and its subsidiaries, taken as a whole, are sold, each
holder of an MCI WorldCom right, except for a person or group that is the
beneficial owner of securities representing 15% or more of the voting power of
the MCI WorldCom voting stock, will have the right to receive, upon exercise of
the MCI WorldCom right, the number of shares of the acquiring company's capital
stock with the greatest voting power having a value equal to twice the exercise
price of the MCI WorldCom right.
Redemption of Rights. At any time before the earlier to occur of:
. public disclosure that a person or group has become the beneficial owner
of securities representing 15% or more of the voting power of the MCI
WorldCom voting stock or
. MCI WorldCom's determination that a person or group has become the
beneficial owner of securities representing 15% or more of the voting
power of the MCI WorldCom voting stock,
MCI WorldCom's board of directors may redeem all of the MCI WorldCom rights at
a redemption price of $0.01 per right, subject to adjustment. The right to
exercise the MCI WorldCom rights, as described under "--Rights Plan--
Exercisability of Rights", will terminate upon redemption, and at such time,
the holders of the MCI WorldCom rights will have the right to receive only the
redemption price for each MCI WorldCom right held.
Amendment of Rights. At any time before a person or group becomes the
beneficial owner of securities representing 15% or more of the voting power of
MCI WorldCom voting stock, the terms of the existing MCI WorldCom rights
agreement may be amended by the MCI WorldCom board of directors without the
consent of the holders of the MCI WorldCom rights, including an amendment to
lower the 15% threshold to not less than the greater of:
. any percentage greater than the largest percentage of the voting power of
all MCI WorldCom voting stock then known to MCI WorldCom to be
beneficially owned by any person or group and
. 10%.
However, if at any time after a person or group beneficially owns securities
representing 15% or more, or such lower percentage as may be amended in the
existing MCI WorldCom rights agreement, of the voting power of the MCI WorldCom
voting stock, the MCI WorldCom board of directors may not adopt amendments to
the existing MCI WorldCom rights agreement that adversely affect the interests
of holders of the MCI WorldCom rights. Furthermore, once the MCI WorldCom
rights are no longer redeemable, the MCI WorldCom board of directors may not
adopt any amendment that would lengthen the time period during which the MCI
WorldCom rights are redeemable.
Termination of Rights. If not previously exercised, the MCI WorldCom rights
will expire on September 6, 2001, unless MCI WorldCom earlier redeems or
exchanges the MCI WorldCom rights or extends the final expiration date.
Anti-takeover Effects. The MCI WorldCom rights have certain anti-takeover
effects. Once the MCI WorldCom rights have become exercisable, the MCI WorldCom
rights will cause substantial dilution to a person or group that attempts to
acquire or merge with MCI WorldCom in certain circumstances. Accordingly,
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the existence of the MCI WorldCom rights may deter potential acquirors from
making a takeover proposal or tender offer. The MCI WorldCom rights should not
interfere with any merger or other business combination approved by the MCI
WorldCom board of directors since MCI WorldCom may redeem the MCI WorldCom
rights as described above and since a transaction approved by the MCI WorldCom
board of directors would not cause the MCI WorldCom rights to become
exercisable.
Series 3 Preferred Stock. In connection with the creation of the MCI
WorldCom rights, as described above, the MCI WorldCom board of directors has
authorized the issuance of 5,000,000 shares of preferred stock as series 3
junior participating preferred stock.
MCI WorldCom has designed the dividend, liquidation, voting and redemption
features of the MCI WorldCom series 3 preferred stock so that the value of one
one-thousandth of a share of MCI WorldCom series 3 preferred stock approximates
the value of one share of MCI WorldCom common stock. Shares of MCI WorldCom
series 3 preferred stock may only be purchased after the MCI WorldCom rights
have become exercisable, and each share of the MCI WorldCom series 3 preferred
stock:
. is nonredeemable and junior to all other series of preferred stock,
unless otherwise provided in the terms of those series of preferred stock
. will have a preferential dividend in an amount equal to the greater of
$10.00 and 1,000 times any dividend declared on each share of common
stock
. in the event of liquidation, will entitle its holder to receive a
preferred liquidation payment equal to the greater of $1,000 or 1,000
times the payment made per share of common stock
. will have 1,000 votes, voting together with the common stock and any
other capital stock with general voting rights and
. in the event of any merger, consolidation or other transaction in which
shares of common stock are converted or exchanged, will be entitled to
receive 1,000 times the amount and type of consideration received per
share of common stock.
The rights of the MCI WorldCom series 3 preferred stock as to dividends,
liquidation and voting, and in the event of mergers and consolidations, are
protected by customary antidilution provisions.
Sprint
Sprint has adopted a rights plan pursuant to a rights agreement with UMB
Bank as rights agent. The following description of the Sprint rights plan is
subject in its entirety to the terms and conditions of the actual Sprint rights
plan. See "Where You Can Find More Information" beginning on page . .
Exercisability of Rights. The Sprint rights plan provides for the issuance
of one-half of a FON right in connection with each share of any series of
Sprint FON common stock and one PCS right in connection with each share of any
series of Sprint PCS common stock. It also designates rights that are attached
to each share of the Sprint FT/DT class A stock.
The FON and PCS rights detach from the Sprint FON common stock and the
Sprint PCS common stock and become exercisable only if, in a transaction not
approved by the Sprint board of directors, a person or entity acquires voting
securities representing 15% or more of Sprint's voting power or announces a
tender offer for 15% or more of Sprint's voting power. Once the rights detach
and become exercisable, unless subsequently redeemed:
. each FON right entitles its holder to purchase one one-thousandth of a
share of Sprint sixth series junior participating preferred stock for an
exercise price of $275, subject to certain adjustments
. each PCS right entitles its holder to purchase one one-thousandth of a
share of Sprint eighth series junior participating preferred stock for an
exercise price of $150, subject to certain adjustments and
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. each right attached to a share of Sprint FT/DT class A stock entitles its
holder to purchase, (1) for an exercise price of $137.50, one-half of one
one-thousandth of a share of Sprint sixth series junior participating
preferred stock for each share of Sprint FON common stock underlying each
share of Sprint FT/DT class A stock, and (2) for an exercise price of $75,
one-half of one one-thousandth of a share of Sprint eighth series junior
participating preferred stock for each one-half of a share of Sprint PCS
common stock underlying each share of Sprint FT/DT class A stock, subject
to certain adjustments.
"Flip In" Feature. If a person or group acquires shares representing 15% or
more of Sprint's voting power, except in a "qualifying offer", each holder of a
FON right and each holder of a PCS right will receive, upon exercise, Sprint
FON common stock and Sprint PCS common stock, respectively, having a value
equal to two times the then-current exercise price of the FON right or PCS
right. In addition, each holder of rights attached to Sprint FT/DT class A
stock will receive, upon exercise, both Sprint FON common stock and Sprint PCS
common stock each having a value equal to two times the then-current exercise
prices of the right for Sprint sixth series junior participating preferred
stock and Sprint eighth series junior participating preferred stock. Once the
rights become exercisable, all rights owned by the acquiring person will be
null and void. A "qualifying offer" is an offer for outstanding shares of
common stock which a majority of the independent directors of Sprint determine
to be fair to the stockholders and otherwise in the best interests of Sprint
and its stockholders.
"Exchange" Feature. At any time after any person or group acquires shares
representing 15% or more of Sprint's voting power, except in a qualifying
offer, and before that person or group acquires 50% of Sprint's voting power,
the Sprint board of directors may exchange one-half of a FON right for one
share of Sprint FON common stock, one PCS right for one share of Sprint PCS
common stock, and one right that is attached to the Sprint FT/DT class A stock
for one share each of Sprint FON common stock and one-half of a share of Sprint
PCS common stock.
"Flip Over" Feature. If Sprint is involved in a merger or other business
combination transaction after the rights become exercisable, then each right
will entitle its holder to purchase, for the exercise price of the right, a
number of the acquiring or surviving corporation's shares of common stock
having a market value equal to twice the exercise price of the right.
Similarly, if Sprint sells or transfers 50% or more of its assets or earning
power after the rights become exercisable, then the exercise price of each
right will entitle its holder to purchase, for the right's exercise price, a
number of the acquiring company's shares of common stock having a market value
equal to two times the exercise price of the right.
Redemption of Rights. Sprint may redeem the rights for $.01 per right at any
time until ten business days following a public announcement that a person or
group has acquired shares representing 15% or more of Sprint's voting power or,
in the case of France Telecom or Deutsche Telekom, that they have acquired an
amount in excess of the shares permitted to be acquired by them under their
standstill agreement with Sprint.
Termination of Rights. If not previously exercised, the terms of the rights
will expire on June 25, 2007, unless earlier redeemed by Sprint or unless
extended by amending the Sprint rights plan.
WorldCom
Amendment of MCI WorldCom Rights Plan. In the merger agreement, MCI WorldCom
has agreed to modify the terms of its rights agreement at the completion of the
merger in a manner to take into account (1) the creation of WorldCom PCS group
common stock and WorldCom class A common stock and (2) the rights of the
holders of the Sprint FT/DT class A stock as these rights are set forth in the
Sprint rights plan as described above under "--Rights Plan--Sprint".
Series 8 Preferred Stock. In connection with the amendment of the MCI
WorldCom rights agreement, as described above, the WorldCom board of directors
will authorize 1,250,000 shares of preferred stock designated as WorldCom
series 8 junior participating preferred stock, which will relate to WorldCom
rights issued in respect of WorldCom PCS group common stock.
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Shares of WorldCom series 8 preferred stock may only be purchased after the
WorldCom rights issued under the WorldCom rights agreement have become
exercisable, and each share of WorldCom series 8 preferred stock:
. will be nonredeemable and junior to all other series of preferred stock,
unless otherwise provided in the terms of those series of preferred stock
. will be entitled to a minimum preferential quarterly dividend in an amount
equal to the greater of $100 per share and 1,000 times the per share amount
of all dividends declared on WorldCom PCS group common stock
. in the event of liquidation, will entitle its holder to receive a preferred
liquidation payment equal to the greater of $1,000 and 1,000 times the
payment made to each share of WorldCom PCS group common stock
. will have 1,000 times the highest number of votes per share of the WorldCom
PCS group common stock, voting together with the WorldCom series 1 PCS
common stock and
. in the event of any merger, consolidation or other transaction in which
shares of WorldCom PCS group common stock are converted or exchanged, will
be entitled to receive 1,000 times the amount received per share of
WorldCom PCS group common stock.
The rights of the holders of WorldCom series 8 preferred stock as to
dividends, liquidation and voting will be protected by customary antidilution
provisions.
Extraordinary Corporate Transactions
MCI WorldCom
Under Georgia law, a sale or other disposition of all or substantially all
of the corporation's assets, a merger, a share exchange or a dissolution of the
corporation must be adopted by the MCI WorldCom board of directors. In
addition, shareholders must approve such transactions by a majority of all
votes entitled to be cast thereon is required, except in limited circumstances.
Approval of the shareholders of the surviving corporation in a merger or the
acquiring corporation in a share exchange is not required if:
. the plan of merger or share exchange does not amend in any respect the
articles of incorporation
. each shareholder of the surviving corporation whose shares were
outstanding before the merger or share exchange will hold identical
shares after the merger or share exchange
. the number and types of shares outstanding after the merger or share
exchange, plus the amount of shares issuable as a result of the merger or
share exchange, will not exceed the total number and types of shares of
the surviving corporation authorized by its articles of incorporation
immediately prior to the merger or share exchange or
. the corporation owns 90% of each class of outstanding stock of the other
corporation, in which case approval of shareholders of either corporation
is not required for a merger.
Sprint
Under Kansas law, mergers or consolidations and sales or exchanges of all or
substantially all of a corporation's assets require approval of the board of
directors. In addition, approval by a majority of the outstanding stock of the
corporation entitled to vote on the matter is required, except in limited
circumstances. Unless required by the articles of incorporation, a vote of the
stockholders of a surviving corporation is not required to approve a merger if:
. the merger agreement does not amend in any respect the articles of
incorporation
. each share of the corporation outstanding immediately prior to the merger
remains an identical outstanding share of the surviving corporation after
the merger
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. the corporation does not issue shares of common stock in the merger that
exceed 20% of its outstanding shares of common stock immediately prior to
the merger or
. the corporation owns 90% of each class of outstanding stock of the other
corporation, in which case approval of stockholders of either corporation
is not required.
WorldCom
The provisions described above under "--Extraordinary Corporate
Transactions--MCI WorldCom" will apply with respect to the rights of the
holders of WorldCom capital stock to approve the sale or other disposition of
all or substantially all of the assets of WorldCom, a merger, a share exchange
or a dissolution of WorldCom.
State Anti-Takeover Statutes
MCI WorldCom
Business Combination Statute. Georgia law contains a "business combination
statute", which allows a domestic corporation to adopt a bylaw that prohibits
"business combinations" with "interested shareholders" occurring within five
years of the date a person first becomes an interested shareholder, unless
special approval of the transaction is obtained. For purposes of this statute,
"business combination" includes mergers, sales of 10% or more of the
corporation's net assets and certain issuances of securities, all involving the
corporation and any interested shareholder. An "interested shareholder" means a
person or entity that is the beneficial owner of 10% or more of the voting
power of the corporation's voting stock, or a person or entity that is an
affiliate of the corporation and, at any time within the two-year period
immediately prior to the date in question, was the beneficial owner of 10% or
more of the voting power of the corporation's voting stock.
Any business combination with an interested shareholder within five years of
the date this shareholder first became an interested shareholder is prohibited,
unless the interested shareholder obtains approval in one of three ways:
. prior to the person becoming an interested shareholder, the corporation's
board of directors must have approved the business combination or the
transaction which resulted in the shareholder becoming an interested
shareholder
. the interested shareholder must acquire at least 90% of the corporation's
outstanding voting stock, other than shares owned by officers, directors
and their affiliates and associates, in the same transaction which
resulted in the person becoming an interested shareholder or
. subsequent to becoming an interested shareholder, the person acquires
additional shares resulting in ownership of at least 90% of the
outstanding shares, other than shares owned by officers, directors and
their affiliates and associates, and obtains the approval of the business
combination by the holders of a majority of the shares entitled to vote
thereon, excluding the shares beneficially owed by (1) the interested
shareholder, (2) officers, directors and their affiliates and associates,
(3) the corporation's subsidiaries and (4) certain employee stock plans.
The business combination restrictions of this statute do not apply if a
shareholder:
. becomes an interested shareholder inadvertently
. as soon as practicable divests shares so that the shareholder ceases to
be an interested shareholder or
. would not, at any time within the five-year period immediately prior to a
business combination between the corporation and this shareholder, have
been an interested shareholder but for the inadvertent acquisition.
Because MCI WorldCom has not adopted any bylaws to opt in to Georgia's
business combination statute, this statute does not apply to MCI WorldCom.
Instead, the MCI WorldCom articles contain provisions governing some types of
business combinations as described below in "--Business Combination
Restrictions--MCI WorldCom".
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Fair Price Statute. Georgia law also contains a "fair price statute", which
permits a corporation to adopt a bylaw requiring special approval by its board
of directors and/or shareholders for "business combinations" unless certain
fair price criteria are met. Generally, for purposes of this statute, "business
combinations" include mergers, sales of 10% or more of the corporation's assets
out of the ordinary course of business, liquidations, and certain issuances of
securities involving the corporation and any "interested shareholder". An
"interested shareholder" has the same meaning as under Georgia's business
combination statute.
To satisfy Georgia's fair price statute, a business combination with an
interested shareholder must meet one of three criteria:
. the transaction must be approved unanimously by the "continuing
directors" (which includes directors who served as directors immediately
prior to the date the interested shareholder first became an interested
shareholder and who are not affiliates or associates of the interested
shareholder), provided, that these continuing directors constitute at
least three members of the board of directors at the time of this
approval
. the transaction must be recommended by at least two-thirds of the
continuing directors and approved by a majority of the votes entitled to
be cast by holders of voting shares, excluding shares beneficially owned
by the interested shareholder who is or whose affiliate is a party to the
business combination or
. the terms of the transaction must meet statutory fair pricing criteria
and certain other tests intended to assure that all shareholders receive
a fair price and equivalent consideration for their shares regardless of
when they sell to the interested shareholder.
Because MCI WorldCom has not adopted any bylaw to opt into Georgia's fair
price statute, this statute does not apply to MCI WorldCom.
Sprint
Business Combination Statute. Kansas law also contains a business
combination statute, which restricts certain "business combinations" between a
domestic corporation and an "interested stockholder". A "business combination"
means one of various types of transactions, including mergers, that increases
the proportionate voting power of the interested stockholder. An "interested
stockholder" means any person, or its affiliate or associate, that owns or
controls 15% or more of the outstanding shares of the corporation's voting
stock.
Under this statute, a domestic corporation may not engage in a business
combination with an interested stockholder for a period of three years
following the time the interested stockholder became an interested stockholder,
unless:
. prior to that time the corporation's board of directors approved
either the business combination or the transaction that resulted in
the stockholder becoming an interested stockholder
. upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owns
at least 85% of the corporation's voting stock outstanding at the
time the transaction commenced, excluding shares owned by persons who
are directors and also officers and shares held by specified employee
stock ownership plans or
. at or after that time the business combination is approved by the
board of directors and authorized at a stockholders' meeting by the
affirmative vote of at least two-thirds of the outstanding voting
stock not owned by the interested stockholder.
The business combination restrictions of this statute do not apply if, among
other things:
. the corporation's original articles of incorporation contain a
provision expressly electing not to be governed by the business
combination statute
. the holders of a majority of the corporation's voting stock approve
an amendment to its articles of incorporation or bylaws expressly
electing not to be governed by the antitakeover provisions,
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which election will be effective 12 months after the amendment's adoption
and would not apply to any business combination with a person who was an
interested stockholder at or prior to the time the amendment was approved
. the corporation does not have a class of voting stock that is (1)
listed on a national securities exchange, (2) authorized for quotation
on an interdealer quotation system of a registered national securities
association or (3) held of record by more than 2,000 stockholders or
. a stockholder becomes an interested stockholder "inadvertently" and as
soon as possible thereafter divests itself of a sufficient number of
shares so that such stockholder ceases to be an interested stockholder
and would not, at any time within the three-year period immediately
prior to a business combination between the corporation and such
interested stockholder, have been an interested stockholder, but for
the inadvertent acquisition.
Sprint has not opted out of the Kansas business combination statute.
Control Share Acquisition Statute. Kansas law contains a "control share
acquisition statute", which provides that any person or group must obtain
stockholder approval before acquiring any shares of stock of a publicly traded
Kansas corporation if, after the acquisition, that person would have certain
levels of voting power, beginning at 20%, as set forth in the statute. If the
acquiring person fails to obtain such stockholder approval, the acquired
shares lose their voting rights. These voting rights may be retained or
restored only if certain disclosure requirements are met and upon the approval
by both a majority of the outstanding voting stock and a majority of the
outstanding voting stock excluding "interested shares". "Interested shares"
means all shares owned by the acquiring person or group, by the corporation's
directors who are also its employees, and by the corporation's officers.
Although a Kansas corporation may opt out of the control share acquisition
statute by including a provision to that effect in its governing corporate
documents, Sprint has not opted out of this statute.
WorldCom
Georgia law contains a business combination statute and a fair price
statute. For a discussion of these statutes, see "--State Anti-Takeover
Statutes--MCI WorldCom". Because WorldCom will not adopt any bylaws to opt in
to either Georgia's business combination statute or fair price statute, these
statutes will not apply to WorldCom.
Business Combination Restrictions
MCI WorldCom
The existing MCI WorldCom articles of incorporation contain a provision
that requires the approval by the holders of at least 70% of the voting power
of the outstanding shares of any class of MCI WorldCom capital stock entitled
to vote generally in the election of directors, voting as a single voting
group, as a condition to consummate a "business transaction", as described
below, involving MCI WorldCom and a "related person", as described below, or
in which a related person has an interest, unless:
. the business transaction is approved by at least a majority of MCI
WorldCom's "continuing directors", as described below, then serving on
the board of directors or, if the votes of those continuing directors
would have been insufficient to constitute an act of the board of
directors, then the unanimous vote of the continuing directors is
sufficient to approve the transaction so long as at least three
continuing directors serve on the board of directors at the time of the
unanimous vote
. certain minimum price and other requirements are met.
A "business transaction" means:
. any merger, share exchange or consolidation involving MCI WorldCom or any
of its subsidiaries
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. any sale, lease, exchange, transfer or other disposition by MCI WorldCom
or any of its subsidiaries of more than 20% of its assets
. any sale, lease, exchange, transfer or other disposition of more than 20%
of the assets of an entity to MCI WorldCom or a subsidiary of MCI
WorldCom
. the issuance, sale, exchange, transfer or other disposition by MCI
WorldCom or a subsidiary of MCI WorldCom of any securities of MCI
WorldCom or any subsidiary of MCI WorldCom in exchange for cash,
securities or other property having an aggregate fair market value of $15
million or more
. any merger, share exchange or consolidation of MCI WorldCom with any
subsidiary of MCI WorldCom in which MCI WorldCom is not the surviving
corporation and the charter of the surviving corporation does not contain
provisions similar to the business combination restrictions in the
existing MCI WorldCom articles of incorporation
. any recapitalization or reorganization of MCI WorldCom or
reclassification of its securities which would have the effect of
increasing the voting power of a related person or reducing the number of
shares of each class of voting securities outstanding
. any liquidation, spin off, split off, split up or dissolution of MCI
WorldCom or
. any agreement, contract or other arrangement providing for any of the
business transactions described above or having a similar purpose or
effect.
A "related person" generally means a person or entity that, together with
its affiliates and associates, beneficially owns 10% or more of MCI WorldCom's
outstanding voting stock.
A "continuing director" means a director of MCI WorldCom who either:
. was a member of the board of directors on September 15, 1993 or
. became a MCI WorldCom director after that date, and whose election, or
nomination for election, was approved by at least a majority of the
continuing directors then on the board of directors;
provided, that any director who is a related person with an interest in the
business transaction to be voted upon, other than a proportionate interest as a
MCI WorldCom shareholder, is not considered a continuing director.
Sprint
The Sprint articles of incorporation contain a provision that requires the
approval by the holders of at least 80% of Sprint's outstanding shares entitled
to vote generally in the election of directors as a condition for the approval
of any "business combination". A "business combination" includes mergers,
consolidations, sales or other dispositions of assets valued at $1 million or
more, and issuances of securities valued at $1 million or more, between, or
otherwise involving, Sprint or any of its subsidiaries and any "interested
stockholder." An "interested stockholder" generally means the direct or
indirect owner of 10% or more of the outstanding Sprint capital stock entitled
to vote in the election of directors.
This provision does not apply if:
. a majority of the "continuing directors" approves the business
combination and this approval occurs at a meeting at which at least seven
continuing directors are present or
. the business combination is a merger or consolidation and the cash or
fair market value of the property, securities or other consideration
received per share by the stockholders is not less than the highest per
share price paid by the interested stockholder in its acquisition of any
of its holdings of each class of Sprint capital stock.
A "continuing director" means:
. any member of the Sprint board of directors who is unaffiliated with the
interested stockholder and was a member of the board of directors before
the time that the interested stockholder became an interested stockholder
or
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. any successor of a continuing director if the successor is unaffiliated
with the interested stockholder and is recommended or elected to succeed
a continuing director by a majority of the continuing directors, provided
that this recommendation or election is only effective if made at a
meeting at which at least seven continuing directors are present.
The Sprint articles of incorporation also require the affirmative vote of
the holders of a majority of the outstanding shares of Sprint capital stock
entitled to vote in the election of directors, other than stock held by an
"interested securityholder", to approve any purchase, redemption or other
acquisition by Sprint of any equity securities of Sprint at above-market prices
from an "interested securityholder" who has owned these securities for less
than two years. Shares beneficially owned by the interested securityholder are
excluded from this computation. An "interested securityholder" generally means
any person who owns, directly or indirectly, 5% or more of the class of
securities to be acquired.
This requirement for stockholder approval does not apply to:
. any purchase, redemption or other acquisition by Sprint of its capital
stock from France Telecom and Deutsche Telekom and as otherwise provided
in certain agreements among Sprint, France Telecom and Deutsche Telekom
. a tender or exchange offer made by Sprint on the same terms to all
holders of the securities being acquired or
. any purchase, redemption, conversion or other acquisition by Sprint of
Sprint series 2 FON common stock or Sprint PCS common stock as provided
in the Sprint articles of incorporation.
WorldCom
The provisions described above under "--Business Combination Restrictions--
MCI WorldCom" will apply to the rights of holders of WorldCom capital stock
with regard to the consummation of a "business transaction".
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LEGAL MATTERS
The legality of MCI WorldCom capital stock offered by this proxy
statement/prospectus will be passed upon for MCI WorldCom by P. Bruce
Borghardt, Esq., General Counsel--Corporate Development of MCI WorldCom. Mr.
Borghardt is paid a salary by MCI WorldCom, is a participant in various
employee benefit plans offered to employees of MCI WorldCom generally and owns
and has options to purchase shares of MCI WorldCom common stock. Certain United
States federal income tax consequences of the merger will be passed upon for
MCI WorldCom by Cravath, Swaine & Moore, New York, New York. Cravath, Swaine &
Moore from time to time acts as counsel for MCI WorldCom and its subsidiaries.
Certain United States federal income tax consequences of the merger will be
passed upon for Sprint by King & Spalding, Atlanta, Georgia. King & Spalding
acts as counsel for Sprint and its subsidiaries.
EXPERTS
The consolidated financial statements of MCI WorldCom as of December 31,
1998 and 1997, and for each of the years in the three-year period ended
December 31, 1998, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are
included in MCI WorldCom's Current Report on Form 8-K dated November 5, 1999
(filed November 5, 1999), and are incorporated herein by reference, in reliance
upon the authority of such firm as experts in accounting and auditing in giving
such reports.
The consolidated financial statements of Brooks Fiber Properties, Inc. as of
December 31, 1997, and for each of the years in the two-year period ended
December 31, 1997 have been incorporated by reference in this document and in
the registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, included in MCI WorldCom's Current Report on Form
8-K dated November 5, 1999 (filed November 5, 1999) and incorporated by
reference in this document, and upon the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements of MFS Communications Company, Inc. as
of December 31, 1996, and for the period ended December 31, 1996, included in
MCI WorldCom's Current Report on Form 8-K/A dated August 25, 1996 (filed
December 19, 1997), and incorporated by reference into this registration
statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are
incorporated herein by reference, in reliance upon the authority of such firm
as experts in accounting and auditing in giving such reports.
The consolidated financial statements of MCI Communications Corporation as
of December 31, 1997 and 1996, and for each of the years in the three-year
period ended December 31, 1997, included in MCI WorldCom's Current Report on
Form 8-K/A-3 dated November 9, 1997 (filed May 28, 1998), have been
incorporated herein by reference in reliance on the report of
PricewaterhouseCoopers LLP, independent public accountants, given on the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements and schedules of Sprint and the
combined financial statements and schedules of the Sprint FON group and the
Sprint PCS group appearing in Sprint's Annual Report on Form 10-K for the year
ended December 31, 1998, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon included therein and
incorporated herein by reference which, as to the years 1998 and 1997 for
Sprint and as to the years 1998, 1997 and 1996 for the Sprint PCS group, are
based in part on the reports of Deloitte & Touche LLP, independent auditors.
Such consolidated and combined financial statements and schedules are
incorporated herein by reference in reliance upon such reports given on the
authority of such firms as experts in accounting and auditing.
The consolidated financial statements of Sprint Spectrum Holding Company,
L.P. as of December 31, 1998 and 1997, and for each of the years in the three-
year period ended December 31, 1998, have been audited by
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Deloitte & Touche LLP, independent auditors, as stated in their report which is
included in Sprint's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, and are incorporated herein by reference, in reliance on the
report of such firm given upon their authority as experts in accounting and
auditing.
STOCKHOLDER PROPOSALS
MCI WorldCom
Shareholder proposals intended to be presented at the 2000 annual meeting of
MCI WorldCom shareholders pursuant to Rule 14a-8 under the Exchange Act must be
received by the Secretary of MCI WorldCom no later than December 25, 1999, in
order to be included in the proxy materials sent by MCI WorldCom management for
the annual meeting. Shareholder proposals intended to be presented at the 2000
annual meeting of MCI WorldCom shareholders that are not intended to be
included in management's proxy materials under Rule 14a-8 must be received by
the Secretary of MCI WorldCom between December 22, 1999 to January 21, 2000, in
order to be considered at the 2000 annual meeting.
Sprint
Stockholder proposals intended to be presented at the 2000 annual meeting of
Sprint stockholders pursuant to Rule 14a-8 under the Exchange Act must be
received by the Secretary of Sprint no later than November 18, 1999, in order
to be included in the proxy materials sent by Sprint management for the annual
meeting. Stockholder proposals intended to be presented at the 2000 annual
meeting of Sprint stockholders that are not intended to be included in
management's proxy materials under Rule 14a-8 must be received by the Secretary
of Sprint on or between February 3, 2000 and February 28, 2000, in order to be
considered at the 2000 annual meeting.
WHERE YOU CAN FIND MORE INFORMATION
MCI WorldCom and Sprint file annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any reports, statements or other information that MCI
WorldCom and Sprint file with the Securities and Exchange Commission at the
Securities and Exchange Commission's public reference rooms at the following
locations:
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, NY 10048 Suite 1400
Chicago, IL 60661-2511
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information on the public reference rooms. These Securities and
Exchange Commission filings are also available to the public from commercial
document retrieval services and at the Internet worldwide web site maintained
by the Securities and Exchange Commission at "http://www.sec.gov". Reports,
proxy statements and other information concerning MCI WorldCom may also be
inspected at the offices of The Nasdaq Stock Market, which is located at 1735
K. Street, N.W., Washington, D.C. 20006. Reports, proxy statements and other
information concerning Sprint may also be inspected at the offices of the New
York Stock Exchange, which is located at 20 Broad Street, New York, New York
10005.
MCI WorldCom filed a registration statement on Form S-4 on November 5, 1999,
to register with the Securities and Exchange Commission the WorldCom capital
stock to be issued to Sprint stockholders in the merger. This proxy
statement/prospectus is a part of that registration statement and constitutes a
prospectus of MCI WorldCom in addition to being a proxy statement of MCI
WorldCom and Sprint. As allowed by Securities
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and Exchange Commission rules, this proxy statement/prospectus does not contain
all the information you can find in MCI WorldCom's registration statement or
the exhibits to the registration statement.
The Securities and Exchange Commission allows MCI WorldCom and Sprint to
"incorporate by reference" information into this proxy statement/prospectus,
which means that the companies can disclose important information to you by
referring you to other documents filed separately with the Securities and
Exchange Commission. The information incorporated by reference is considered
part of this proxy statement/prospectus, except for any information superseded
by information contained directly in this proxy statement/prospectus or in
later filed documents incorporated by reference in this proxy
statement/prospectus.
This proxy statement/prospectus incorporates by reference the documents set
forth below that MCI WorldCom and Sprint have previously filed with the
Securities and Exchange Commission. These documents contain important business
and financial information about MCI WorldCom and Sprint that is not included in
or delivered with this proxy statement/prospectus.
<TABLE>
<CAPTION>
MCI WorldCom Filings
(File No. 000-11258,
formerly Resurgens
Communications Group, Inc.
(File No. 1-10415)) Period
- -------------------------- ------
<S> <C>
Annual Report on Form 10-K....... Fiscal year ended December 31, 1998
Quarterly Reports on Form 10-Q... Quarters ended March 31, 1999 and June 30,
1999
Proxy Statement.................. Filed April 23, 1999
Current Reports on Form 8-K...... Form 8-K/A dated August 25, 1996 (filed
December 19, 1997), Form 8-K/A-3 dated
November 9, 1997 (filed May 28, 1998), Form
8-K dated July 12, 1999 (filed July 12,
1999), Form 8-K dated October 4, 1999 (filed
October 6, 1999), Form 8-K dated October 5,
1999 (filed October 15, 1999) and Form 8-K
dated November 5, 1999 (filed November 5,
1999)
The description of MCI WorldCom
common stock set forth in the
Registrant's Registration Resurgens' Registration Statement on Form 8-A
Statement on Form 8-A............ dated December 12, 1989, as updated by the
descriptions contained in the MCI WorldCom's
Registration Statement on Form S-4 (File No.
333-16015), as declared effective by the
Securities and Exchange Commission on
November 14, 1996, which includes the Joint
Proxy Statement/Prospectus dated November 14,
1996 with respect to the MCI WorldCom's
Special Meeting of Shareholders held on
December 20, 1996, under the following
captions: "Description of WorldCom Capital
Stock" and "Comparative Rights of
Shareholders" and by the descriptions
contained in MCI WorldCom's Proxy Statement
dated April 23, 1999 under the following
captions: "Approval of Amendment to Second
Amended and Restated Articles of
Incorporation, as Amended, To Increase
Authorized Shares of Common Stock" and
"Future Proposals of Security Holders."
</TABLE>
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<TABLE>
<CAPTION>
MCI WorldCom Filings
(File No. 000-11258,
formerly Resurgens
Communications Group, Inc.
(File No. 1-10415)) Period
- -------------------------- ------
<S> <C>
The description of the MCI WorldCom rights to
acquire preferred stock set forth in the Registrant's
Registration Statement on Form 8-A................... MCI WorldCom's Registration Statement on Form
8-A dated August 26, 1996, as updated by MCI
WorldCom's Current Report on Form 8-K dated
May 22, 1997 (filed June 6, 1997).
The description of MCI WorldCom series C
preferred stock set forth in the Registrant's
Registration Statement on Form 8-A................... Dated August 26, 1999 (filed August 26,
1999).
</TABLE>
<TABLE>
<CAPTION>
Sprint Filings (File No. 0-20803) Period
- --------------------------------- ------
<S> <C>
Annual Report on Form 10-K............................ Fiscal Year ended December 31, 1998
Quarterly Reports on Form 10-Q........................ Quarters ended March 31, 1999 and June 30,
1999
Current Reports on Form 8-K........................... Filed February 2, 1999, April 20, 1999, May
3, 1999, June 13, 1999, July 21, 1999,
October 5, 1999 and October 29, 1999
Proxy Statement....................................... Filed March 17, 1999
The description of Sprint FON common stock set
forth in the Sprint Registration Statement on
Form 8-A.............................................. Filed under Section 12 of the Exchange Act on
November 2, 1998
The description of the Sprint PCS common stock
set forth in the Sprint Registration Statement on
Form 8-A.............................................. Filed under Section 12 of the Exchange Act on
July 26, 1999
The description of the Sprint FON group rights to
acquire junior preferred stock set forth in the Sprint
Registration Statement on Form 8-A.................... Filed under Section 12 of the Exchange Act on
August 4, 1999
The description of the Sprint PCS group rights to
acquire junior preferred stock set forth in the Sprint
Registration Statement on Form 8-A.................... Filed under Section 12 of the Exchange Act on
August 10, 1999
</TABLE>
MCI WorldCom and Sprint also incorporate by reference additional documents
that may be filed with the Securities and Exchange Commission under section
13(a), 13(c), 14 or 15(d) of the Exchange Act between the date of this proxy
statement/prospectus and the date of the MCI WorldCom special meeting and the
date of the Sprint special meeting, as applicable. These include periodic
reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q
and Current Reports on Form 8-K, as well as proxy statements.
MCI WorldCom has supplied all information contained or incorporated by
reference in this proxy statement/prospectus relating to MCI WorldCom, and
Sprint has supplied all such information relating to Sprint.
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Sprint stockholders should not send in their Sprint stock certificates until
they receive the transmittal materials from the exchange agent. Sprint
stockholders of record who have further questions about their stock
certificates or the exchange of their Sprint common stock for MCI WorldCom
common stock should call the exchange agent.
If you are a MCI WorldCom shareholder or a Sprint stockholder, we may have
sent you some of the documents incorporated by reference, but you can also
obtain any of them through the companies, the Securities and Exchange
Commission or the Securities and Exchange Commission's Internet web site as
described above. Documents incorporated by reference are available from the
companies without charge, excluding all exhibits, except that if the companies
have specifically incorporated by reference an exhibit in this proxy
statement/prospectus, the exhibit will also be provided without charge. You may
obtain documents incorporated by reference in this proxy statement/prospectus
by requesting them in writing or by telephone from the appropriate company at
the following addresses and telephone numbers:
MCI WORLDCOM, Inc. Sprint Corporation
500 Clinton Center Drive 2330 Shawnee Mission Parkway
Clinton, Mississippi 39056 Westwood, Kansas 66205
Attention: Investor Relations Attention: Investor Relations
Department Department
Telephone: (877) 624-9266 or Telephone: (800) 259-3785
(601) 460-5600
You should rely only on the information contained or incorporated by
reference in this proxy statement/prospectus. We have not authorized anyone to
provide you with information that is different from what is contained in this
proxy statement/prospectus. This proxy statement/prospectus is dated . , 1999.
You should not assume that the information contained in this proxy
statement/prospectus is accurate as of any date other than that date. Neither
the mailing of this proxy statement/prospectus to MCI WorldCom and Sprint
stockholders nor the issuance of WorldCom capital stock in the merger creates
any implication to the contrary.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus contains certain forward-looking statements
relating to MCI WorldCom and Sprint within the meaning of the Private
Securities Litigation Reform Act of 1995 with respect to:
. their financial condition
. their results of operations
. their business plans
. their business strategies, operating efficiencies or synergies,
competitive positions, growth opportunities for existing services and
products
. the plans and objectives of their management
. markets for stock of MCI WorldCom and Sprint
. the financial and regulatory environment in which they operate
. MCI WorldCom's estimated costs to complete or possible future revenues
from in-process research and development programs
. the likelihood of completion of those programs
. the outcome of their year 2000 and Euro conversion efforts
. other matters.
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Statements in this proxy statement/prospectus that are not historical facts
are hereby identified as "forward-looking statements" for the purpose of the
safe harbor provided by section 21E of the Exchange Act and section 27A of the
Securities Act. Such forward-looking statements, including, without limitation,
those relating to the future business prospects, revenues and income, in each
case relating to MCI WorldCom and Sprint, wherever they occur in this proxy
statement/prospectus, are necessarily estimates reflecting the best judgment of
the senior management of MCI WorldCom and Sprint and involve a number of risks
and uncertainties that could cause actual results to differ materially from
those suggested by the forward-looking statements. Such forward-looking
statements should, therefore, be considered in light of various important
factors, including those set forth in this proxy statement/prospectus.
Important factors that could cause actual results to differ materially from
estimates or projections contained in the forward-looking statements include
without limitation:
. the ability to integrate the operations of MCI WorldCom and Sprint,
including their respective products and services
. the effects of vigorous competition in the markets in which MCI WorldCom
and Sprint operate
. the impact of technological change on MCI WorldCom's and Sprint's
businesses, new entrants and alternative technologies in their respective
businesses and their dependence on the availability of transmission
facilities
. uncertainties associated with the success of other acquisitions of MCI
WorldCom and the integration of these other acquisitions
. risks of international business
. regulatory risks, including the impact of the Telecommunications Act of
1996
. contingent liabilities
. the impact of competitive services and pricing in both MCI WorldCom's and
Sprint's markets
. risks associated with year 2000 uncertainties and Euro conversion efforts
. risks associated with debt service requirements and interest rate
fluctuation
. MCI WorldCom's degree of financial leverage
. other risks referenced from time to time in MCI WorldCom's and Sprint's
filings with the Securities and Exchange Commission.
Words such as "estimate", "project", "plan", "intend", "expect", "believe"
and similar expressions are intended to identify forward-looking statements.
These forward-looking statements are found at various places throughout this
proxy statement/prospectus and the other documents incorporated herein by
reference, including, but not limited to, the Annual Report on Form 10-K for
the year ended December 31, 1998 of each of MCI WorldCom and Sprint, including
any amendments.
You should not place undue reliance on these forward-looking statements,
which speak only as of the date of this proxy statement/prospectus. Neither MCI
WorldCom nor Sprint undertakes any obligation to publicly update or release any
revisions to these forward-looking statements to reflect events or
circumstances after the date of this proxy statement/prospectus or to reflect
the occurrence of unanticipated events.
191
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- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANNEX 1
AGREEMENT AND PLAN OF MERGER
DATED AS OF OCTOBER 4, 1999
BETWEEN
MCI WORLDCOM, INC.
and
SPRINT CORPORATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I THE MERGER
<TABLE>
<C> <S> <C>
1.1 The Merger.......................................................... 1-1
1.2 Closing............................................................. 1-1
1.3 Effective Time...................................................... 1-1
1.4 Effects of the Merger............................................... 1-2
1.5 Articles of Incorporation........................................... 1-2
1.6 By-Laws............................................................. 1-2
1.7 Certain Surviving Corporation Matters............................... 1-2
1.8 Effect on Capital Stock............................................. 1-2
ARTICLE II EXCHANGE OF CERTIFICATES
2.1 Exchange Agent...................................................... 1-5
2.2 Exchange Procedures................................................. 1-6
2.3 Distributions with Respect to Unexchanged Shares.................... 1-6
2.4 No Further Ownership Rights in Sprint Capital Stock................. 1-6
2.5 No Fractional Shares of MCI WorldCom Capital Stock.................. 1-7
2.6 No Liability........................................................ 1-7
2.7 Lost Certificates................................................... 1-7
2.8 Withholding Rights.................................................. 1-7
2.9 Stock Transfer Books................................................ 1-7
ARTICLE III REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Sprint............................ 1-8
(a) Organization, Standing and Power................................ 1-8
(b) Capital Structure............................................... 1-8
(c) Authority; No Conflicts......................................... 1-9
(d) Reports and Financial Statements................................ 1-10
(e) Information Supplied............................................ 1-11
(f) Litigation...................................................... 1-11
(g) Compliance with Applicable Laws................................. 1-11
(h) State Takeover Statutes; Approvals.............................. 1-11
(i) Intellectual Property; Year 2000................................ 1-12
(j) Absence of Certain Changes or Events............................ 1-12
(k) Vote Required................................................... 1-13
(l) Sprint Rights Agreement......................................... 1-13
(m) Brokers or Finders.............................................. 1-13
(n) Opinion of Financial Advisor.................................... 1-13
(o) Absence of Changes in Sprint's Benefit Plans.................... 1-13
(p) ERISA Compliance; No Parachute Payments......................... 1-13
(q) Taxes........................................................... 1-14
3.2 Representations and Warranties of MCI WorldCom...................... 1-15
(a) Organization, Standing and Power................................ 1-15
(b) Capital Structure............................................... 1-15
(c) Authority; No Conflicts......................................... 1-16
(d) Reports and Financial Statements................................ 1-17
(e) Information Supplied............................................ 1-17
(f) Litigation...................................................... 1-18
(g) Compliance with Applicable Laws................................. 1-18
</TABLE>
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<TABLE>
<S> <C> <C>
(h) State Takeover Statutes; Approvals....................................................... 1-18
(i) Intellectual Property; Year 2000......................................................... 1-18
(j) Absence of Certain Changes or Events..................................................... 1-19
(k) Vote Required............................................................................ 1-19
(l) MCI WorldCom Rights Agreement............................................................ 1-19
(m) Brokers or Finders....................................................................... 1-19
(n) Opinion of Financial Advisor............................................................. 1-19
(o) ERISA Compliance......................................................................... 1-20
(p) Taxes.................................................................................... 1-20
ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1 Covenants of Sprint.......................................................................... 1-21
(a) Ordinary Course.......................................................................... 1-21
(b) Dividends; Changes in Share Capital...................................................... 1-22
(c) Issuance of Securities................................................................... 1-22
(d) Governing Documents...................................................................... 1-22
(e) No Acquisitions.......................................................................... 1-22
(f) No Dispositions.......................................................................... 1-23
(g) Indebtedness; Investments................................................................ 1-23
(h) New Line of Business; Capital Expenditures............................................... 1-23
(i) Tax-Free Qualification................................................................... 1-23
(j) Other Actions............................................................................ 1-23
(k) Accounting Methods....................................................................... 1-23
(l) Representations and Warranties........................................................... 1-24
(m) Authorization of the Foregoing........................................................... 1-24
4.2 Covenants of MCI WorldCom.................................................................... 1-24
(a) Ordinary Course.......................................................................... 1-24
(b) Dividends; Changes in Share Capital...................................................... 1-24
(c) No Acquisitions.......................................................................... 1-24
(d) No Dispositions.......................................................................... 1-25
(e) Tax-Free Qualification................................................................... 1-25
(f) Other Actions............................................................................ 1-25
(g) Representations and Warranties........................................................... 1-25
(h) Authorization of the Foregoing........................................................... 1-25
4.3 Control of Other Party's Business............................................................ 1-25
ARTICLE V ADDITIONAL AGREEMENTS
5.1 Preparation of the Form S-4 and the Joint Proxy Statement/Prospectus; Stockholders Meetings.. 1-25
5.2 Access to Information........................................................................ 1-26
5.3 Reasonable Best Efforts...................................................................... 1-26
5.4 No Solicitation by Sprint.................................................................... 1-28
5.5 No Solicitation by MCI WorldCom.............................................................. 1-29
5.6 Sprint Stock Options......................................................................... 1-31
5.7 Employee Matters............................................................................. 1-32
5.8 Fees and Expenses............................................................................ 1-33
5.9 Indemnification, Exculpation and Insurance................................................... 1-34
5.10 Sprint Rights Agreement...................................................................... 1-35
5.11 MCI WorldCom Rights Agreement................................................................ 1-35
5.12 Public Announcements......................................................................... 1-35
5.13 Listing...................................................................................... 1-35
5.14 Redemption of Sprint Second Series Preferred Stock........................................... 1-35
</TABLE>
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<C> <S> <C>
5.15 Affiliate Letter.................................................... 1-35
5.16 Tax Treatment....................................................... 1-35
5.17 Assumption Agreement and Supplemental Indentures.................... 1-36
5.18 Other Actions....................................................... 1-36
ARTICLE VI CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation to Effect the Merger.......... 1-36
(a) Stockholder Approvals........................................... 1-36
(b) No Injunctions or Restraints; Illegality........................ 1-36
(c) FCC and Public Utility Commission Approvals..................... 1-36
(d) HSR Act......................................................... 1-36
(e) EU Antitrust.................................................... 1-37
(f) Nasdaq Listing.................................................. 1-37
(g) Effectiveness of the Form S-4................................... 1-37
6.2 Additional Conditions to Obligations of MCI WorldCom................ 1-37
(a) Representations and Warranties.................................. 1-37
(b) Performance of Obligations of Sprint............................ 1-37
(c) Tax Opinion..................................................... 1-37
(d) No Material Adverse Change...................................... 1-38
6.3 Additional Conditions to Obligations of Sprint...................... 1-38
(a) Representations and Warranties.................................. 1-38
(b) Performance of Obligations of MCI WorldCom...................... 1-38
(c) Tax Opinion..................................................... 1-38
(d) No Material Adverse Change...................................... 1-38
ARTICLE VII TERMINATION AND AMENDMENT
7.1 Termination......................................................... 1-38
7.2 Effect of Termination............................................... 1-39
7.3 Amendment........................................................... 1-40
7.4 Extension; Waiver; Consent.......................................... 1-40
ARTICLE VIII GENERAL PROVISIONS
8.1 Non-Survival of Representations, Warranties and Agreements.......... 1-40
8.2 Notices............................................................. 1-40
8.3 Interpretation...................................................... 1-41
8.4 Counterparts........................................................ 1-41
8.5 Entire Agreement; No Third Party Beneficiaries...................... 1-41
8.6 Governing Law....................................................... 1-41
8.7 Severability........................................................ 1-41
8.8 Assignment.......................................................... 1-42
8.9 Submission to Jurisdiction; Waivers................................. 1-42
8.10 Enforcement......................................................... 1-42
8.11 Definitions......................................................... 1-42
Exhibit A Amendments to Articles of Incorporation of MCI WorldCom
Exhibit B Amendments to By-laws of MCI WorldCom
Annex 1 Certain Matters Relating to Surviving Corporation
Appendix 1 Form of MCI WorldCom Tax Opinion
Appendix 2 Form of Sprint Tax Opinion
Appendix 3 Form of MCI WorldCom Representations Letter
Appendix 4 Form of Sprint Representations Letter
</TABLE>
iii
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AGREEMENT AND PLAN OF MERGER, dated as of October 4, 1999 (this
"Agreement"), between MCI WORLDCOM, INC., a Georgia corporation ("MCI
WorldCom"), and SPRINT CORPORATION, a Kansas corporation ("Sprint").
WITNESSETH:
WHEREAS, the respective Boards of Directors of MCI WorldCom and Sprint have
each determined that the merger of Sprint with and into MCI WorldCom (the
"Merger") is in the best interests of their respective stockholders, such
Boards of Directors have adopted resolutions approving the Merger and
recommending that their respective stockholders adopt and approve this
Agreement, and the Board of Directors of Sprint has also determined that the
terms of the Merger are fair to holders of Sprint FON Stock, taken as a
separate class, and holders of Sprint PCS Stock, taken as a separate class,
upon the terms and subject to the conditions set forth in this Agreement,
pursuant to which each outstanding share of capital stock of Sprint issued and
outstanding immediately prior to the Effective Time, other than shares owned or
held by MCI WorldCom or Sprint and other than Dissenting Shares, will be
converted into the right to receive the applicable Merger Consideration as set
forth in Section 1.8;
WHEREAS, MCI WorldCom and Sprint desire to make certain representations,
warranties, covenants and agreements in connection with the transactions
contemplated hereby and also to prescribe various conditions to the
transactions contemplated hereby; and
WHEREAS, MCI WorldCom and Sprint intend, by approving resolutions
authorizing this Agreement, to adopt this Agreement as a plan of reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and the regulations promulgated thereunder.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
The Merger
1.1 The Merger. Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the Kansas General Corporation Code (the
"KGCC") and the Georgia Business Corporation Code (the "GBCC"), Sprint shall be
merged with and into MCI WorldCom at the Effective Time. Following the Merger,
the separate corporate existence of Sprint shall cease and MCI WorldCom shall
continue as the surviving corporation (the "Surviving Corporation").
1.2 Closing. The closing of the Merger (the "Closing") will take place at
10:00 a.m., New York City time, on the second Business Day after the
satisfaction or (subject to applicable law) waiver of the conditions (excluding
conditions that, by their terms, cannot be satisfied until the Closing Date)
set forth in Article VI (the "Closing Date"), unless another time or date is
agreed to in writing by the parties hereto. The Closing shall be held at the
offices of Cravath, Swaine & Moore, Worldwide Plaza, 825 Eighth Avenue, New
York, New York, 10019, unless another place is agreed to in writing by the
parties hereto.
1.3 Effective Time. As soon as practicable following the Closing, the
parties shall (a) (i) file a certificate of merger (the "Kansas Certificate of
Merger") in such form as is required by and executed in accordance with the
relevant provisions of the KGCC and (ii) make all other filings or recordings
required under the KGCC, and (b) (i) file a certificate of merger (the "Georgia
Certificate of Merger") in such form as is required by and executed in
accordance with the relevant provisions of the GBCC and (ii) make all other
filings or recordings required under the GBCC. The Merger shall become
effective upon the later to occur of the filing of (i) the Kansas Certificate
of Merger with the Kansas Secretary of State and (ii) the Georgia
1-1
<PAGE>
Certificate of Merger with the Georgia Secretary of State, or at such
subsequent time as MCI WorldCom and Sprint shall agree and be specified in the
Kansas Certificate of Merger and the Georgia Certificate of Merger (the date
and time the Merger becomes effective being the "Effective Time").
1.4 Effects of the Merger. At and after the Effective Time, the Merger will
have the effects set forth in the KGCC and GBCC. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all
the property, rights, privileges, powers and franchises of Sprint shall be
vested in the Surviving Corporation, and all debts, liabilities and duties of
Sprint shall become the debts, liabilities and duties of the Surviving
Corporation. Without limiting the generality of the foregoing, at the Effective
Time, the Surviving Corporation hereby expressly assumes all of Sprint's
obligations in respect of the rights of the Class A Holders granted pursuant to
Sprint's articles of incorporation, under Sprint's by-laws and under the
Amended and Restated Stockholders' Agreement, the Master Restructuring and
Investment Agreement and the Amended and Restated Registration Rights
Agreement, in each case between Sprint, on the one hand, and France Telecom and
Deutsche Telekom AG, on the other hand.
1.5 Articles of Incorporation. The articles of incorporation of MCI
WorldCom, as in effect immediately prior to the Effective Time, shall be
amended as of the Effective Time as described in Exhibit A hereto and, as so
amended, such articles of incorporation shall be the articles of incorporation
of the Surviving Corporation until thereafter changed or amended as provided
therein or by applicable law.
1.6 By-Laws. The by-laws of MCI WorldCom, as in effect immediately prior to
the Effective Time, shall be amended as of the Effective Time as described in
Exhibit B hereto and, as so amended, such by-laws shall be the by-laws of the
Surviving Corporation until thereafter changed or amended as provided therein
or by applicable law.
1.7 Certain Surviving Corporation Matters. MCI WorldCom and Sprint shall
cause the matters set forth in Annex 1 hereto regarding the Surviving
Corporation to be effected as of the Effective Time.
1.8 Effect on Capital Stock.
(a) As contemplated by Exhibit A, at the Effective Time, the articles of
incorporation of MCI WorldCom will be amended to provide for the creation of
the following series of capital stock of:
(i) Class A Common Stock, Series FT, par value $2.50 per share (the "MCI
WorldCom Series FT Common Stock");
(ii) Class A Common Stock, Series DT, par value $2.50 per share (the
"MCI WorldCom Series DT Common Stock");
(iii) Common Stock, Series 2, par value $0.01 per share (the "MCI
WorldCom Series 2 Common Stock");
(iv) Common Stock, Series 3, par value $0.01 per share (the "MCI
WorldCom Series 3 Common Stock");
(v) PCS Common Stock, Series 1, par value $1.00 per share (the "MCI
WorldCom Series 1 PCS Stock");
(vi) PCS Common Stock, Series 2, par value $1.00 per share (the "MCI
WorldCom Series 2 PCS Stock");
(vii) PCS Common Stock, Series 3, par value $1.00 per share (the "MCI
WorldCom Series 3 PCS Stock" and, together with the MCI WorldCom Series 1
PCS Stock and the MCI WorldCom Series 2 PCS Stock, the "MCI WorldCom PCS
Stock");
(viii) Series 1 Preferred Stock, par value $0.01 per share (the "MCI
WorldCom Series 1 Preferred Stock");
(ix) Series 5 Preferred Stock, par value $0.01 per share (the "MCI
WorldCom Series 5 Preferred Stock");
1-2
<PAGE>
(x) Series 7 Preferred Stock, par value $0.01 per share (the "MCI
WorldCom Series 7 Preferred Stock"); and
(xi) Series 8 Junior Participating Preferred Stock, par value $0.01 per
share.
The foregoing series of capital stock, together with the series and classes
of capital stock of MCI WorldCom authorized as of the date hereof, are hereby
collectively referred to as "MCI WorldCom Capital Stock".
(b) At the Effective Time by virtue of the Merger and without any action on
the part of the holder thereof (in each of the following cases other than such
shares owned or held by MCI WorldCom or Sprint, which shall automatically be
retired and shall cease to exist, and no consideration shall be delivered in
exchange therefor, and other than Dissenting Shares):
(i) each share of Class A Common Stock, par value $2.50 per share, of
Sprint ("Sprint Series FT Common Stock") issued and outstanding immediately
prior to the Effective Time will be converted into the right to receive one
share of MCI WorldCom Series FT Common Stock (the "Series FT Merger
Consideration");
(ii) each share of Class A Common Stock, Series DT, par value $2.50 per
share, of Sprint ("Sprint Series DT Common Stock" and, together with the
Sprint Series FT Common Stock, the "Sprint Class A Common Stock") issued
and outstanding immediately prior to the Effective Time will be converted
into the right to receive one share of MCI WorldCom Series DT Common Stock
(the "Series DT Merger Consideration");
(iii) each share of Series 1 FON Stock, par value $2.00 per share, of
Sprint ("Sprint Series 1 FON Stock") issued and outstanding immediately
prior to the Effective Time will be converted into the right to receive
that number of shares of common stock, par value $0.01 per share, of MCI
WorldCom ("MCI WorldCom Common Stock") equal to the FON Exchange Ratio (the
"Series 1 FON Merger Consideration");
(iv) each share of Series 3 FON Stock, par value $2.00 per share, of
Sprint ("Sprint Series 3 FON Stock" and, together with the Sprint Series 1
FON Stock and the Series 2 FON Stock, par value $2.00 per share, of Sprint
("Sprint Series 2 FON Stock") (the "Sprint FON Stock"), issued and
outstanding immediately prior to the Effective Time will be converted into
the right to receive a number of shares of MCI WorldCom Series 3 Common
Stock equal to the FON Exchange Ratio (the "Series 3 FON Merger
Consideration");
(v) each share of Series 1 PCS Stock, par value $1.00 per share, of
Sprint ("Sprint Series 1 PCS Stock") issued and outstanding immediately
prior to the Effective Time will be converted into the right to receive (A)
one share of MCI WorldCom Series 1 PCS Stock and (B) that number of shares
of MCI WorldCom Common Stock equal to the PCS Exchange Ratio (collectively,
the "Series 1 PCS Merger Consideration");
(vi) each share of Series 2 PCS Stock, par value $1.00 per share, of
Sprint ("Sprint Series 2 PCS Stock") issued and outstanding immediately
prior to the Effective Time will be converted into the right to receive (A)
one share of MCI WorldCom Series 2 PCS Stock and (B) a number of shares of
MCI WorldCom Series 2 Common Stock equal to the PCS Exchange Ratio
(collectively, the "Series 2 PCS Merger Consideration");
(vii) each share of Series 3 PCS Stock, par value $1.00 per share, of
Sprint ("Sprint Series 3 PCS Stock" and, together with the Sprint Series 1
PCS Stock and the Sprint Series 2 PCS Stock, the "Sprint PCS Stock") issued
and outstanding immediately prior to the Effective Time will be converted
into the right to receive (A) one share of MCI WorldCom Series 3 PCS Stock
and (B) a number of shares of MCI WorldCom Series 3 Common Stock equal to
the PCS Exchange Ratio (collectively, the "Series 3 PCS Merger
Consideration" and, together with the Series 1 PCS Merger Consideration and
the Series 2 PCS Merger Consideration, the "PCS Stock Merger
Consideration");
1-3
<PAGE>
(viii) each share of Preferred Stock-First Series, Convertible, without
par value, of Sprint ("Sprint First Series Preferred Stock") issued and
outstanding immediately prior to the Effective Time will be converted into
the right to receive one share of MCI WorldCom Series 1 Preferred Stock,
(the "First Series Preferred Merger Consideration");
(ix) each share of Preferred Stock-Second Series, Convertible, without
par value, of Sprint ("Sprint Second Series Preferred Stock") shall have
been redeemed by Sprint prior to the Effective Time pursuant to Section
5.14;
(x) each share of Preferred Stock-Fifth Series, without par value, of
Sprint ("Sprint Fifth Series Preferred Stock") issued and outstanding
immediately prior to the Effective Time will be converted into the right to
receive one share of MCI WorldCom Series 5 Preferred Stock (the "Fifth
Series Preferred Merger Consideration"); and
(xi) each share of Preferred Stock-Seventh Series, Convertible, without
par value, of Sprint ("Sprint Seventh Series Preferred Stock" and, together
with the Sprint First Series Preferred Stock, the Sprint Second Series
Preferred Stock and the Sprint Fifth Series Preferred Stock, the "Sprint
Preferred Stock") issued and outstanding immediately prior to the Effective
Time will be converted into the right to receive one share of MCI WorldCom
Series 7 Preferred Stock (the "Seventh Series Preferred Merger
Consideration").
The Sprint Class A Common Stock, the Sprint FON Stock and the Sprint PCS
Stock are referred to herein collectively as the "Sprint Common Stock". The
Sprint Common Stock and the Sprint Preferred Stock are referred to herein
collectively as the "Sprint Capital Stock". Shares of Sprint Capital Stock that
are convertible by the holders thereof or by Sprint into a different class or
series of Sprint Capital Stock pursuant to the terms of Sprint's articles of
incorporation are referred to herein collectively as the "Sprint Conversion
Securities".
The Series 1 FON Merger Consideration and the Series 3 FON Merger
Consideration are referred to herein collectively as the "FON Stock Merger
Consideration". The First Series Preferred Merger Consideration, the Fifth
Series Preferred Merger Consideration and the Seventh Series Preferred Merger
Consideration are referred to collectively herein as the "Preferred Stock
Merger Consideration". The Series FT Merger Consideration, the Series DT Merger
Consideration, the FON Stock Merger Consideration, the PCS Stock Merger
Consideration and the Preferred Stock Merger Consideration are referred to
herein collectively as the "Merger Consideration".
(c) As a result of the Merger and without any action on the part of the
holders thereof, at the Effective Time, all shares of Sprint Capital Stock
shall cease to be outstanding and shall be canceled and retired and shall cease
to exist, and each holder of a certificate which immediately prior to the
Effective Time represented any such shares of Sprint Capital Stock (a
"Certificate") shall thereafter cease to have any rights with respect to such
shares of Sprint Capital Stock, except the right to receive the applicable
Merger Consideration and any cash in lieu of fractional shares of applicable
MCI WorldCom Capital Stock to be issued in consideration therefor and any
dividends or other distributions to which holders of Sprint Capital Stock
become entitled all in accordance with Article II upon the surrender of such
certificate.
(d) Each share of Sprint Capital Stock issued and owned or held by MCI
WorldCom or Sprint at the Effective Time shall, by virtue of the Merger, cease
to be outstanding and shall be canceled and retired and no stock of MCI
WorldCom or other consideration shall be delivered in exchange therefor.
(e) (i) Notwithstanding anything in this Agreement to the contrary and
unless provided for by applicable law, shares of Sprint Series FT Common Stock,
Sprint Series DT Common Stock, Sprint Series 3 FON Stock, Sprint Series 2 PCS
Stock, Sprint Series 3 PCS Stock, Sprint Fifth Series Preferred Stock and
Sprint Seventh Series Preferred Stock that are issued and outstanding
immediately prior to the Effective Time and that are owned by stockholders who
have properly perfected their rights of appraisal within the meaning of Section
17-6712 of the KGCC (the "Sprint Dissenting Shares") shall not be converted
into the right to receive the Series FT Merger
1-4
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Consideration, the Series DT Merger Consideration, the Series 3 FON Merger
Consideration, the Series 2 PCS Merger Consideration, the Series 3 PCS Merger
Consideration, the Fifth Series Preferred Merger Consideration and the Seventh
Series Preferred Merger Consideration, respectively, unless and until such
stockholders shall have failed to perfect their right of payment under
applicable law, but, instead, the holders thereof shall be entitled to payment
of the appraised value of such Sprint Dissenting Shares in accordance with
Section 17-6712 of the KGCC. If any such holder shall have failed to perfect or
shall have effectively withdrawn or lost such right of appraisal, each share of
Sprint Series FT Common Stock, Sprint Series DT Common Stock, Sprint Series 3
FON Stock, Sprint Series 2 PCS Stock, Sprint Series 3 PCS Stock, Sprint Fifth
Series Preferred Stock and Sprint Seventh Series Preferred Stock held by such
stockholder shall thereupon be deemed to have been converted into the right to
receive and become exchangeable for, at the Effective Time, the Series FT
Merger Consideration, the Series DT Merger Consideration, the Series 3 FON
Merger Consideration, the Series 2 PCS Merger Consideration, the Series 3 PCS
Merger Consideration, the Fifth Series Preferred Merger Consideration and the
Seventh Series Preferred Merger Consideration, respectively, in the manner
provided for in Section 1.8(b).
(ii) Sprint shall give MCI WorldCom (A) prompt notice of any objections
filed pursuant to Section 17-6712 of the KGCC received by Sprint, withdrawals
of such objections and any other instruments served in connection with such
objections pursuant to the KGCC and received by Sprint and (B) the opportunity
to direct all negotiations and proceedings with respect to objections under the
KGCC consistent with the obligations of Sprint thereunder. Sprint shall not,
except with the prior written consent of MCI WorldCom, (x) make any payment
with respect to any such objection, (y) offer to settle or settle any such
objection or (z) waive any failure to timely deliver a written objection in
accordance with the KGCC.
(f) (i) Notwithstanding anything in this Agreement to the contrary and
unless provided for by applicable law, holders of shares of MCI WorldCom Series
B Preferred Stock that are issued and outstanding immediately prior to the
Effective Time and that are owned by stockholders who have properly perfected
their rights of appraisal within the meaning of Section 14-2-1301 et seq. of
the GBCC (the "MCI WorldCom Dissenting Shares") shall be entitled to payment of
the fair value of such MCI WorldCom Dissenting Shares determined in accordance
with Section 14-2-1301 et seq. of the GBCC. If any such holder shall have
failed to perfect or shall have effectively withdrawn or lost such right of
appraisal, each share of MCI WorldCom Series B Preferred Stock held by such
stockholder shall thereupon be deemed to remain issued and outstanding and
unchanged as a validly issued, fully paid and nonassessable share of capital
stock of the Surviving Corporation.
(ii) MCI WorldCom shall give Sprint (A) prompt notice of MCI WorldCom's
receipt of any notice of intent to demand payment pursuant to Section 14-2-1301
et seq. of the GBCC, withdrawals of such notice and any other instruments
served in connection with such notice pursuant to the GBCC and received by MCI
WorldCom and (B) the opportunity to direct all negotiations and proceedings
with respect to such notice under the GBCC consistent with the obligations of
MCI WorldCom thereunder.
ARTICLE II
Exchange of Certificates
2.1 Exchange Agent. Prior to the Effective Time, MCI WorldCom shall appoint
The Bank of New York or another commercial bank or trust company reasonably
satisfactory to Sprint to act as exchange agent hereunder for the purpose of
exchanging Certificates for the applicable Merger Consideration (the "Exchange
Agent"). At or prior to the Effective Time, MCI WorldCom shall deposit with the
Exchange Agent, in trust for the benefit of holders of shares of Sprint Capital
Stock, certificates representing the applicable MCI WorldCom Capital Stock
issuable pursuant to Section 1.8 in exchange for outstanding shares of Sprint
Capital Stock in the Merger pursuant to Section 1.8. MCI WorldCom agrees to
make available to the Exchange Agent from time to time as needed, cash
sufficient to pay cash in lieu of fractional shares pursuant to Section 2.5 and
any dividends and other distributions pursuant to Section 2.3.
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2.2 Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Surviving Corporation shall cause the Exchange Agent to
mail to each holder of a Certificate (i) a letter of transmittal which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent, and which letter shall be in such form and have such other provisions as
MCI WorldCom may reasonably specify and (ii) instructions for effecting the
surrender of such Certificates in exchange for the applicable Merger
Consideration. Upon surrender of a Certificate to the Exchange Agent together
with such letter of transmittal, duly executed and completed in accordance with
the instructions thereto, and such other documents as may reasonably be
required by the Exchange Agent, the holder of such Certificate, if it is a
Certificate for Sprint Capital Stock shall be entitled to receive in exchange
therefor (A) one or more shares of applicable MCI WorldCom Capital Stock
representing, in the aggregate, the whole number of shares that such holder has
the right to receive pursuant to Section 1.8, and (B) a check in the amount
equal to the cash that such holder has the right to receive pursuant to the
provisions of this Article II including cash in lieu of any fractional shares
of applicable MCI WorldCom Capital Stock pursuant to Section 2.5 and any
dividends or other distributions pursuant to Section 2.3, and in each case the
Certificate so surrendered shall forthwith be canceled. No interest will be
paid or will accrue on any cash payable pursuant to Section 2.3 or Section 2.5.
In the event of a transfer of ownership of Sprint Capital Stock which is not
registered in the transfer records of Sprint, one or more shares of applicable
MCI WorldCom Capital Stock evidencing, in the aggregate, the proper number of
shares of applicable MCI WorldCom Capital Stock and a check in the proper
amount of cash in lieu of any fractional shares of applicable MCI WorldCom
Capital Stock pursuant to Section 2.5 and any dividends or other distributions
to which such holder is entitled pursuant to Section 2.3, may be issued with
respect to such Sprint Capital Stock to such a transferee if the Certificate
representing such shares of Sprint Capital Stock is presented to the Exchange
Agent, accompanied by all documents required to evidence and effect such
transfer and to evidence that any applicable stock transfer taxes have been
paid.
2.3 Distributions with Respect to Unexchanged Shares. No dividends or other
distributions declared or made with respect to shares of MCI WorldCom Capital
Stock with a record date after the Effective Time shall be paid to the holder
of any unsurrendered Certificate with respect to the shares of MCI WorldCom
Capital Stock that such holder would be entitled to receive upon surrender of
such Certificate and no cash payment in lieu of fractional shares of MCI
WorldCom Capital Stock shall be paid to any such holder pursuant to Section 2.5
until such holder shall surrender such Certificate in accordance with Section
2.2. Subject to the effect of applicable laws, following surrender of any such
Certificate, there shall be paid to such holder of shares of MCI WorldCom
Capital Stock issuable in exchange therefor, without interest, (a) promptly
after the time of such surrender, the amount of any cash payable in lieu of
fractional shares of MCI WorldCom Capital Stock to which such holder is
entitled pursuant to Section 2.5 and the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such whole shares of MCI WorldCom Capital Stock and (b) at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to such surrender and a payment
date subsequent to such surrender payable with respect to such shares of MCI
WorldCom Capital Stock.
2.4 No Further Ownership Rights in Sprint Capital Stock. All shares of MCI
WorldCom Capital Stock issued and cash paid upon conversion of shares of Sprint
Capital Stock in accordance with the terms of Article I and this Article II
(including any cash paid pursuant to Section 2.3 or 2.5) shall be deemed to
have been issued or paid in full satisfaction of all rights pertaining to the
shares of Sprint Capital Stock, subject, however, to the Surviving
Corporation's obligation to pay any dividends or make any other distributions
with a record date prior to the Effective Time which may have been declared or
made by Sprint on such shares of Sprint Capital Stock which remain unpaid at
the Effective Time, and there shall be no further registration of transfers on
the stock transfer books of the Surviving Corporation of the shares of Sprint
Capital Stock which were outstanding immediately prior to the Effective Time.
If, after the Effective Time, Certificates are presented to the Surviving
Corporation or the Exchange Agent for any reason, they shall be canceled and
exchanged as provided in this Article II.
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2.5 No Fractional Shares of MCI WorldCom Capital Stock. (a) No certificates
or scrip or shares of MCI WorldCom Capital Stock representing fractional shares
of MCI WorldCom Capital Stock shall be issued upon the surrender for exchange
of Certificates and such fractional share interests will not entitle the owner
thereof to vote or to have any rights of a shareholder of MCI WorldCom or a
holder of shares of MCI WorldCom Capital Stock.
(b) Notwithstanding any other provision of this Agreement, each holder of
shares of Sprint Common Stock exchanged pursuant to the Merger who would
otherwise have been entitled to receive a fraction of a share of applicable MCI
WorldCom Capital Stock (after taking into account all Certificates delivered by
such holder) shall receive, in lieu thereof, cash (without interest) in an
amount equal to the product of (i) such fractional part of a share of
applicable MCI WorldCom Capital Stock multiplied by (ii) the per share closing
price of applicable MCI WorldCom Common Stock quoted on Nasdaq on the Closing
Date. The fractional share interests of MCI WorldCom Capital Stock will be
aggregated, and no recordholder of Sprint Capital Stock will receive cash in an
amount equal to or greater than the value of one full share of MCI WorldCom
Capital Stock determined as of the Effective Time.
2.6 No Liability. None of Sprint, MCI WorldCom, the Surviving Corporation or
the Exchange Agent shall be liable to any Person in respect of any Merger
Consideration, any dividends or distributions with respect thereto or any cash
in lieu of fractional shares of applicable MCI WorldCom Capital Stock, in each
case delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law. If any Certificate shall not have been
surrendered prior to three years after the Effective Time (or immediately prior
to such earlier date on which any Merger Consideration, any dividends or
distributions payable to the holder of such Certificate or any cash payable in
lieu of fractional shares of MCI WorldCom Capital Stock pursuant to this
Article II, would otherwise escheat to or become the property of any
Governmental Entity), any such Merger Consideration, dividends or distributions
in respect thereof or such cash shall, to the extent permitted by applicable
law, be delivered to MCI WorldCom, upon demand, and any holders of Sprint
Capital Stock who have not theretofore complied with the provisions of this
Article II shall thereafter look only to MCI WorldCom for satisfaction of their
claims for such Merger Consideration, dividends or distributions in respect
thereof or such cash.
2.7 Lost Certificates. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such Person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
that may be made against it with respect to such Certificate, the Exchange
Agent will deliver in exchange for such lost, stolen or destroyed Certificate
the applicable Merger Consideration with respect to the shares of Sprint
Capital Stock formerly represented thereby, any cash in lieu of fractional
shares of MCI WorldCom Capital Stock, and unpaid dividends and distributions on
shares of MCI WorldCom Capital Stock deliverable in respect thereof, pursuant
to this Agreement.
2.8 Withholding Rights. The Surviving Corporation shall be entitled to
deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any holder of shares of Sprint Capital Stock such amounts as it is
required to deduct and withhold with respect to the making of such payment
under the Code and the rules and regulations promulgated thereunder, or any
provision of state, local or foreign tax law. To the extent that amounts are so
withheld by the Surviving Corporation such withheld amounts shall be treated
for all purposes of this Agreement as having been paid to the holder of the
shares of Sprint Capital Stock in respect of which such deduction and
withholding was made by the Surviving Corporation.
2.9 Stock Transfer Books. At the close of business, New York City time, on
the day the Effective Time occurs, the stock transfer books of Sprint shall be
closed and there shall be no further registration of transfers of shares of
Sprint Capital Stock thereafter on the records of Sprint. From and after the
Effective Time, the holders of Certificates shall cease to have any rights with
respect to such shares of Sprint Capital Stock formerly represented thereby,
except as otherwise provided herein or by law. On or after the Effective Time,
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any Certificates presented to the Exchange Agent or MCI WorldCom for any reason
shall be converted into the Merger Consideration with respect to the shares of
Sprint Capital Stock formerly represented thereby, any cash in lieu of
fractional shares of MCI WorldCom Capital Stock to which the holders thereof
are entitled pursuant to Section 2.5 and any dividends or other distributions
to which the holders thereof are entitled pursuant to Section 2.3.
ARTICLE III
Representations and Warranties
3.1 Representations and Warranties of Sprint. Except as disclosed in the
Sprint SEC Reports filed and publicly available prior to the date of this
Agreement (the "Sprint Filed SEC Reports") or as set forth in the Sprint
Disclosure Schedule delivered by Sprint to MCI WorldCom prior to the execution
of this Agreement (the "Sprint Disclosure Schedule"), Sprint represents and
warrants to MCI WorldCom as follows:
(a) Organization, Standing and Power. Each of Sprint and its Significant
Subsidiaries is a corporation or other legal entity duly organized or formed,
validly existing and in good standing under the laws of its jurisdiction of
incorporation or organization, has all requisite corporate, partnership or
similar power and authority to own, lease and operate its properties and to
carry on its business as now being conducted and is duly qualified and in good
standing to do business in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary other than in such jurisdictions where the failure so to qualify or
to be in good standing is not reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect on Sprint. The copies of the
articles of incorporation and by-laws of Sprint which were previously furnished
to MCI WorldCom are true, complete and correct copies of such documents as in
effect on the date of this Agreement.
(b) Capital Structure. (i) As of September 30, 1999, the authorized capital
stock of Sprint consisted of (A) 100,000,000 shares of Sprint Series FT Common
Stock, of which 43,118,018 shares were outstanding, (B) 100,000,000 shares of
Sprint Series DT Common Stock, of which 43,118,018 shares were outstanding, (C)
2,500,000,000 shares of Sprint Series 1 FON Stock, of which 696,949,268 shares
were outstanding, (D) 500,000,000 shares of Sprint Series 2 FON Stock, of which
no shares were outstanding, (E) 1,200,000,000 shares of Sprint Series 3 FON
Stock, of which 88,111,036 shares were outstanding, (F) 1,250,000,000 shares of
Sprint Series 1 PCS Stock, of which 198,422,792 shares were outstanding, (G)
500,000,000 shares of Sprint Series 2 PCS Stock, of which 219,393,844 shares
were outstanding, (H) 600,000,000 shares of Sprint Series 3 PCS Stock, of which
13,089,418 shares were outstanding, and (I) 20,000,000 shares of Preferred
Stock, without par value, of which (I) 1,742,853 shares have been designated as
Sprint First Series Preferred Stock, of which 36,150 shares were outstanding,
(II) 8,758,472 shares have been designated as Sprint Second Series Preferred
Stock, of which 219,045 shares were outstanding, (III) 95 shares have been
designated as Sprint Fifth Series Preferred Stock, of which 95 shares were
outstanding, (IV) 1,500,000 shares of Preferred Stock-Sixth Series, Junior
Participating, without par value, have been designated and reserved for
issuance upon exercise of the rights (the "Sprint Rights") distributed to
holders of Sprint FON Stock and Sprint Class A Common Stock pursuant to the
Rights Agreement dated as of November 23, 1998, between Sprint and UMB Bank,
N.A., as rights agent (the "Sprint Rights Agreement"), (V) 1,250,000 shares of
Preferred Stock-Eighth Series, Junior Participating, without par value, have
been designated and reserved for issuance upon exercise of the Sprint Rights
distributed to holders of Sprint PCS Stock and Sprint Class A Common Stock
pursuant to the Sprint Rights Agreement and (VI) 300,000 shares have been
designated as Sprint Seventh Series Preferred Stock, of which 246,766 shares
were outstanding. As of September 30, 1999, 2,409,990 shares of Sprint Series 1
FON Stock and 67,927 shares of Sprint Series 1 PCS Stock were held by Sprint in
its treasury. Since September 30, 1999 to the date of this Agreement, there
have been no issuances of shares of the capital stock of Sprint or any other
securities of Sprint other than issuances of shares (and accompanying Sprint
Rights) pursuant to options or rights outstanding as of September 30, 1999
under the Benefit Plans of Sprint or pursuant to the conversion of the Sprint
Conversion Securities. All issued and outstanding shares of the capital stock
of Sprint are duly authorized, validly issued, fully paid and nonassessable,
and no class of capital stock is entitled to preemptive
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rights. There were outstanding as of September 30, 1999 no options, warrants or
other rights to acquire capital stock from Sprint other than (v) shares of
Sprint Capital Stock issuable upon conversion of the Sprint Conversion
Securities, (w) 12,452,831 shares of Sprint Series 2 PCS Stock reserved for
future issuance upon the exercise of warrants ("Warrants") issued pursuant to
the terms of the Warrant Agreements, each dated as of November 23, 1998 between
Sprint, on the one hand, and Cox Teleport Partners, Inc., Cox Communications,
Inc., Comcast Telephony Services Holdings, Inc., TCI Wireless Holdings, Inc.
and TCI Spectrum Investment, Inc., on the other hand, (x) the Sprint Rights,
(y) options representing in the aggregate the right to purchase 54,628,805
shares of Sprint FON Stock and 21,525,703 shares of Sprint PCS Stock under
Sprint's 1985 Stock Option Plan, Sprint's 1990 Stock Option Plan, Sprint's
Management Incentive Stock Option Plan, Sprint's 1997 Long-Term Stock Incentive
Program, Sprint's Long-Term Incentive Compensation Plan, the Amended and
Restated Centel Director Stock Option Plan and the Amended and Restated Centel
Stock Option Plan (collectively with Sprint's 1990 Restricted Stock Plan, the
"Sprint Stock Option Plans"), and (z) rights to purchase shares of Sprint
Common Stock under Sprint's Employees Stock Purchase Plan. Sprint has delivered
to MCI WorldCom a complete and correct list, as of September 30, 1999, of the
number of shares of Sprint Common Stock subject to outstanding stock option or
other rights to purchase or receive Sprint Common Stock granted under (i) the
Sprint Stock Option Plans (collectively, "Sprint Stock Options") and (ii) the
Warrants and the exercise prices thereof. No options or warrants or other
rights to acquire capital stock from Sprint have been issued or granted since
September 30, 1999 to the date of this Agreement.
(ii) As of the date of this Agreement, no bonds, debentures, notes or other
indebtedness of Sprint having the right to vote on any matters on which
stockholders may vote ("Sprint Voting Debt") are issued or outstanding.
(iii) Except as otherwise set forth in this Section 3.1(b) and as
contemplated by Section 5.6, as of the date of this Agreement, there are no
securities, options, warrants, calls, rights, commitments, agreements,
arrangements or undertakings of any kind to which Sprint or any of its
Subsidiaries is a party or by which any of them is bound obligating Sprint or
any of its Subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock or other voting
securities of Sprint or any of its Subsidiaries or obligating Sprint or any of
its Subsidiaries to issue, grant, extend or enter into any such security,
option, warrant, call, right, commitment, agreement, arrangement or
undertaking. As of the date of this Agreement, there are no outstanding
obligations of Sprint or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any shares of capital stock of Sprint or any of its
Subsidiaries.
(iv) Exhibit 21 to Sprint's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998 (the "Sprint 1998 10-K"), sets forth each Significant
Subsidiary of Sprint as of the date hereof. As of the date hereof, all the
outstanding shares of capital stock of, or other equity interests in, each
Significant Subsidiary of Sprint have been validly issued and are fully paid
and nonassessable and are owned directly or indirectly by Sprint, free and
clear of all pledges, claims, liens, charges, encumbrances and security
interests of any kind or nature whatsoever (collectively, "Liens") and free of
any restriction on the right to vote, sell or otherwise dispose of such capital
stock or other ownership interests. Except for the capital stock or other
ownership interests of its Subsidiaries, as of the date hereof, Sprint does not
beneficially own directly or indirectly any capital stock, membership interest,
partnership interest, joint venture interest or other equity interest in any
Person which constitutes a Material Investment.
(c) Authority; No Conflicts. (i) Sprint has all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby, subject in the case of the consummation of the Merger to
the adoption of this Agreement by the Required Sprint Vote. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Sprint, subject to the adoption of this Agreement by the
Required Sprint Vote. This Agreement has been duly executed and delivered by
Sprint and constitutes a valid and binding agreement of Sprint, enforceable
against it in accordance with its terms.
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(ii) The execution and delivery of this Agreement do not or will not, as the
case may be, and the consummation of the Merger and the other transactions
contemplated hereby will not, subject to the adoption of this Agreement by the
Required Sprint Vote, conflict with, or result in any violation of, or
constitute a default (with or without notice or lapse of time, or both) under,
or give rise to a right of termination, amendment, cancelation or acceleration
of any obligation or the loss of a material benefit under, or the creation of a
lien, pledge, security interest, charge or other encumbrance on any assets (any
such conflict, violation, default, right of termination, amendment, cancelation
or acceleration, loss or creation, a "Violation") pursuant to: (A) any
provision of the articles of incorporation or by-laws of Sprint or the
governing documents of any Subsidiary of Sprint, or (B) except as is not
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect on Sprint and subject to obtaining or making the consents, approvals,
orders, authorizations, registrations, declarations and filings referred to in
paragraph (iii) below, any loan or credit agreement, note, mortgage, bond,
indenture, lease, benefit plan or other agreement, obligation, instrument,
permit, concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Sprint or any Subsidiary of Sprint
or their respective properties or assets.
(iii) No consent, approval, order or authorization of, or registration,
declaration or filing with, any supranational, national, state, municipal or
local government, any instrumentality, subdivision, court, administrative
agency or commission or other authority thereof, or any quasi-governmental or
private body exercising any regulatory, taxing, importing or other governmental
or quasi-governmental authority, including the European Union (a "Governmental
Entity"), is required by or with respect to Sprint or any Subsidiary of Sprint
in connection with the execution and delivery of this Agreement by Sprint or
the consummation of the Merger and the other transactions contemplated hereby,
except for those required under or in relation to (A) the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and regulations
promulgated thereunder (the "HSR Act"), and Council Regulation (EEC) No.
4064/89 ("Regulation 4064/89"), (B) the Communications Act of 1934, as amended,
and the rules and regulations promulgated thereunder (the "Communications
Act"), and any other rules, regulations, practices and policies promulgated by
the Federal Communications Commission ("FCC"), (C) state securities or "blue
sky" laws (the "Blue Sky Laws"), (D) the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder (the "Securities Act"),
(E) the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder (the "Exchange Act"), (F) the KGCC with
respect to the filing of the Kansas Certificate of Merger and the GBCC with
respect to the filing of the Georgia Certificate of Merger, (G) laws, rules,
regulations, practices and orders of any state public service commissions
("PUCs"), foreign telecommunications regulatory agencies or similar state or
foreign regulatory bodies, (H) rules and regulations of the New York Stock
Exchange, Inc. ("NYSE"), (I) antitrust or other competition laws of other
jurisdictions, and (J) such consents, approvals, orders, authorizations,
registrations, declarations and filings the failure of which to make or obtain
is not reasonably likely, individually or in the aggregate, to have a Material
Adverse Effect on Sprint. Consents, approvals, orders, authorizations,
registrations, declarations and filings required under or in relation to any of
the foregoing clauses (A) through (G) and clause (I) are hereinafter referred
to as "Required Consents".
(d) Reports and Financial Statements. Sprint has filed all reports,
schedules, forms, statements and other documents required to be filed by it
with the Securities and Exchange Commission (the "SEC") since January 1, 1998
(collectively, including all exhibits thereto, the "Sprint SEC Reports"). No
Significant Subsidiary of Sprint is required to file any form, report or other
document with the SEC. None of the Sprint SEC Reports when filed contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. Each of
the financial statements (including the related notes) included in the Sprint
SEC Reports presents fairly, in all material respects, the consolidated
financial position and consolidated results of operations and cash flows of
Sprint and its Subsidiaries as of the respective dates or for the respective
periods set forth therein, all in conformity with United States generally
accepted accounting principles ("U.S. GAAP") consistently applied during the
periods involved except as otherwise noted therein, and subject, in the case of
the unaudited interim financial statements, to normal and recurring year-end
adjustments. All of such Sprint SEC Reports, as of their respective dates (and
as of the date of any amendment to the respective Sprint SEC
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Report), complied as to form in all material respects with the applicable
requirements of the Securities Act and the Exchange Act.
(e) Information Supplied. (i) None of the information supplied or to be
supplied by Sprint for inclusion or incorporation by reference in (A) the Form
S-4 to be filed with the SEC by MCI WorldCom in connection with the issuance of
the MCI WorldCom Capital Stock in the Merger will, at the time the Form S-4
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading and (B) the Joint
Proxy Statement/Prospectus included in the Form S-4 related to the Sprint
Stockholders Meeting and the MCI WorldCom Shareholders Meeting and the MCI
WorldCom Capital Stock to be issued in the Merger will, on the date it is first
mailed to Sprint stockholders or MCI WorldCom shareholders or at the time of
the Sprint Stockholders Meeting or the MCI WorldCom Shareholders Meeting,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The Joint Proxy Statement/Prospectus will comply as to form in all
material respects with the requirements of the Exchange Act.
(ii) Notwithstanding the foregoing provisions of this Section 3.1(e), no
representation or warranty is made by Sprint with respect to statements made or
incorporated by reference in the Form S-4 or the Joint Proxy
Statement/Prospectus based on information supplied by MCI WorldCom for
inclusion or incorporation by reference therein.
(f) Litigation. There is no suit, action, proceeding, claim or investigation
pending or, to the Knowledge of Sprint, threatened against or affecting Sprint
or any of its Subsidiaries that is reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect on Sprint nor is there any
judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against Sprint or any of its Subsidiaries having, or
that is reasonably likely, individually or in the aggregate, to have a Material
Adverse Effect on Sprint.
(g) Compliance with Applicable Laws. Sprint and its Subsidiaries hold all
permits, licenses, variances, exemptions, orders, registrations and approvals
of all Governmental Entities which are required for the operation of the
business of Sprint and its Subsidiaries taken as a whole (the "Sprint
Permits"), except where the failure to have any such Sprint Permits is not
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect on Sprint. Sprint and its Subsidiaries are in compliance with the terms
of the Sprint Permits and all applicable statutes, laws, ordinances, rules and
regulations, except where the failure so to comply is not reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect on Sprint.
Subject to obtaining the Required Consents, the Merger, in and of itself, would
not cause the revocation or cancelation of any Sprint Permit that is reasonably
likely, individually or in the aggregate, to have a Material Adverse Effect on
Sprint.
(h) State Takeover Statutes; Approvals. Each of the Board of Directors of
Sprint (including the disinterested directors thereof) and the Capital Stock
Committee of such Board of Directors has approved and recommended the terms of
this Agreement and the consummation of the Merger and the other transactions
contemplated by this Agreement and such approval of the Board of Directors of
Sprint constitutes approval of the Merger and the other transactions
contemplated by this Agreement by the Board of Directors of Sprint to the
extent applicable under the provisions of Section 17-1286 et seq. and Section
17-12,100 et seq. of the KGCC and Article Seventh of Sprint's articles of
incorporation and represents all the action necessary to ensure that Section
17-1286 et seq. and Section 17-12,100 et seq. of the KGCC and Article Seventh
of Sprint's articles of incorporation do not apply to MCI WorldCom in
connection with the Merger and the other transactions contemplated by this
Agreement. No other Kansas or Georgia state takeover statute is applicable to
Sprint in connection with this Agreement, the Merger or the other transactions
contemplated hereby. Other than those that have been made prior to the date
hereof, no approval or determination of the Board of Directors of Sprint or any
committee thereof is required with respect to any class or series of Sprint
Capital Stock or under Sprint's
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articles of incorporation, by-laws or governance policies to approve this
Agreement or any of the transactions contemplated hereby.
(i) Intellectual Property; Year 2000. (i) Sprint and its Subsidiaries own,
or are validly licensed or otherwise have the right to use, all patents, patent
rights, trademarks, trade secrets, trade names, service marks, copyrights and
other proprietary intellectual property rights and computer programs (the
"Intellectual Property Rights") used in the business of Sprint and its
Subsidiaries, except for such Intellectual Property Rights the failure of which
to own, license or otherwise have the right to use is not reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect on Sprint.
(ii) To the Knowledge of Sprint, neither Sprint nor any of its Subsidiaries
has interfered with, infringed upon, misappropriated or otherwise come into
conflict with any Intellectual Property Rights or other proprietary information
of any other Person, except for any such interference, infringement,
misappropriation or other conflict which is not reasonably likely, individually
or in the aggregate, to have a Material Adverse Effect on Sprint. To the
Knowledge of Sprint, neither Sprint nor any of its Subsidiaries has received
any written charge, complaint, claim, demand or notice alleging any such
interference, infringement, misappropriation or other conflict (including any
claim that Sprint or any such Subsidiary must license or refrain from using any
Intellectual Property Rights or other proprietary information of any other
Person) which has not been settled or otherwise fully resolved, except with
respect to any such interference, infringement, misappropriation or other
conflict which is not reasonably likely, individually or in the aggregate, to
have a Material Adverse Effect on Sprint. To the Knowledge of Sprint, no other
Person has interfered with, infringed upon, misappropriated or otherwise come
into conflict with any Intellectual Property Rights of Sprint or any of its
Subsidiaries, except for any such interference, infringement, misappropriation
or other conflict which is not reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect on Sprint.
(iii) As of the date of this Agreement, Sprint and its Subsidiaries have
undertaken a concerted effort to ensure that all of the computer software,
computer firmware, computer hardware, and other similar or related items of
automated, computerized, and/or software system(s) that are to be used or
relied on by Sprint or any of its Subsidiaries in the conduct of their
respective businesses will not malfunction, will not cease to function, will
not generate incorrect data, and will not provide incorrect results when
processing, providing and/or receiving (i) date-related data into and between
the years 1999 and 2000 and (ii) date-related data in connection with any valid
date in the twentieth and twenty-first centuries. As of the date of this
Agreement, Sprint reasonably believes that such effort will be successful.
(j) Absence of Certain Changes or Events. Except for liabilities incurred in
connection with this Agreement or the transactions contemplated hereby, since
June 30, 1999, Sprint and its Subsidiaries have conducted their business only
in the ordinary course, and there has not been (i) any Material Adverse Change
in Sprint, (ii) any declaration, setting aside or payment of any dividend or
other distribution (whether in cash, stock or property) with respect to any of
Sprint's capital stock, other than regular quarterly cash dividends of $0.125
per share of Sprint FON Stock and a corresponding cash dividend on the Class A
Common Stock and dividends payable on Sprint Preferred Stock in accordance with
their terms as of the date of this Agreement, (iii) any split, combination or
reclassification of any of Sprint's capital stock or any issuance or the
authorization of any issuance of any other securities in respect of, in lieu of
or in substitution for shares of Sprint's capital stock, (iv) (A) any granting
by Sprint or any of its Subsidiaries to any current or former director,
executive officer or other key employee of Sprint or its Subsidiaries of any
increase in compensation, bonus or other benefits, except for normal increases
in the ordinary course of business consistent with past practice or as was
required under any employment agreements in effect as of the date of the most
recent audited financial statements included in the Sprint Filed SEC Reports,
(B) any granting by Sprint or any of its Subsidiaries to any such current or
former director, executive officer or key employee of any increase in severance
or termination pay or (C) any entry by Sprint or any of its Subsidiaries into,
or any amendment of, any employment, deferred compensation, consulting,
severance, termination or indemnification agreement with any such current or
former director, executive officer or key employee, other than in the ordinary
course of business consistent with past practice, (v) except insofar as may be
required by a change in U.S. GAAP, any
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change in accounting methods, principles or practices by Sprint materially
affecting its consolidated financial position or consolidated results of
operations or (vi) except insofar as MCI WorldCom has given its consent, which
consent shall not be unreasonably withheld or delayed, any tax election (or
settlement or compromise of any material income tax liability) that is
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect on Sprint.
(k) Vote Required. The affirmative vote of the holders of shares
representing a majority of the total voting power of Sprint Common Stock and
Sprint Preferred Stock entitled to vote at the Sprint Stockholders Meeting to
adopt this Agreement voting together as a single class (the "Required Sprint
Vote") is the only vote or approval of the holders of any class or series of
capital stock of Sprint necessary to adopt this Agreement and to approve the
transactions contemplated hereby.
(l) Sprint Rights Agreement. No amendment to the Sprint Rights Agreement is
required to be made by Sprint in connection with the approval, execution or
delivery of this Agreement or the consummation of the transactions contemplated
hereby.
(m) Brokers or Finders. No agent, broker, investment banker, financial
advisor or other firm or Person on behalf of Sprint is or will be entitled to
any broker's or finder's fee or any other similar commission or fee in
connection with any of the transactions contemplated by this Agreement, except
Warburg Dillon Read LLC, whose fees and expenses will be paid by Sprint in
accordance with Sprint's agreement with such firm, based upon arrangements made
by or on behalf of Sprint and previously disclosed to MCI WorldCom.
(n) Opinion of Financial Advisor. Sprint has received the opinion of Warburg
Dillon Read LLC, dated the date of this Agreement, to the effect that, as of
such date, (i) the FON Exchange Ratio is fair, from a financial point of view,
to the holders of each series of Sprint FON Stock, (ii) the PCS Stock Merger
Consideration is fair, from a financial point of view, to the holders of each
series of Sprint PCS Stock, (iii) the Series DT Merger Consideration is fair,
from a financial point of view, to holders of the Sprint Series DT Common
Stock, (iv) the Series FT Merger Consideration is fair, from a financial point
of view, to holders of the Sprint Series FT Common Stock and (v) the Merger
Consideration applicable to the Sprint Common Stock is fair, from a financial
point of view, to the holders of Sprint Common Stock taken as a whole, a copy
of which opinion will promptly be made available to MCI WorldCom.
(o) Absence of Changes in Sprint's Benefit Plans. Except as expressly
permitted by this Agreement, since the date of the most recent audited
financial statements included in the Sprint Filed SEC Reports, there has not
been any adoption or amendment in any material respect by Sprint or any of its
Subsidiaries of any of Sprint's Benefit Plans, or any material change in any
actuarial or other assumption used to calculate funding obligations with
respect to any Sprint pension plans, or any material change in the manner in
which contributions to any Sprint pension plans are made or the basis on which
such contributions are determined other than a change required under the terms
of such plans as in effect on the date hereof or as required by applicable law.
(p) ERISA Compliance; No Parachute Payments. (i) With respect to Sprint's
Benefit Plans, no liability has been incurred and to the Knowledge of Sprint
there exists no condition or circumstances in connection with which Sprint or
any of its Subsidiaries could be subject to any liability that is reasonably
likely, individually or in the aggregate, to have a Material Adverse Effect on
Sprint, in each case under the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), the Code or any other applicable law.
(ii) Each of Sprint's Benefit Plans has been administered in accordance with
its terms, except for any failures so to administer any such Benefit Plan that
are not reasonably likely, individually or in the aggregate, to have a Material
Adverse Effect on Sprint. Sprint, its Subsidiaries and all Sprint's Benefit
Plans are in compliance with the applicable provisions of ERISA, the Code and
all other applicable laws and the terms of all applicable collective bargaining
agreements, except for any failures to be in such compliance that are not
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect on Sprint.
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(iii) None of Sprint or any of its Subsidiaries sponsors or contributes to
any of Sprint's Benefit Plans that is subject to Title IV of ERISA.
(iv) Sprint and its Subsidiaries are in compliance with all Federal, state,
local and foreign requirements regarding employment, except for any failures to
comply that are not reasonably likely, individually or in the aggregate, to
have a Material Adverse Effect on Sprint. As of the date of this Agreement,
there is no labor dispute, strike or work stoppage against Sprint or any of its
Subsidiaries pending or, to the Knowledge of Sprint, threatened which may
interfere with the respective business activities of Sprint or any of its
Subsidiaries, except where such dispute, strike or work stoppage is not
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect on Sprint. As of the date of this Agreement, to the Knowledge of Sprint,
none of Sprint, any of its Subsidiaries or any of their respective
representatives or employees has committed any unfair labor practice in
connection with the operation of the respective businesses of Sprint or any of
its Subsidiaries, and there is no action, charge or complaint against Sprint or
any of its Subsidiaries by the National Labor Relations Board or any comparable
Governmental Entity pending or threatened in writing, in each case except where
such practices, actions, charges or complaints are not reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect on Sprint.
(v) No employee of Sprint or its Subsidiaries will be entitled to any
additional benefits or any acceleration of the time of payment or vesting of
any benefits under any of Sprint's Benefit Plans as a result of the
transactions contemplated by this Agreement. No amount payable, or economic
benefit provided, by Sprint or its Subsidiaries (including any acceleration of
the time of payment or vesting of any benefit) could be considered an "excess
parachute payment" under Section 280G of the Code. No Person is entitled to
receive any additional payment from Sprint or its Subsidiaries or any other
Person in the event that the excise tax of Section 4999 of the Code is imposed
on such Person.
(q) Taxes. (i) (A) Each of Sprint and its Subsidiaries and each Sprint
Consolidated Group has timely filed or has caused to be timely filed all
material tax returns and reports required to be filed by it or requests for
extensions to file such returns or reports have been timely filed, granted and
have not expired, (B) all tax returns and reports filed by Sprint and each of
its Subsidiaries and each Sprint Consolidated Group are complete and accurate
in all respects and (C) Sprint and each of its Subsidiaries and each Sprint
Consolidated Group has paid (or Sprint or another member of such Sprint
Consolidated Group has paid on its behalf) all taxes shown as due on such
returns and reports, and the reserve for current taxes shown on the most recent
financial statements contained in the Sprint Filed SEC Reports (in addition to
any reserve for deferred taxes established to reflect timing differences
between book and tax income) is adequate to cover all taxes payable by Sprint
and its Subsidiaries and each Sprint Consolidated Group for all taxable periods
and portions thereof through the date of such financial statements, except for
any such failure to file, incompleteness or inaccuracy, failure to pay, or
inadequacy of such reserve, that is not reasonably likely, individually or in
the aggregate, to have a Material Adverse Effect on Sprint.
(ii) No deficiencies for any taxes have been proposed, asserted or assessed
in writing against Sprint or any of its Subsidiaries or any Sprint Consolidated
Group that are not adequately reserved for, except for deficiencies that are
not reasonably likely, individually or in the aggregate, to have a Material
Adverse Effect on Sprint, and no requests for waivers of the time to assess any
such taxes have been granted or are pending (other than with respect to years
that are currently under examination by the Internal Revenue Service or other
applicable taxing authorities). The statute of limitations on assessment or
collection of any Federal taxes due from Sprint and its Subsidiaries has
expired for all taxable years of Sprint and each of its Subsidiaries through
1985. The Federal income tax returns of Sprint and each of its Subsidiaries
have been examined by and settled with the Internal Revenue Service for all
years through 1987.
(iii) Neither Sprint nor any of its Subsidiaries has taken or has agreed to
take any action or has any Knowledge of any fact, agreement, plan or other
circumstance that is reasonably likely to prevent the Merger from qualifying as
a "reorganization" within the meaning of Section 368(a) of the Code.
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(iv) Neither Sprint nor any of its Subsidiaries has constituted either a
"distributing corporation" or a "controlled corporation" (within the meaning of
Section 355(a)(1)(A) of the Code) in a distribution of stock qualifying for
tax-free treatment under Section 355 of the Code (A) in the two years prior to
the date of this Agreement or (B) in a distribution which could otherwise
constitute part of a "plan" or series of "related transactions" (within the
meaning of Section 355(e) of the Code) in conjunction with the Merger.
(v) Sprint does not believe that it is a "United States real property
holding corporation" within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Section 897(c)(1)(A)(ii) of the Code,
although it has not determined or established whether it will be a United
States real property holding corporation in the future.
(vi) Sprint has "nexus" for state tax law purposes in Kansas and
Pennsylvania.
(vii) As used in this Agreement, "taxes" shall include all (A) Federal,
state, local or foreign income tax, property, sales, excise or other taxes or
similar governmental charges, including any interest, penalties or additions
with respect thereto, (B) liability for the payment of the amounts described in
clause (A) as a result of being a member of an affiliated, consolidated,
combined or unitary group, and (C) liability for the payment of any amounts as
a result of being a party to any tax sharing agreement or as a result of any
express or implied obligation to indemnify any other Person with respect to the
payment of any amounts of the type described in clause (A) or (B).
(viii) As used in this Agreement, "Sprint Consolidated Group" means any
affiliated group within the meaning of Section 1504(a) of the Code, in which
Sprint (or any Subsidiary of Sprint) is or has ever been a member or any group
of corporations with which Sprint files, has filed or is or was required to
file an affiliated, consolidated, combined, unitary or aggregate tax return.
3.2 Representations and Warranties of MCI WorldCom. Except as disclosed in
the MCI WorldCom SEC Reports filed and publicly available prior to the date of
this Agreement (the "MCI WorldCom Filed SEC Reports") or as set forth in the
MCI WorldCom Disclosure Schedule delivered by MCI WorldCom to Sprint prior to
the execution of this Agreement (the "MCI WorldCom Disclosure Schedule"), MCI
WorldCom represents and warrants to Sprint as follows:
(a) Organization, Standing and Power. Each of MCI WorldCom and its
Significant Subsidiaries is a corporation or other legal entity duly organized
or formed, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization, has all requisite corporate,
partnership or similar power and authority to own, lease and operate its
properties and to carry on its business as now being conducted and is duly
qualified and in good standing to do business in each jurisdiction in which the
nature of its business or the ownership or leasing of its properties makes such
qualification necessary other than in such jurisdictions where the failure so
to qualify or to be in good standing is not reasonably likely, individually or
in the aggregate, to have a Material Adverse Effect on MCI WorldCom. The copies
of the articles of incorporation and by-laws of MCI WorldCom which were
previously furnished to Sprint are true, complete and correct copies of such
documents as in effect on the date of this Agreement.
(b) Capital Structure. (i) As of September 30, 1999, the authorized capital
stock of MCI WorldCom consisted of (A) 5,000,000,000 shares of MCI WorldCom
Common Stock of which 1,880,219,054 shares were outstanding and (B) 50,000,000
shares of Preferred Stock, par value $0.01 per share, of which (1) 94,992
shares have been designated as Series A 8% Cumulative Convertible Preferred
Stock, of which no shares were outstanding, (2) 15,000,000 shares have been
designated Series B Convertible Preferred Stock ("MCI WorldCom Series B
Preferred Stock"), of which 11,190,244 shares were outstanding, (3) 3,750,000
shares have been designated Series C $2.25 Cumulative Convertible Exchangeable
Preferred Stock ("MCI WorldCom Series C Preferred Stock"), of which no shares
were outstanding, and (4) 5,000,000 shares have been designated Series 3 Junior
Participating Preferred Stock and reserved for issuance upon exercise of the
rights (the "MCI WorldCom Rights") distributed to holders of MCI WorldCom
Common Stock pursuant to the Rights
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Agreement dated as of August 25, 1996, as amended, between MCI WorldCom and The
Bank of New York, as rights agent (the "MCI WorldCom Rights Agreement"). As of
September 30, 1999, 4,510,211 shares of MCI WorldCom Common Stock were held by
MCI WorldCom in its treasury. Since September 30, 1999 to the date of this
Agreement, there have been no issuances of shares of the capital stock of MCI
WorldCom or any other securities of MCI WorldCom other than issuances of shares
(and accompanying MCI WorldCom Rights) pursuant to options or rights
outstanding as of September 30, 1999 under the Benefit Plans of MCI WorldCom or
pursuant to MCI WorldCom's acquisition of SkyTel Communications, Inc. All
issued and outstanding shares of the capital stock of MCI WorldCom are duly
authorized, validly issued, fully paid and nonassessable, and no class of
capital stock is entitled to preemptive rights. There were outstanding as of
September 30, 1999 no options, warrants or other rights to acquire capital
stock from MCI WorldCom other than pursuant to MCI WorldCom's pending
acquisitions as of such date. MCI WorldCom's Benefit Plans and MCI WorldCom's
convertible preferred stock. No options or warrants or other rights to acquire
capital stock from MCI WorldCom have been issued or granted since September 30,
1999 to the date of this Agreement other than pursuant to MCI WorldCom's
acquisition of SkyTel Communications, Inc. or pursuant to MCI WorldCom's
Benefit Plans. The shares of MCI WorldCom Capital Stock to be issued pursuant
to this Agreement, when issued in accordance with the terms of this Agreement,
will be validly issued, fully paid and nonassessable, and no Person will have
any preemptive right, subscription right or other purchase right in respect
thereof other than pursuant to agreements with Sprint or any of its
Subsidiaries as in effect on the date hereof.
(ii) As of the date of this Agreement, no bonds, debentures, notes or other
indebtedness of MCI WorldCom having the right to vote on any matters on which
shareholders may vote ("MCI WorldCom Voting Debt") are issued or outstanding.
(iii) Except as otherwise set forth in this Section 3.2(b), as of the date
of this Agreement, there are no securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to which MCI
WorldCom or any of its Subsidiaries is a party or by which any of them is bound
obligating MCI WorldCom or any of its Subsidiaries to issue, deliver or sell,
or cause to be issued, delivered or sold, additional shares of capital stock or
other voting securities of MCI WorldCom or any of its Subsidiaries or
obligating MCI WorldCom or any of its Subsidiaries to issue, grant, extend or
enter into any such security, option, warrant, call, right, commitment,
agreement, arrangement or undertaking. As of the date of this Agreement, there
are no outstanding obligations of MCI WorldCom or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any shares of capital stock of MCI
WorldCom or any of its Subsidiaries.
(iv) Exhibit 21 to MCI WorldCom's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998 (the "MCI WorldCom 1998 10-K"), sets forth each
Significant Subsidiary of MCI WorldCom as of the date hereof. As of the date
hereof, all the outstanding shares of capital stock of, or other equity
interests in, each Significant Subsidiary of MCI WorldCom have been validly
issued and are fully paid and nonassessable and are owned directly or
indirectly by MCI WorldCom, free and clear of all Liens and free of any
restriction on the right to vote, sell or otherwise dispose of such capital
stock or other ownership interests. Except for the capital stock or other
ownership interests of its Subsidiaries, as of the date hereof, MCI WorldCom
does not beneficially own directly or indirectly any capital stock, membership
interest, partnership interest, joint venture interest or other equity interest
in any Person which constitutes a Material Investment.
(c) Authority; No Conflicts. (i) MCI WorldCom has all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby, subject in the case of the approval of this
Agreement and the MCI WorldCom Stock Issuance to obtaining the Required MCI
WorldCom Vote. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of MCI WorldCom, subject to the
approval of this Agreement and the MCI WorldCom Stock Issuance by the Required
MCI WorldCom Vote. This Agreement has been duly executed and delivered by MCI
WorldCom and constitutes a valid and binding agreement of MCI WorldCom,
enforceable against it in accordance with its terms.
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(ii) The execution and delivery of this Agreement do not or will not, as the
case may be, and the consummation of the Merger and the other transactions
contemplated hereby will not, subject to the approval of this Agreement and the
MCI WorldCom Stock Issuance by the Required MCI WorldCom Vote, conflict with,
or result in, a Violation pursuant to: (A) any provision of the articles of
incorporation or by-laws of MCI WorldCom or the governing documents of any
Subsidiary of MCI WorldCom, or (B) except as is not reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect on MCI
WorldCom and subject to obtaining or making the consents, approvals, orders,
authorizations, registrations, declarations and filings referred to in
paragraph (iii) below, any loan or credit agreement, note, mortgage, bond,
indenture, lease, benefit plan or other agreement, obligation, instrument,
permit, concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to MCI WorldCom or any Subsidiary of
MCI WorldCom or their respective properties or assets.
(iii) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to MCI WorldCom or any Subsidiary of MCI WorldCom in connection with
the execution and delivery of this Agreement by MCI WorldCom or the
consummation of the Merger and the other transactions contemplated hereby,
except for (A) those required under or in relation to the rules and regulations
of Nasdaq, (B) the Required Consents and (C) such consents, approvals, orders,
authorizations, registrations, declarations and filings the failure of which to
make or obtain is not reasonably likely, individually or in the aggregate, to
have a Material Adverse Effect on MCI WorldCom.
(d) Reports and Financial Statements. MCI WorldCom has filed all reports,
schedules, forms, statements and other documents required to be filed by it
with the SEC since January 1, 1998 (collectively, including all exhibits
thereto, the "MCI WorldCom SEC Reports"). No Significant Subsidiary of MCI
WorldCom is required to file any form, report or other document with the SEC.
None of the MCI WorldCom SEC Reports when filed contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Each of the financial
statements (including the related notes) included in the MCI WorldCom SEC
Reports presents fairly, in all material respects, the consolidated financial
position and consolidated results of operations and cash flows of MCI WorldCom
and its Subsidiaries as of the respective dates or for the respective periods
set forth therein, all in conformity with U.S. GAAP consistently applied during
the periods involved except as otherwise noted therein, and subject, in the
case of the unaudited interim financial statements, to normal and recurring
year-end adjustments. All of such MCI WorldCom SEC Reports, as of their
respective dates (and as of the date of any amendment to the respective MCI
WorldCom SEC Report), complied as to form in all material respects with the
applicable requirements of the Securities Act and the Exchange Act.
(e) Information Supplied. (i) None of the information supplied or to be
supplied by MCI WorldCom for inclusion or incorporation by reference in (A) the
Form S-4 will, at the time the Form S-4 becomes effective under the Securities
Act, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and (B) the Joint Proxy Statement/Prospectus will, on
the date it is first mailed to Sprint stockholders or MCI WorldCom shareholders
or at the time of the Sprint Stockholders Meeting or the MCI WorldCom
Shareholders Meeting, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading. The Form S-4 and the Joint Proxy
Statement/Prospectus will comply as to form in all material respects with the
requirements of the Securities Act and the Exchange Act.
(ii) Notwithstanding the foregoing provisions of this Section 3.2(e), no
representation or warranty is made by MCI WorldCom with respect to statements
made or incorporated by reference in the Form S-4 or the Joint Proxy
Statement/Prospectus based on information supplied by Sprint for inclusion or
incorporation by reference therein.
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(f) Litigation. There is no suit, action, proceeding, claim or investigation
pending or, to the Knowledge of MCI WorldCom, threatened against or affecting
MCI WorldCom or any of its Subsidiaries that is reasonably likely, individually
or in the aggregate, to have a Material Adverse Effect on MCI WorldCom nor is
there any judgment, decree, injunction, rule or order of any Governmental
Entity or arbitrator outstanding against MCI WorldCom or any of its
Subsidiaries having, or that is reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect on MCI WorldCom.
(g) Compliance with Applicable Laws. MCI WorldCom and its Subsidiaries hold
all permits, licenses, variances, exemptions, orders, registrations and
approvals of all Governmental Entities which are required for the operation of
the business of MCI WorldCom and its Subsidiaries taken as a whole (the "MCI
WorldCom Permits"), except where the failure to have any such MCI WorldCom
Permits is not reasonably likely, individually or in the aggregate, to have a
Material Adverse Effect on MCI WorldCom. MCI WorldCom and its Subsidiaries are
in compliance with the terms of the MCI WorldCom Permits and all applicable
statutes, laws, ordinances, rules and regulations, except where the failure so
to comply is not reasonably likely, individually or in the aggregate, to have a
Material Adverse Effect on MCI WorldCom. Subject to obtaining the Required
Consents, the Merger, in and of itself, would not cause the revocation or
cancelation of any MCI WorldCom Permit that is reasonably likely, individually
or in the aggregate, to have a Material Adverse Effect on MCI WorldCom.
(h) State Takeover Statutes; Approvals. The Board of Directors of MCI
WorldCom has approved and recommended the terms of this Agreement and the
consummation of the Merger and the other transactions contemplated hereby
(including the amendments to MCI WorldCom's articles of incorporation
contemplated hereby) and such approval of the Board of Directors of MCI
WorldCom constitutes approval of the Merger and the other transactions
contemplated hereby (including the amendments to MCI WorldCom's articles of
incorporation contemplated hereby) by the Board of Directors of MCI WorldCom to
the extent applicable under Article Eleven of MCI WorldCom's articles of
incorporation and represents all the action necessary to ensure that Article
Eleven of MCI WorldCom's articles of incorporation does not apply to Sprint in
connection with the Merger and the other transactions contemplated hereby. No
Georgia or Kansas state takeover statute (including Section 14-2-1110 et seq.
and Section 14-2-1131 et seq. of the GBCC) is applicable to MCI WorldCom in
connection with this Agreement, the Merger or the other transactions
contemplated by this Agreement. Other than those that have been made prior to
the date hereof, no approval or determination of the Board of Directors of MCI
WorldCom or any committee thereof is required with respect to any class or
series of MCI WorldCom Capital Stock or under MCI WorldCom's articles of
incorporation or by-laws to approve this Agreement or any of the transactions
contemplated hereby.
(i) Intellectual Property; Year 2000. (i) MCI WorldCom and its Subsidiaries
own, or are validly licensed or otherwise have the right to use, all
Intellectual Property Rights used in the business of MCI WorldCom and its
Subsidiaries, except for such Intellectual Property Rights the failure of which
to own, license or otherwise have the right to use is not reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect on MCI
WorldCom.
(ii) To the Knowledge of MCI WorldCom, neither MCI WorldCom nor any of its
Subsidiaries has interfered with, infringed upon, misappropriated or otherwise
come into conflict with any Intellectual Property Rights or other proprietary
information of any other Person, except for any such interference,
infringement, misappropriation or other conflict which is not reasonably
likely, individually or in the aggregate, to have a Material Adverse Effect on
MCI WorldCom. To the Knowledge of MCI WorldCom, neither MCI WorldCom nor any of
its Subsidiaries has received any written charge, complaint, claim, demand or
notice alleging any such interference, infringement, misappropriation or other
conflict (including any claim that MCI WorldCom or any such Subsidiary must
license or refrain from using any Intellectual Property Rights or other
proprietary information of any other Person) which has not been settled or
otherwise fully resolved, except with respect to any such interference,
infringement, misappropriation or other conflict which is not reasonably
likely, individually or in the aggregate, to have a Material Adverse Effect on
MCI WorldCom. To the Knowledge of
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MCI WorldCom, no other Person has interfered with, infringed upon,
misappropriated or otherwise come into conflict with any Intellectual Property
Rights of MCI WorldCom or any of its Subsidiaries, except for any such
interference, infringement, misappropriation or other conflict which is not
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect on MCI WorldCom.
(iii) As of the date of this Agreement, MCI WorldCom and its Subsidiaries
have undertaken a concerted effort to ensure that all of the computer software,
computer firmware, computer hardware, and other similar or related items of
automated, computerized, and/or software system(s) that are to be used or
relied on by MCI WorldCom or any of its Subsidiaries in the conduct of their
respective businesses will not malfunction, will not cease to function, will
not generate incorrect data, and will not provide incorrect results when
processing, providing and/or receiving (i) date/related data into and between
the years 1999 and 2000 and (ii) date-related data in connection with any valid
date in the twentieth and twenty-first centuries. As of the date of this
Agreement, MCI WorldCom reasonably believes that such effort will be
successful.
(j) Absence of Certain Changes or Events. Except for liabilities incurred in
connection with this Agreement or the transactions contemplated hereby, since
June 30, 1999, MCI WorldCom and its Subsidiaries have conducted their business
only in the ordinary course, and there has not been (i) any Material Adverse
Change in MCI WorldCom, (ii) until the date of this Agreement, any declaration,
setting aside or payment of any dividend or other distribution (whether in
cash, stock or property) with respect to any of MCI WorldCom's capital stock,
other than dividends payable on MCI WorldCom's preferred stock in accordance
with their terms as of the date of this Agreement, (iii) until the date of this
Agreement, any split, combination or reclassification of any of MCI WorldCom's
capital stock or any issuance or the authorization of any issuance of any other
securities in respect of, in lieu of or in substitution for shares of MCI
WorldCom's capital stock, (iv) until the date of this Agreement, except insofar
as may be required by a change in U.S. GAAP, any change in accounting methods,
principles or practices by MCI WorldCom materially affecting its consolidated
financial position or consolidated results of operations or (v) until the date
of this Agreement, except insofar as Sprint has given its consent, which
consent shall not be unreasonably withheld or delayed, any tax election (or
settlement or compromise of any material income tax liability) that is
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect on MCI WorldCom.
(k) Vote Required. The affirmative vote (the "Required MCI WorldCom Vote")
of (i) holders of shares of MCI WorldCom Common Stock and MCI WorldCom Series B
Preferred Stock representing a majority of all the votes entitled to be cast at
a meeting of the holders of outstanding shares of capital stock of MCI
WorldCom, voting as a single voting group, is the only vote of the holders of
any class or series of MCI WorldCom capital stock necessary to approve the
Merger (which would include the amendment to MCI WorldCom's articles of
incorporation contemplated hereby) and (ii) a majority of the total votes cast
by the holders of shares of MCI WorldCom Common Stock is the only vote of the
holders of any class or series of capital stock of MCI WorldCom necessary to
approve, in accordance with the applicable rules of Nasdaq, the issuance (the
"MCI WorldCom Stock Issuance") of MCI WorldCom Capital Stock pursuant to the
Merger.
(l) MCI WorldCom Rights Agreement. No amendment to the MCI WorldCom Rights
Agreement is required to be made by MCI WorldCom in connection with the
approval, execution or delivery of this Agreement or the consummation of the
transactions contemplated hereby.
(m) Brokers or Finders. No agent, broker, investment banker, financial
advisor or other firm or Person on behalf of MCI WorldCom is or will be
entitled to any broker's or finder's fee or any other similar commission or fee
in connection with any of the transactions contemplated by this Agreement,
except Salomon Smith Barney Inc., whose fees and expenses will be paid by MCI
WorldCom in accordance with MCI WorldCom's agreement with such firm, based upon
arrangements made by or on behalf of MCI WorldCom and previously disclosed to
Sprint.
(n) Opinion of Financial Advisor. MCI WorldCom has received the opinion of
Salomon Smith Barney Inc., dated the date of this Agreement, to the effect
that, as of such date, the FON Exchange Ratio and the PCS
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Stock Merger Consideration are fair, from a financial point of view, to MCI
WorldCom, a copy of which opinion will promptly be made available to Sprint.
(o) ERISA Compliance. (i) With respect to MCI WorldCom's Benefit Plans, no
liability has been incurred and to the Knowledge of MCI WorldCom there exists
no condition or circumstances in connection with which MCI WorldCom or any of
its Subsidiaries could be subject to any liability that is reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect on MCI
WorldCom, in each case under ERISA, the Code or any other applicable law.
(ii) Each of MCI WorldCom's Benefit Plans has been administered in
accordance with its terms, except for any failures so to administer any such
Benefit Plan that are not reasonably likely, individually or in the aggregate,
to have a Material Adverse Effect on MCI WorldCom. MCI WorldCom, its
Subsidiaries and all MCI WorldCom's Benefit Plans are in compliance with the
applicable provisions of ERISA, the Code and all other applicable laws and the
terms of all applicable collective bargaining agreements, except for any
failures to be in such compliance that are not reasonably likely, individually
or in the aggregate, to have a Material Adverse Effect on MCI WorldCom.
(iii) None of MCI WorldCom or any of its Subsidiaries sponsors or
contributes to any of MCI WorldCom's Benefit Plans that is subject to Title IV
of ERISA.
(iv) MCI WorldCom and its Subsidiaries are in compliance with all Federal,
state, local and foreign requirements regarding employment, except for any
failures to comply that are not reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect on MCI WorldCom. As of the date of
this Agreement, there is no labor dispute, strike or work stoppage against MCI
WorldCom or any of its Subsidiaries pending or, to the Knowledge of MCI
WorldCom, threatened which may interfere with the respective business
activities of MCI WorldCom or any of its Subsidiaries, except where such
dispute, strike or work stoppage is not reasonably likely, individually or in
the aggregate, to have a Material Adverse Effect on MCI WorldCom. As of the
date of this Agreement, to the Knowledge of MCI WorldCom, none of MCI WorldCom,
any of its Subsidiaries or any of their respective representatives or employees
has committed any unfair labor practice in connection with the operation of the
respective businesses of MCI WorldCom or any of its Subsidiaries, and there is
no action, charge or complaint against MCI WorldCom or any of its Subsidiaries
by the National Labor Relations Board or any comparable Governmental Entity
pending or threatened in writing, in each case except where such practices,
actions, charges or complaints are not reasonably likely, individually or in
the aggregate, to have a Material Adverse Effect on MCI WorldCom.
(v) No employee of MCI WorldCom or its Subsidiaries will be entitled to any
additional benefits or any acceleration of the time of payment or vesting of
any benefits under any of MCI WorldCom's Benefit Plans as a result of the
transactions contemplated by this Agreement, except to the extent that such
benefits, acceleration or vesting are not reasonably likely, individually or in
the aggregate, to have a Material Adverse Effect on MCI WorldCom. No amount
payable, or economic benefit provided, by MCI WorldCom or its Subsidiaries
(including any acceleration of the time of payment or vesting of any benefit)
could be considered an "excess parachute payment" under Section 280G of the
Code, except to the extent that, if such payment or benefit was an "excess
parachute payment", such payment or benefit is not reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect on MCI
WorldCom. No Person is entitled to receive any additional payment from MCI
WorldCom or its Subsidiaries or any other Person in the event that the excise
tax of Section 4999 of the Code is imposed on such Person, except to the extent
that any such additional payment is not reasonably likely, individually or in
the aggregate, to have a Material Adverse Effect on MCI WorldCom.
(p) Taxes. (i) (A) Each of MCI WorldCom and its Subsidiaries and each MCI
WorldCom Consolidated Group has timely filed or has caused to be timely filed
all material tax returns and reports required to be filed by it or requests for
extensions to file such returns or reports have been timely filed, granted and
have not expired, (B) all tax returns and reports filed by MCI WorldCom and
each of its Subsidiaries and each MCI WorldCom Consolidated Group are complete
and accurate in all respects and (C) MCI WorldCom and each of
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its Subsidiaries and each MCI WorldCom Consolidated Group has paid (or MCI
WorldCom or another member of such MCI WorldCom Consolidated Group has paid on
its behalf) all taxes shown as due on such returns and reports, and the reserve
for current taxes shown on the most recent financial statements contained in
the MCI WorldCom Filed SEC Reports (in addition to any reserve for deferred
taxes established to reflect timing differences between book and tax income) is
adequate to cover all taxes payable by MCI WorldCom and its Subsidiaries and
each MCI WorldCom Consolidated Group for all taxable periods and portions
thereof through the date of such financial statements, except for any such
failure to file, incompleteness or inaccuracy, failure to pay, or inadequacy of
such reserve, that is not reasonably likely, individually or in the aggregate,
to have a Material Adverse Effect on MCI WorldCom.
(ii) No deficiencies for any taxes have been proposed, asserted or assessed
in writing against MCI WorldCom or any of its Subsidiaries or any MCI WorldCom
Consolidated Group that are not adequately reserved for, except for
deficiencies that are not reasonably likely, individually or in the aggregate,
to have a Material Adverse Effect on MCI WorldCom and no requests for waivers
of time to assess any such taxes have been granted or are pending (other than
with respect to years that are currently under examination by the Internal
Revenue Service or other applicable taxing authorities). The statute of
limitations on assessment or collection of any Federal taxes due from MCI
WorldCom and its Subsidiaries has expired for all taxable years of MCI WorldCom
and each of its Subsidiaries through 1987. The Federal income tax returns of
MCI WorldCom and each of its Subsidiaries have been examined by and settled
with the Internal Revenue Services for all years through 1987.
(iii) Neither MCI WorldCom nor any of its Subsidiaries has taken or has
agreed to take any action or has any Knowledge of any fact, agreement, plan or
other circumstance that is reasonably likely to prevent the Merger from
qualifying as a "reorganization" within the meaning of Section 368(a) of the
Code.
(iv) Neither MCI WorldCom nor any of its Subsidiaries has constituted either
a "distributing corporation" or a "controlled corporation" (within the meaning
of Section 355(a)(1)(A) of the Code) in a distribution of stock qualifying for
tax-free treatment under Section 355 of the Code (A) in the two years prior to
the date of this Agreement or (B) in a distribution which could otherwise
constitute part of a "plan" or series of "related transactions" (within the
meaning of Section 355(e) of the Code) in conjunction with the Merger.
(v) MCI WorldCom does not believe that it is a "United States real property
holding corporation" within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Section 897(c)(1)(A)(ii) of the Code,
although it has not determined or established whether it will be a United
States real property holding corporation in the future.
(vi) As used in this Agreement, "MCI WorldCom Consolidated Group" means any
affiliated group within the meaning of Section 1504(a) of the Code, in which
MCI WorldCom (or any Subsidiary of MCI WorldCom) is or has ever been a member
or any group of corporations with which MCI WorldCom files, has filed or is or
was required to file an affiliated, consolidated, combined, unitary or
aggregate tax return.
ARTICLE IV
Covenants Relating to Conduct of Business
4.1 Covenants of Sprint. During the period from the date of this Agreement
and continuing until the Effective Time, Sprint agrees as to itself and its
Subsidiaries that (except as expressly contemplated, permitted or required by
this Agreement or as otherwise indicated on the Sprint Disclosure Schedule or
to the extent that MCI WorldCom shall otherwise consent in writing, which
consent shall not be unreasonably withheld or delayed):
(a) Ordinary Course. Except to the extent not reasonably practicable in
light of the announcement or existence of this Agreement and the transactions
contemplated hereby, Sprint shall, and shall cause its
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Subsidiaries taken as a whole to, carry on its business in the usual, regular
and ordinary course in all material respects, in substantially the same manner
as heretofore conducted, and shall use all reasonable efforts to maintain its
rights and franchises and preserve its relationships with customers, suppliers
and others having business dealings with it with the objective to minimize the
impairment of its ongoing business; provided, however, that no action by Sprint
or its Subsidiaries with respect to matters specifically addressed by any other
provisions of this Section 4.1 or Section 4.1 of the Sprint Disclosure Schedule
shall be deemed a breach of this Section 4.1(a) unless such action would
constitute a breach of one or more of such other provisions.
(b) Dividends; Changes in Share Capital. Sprint shall not, and shall not
permit any of its Subsidiaries to, and shall not propose to, (i) declare or pay
any dividends on or make other distributions in respect of any of its capital
stock, except (A) Sprint may continue the declaration and payment of regular
quarterly cash dividends not in excess of $0.125 per share of Sprint FON Stock
(and any corresponding cash dividends on shares held by the Class A Holders)
and regular dividends required by the terms of the Sprint Preferred Stock as in
effect on the date hereof, in each case with usual record and payment dates for
such dividends in accordance with Sprint's past practice and (B) dividends by
wholly owned Subsidiaries of Sprint to its parent, (ii) split, combine or
reclassify any of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in substitution
for, shares of its capital stock, except for any such transaction by a wholly
owned Subsidiary of Sprint which remains a wholly owned Subsidiary after
consummation of such transaction, or (iii) repurchase, redeem or otherwise
acquire any shares of its capital stock or any securities convertible into or
exercisable for any shares of its capital stock except for the purchase from
time to time by Sprint of Sprint Common Stock (and the associated Sprint
Rights) in the ordinary course of business consistent with past practice in
connection with the Sprint Benefit Plans and the terms of the Sprint Conversion
Shares as in effect on the date hereof and except for the redemption of the
Sprint Second Series Preferred Stock pursuant to Section 5.14.
(c) Issuance of Securities. Sprint shall not, and shall not permit any of
its Subsidiaries to, issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its capital stock of any class,
any Sprint Voting Debt or any securities convertible into or exercisable for,
or any rights, warrants or options to acquire, any such shares or Sprint Voting
Debt, or enter into any agreement with respect to any of the foregoing, other
than (i) the issuance of Sprint Common Stock (and the associated Sprint Rights)
upon the exercise of stock options or in connection with rights under other
stock-based benefits plans, to the extent such options or rights are
outstanding on the date hereof in accordance with their present terms or upon
the exercise of the stock options issued pursuant to clause (vi) below, (ii)
the issuance of Sprint Capital Stock upon the conversion of Sprint Conversion
Securities pursuant to the terms thereof as in effect on the date hereof, (iii)
the issuance of Sprint PCS Stock pursuant to the exercise of Warrants pursuant
to the terms of the Warrant Agreements as in effect on the date hereof, (iv)
issuances by a wholly owned Subsidiary of Sprint of capital stock to such
Subsidiary's parent, (v) issuances in accordance with the Sprint Rights
Agreement, (vi) issuances of stock options in connection with regular option
grants by Sprint or issuances of stock options for new hires or issuances of
restricted stock, in each case in the ordinary course of business and
consistent with past practice pursuant to the Sprint Benefit Plans, (vii) the
issuance of shares of Sprint Capital Stock pursuant to purchase rights or
preemptive rights held by stockholders of Sprint under the terms of the
instruments or agreements as in effect on the date hereof pursuant to which
such shares were issued, (viii) the issuance of Sprint Capital Stock pursuant
to acquisitions permitted under Section 4.1(e) hereof or under Section 4.1 of
the Sprint Disclosure Schedule or (ix) as provided in Section 5.7 of the Sprint
Disclosure Schedule.
(d) Governing Documents. Except to the extent required to comply with their
respective obligations hereunder, required by law or required by the rules and
regulations of the NYSE, Sprint shall not amend its articles of incorporation
or by-laws.
(e) No Acquisitions. Sprint shall not, and shall not permit any of its
Subsidiaries to, acquire or agree to acquire by merging or consolidating with,
or by purchasing a substantial equity interest in or a substantial portion of
the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof or
otherwise acquire or agree to acquire any assets; provided,
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however, that the foregoing shall not prohibit (i) acquisitions of assets used
in the operations of the business of Sprint and its Subsidiaries in the
ordinary course of business consistent with past practice, (ii) internal
reorganizations or consolidations involving existing Subsidiaries of Sprint or
(iii) the creation of new Subsidiaries of Sprint organized to conduct or
continue activities otherwise permitted by this Agreement, so long as any
action otherwise permitted by this proviso could not reasonably be expected to
result in (A) any of the conditions to the Merger set forth in Article VI not
being satisfied or (B) a material delay in the satisfaction of any such
conditions.
(f) No Dispositions. Other than (i) in the ordinary course of business
consistent with past practice and, in any event, which are not material,
individually or in the aggregate, to Sprint and its Subsidiaries taken as a
whole or (ii) internal reorganizations or consolidations involving existing
Subsidiaries of Sprint, Sprint shall not, and shall not permit any of its
Subsidiaries to, sell, lease, encumber or otherwise dispose of, or agree to
sell, lease, encumber or otherwise dispose of (including by way of a spin-off
or similar transaction), any of its assets.
(g) Indebtedness; Investments. Sprint shall not, and shall not permit any of
its Subsidiaries to, (i) incur any indebtedness for borrowed money or guarantee
any such indebtedness of another Person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of Sprint or any of its
Subsidiaries, guarantee any debt securities of another Person, enter into any
"keep well" or other agreement to maintain any financial statement condition of
another Person (other than any wholly owned Subsidiary) or enter into any
arrangement having the economic effect of any of the foregoing, except for (A)
short-term borrowings, senior bank or similar bank financing or, subject to
prior consultation with MCI WorldCom, any other indebtedness incurred by Sprint
or any of its Subsidiaries with a maturity date not to exceed five years from
the date of its original issuance (provided that the consummation of this
Agreement or any of the transactions contemplated hereby shall not give rise
to, cause or result in, a default or event of default under the agreement or
instrument governing any such indebtedness or, an obligation to pay any amount
thereunder solely as a result of the consummation of this Agreement or any of
the transactions contemplated hereby) incurred in the ordinary course of
business consistent with past practice (or to refund existing or maturing
indebtedness) and (B) intercompany indebtedness between Sprint and any of its
wholly owned Subsidiaries or between such wholly owned Subsidiaries, (ii) make
any loans or advances to any other Person, other than (A) employee loans or
advances made by Sprint in the ordinary course of business consistent with past
practice and (B) loans or advances made between Sprint and any of its wholly
owned Subsidiaries or between such wholly owned Subsidiaries, or (iii)
investments in any Person other than (A) investments in wholly owned
Subsidiaries and (B) investments in the ordinary course of business consistent
with past practice and, in any event, which are not material, individually or
in the aggregate, to Sprint.
(h) New Line of Business; Capital Expenditures. Sprint shall not, and shall
not permit any of its Subsidiaries to, (i) enter into any new material line of
business outside its Core Businesses (as defined in Sprint's articles of
incorporation) or (ii) incur or commit to any capital expenditures other than
capital expenditures incurred or committed to in the ordinary course of
business and which are not in excess of the amounts set forth in Section 4.1(h)
of the Sprint Disclosure Schedule.
(i) Tax-Free Qualification. Sprint shall not, and shall not permit any of
its Subsidiaries to, take any action that would prevent or impede the Merger
from qualifying as a reorganization under Section 368 of the Code.
(j) Other Actions. Sprint shall not, and shall not permit any of its
Subsidiaries to, take any action that would, or that could reasonably be
expected to, result in (i) any of the conditions to the Merger set forth in
Article VI not being satisfied or (ii) a material delay in the satisfaction of
any such conditions.
(k) Accounting Methods. Except as disclosed in the Sprint Filed SEC Reports,
or as required by a Governmental Entity, Sprint shall not make any material
change in its methods of accounting in effect at December 31, 1998, except as
required by changes in U.S. GAAP as concurred in by Sprint's independent
auditors. Sprint shall not change its fiscal year.
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(l) Representations and Warranties. Sprint shall not take any action that
would cause the representations and warranties set forth in Section 3.1(j) to
no longer be true and correct.
(m) Authorization of the Foregoing. Sprint shall not, and shall not permit
any of its Subsidiaries to, authorize, commit or agree to take any of the
foregoing actions.
4.2 Covenants of MCI WorldCom. During the period from the date of this
Agreement and continuing until the Effective Time, MCI WorldCom agrees as to
itself and its Subsidiaries that (except as expressly contemplated, permitted
or required by this Agreement or as otherwise indicated on the MCI WorldCom
Disclosure Schedule or to the extent that Sprint shall otherwise consent in
writing, which consent shall not be unreasonably withheld or delayed):
(a) Ordinary Course. Except to the extent not reasonably practicable in
light of the announcement or existence of this Agreement and the transactions
contemplated hereby, MCI WorldCom shall, and shall cause its Subsidiaries taken
as a whole to, carry on its business in the usual, regular and ordinary course
in all material respects, in substantially the same manner as heretofore
conducted, and shall use all reasonable efforts to maintain its rights and
franchises and preserve its relationships with customers, suppliers and others
having business dealings with it with the objective to minimize the impairment
of its ongoing business; provided, however, that no action by MCI WorldCom or
its Subsidiaries with respect to matters specifically addressed by any other
provisions of this Section 4.2 shall be deemed a breach of this Section 4.2(a)
unless such action would constitute a breach of one or more of such other
provisions.
(b) Dividends; Changes in Share Capital. MCI WorldCom shall not, and shall
not permit any of its Subsidiaries to, and shall not propose to, repurchase,
redeem or otherwise acquire any shares of its capital stock or any securities
convertible into or exercisable for any shares of its capital stock except for
the purchase from time to time by MCI WorldCom of MCI WorldCom Capital Stock
(and the associated MCI WorldCom Rights) in the ordinary course of business
consistent with past practice in connection with share options, share incentive
schemes, profit sharing schemes or other benefit plans of MCI WorldCom or
repurchases of shares of MCI WorldCom Common Stock in open market or privately
negotiated transactions. In the event MCI WorldCom changes (or establishes a
record date for changing) the number of shares of MCI WorldCom Common Stock
issued and outstanding prior to the Effective Time as a result of a stock
split, stock dividend, recapitalization, subdivision, reclassification,
combination, exchange of shares or similar transaction with respect to the
outstanding MCI WorldCom Common Stock and the record date therefor shall be
prior to the Effective Time, the applicable Merger Consideration shall be
appropriately adjusted to reflect such stock split, stock dividend,
recapitalization, subdivision, reclassification, combination, exchange of
shares or similar transaction. In addition, in the event MCI WorldCom pays (or
establishes a record date for payment of) any dividend on, or makes any other
distribution in respect of, MCI WorldCom Common Stock, the applicable Merger
Consideration shall be appropriately adjusted to reflect such dividend or
distribution. Without limiting the foregoing, the issuance of MCI WorldCom
Rights pursuant to the MCI WorldCom Rights Agreement in respect of each share
of MCI WorldCom PCS Stock shall not cause, or result in, any adjustment
pursuant to this Section 4.2(b).
(c) No Acquisitions. MCI WorldCom shall not, and shall not permit any of its
Subsidiaries to, acquire or agree to acquire by merging or consolidating with,
or by purchasing a substantial equity interest in or all or a substantial
portion of the assets of, or by any other manner, any business or any
corporation, partnership, association or other business organization or
division thereof, in any event (i) with a value in excess of an amount equal to
20% of the market capitalization of MCI WorldCom, for any one acquisition and
30% thereof for all acquisitions before the Closing, in each case as determined
on the date of its entering into an agreement therefor or (ii) that could
reasonably be expected to result in (A) any of the conditions to the Merger set
forth in Article VI not being satisfied or (B) a material delay in the
satisfaction of any such conditions. MCI WorldCom shall not, and shall not
permit any of its Subsidiaries to, enter into any new material line of business
outside its existing core businesses.
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(d) No Dispositions. MCI WorldCom shall not, and shall not permit any of its
Subsidiaries to, sell, lease, encumber or otherwise dispose of all or
substantially all of any material line of business for MCI WorldCom and its
Subsidiaries taken as a whole.
(e) Tax-Free Qualification. MCI WorldCom shall not and shall not permit any
of its Subsidiaries to, take any action that would prevent or impede the Merger
from qualifying as a reorganization under Section 368 of the Code.
(f) Other Actions. MCI WorldCom shall not, and shall not permit any of its
Subsidiaries to, take any action that would, or could reasonably be expected
to, result in (i) any of the conditions to the Merger set forth in Article VI
not being satisfied or (ii) a material delay in the satisfaction of such
conditions.
(g) Representations and Warranties. MCI WorldCom shall not take any action
that would cause the representations and warranties set forth in Section
3.2(j)(i) to no longer be true and correct.
(h) Authorization of the Foregoing. MCI WorldCom shall not, and shall not
permit any of its Subsidiaries to, authorize, commit or agree to take, any of
the foregoing actions.
4.3 Control of Other Party's Business. Nothing contained in this Agreement
shall give Sprint, directly or indirectly, the right to control or direct MCI
WorldCom's operations prior to the Effective Time. Nothing contained in this
Agreement shall give MCI WorldCom, directly or indirectly, the right to control
or direct Sprint's operations prior to the Effective Time. Prior to the
Effective Time, each of Sprint and MCI WorldCom shall exercise, consistent with
the terms and conditions of this Agreement, complete control and supervision
over its respective operations.
ARTICLE V
Additional Agreements
5.1 Preparation of the Form S-4 and the Joint Proxy Statement/Prospectus;
Stockholders Meetings. (a) As promptly as practicable following the date
hereof, MCI WorldCom and Sprint shall jointly prepare and file with the SEC
preliminary proxy materials and any amendments or supplements thereto which
shall constitute the joint proxy statement/prospectus (such proxy
statement/prospectus, and any amendments or supplements thereto, the "Joint
Proxy Statement/Prospectus") and MCI WorldCom shall prepare and file with the
SEC the Registration Statement on Form S-4 with respect to the issuance of MCI
WorldCom Capital Stock in the Merger (the "Form S-4") in which the Joint Proxy
Statement/Prospectus will be included as a prospectus. The Form S-4 and the
Joint Proxy Statement/Prospectus shall comply as to form in all material
respects with the applicable provisions of the Securities Act and the Exchange
Act. Each of MCI WorldCom and Sprint shall use all reasonable efforts to have
the Form S-4 declared effective under the Securities Act as promptly as
practicable after filing with the SEC and to keep the Form S-4 effective as
long as is necessary to consummate the Merger. The parties shall promptly
provide copies to and consult with each other and prepare written responses
with respect to any written comments received from the SEC with respect to the
Form S-4 and the Joint Proxy Statement/Prospectus and promptly advise the other
party of any oral comments received from the SEC. MCI WorldCom agrees that none
of the information supplied or to be supplied by MCI WorldCom for inclusion or
incorporation by reference in the Joint Proxy Statement/Prospectus and each
amendment or supplement thereto, at the time of mailing thereof and at the time
of the Sprint Stockholders Meeting or the MCI WorldCom Shareholders Meeting,
will contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
Sprint agrees that none of the information supplied or to be supplied by Sprint
for inclusion or incorporation by reference in the Joint Proxy
Statement/Prospectus and each amendment or supplement thereto, at the time of
mailing thereof and at the time of the Sprint Stockholders Meeting or the MCI
WorldCom Shareholders Meeting, will contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make
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the statements therein, in light of the circumstances under which they were
made, not misleading. For purposes of the foregoing, it is understood and
agreed that information concerning or related to MCI WorldCom and the MCI
WorldCom Shareholders Meeting will be deemed to have been supplied by MCI
WorldCom and information concerning or related to Sprint and the Sprint
Stockholders Meeting shall be deemed to have been supplied by Sprint. No
amendment or supplement to the information supplied by Sprint for inclusion in
the Joint Proxy Statement/Prospectus shall be made without the approval of
Sprint, which approval shall not be unreasonably withheld or delayed.
(b) Sprint shall, as promptly as practicable following the execution of this
Agreement, duly call, give notice of, convene and hold a meeting of its
stockholders (the "Sprint Stockholders Meeting") for the purpose of obtaining
the Required Sprint Vote with respect to the transactions contemplated by this
Agreement, shall use its reasonable best efforts, subject to Section 5.4, to
solicit the adoption of this Agreement by the Required Sprint Vote and, subject
to Section 5.4, the Board of Directors of Sprint shall recommend adoption of
this Agreement by the stockholders of Sprint. Without limiting the generality
of the foregoing but subject to its rights pursuant to Sections 5.4 and 7.1(e),
Sprint agrees that its obligations pursuant to the first sentence of this
Section 5.1(b) shall not be affected by the commencement, public proposal,
public disclosure or communication to Sprint of any Sprint Acquisition
Proposal.
(c) MCI WorldCom shall, as promptly as practicable following the execution
of this Agreement, duly call, give notice of, convene and hold a meeting of its
shareholders (the "MCI WorldCom Shareholders Meeting") for the purpose of
obtaining the Required MCI WorldCom Vote with respect to the transactions
contemplated by this Agreement, shall use its reasonable best efforts, subject
to Section 5.5, to solicit the approval of this Agreement by the Required MCI
WorldCom Vote and, subject to Section 5.5, the Board of Directors of MCI
WorldCom shall recommend the approval of this Agreement by the shareholders of
MCI WorldCom. Without limiting the generality of the foregoing but subject to
its rights pursuant to Sections 5.5 and 7.1(f), MCI WorldCom agrees that its
obligations pursuant to the first sentence of this Section 5.1(c) shall not be
affected by the commencement, public proposal, public disclosure or
communication to MCI WorldCom of any MCI WorldCom Acquisition Proposal.
(d) The Sprint Stockholders Meeting and the MCI WorldCom Shareholders
Meeting shall take place on the same date, to the extent practicable; provided
that, notwithstanding anything in this Agreement, neither such meeting shall
take place earlier than the 121st day following the date of this Agreement.
5.2 Access to Information. Upon reasonable notice, each of MCI WorldCom and
Sprint shall, and shall cause its Subsidiaries to, afford to the other party
and to the officers, employees, accountants, counsel, financial advisors and
other representatives of such other party reasonable access during normal
business hours, during the period prior to the Effective Time, to all its
properties, books, contracts, commitments and records and, during such period,
each of MCI WorldCom and Sprint shall, and shall cause its Subsidiaries to,
furnish promptly to the other party consistent with its legal obligations, all
other information concerning its business, properties and personnel as such
other party may reasonably request; provided, however, that each of MCI
WorldCom and Sprint may restrict the foregoing access to the extent that (i) a
Governmental Entity requires either party or any of its Subsidiaries to
restrict access to any properties or information reasonably related to any such
contract on the basis of applicable laws and regulations with respect to
national security matters or (ii) in the reasonable judgment of such party, any
law, treaty, rule or regulation of any Governmental Entity applicable to such
party requires it or its Subsidiaries to restrict access to any properties or
information. The parties will hold any such information in confidence to the
extent required by, and in accordance with, the provisions of the letter dated
September 22, 1999, between Sprint and MCI WorldCom (the "Confidentiality
Agreement"). Any investigation by MCI WorldCom or Sprint shall not affect the
representations and warranties of Sprint or MCI WorldCom, as the case may be.
5.3 Reasonable Best Efforts. (a) Subject to the terms and conditions of this
Agreement, each party hereto will use its reasonable best efforts to (i) take,
or cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate the Merger
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and the other transactions contemplated by this Agreement as soon as
practicable after the date hereof and (ii) obtain and maintain all approvals,
consents, waivers, registrations, permits, authorizations, clearances and other
confirmations required to be obtained from any third party and/or any
Governmental Entity that are reasonably necessary to consummate the Merger and
the transactions contemplated hereby (each a "Required Approval"). In
furtherance and not in limitation of the foregoing, each party hereto agrees to
make, as promptly as practicable, to the extent it has not already done so, (i)
an appropriate filing of a Notification and Report Form pursuant to the HSR Act
with respect to the transactions contemplated hereby (which filing shall be
made in any event within five Business Days of the date hereof), (ii)
appropriate filings with the FCC and PUCs with respect to the transactions
contemplated hereby, (iii) appropriate filings with the European Commission in
accordance with applicable competition, merger control, antitrust or similar
laws within the time periods specified thereunder, and (iv) all necessary
filings with other Governmental Entities relating to the Merger, and, in each
case, to supply as promptly as practicable any additional information and
documentary material that may be requested pursuant to the such laws and to use
reasonable best efforts to cause the expiration or termination of the
applicable waiting periods under the HSR Act and the receipt of Required
Approvals under such other laws as soon as practicable. Notwithstanding the
foregoing, nothing in this Section 5.3 shall require, or be deemed to require,
(i) MCI WorldCom or Sprint to agree to or effect any divestiture or take any
other action if doing so would, individually or in the aggregate, reasonably be
expected to materially impair the parties' ability to achieve the overall
benefits expected, as of the date hereof, to be realized from the consummation
of the Merger or (ii) MCI WorldCom or Sprint to agree to or effect any
divestiture or take any other action that is not conditional on the
consummation of the Merger.
(b) Each of MCI WorldCom and Sprint shall, in connection with the efforts
referenced in Section 5.3(a) to obtain all Required Approvals, use its
reasonable best efforts to (i) cooperate in all respects with each other in
connection with any filing or submission and in connection with any
investigation or other inquiry, including any proceeding initiated by a private
party; (ii) promptly inform the other party of any communication received by
such party from, or given by such party to, the FCC, PUCs, the Antitrust
Division of the Department of Justice (the "DOJ") or any other Governmental
Entity and of any material communication received or given in connection with
any proceeding by a private party, in each case regarding any of the
transactions contemplated hereby, and (iii) permit the other party to review
any communications given by it to, and consult with each other in advance to
the extent practicable of any meeting or conference with, the FCC, PUCs, the
DOJ or any such other Governmental Entity or, in connection with any proceeding
by a private party, with any other Person, and to the extent permitted by the
FCC, PUCs, the DOJ or such other applicable Governmental Entity or other
Person, give the other party the opportunity to attend and participate in such
meetings and conferences.
(c) In furtherance and not in limitation of the covenants of the parties
contained in Sections 5.3(a) and 5.3(b), if any administrative or judicial
action or proceeding, including any proceeding by a private party, is
instituted (or threatened to be instituted) challenging any transaction
contemplated by this Agreement as violative of any Regulatory Law, or if any
statute, rule, regulation, executive order, decree, injunction or
administrative order is enacted, entered, promulgated or enforced by a
Governmental Entity which would make the Merger or the transactions
contemplated hereby illegal or would otherwise prohibit or materially impair or
delay the consummation of the Merger or the transactions contemplated hereby,
each of MCI WorldCom and Sprint shall cooperate in all respects with each other
and use its respective reasonable best efforts to contest and resist any such
action or proceeding and to have vacated, lifted, reversed or overturned any
decree, judgment, injunction or other order, whether temporary, preliminary or
permanent, that is in effect and that prohibits, prevents or restricts
consummation of the Merger or the transactions contemplated by this Agreement
and to have such statute, rule, regulation, executive order, decree, injunction
or administrative order repealed, rescinded or made inapplicable.
Notwithstanding the foregoing or any other provision of this Agreement, nothing
in this Section 5.3 shall limit a party's right to terminate this Agreement
pursuant to Section 7.1(b) or 7.1(c) so long as such party has up to then
complied in all respects with its obligations under this Section 5.3. For
purposes of this Agreement, "Regulatory Law" means the Sherman Act, as amended,
the Clayton Act, as amended, the HSR Act, the Federal Trade Commission Act, as
amended, the Federal Communications Act, as amended, Regulation 4064/89, and
all other Federal, state and foreign, if any, statutes, rules, regulations,
orders,
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decrees, administrative and judicial doctrines and other laws that are designed
or intended to regulate mergers, acquisitions or other business combinations.
(d) Sprint and its Board of Directors shall, if any state takeover statute
or similar statute becomes applicable to this Agreement, the Merger or any
other transactions contemplated hereby or thereby, take all action reasonably
necessary to ensure that the Merger and the other transactions contemplated by
this Agreement may be consummated as promptly as practicable on the terms
contemplated hereby or thereby and otherwise to minimize the effect of such
statute or regulation on this Agreement, the Merger and the other transactions
contemplated hereby.
(e) MCI WorldCom and its Board of Directors shall, if any state takeover
statute or similar statute becomes applicable to this Agreement, the Merger or
any other transactions contemplated hereby, to the extent legally permissible
take all action reasonably necessary to ensure that the Merger and the other
transactions contemplated by this Agreement may be consummated as promptly as
practicable on the terms contemplated hereby and otherwise to minimize the
effect of such statute or regulation on this Agreement, the Merger and the
other transactions contemplated hereby.
5.4 No Solicitation by Sprint. (a) Sprint shall not, nor shall it permit any
of its Subsidiaries to, nor shall it authorize or permit any of its directors,
officers or employees or any investment banker, financial advisor, attorney,
accountant or other representative retained by it or any of its Subsidiaries
to, directly or indirectly through another Person, (i) solicit, initiate or
knowingly encourage (including by way of furnishing information), or knowingly
take any other action to facilitate, the making of any proposal that
constitutes a Sprint Competing Proposal or (ii) participate in any discussions
or negotiations regarding any Sprint Competing Proposal; provided, however,
that if, at any time during the period commencing on the 61st day after the
date hereof and ending on the date the Required Sprint Vote is obtained (the
"Sprint Applicable Period"), the Board of Directors of Sprint, in the exercise
of its fiduciary duties, determines in good faith, after consultation with
outside counsel, that to do otherwise would not be in the best interests of
Sprint's stockholders, Sprint and its representatives may, in response to a
Sprint Superior Proposal which did not result from a breach of this Section
5.4(a), and subject to providing prior or contemporaneous notice of its
decision to take such action to MCI WorldCom, (x) furnish information with
respect to Sprint and its Subsidiaries to any Person making a Sprint Superior
Proposal pursuant to a customary confidentiality agreement (as determined by
Sprint after consultation with its outside counsel) and (y) participate in
discussions or negotiations regarding such Sprint Superior Proposal. This
Section 5.4 is subject to Section 5.4 of the Sprint Disclosure Schedule. For
purposes of this Agreement, "Sprint Competing Proposal" means any bona fide
proposal or offer from any Person relating to any direct or indirect
acquisition or purchase of 20% or more of the assets of Sprint and its
Subsidiaries, taken as a whole, or 20% or more of the combined voting power of
the shares of Sprint Common Stock, any tender offer or exchange offer that if
consummated would result in any Person beneficially owning 20% or more of the
combined voting power of the shares of Sprint Common Stock, or any merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction involving Sprint or any of its Subsidiaries in which the
other party thereto or its stockholders will own 20% or more of the combined
voting power of the parent entity resulting from any such transaction, other
than the transactions contemplated by this Agreement. For purposes of this
Agreement, a "Sprint Superior Proposal" means (i) any proposal made by a third
party relating to any direct or indirect acquisition or purchase of 50% or more
of the assets of Sprint and its Subsidiaries, taken as a whole, or 50% or more
of the combined voting power of the shares of Sprint Common Stock, any tender
offer or exchange offer that if consummated would result in any Person
beneficially owning 50% or more of the combined voting power of the shares of
Sprint Common Stock or any merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving
Sprint or any of its Subsidiaries in which the other party thereto or its
stockholders will own 40% or more of the combined voting power of the parent
entity resulting from any such transaction and (ii) otherwise on terms which
the Board of Directors of Sprint determines in its good faith judgment (based
on the advice of a financial advisor of nationally recognized reputation),
taking into account the Person making the proposal and the legal, financial,
regulatory and other aspects of the proposal deemed appropriate by the Board of
Directors
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of Sprint, (x) would be more favorable than the Merger to Sprint's stockholders
taken as a whole, (y) is reasonably capable of being completed and (z) for
which financing, to the extent required, is then committed or is reasonably
capable of being obtained by such third party.
(b) Neither the Board of Directors of Sprint nor any committee thereof shall
(i) withdraw, or propose publicly to withdraw, in a manner adverse to MCI
WorldCom, the approval or recommendation by such Board of Directors or such
committee of the Merger or this Agreement, (ii) subject to Section 5.4(d),
modify, or propose publicly to modify, in a manner adverse to MCI WorldCom, the
approval or recommendation by such Board of Directors or such committee of the
Merger or this Agreement, (iii) approve or recommend, or propose publicly to
approve or recommend, any Sprint Competing Proposal or (iv) approve or
recommend, or propose to approve or recommend, or execute or enter into, any
letter of intent, agreement in principle, merger agreement, acquisition
agreement, option agreement or other similar agreement or propose publicly or
agree to do any of the foregoing (each, a "Sprint Acquisition Agreement")
related to any Sprint Competing Proposal. Notwithstanding the foregoing, during
the Sprint Applicable Period, in response to a Sprint Superior Proposal which
did not result from a breach of Section 5.4(a), if the Board of Directors of
Sprint, in the exercise of its fiduciary duties, determines in good faith,
after consultation with outside counsel, that to do otherwise would not be in
the best interests of Sprint's stockholders, the Board of Directors of Sprint
may (x) modify or propose publicly to modify, in a manner adverse to MCI
WorldCom, the approval or recommendation of the Merger or this Agreement by the
Board of Directors of Sprint and/or (y) terminate this Agreement (and
concurrently with or after such termination, if it so chooses, cause Sprint to
enter into any Sprint Acquisition Agreement with respect to any Sprint Superior
Proposal), but, in the case of clause (y), only at a time that is during the
Sprint Applicable Period and is after the fourth Business Day (or the second
calendar day in the case of a material amendment to a Sprint Superior Proposal)
following MCI WorldCom's receipt of written notice advising MCI WorldCom that
the Board of Directors of Sprint is prepared to accept a Sprint Superior
Proposal (or any material amendment thereto), specifying the material terms and
conditions of such Sprint Superior Proposal (or any material amendment thereto)
and identifying the Person making such Sprint Superior Proposal (or any
material amendment thereto).
(c) In addition to the obligations of Sprint set forth in paragraphs (a) and
(b) of this Section 5.4, Sprint shall promptly advise MCI WorldCom of any
Sprint Competing Proposal or any inquiry or request for information relating
thereto, the material terms and conditions of such request or Sprint Competing
Proposal and the identity of the Person making such request or Sprint Competing
Proposal. Sprint will promptly keep MCI WorldCom reasonably informed of the
status (including amendments) of any such request or Sprint Competing Proposal.
(d) Nothing contained in this Section 5.4 shall prohibit Sprint from taking
and disclosing to its stockholders a position contemplated by Rule 14d-9 or
14e-2 promulgated under the Exchange Act or from making any disclosure to
Sprint's stockholders if, in the good faith judgment of the Board of Directors
of Sprint, after consultation with outside counsel, failure so to disclose
would be inconsistent with its obligations under applicable law; provided,
however, that, subject to Section 5.4(b), neither Sprint nor its Board of
Directors nor any committee thereof shall withdraw, or propose publicly to
withdraw, its position with respect to this Agreement or the Merger or approve
or recommend, or propose publicly to approve or recommend, a Sprint Competing
Proposal.
5.5 No Solicitation by MCI WorldCom. (a) MCI WorldCom shall not, nor shall
it permit any of its Subsidiaries to, nor shall it authorize or permit any of
its directors, officers or employees or any investment banker, financial
advisor, attorney, accountant or other representative retained by it or any of
its Subsidiaries to, directly or indirectly through another Person, (i)
solicit, initiate or knowingly encourage (including by way of furnishing
information), or knowingly take any other action to facilitate, the making of
any proposal that constitutes an MCI WorldCom Competing Proposal or (ii)
participate in any discussions or negotiations regarding any MCI WorldCom
Competing Proposal; provided, however, that if, at any time during the period
commencing on the 61st day after the date hereof and ending on the date
Required MCI WorldCom Vote is obtained (the "MCI WorldCom Applicable Period"),
the Board of Directors of MCI WorldCom, in the exercise
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of its fiduciary duties, determines in good faith, after consultation with
outside counsel, that to do otherwise would not be in the best interests of MCI
WorldCom's shareholders, MCI WorldCom and its representatives may, in response
to an MCI WorldCom Superior Proposal which did not result from a breach of this
Section 5.5(a), and subject to providing prior or contemporaneous notice of its
decision to take such action to Sprint, (x) furnish information with respect to
MCI WorldCom and its Subsidiaries to any Person making an MCI WorldCom Superior
Proposal pursuant to a customary confidentiality agreement (as determined by
MCI WorldCom after consultation with its outside counsel) and (y) participate
in discussions or negotiations regarding such MCI WorldCom Superior Proposal.
For purposes of this Agreement, "MCI WorldCom Competing Proposal" means any
bona fide proposal or offer from any Person relating to any direct or indirect
acquisition or purchase of 20% or more of the assets of MCI WorldCom and its
Subsidiaries, taken as a whole, or 20% or more of the combined voting power of
the shares of MCI WorldCom Common Stock, any tender offer or exchange offer
that if consummated would result in any Person beneficially owning 20% or more
of the combined voting power of the shares of MCI WorldCom Common Stock, or any
merger, consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving MCI WorldCom or any of its
Subsidiaries in which the other party thereto or its shareholders will own 20%
or more of the combined voting power of the shares of the parent entity
resulting from any such transaction, other than the transactions contemplated
by this Agreement. For purposes of this Agreement, an "MCI WorldCom Superior
Proposal" means (i) (A) any proposal made by a third party relating to any
direct or indirect acquisition or purchase of 50% or more of the assets of MCI
WorldCom and its Subsidiaries, taken as a whole, or 50% or more of the combined
voting power of the shares of MCI WorldCom Common Stock, any tender offer or
exchange offer that if consummated would result in any Person beneficially
owning 50% or more of the combined voting power of the shares of MCI WorldCom
Common Stock, or (B) any merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving MCI
WorldCom or any of its Subsidiaries in which (1) the other party thereto or its
shareholders will own 50% or more of the combined voting power of the shares of
the parent entity resulting from any such transaction and (2) representatives
of such other party shall represent a majority of the Board of Directors of
such parent entity, and (ii) otherwise on terms which the Board of Directors of
MCI WorldCom determines in its good faith judgment (based on the advice of a
financial advisor of nationally recognized reputation), taking into account the
Person making the proposal and the legal, financial, regulatory and other
aspects of the proposal deemed appropriate by the Board of Directors of MCI
WorldCom, (x) would be more favorable than the Merger to MCI WorldCom's
shareholders taken as a whole, (y) is reasonably capable of being completed and
(z) for which financing, to the extent required, is then committed or is
reasonably capable of being obtained by such third party.
(b) Neither the Board of Directors of MCI WorldCom nor any committee thereof
shall (i) withdraw, or propose publicly to withdraw, in a manner adverse to
Sprint, the approval or recommendation by such Board of Directors or such
committee of the Merger or this Agreement, (ii) subject to Section 5.5(d),
modify, or propose publicly to modify, in a manner adverse to Sprint, the
approval or recommendation by such Board of Directors or such committee of the
Merger or this Agreement, (iii) approve or recommend, or propose publicly to
approve or recommend, any MCI WorldCom Competing Proposal or (iv) approve or
recommend, or propose to approve or recommend, or execute or enter into, any
letter of intent, agreement in principle, merger agreement, acquisition
agreement, option agreement or other similar agreement or propose publicly or
agree to do any of the foregoing (each, an "MCI WorldCom Acquisition
Agreement") related to any MCI WorldCom Competing Proposal. Notwithstanding the
foregoing, during the MCI WorldCom Applicable Period, in response to an MCI
WorldCom Superior Proposal which did not result from a breach of Section
5.5(a), if the Board of Directors of MCI WorldCom, in the exercise of its
fiduciary duties, determines in good faith, after consultation with outside
counsel, that to do otherwise would not be in the best interests of MCI
WorldCom's shareholders, the Board of Directors of MCI WorldCom may (x) modify
or propose publicly to modify, in a manner adverse to Sprint, the approval or
recommendation of the Merger or this Agreement by the Board of Directors of MCI
WorldCom and/or (y) terminate this Agreement (and concurrently with or after
such termination, if it so chooses, cause MCI WorldCom to enter into any MCI
WorldCom Acquisition Agreement with respect to any MCI WorldCom Superior
Proposal), but, in the case of clause (y), only at a time that is during the
MCI WorldCom Applicable
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Period and is after the fourth Business Day (or the second calendar day in the
case of a material amendment to an MCI WorldCom Superior Proposal) following
Sprint's receipt of written notice advising Sprint that the Board of Directors
of MCI WorldCom is prepared to accept an MCI WorldCom Superior Proposal (or
any material amendment thereto), specifying the material terms and conditions
of such MCI WorldCom Superior Proposal (or any material amendment thereto) and
identifying the Person making such MCI WorldCom Superior Proposal (or any
material amendment thereto).
(c) In addition to the obligations of MCI WorldCom set forth in paragraphs
(a) and (b) of this Section 5.5, MCI WorldCom shall promptly advise Sprint of
any MCI WorldCom Competing Proposal or any inquiry or request for information
relating thereto, the material terms and conditions of such request or MCI
WorldCom Competing Proposal and the identity of the Person making such request
or MCI WorldCom Competing Proposal. MCI WorldCom will promptly keep Sprint
reasonably informed of the status (including amendments) of any such request
or MCI WorldCom Competing Proposal.
(d) Nothing contained in this Section 5.5 shall prohibit MCI WorldCom from
taking and disclosing to its shareholders a position contemplated by Rule 14d-
9 or 14e-2 promulgated under the Exchange Act or from making any disclosure to
MCI WorldCom's shareholders if, in the good faith judgment of the Board of
Directors of MCI WorldCom, after consultation with outside counsel, failure so
to disclose would be inconsistent with its obligations under applicable law;
provided, however, that, subject to Section 5.5(b), neither MCI WorldCom nor
its Board of Directors nor any committee thereof shall withdraw, or propose
publicly to withdraw, its position with respect to this Agreement or the
Merger or approve or recommend, or propose publicly to approve or recommend,
an MCI WorldCom Competing Proposal.
5.6 Sprint Stock Options. (a) As soon as practicable following the date of
this Agreement, the Board of Directors of Sprint (or, if appropriate, any
committee administering the Sprint Stock Option Plans) shall adopt such
resolutions or take such other actions as may be required to effect the
following:
(i) adjust the terms of all outstanding Sprint Stock Options (each, as
so adjusted, an "Adjusted Option"), whether vested or unvested, as
necessary to provide that, at the Effective Time, each Sprint Stock Option
outstanding immediately prior to the Effective Time shall be amended and
converted, on the same terms and conditions as were applicable under such
Sprint Stock Option, as follows:
(A) each Sprint Stock Option to acquire shares of Sprint FON Stock
will be converted into an option to acquire the number of shares of MCI
WorldCom Common Stock determined by multiplying the number of shares of
Sprint FON Stock subject to such Sprint Stock Option by the FON
Exchange Ratio (rounded up to the nearest whole share) at an exercise
price determined by dividing the exercise price set forth in such
Sprint Stock Option by the FON Exchange Ratio (rounded up to the
nearest whole cent); and
(B) each Sprint Stock Option to acquire shares of any class of
Sprint PCS Stock will be converted into an option to acquire:
(x) an equivalent number of shares of MCI WorldCom Series 1 PCS
Stock at the same exercise price as the exercise price for such
Sprint PCS Stock plus
(y) an amount of MCI WorldCom Common Stock for no additional
consideration equal to the number of shares of such Sprint PCS Stock
subject to such Sprint Stock Option multiplied by the PCS Exchange
Ratio, (rounded up to the nearest whole share) (the "MCI WorldCom
Common Stock Option Shares"), where such option shall automatically
be exercised (as part of the exercise of the option to acquire MCI
WorldCom Series 1 PCS Stock described in the preceding clause (x))
for a number of shares of MCI WorldCom Common Stock each time that
such option to acquire MCI WorldCom Series 1 PCS Stock is exercised,
and where the number of shares of MCI WorldCom Common Stock to be
acquired upon such exercise shall:
(1) equal "Z" (rounded up to the nearest whole share), where
"Z" equals (i) the number of shares of MCI WorldCom Series 1 PCS
Stock to be acquired pursuant to such exercise of such option
multiplied by (ii) the PCS Exchange Ratio; or
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(2) equal the number of shares of MCI WorldCom Common Stock
which remain subject to such option, if such exercise is for all
the shares of MCI WorldCom Series 1 PCS Stock which remain
subject to such option;
; provided, however, that the maximum number of shares of MCI
WorldCom Common Stock issuable pursuant to all such exercises of an
Adjusted Option described in this Section 5.6(a)(i)(B) shall not in
the aggregate exceed the number of MCI WorldCom Common Stock Option
Shares; and
(ii) make such other changes to the Sprint Stock Option Plans as MCI
WorldCom and Sprint may agree are appropriate to give effect to the Merger.
(b) The adjustments provided in this Section 5.6 with respect to any Sprint
Stock Options to which Section 421(a) of the Code applies shall be and are
intended to be effected in a manner which is consistent with Section 424(a) of
the Code.
(c) Prior to the Effective Time, MCI WorldCom shall take all necessary
actions (including, if required to comply with Section 162(m) of the Code (and
the regulations thereunder) or applicable law or rule of Nasdaq, obtaining the
approval of its shareholders at the next regularly scheduled annual meeting of
MCI WorldCom following the Effective Time) to assume as of the Effective Time
all obligations undertaken by, or on behalf of, Sprint under Section 5.6(a)
and to adopt at the Effective Time the Sprint Stock Option Plans and each
Adjusted Option and to take all other action called for in this Section 5.6,
including the reservation, issuance and listing of MCI WorldCom Capital Stock
in a number at least equal to the number of shares of MCI WorldCom Common
Stock that will be subject to the Adjusted Options.
(d) As soon as practicable following the Effective Time, MCI WorldCom shall
prepare and file with the SEC a registration statement on Form S-8 (or another
appropriate form) registering a number of shares of MCI WorldCom Common Stock
equal to the number of shares subject to the Adjusted Options. Such
registration statement shall be kept effective (and the current status of the
prospectus or prospectuses required thereby shall be maintained) at least for
so long as any Adjusted Options or any unsettled awards granted under the
Sprint Stock Option Plans after the Effective Time may remain outstanding.
(e) As soon as practicable after the Effective Time, MCI WorldCom shall
deliver to the holders of the Sprint Stock Options appropriate notices setting
forth such holders' rights pursuant to the respective Sprint Stock Option
Plans and the agreements evidencing the grants of such Sprint Stock Options
and that such Sprint Stock Options and agreements shall be assumed by MCI
WorldCom and shall continue in effect on the same terms and conditions
(subject to the adjustments required by this Section 5.6 after giving effect
to the Merger).
(f) Except as otherwise expressly provided in this Section 5.6 and except
to the extent required under the respective terms of the Sprint Stock Options,
all restrictions or limitations on transfer and vesting with respect to the
Sprint Stock Options awarded under the Sprint Stock Option Plans or any other
plan, program or arrangement of Sprint or any of its Subsidiaries, to the
extent that such restrictions or limitations shall not have already lapsed,
and all other terms thereof, shall remain in full force and effect with
respect to such options after giving effect to the Merger and the assumption
by MCI WorldCom as set forth above.
5.7 Employee Matters. (a) During the one-year period following the
Effective Time (the "Transition Period"), MCI WorldCom shall maintain employee
benefit plans, programs and policies for the employees of Sprint and its
Subsidiaries which, in the aggregate, are substantially comparable to the
employee benefit plans, programs and policies provided by Sprint and its
Subsidiaries before the Effective Time (other than Sprint's Employees Stock
Purchase Plan). Furthermore, no employee of Sprint or a Subsidiary of Sprint
shall have his or her base hourly rate of pay, base salary or bonus
opportunity reduced during the Transition Period except to the extent such
reduction is called for as a result of a violation of MCI WorldCom's generally
applicable policies or a failure to satisfy MCI WorldCom's generally
applicable performance standards for similarly situated MCI WorldCom
employees. The participant accounts in each unfunded plan, program or policy
of
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Sprint and each Subsidiary of Sprint which are designed to track the
performance of Sprint Capital Stock but which only pay benefits in cash shall
be converted at the Effective Time to accounts which track the performance of
the corresponding MCI WorldCom Capital Stock based upon the principles set
forth in this Agreement for converting Sprint Capital Stock to MCI WorldCom
Capital Stock except that there shall be no rounding up or down as part of such
conversions.
(b) During the one-year period following the Transition Period, the
employees of Sprint and each Subsidiary of Sprint shall be eligible to
participate in employee benefit plans, programs and policies which, in the
aggregate, are substantially comparable to the employee benefit plans, programs
and policies maintained by MCI WorldCom for similarly situated employees. Each
employee of Sprint and each Subsidiary of Sprint shall receive full credit
under each applicable MCI WorldCom plan, program or policy for his or her
service as an employee of Sprint and any Subsidiary of Sprint on the same basis
that he or she would have received such credit if such service had been
completed as an employee of MCI WorldCom for purposes of satisfying any service
requirement to participate in such plan, program or policy (including any plan,
program or policy which provides post-retirement medical benefits) and any
service requirement to receive a non-forfeitable interest in the benefits under
such plan, program or policy. Furthermore, if any such MCI WorldCom plan,
program or policy has any active employment requirements, pre-existing
condition requirements, co-pay, coinsurance or deductible requirements in
effect for a year and an employee of Sprint or a Subsidiary of Sprint had
satisfied (or had made payments towards satisfying) such requirements for a
part of such year as a participant in a Sprint plan, program or policy, such
employee shall receive full credit for satisfying (or for payments made towards
satisfying) such requirements in the MCI WorldCom plan, program or policy for
such year when he or she begins to participate in such plan, program or policy
and any such co-pay, coinsurance or deductible requirements for such year under
the MCI WorldCom plan, program or policy shall be no greater than the co-pay,
coinsurance or deductible requirement under the Sprint plan, program or policy
for such year.
(c) MCI WorldCom and Sprint will implement the provisions relating to Sprint
employee matters set forth in Section 5.7 of the Sprint Disclosure Schedule.
5.8 Fees and Expenses. (a) Whether or not the Merger is consummated, all
Expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such Expenses, except
Expenses incurred in connection with the filing, printing and mailing of the
Form S-4 and the Joint Proxy Statement/Prospectus (including SEC filing fees)
and the filing fees for the premerger notification and report forms under the
HSR Act and for filings with the European Commission, which shall be shared
equally by MCI WorldCom and Sprint. As used in this Agreement, "Expenses"
includes all out-of-pocket expenses (including all fees and expenses of
counsel, accountants, investment bankers, experts and consultants to a party
hereto and its affiliates) incurred by a party or on its behalf in connection
with or related to the authorization, preparation, negotiation, execution and
performance of this Agreement and the transactions contemplated hereby,
including the preparation, printing, filing and mailing of the Form Su-4 and
the Joint Proxy Statement/Prospectus and the solicitation of stockholder
approvals and all other matters related to the transactions contemplated
hereby.
(b) If (1) prior to the date the Required Sprint Vote is obtained a Sprint
Competing Proposal shall have been made to Sprint or any of its Subsidiaries or
shall have been made directly to the stockholders of Sprint generally or any
Person shall have publicly announced an intention (whether or not conditional)
to make a Sprint Competing Proposal and thereafter this Agreement is terminated
by either MCI WorldCom or Sprint pursuant to Section 7.1(b) without a Sprint
Stockholders Meeting having occurred or 7.1(d)(i) or (2) this Agreement is
terminated (i) by Sprint pursuant to Section 7.1(e) or (ii) by MCI WorldCom
pursuant to Section 7.1(j), then Sprint shall promptly, but in no event later
than the date of such termination, pay MCI WorldCom a fee equal to $2.5 billion
(the "Termination Fee"), payable by wire transfer of same day funds; provided,
however, that no Termination Fee shall be payable to MCI WorldCom pursuant to
clause (1) or (2)(ii) of this paragraph (b) unless and until within 12 months
of such termination Sprint or any of its Subsidiaries enters into any Sprint
Acquisition Agreement with respect to, or approves or consummates, any Sprint
Competing Proposal (for the purposes of the foregoing proviso the term "Sprint
Competing Proposal" shall mean a Sprint
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Superior Proposal pursuant to clause (i) (without giving effect to clause (ii))
of the definition thereof in Section 5.4(a), in which event the Termination Fee
shall be payable upon the first to occur of such events. Sprint acknowledges
that the agreements contained in this Section 5.8(b) are an integral part of
the transactions contemplated by this Agreement, and that, without these
agreements, MCI WorldCom would not enter into this Agreement; accordingly, if
Sprint fails promptly to pay the amount due pursuant to this Section 5.8(b),
and, in order to obtain such payment, MCI WorldCom commences a suit which
results in a judgment against Sprint for the fee set forth in this Section
5.8(b), Sprint shall pay to MCI WorldCom its costs and expenses (including
attorneys' fees and expenses) in connection with such suit, together with
interest on the amount of the fee at the prime rate of Citibank, N.A. in effect
on the date such payment was required to be made.
(c) If (1) prior to the date the Required MCI WorldCom Vote is obtained an
MCI WorldCom Competing Proposal shall have been made to MCI WorldCom or any of
its Subsidiaries or shall have been made directly to the shareholders of MCI
WorldCom generally or any Person shall have publicly announced an intention
(whether or not conditional) to make an MCI WorldCom Competing Proposal and
thereafter this Agreement is terminated by either MCI WorldCom or Sprint
pursuant to Section 7.1(b) without an MCI WorldCom Shareholders Meeting having
occurred or 7.1(d)(ii) or (2) this Agreement is terminated (i) by MCI WorldCom
pursuant to Section 7.1(f) or (ii) by Sprint pursuant to Section 7.1(i), then
MCI WorldCom shall promptly, but in no event later than the date of such
termination, pay Sprint the Termination Fee, payable by wire transfer of same
day funds; provided, however, that no Termination Fee shall be payable to
Sprint pursuant to clause (1) or (2)(ii) of this paragraph (c) unless and until
within 12 months of such termination MCI WorldCom or any of its Subsidiaries
enters into any MCI WorldCom Acquisition Agreement with respect to, or approves
or consummates, any MCI WorldCom Competing Proposal (for the purposes of the
foregoing proviso the term "MCI WorldCom Competing Proposal" shall mean an MCI
WorldCom Superior Proposal pursuant to clause (i) (without giving effect to
clause (ii)) of the definition thereof in Section 5.5(a), in which event the
Termination Fee shall be payable upon the first to occur of such events. MCI
WorldCom acknowledges that the agreements contained in this Section 5.8(c) are
an integral part of the transactions contemplated by this Agreement, and that,
without these agreements, Sprint would not enter into this Agreement;
accordingly, if MCI WorldCom fails promptly to pay the amount due pursuant to
this Section 5.8(c), and, in order to obtain such payment, Sprint commences a
suit which results in a judgment against MCI WorldCom for the fee set forth in
this Section 5.8(c), MCI WorldCom shall pay to Sprint its costs and expenses
(including attorneys' fees and expenses) in connection with such suit, together
with interest on the amount of the fee at the prime rate of Citibank, N.A. in
effect on the date such payment was required to be made.
5.9 Indemnification, Exculpation and Insurance. (a) MCI WorldCom agrees that
all rights to indemnification and exculpation from liabilities for acts or
omissions occurring at or prior to the Effective Time now existing in favor of
the current or former directors or officers of Sprint and its Subsidiaries as
provided in their respective articles of incorporation or by-laws (or
comparable organizational documents) and any indemnification agreements of
Sprint, the existence of which does not constitute a breach of this Agreement,
shall be assumed by MCI WorldCom, as the Surviving Corporation in the Merger,
without further action, as of the Effective Time and shall survive the Merger
and shall continue in full force and effect in accordance with their terms.
(b) In the event that MCI WorldCom or any of its successors or assigns (i)
consolidates with or merges into any other Person and is not the continuing or
surviving corporation or entity of such consolidation or merger or (ii)
transfers or conveys all or substantially all of its properties and assets to
any Person, then, and in each such case, proper provision will be made so that
the successors and assigns of MCI WorldCom assume the obligations set forth in
this Section 5.9.
(c) For six years after the Effective Time, MCI WorldCom shall maintain in
effect Sprint's current directors' and officers' liability insurance covering
acts or omissions occurring prior to the Effective Time with respect to those
Persons who are currently covered by Sprint's directors' and officers'
liability insurance policy on terms with respect to such coverage and amount no
less favorable than those of such policy in effect on the date hereof;
provided, however, that in no event shall MCI WorldCom be required to expend in
any one year an
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amount in excess of 200% of the annual premiums currently paid by Sprint for
such insurance; and, provided, further, that if the annual premiums of such
insurance coverage exceed such amount, MCI WorldCom shall be obligated to
obtain a policy with the greatest coverage available for such amount.
5.10 Sprint Rights Agreement. The Board of Directors of Sprint shall take
all action to the extent necessary (including amending the Sprint Rights
Agreement) in order to render the Sprint Rights inapplicable to the Merger and
the other transactions contemplated by this Agreement. Except in connection
with the foregoing sentence or, with respect to a Sprint Superior Proposal,
concurrently with or after a termination of this Agreement by Sprint in
accordance with Section 5.4(b), the Board of Directors of Sprint shall not,
without the prior written consent of MCI WorldCom, (a) amend the Sprint Rights
Agreement or (b) take any action with respect to, or make any determination
under, the Sprint Rights Agreement, including a redemption of the Sprint
Rights, in each case in order to facilitate a Sprint Competing Proposal.
5.11 MCI WorldCom Rights Agreement. The Board of Directors of MCI WorldCom
shall take all action to the extent necessary (including amending the MCI
WorldCom Rights Agreement) in order to render the MCI WorldCom Rights
inapplicable to the Merger and the other transactions contemplated by this
Agreement. Except in connection with the foregoing sentence or, with respect to
an MCI WorldCom Superior Proposal, concurrently with or after a termination of
this Agreement by MCI WorldCom in accordance with Section 5.5(b), the Board of
Directors of MCI WorldCom shall not, without the prior written consent of
Sprint, (a) amend the MCI WorldCom Rights Agreement or (b) take any action with
respect to, or make any determination under, the MCI WorldCom Rights Agreement,
including a redemption of the MCI WorldCom Rights, in each case in order to
facilitate an MCI WorldCom Competing Proposal. Notwithstanding the foregoing,
MCI WorldCom may amend the MCI WorldCom Rights Agreement to effect a
transaction permitted by Section 4.2(c) of this Agreement.
5.12 Public Announcements. Sprint and MCI WorldCom shall use all reasonable
efforts to develop a joint communications plan and each party shall use all
reasonable efforts (i) to ensure that all press releases and other public
statements with respect to the transactions contemplated hereby shall be
consistent with such joint communications plan, and (ii) unless otherwise
required by applicable law or by obligations pursuant to any listing agreement
with or rules of any securities exchange, to consult with each other before
issuing any press release or otherwise making any public statement with respect
to this Agreement or the transactions contemplated hereby.
5.13 Listing. MCI WorldCom shall use its reasonable best efforts to cause
the shares of MCI WorldCom Common Stock, MCI WorldCom Series 1 PCS Stock and
MCI WorldCom Series 1 Preferred Stock to be issued in the Merger to be approved
for quotation on Nasdaq, subject to official notice of issuance.
5.14 Redemption of Sprint Second Series Preferred Stock. Prior to the
Effective Time, Sprint shall have redeemed all the issued and outstanding
shares of Sprint Second Series Preferred Stock in accordance with the terms of
Sprint's articles of incorporation.
5.15 Affiliate Letter. On or prior to the date of the Sprint Stockholders
Meeting, Sprint will deliver to MCI WorldCom a letter (the "Sprint Affiliate
Letter") identifying all Persons who are, or may be, "affiliates" of Sprint for
purposes of Rule 145 under the Securities Act ("Rule 145"). On or prior to the
Closing Date, Sprint will use its reasonable efforts to deliver on behalf of
each Person identified as an "affiliate" in the Sprint Affiliate Letter a
written agreement in connection with restrictions on affiliates under Rule 145.
5.16 Tax Treatment. Each of MCI WorldCom and Sprint shall use reasonable
efforts to cause the Merger to qualify as a "reorganization" under the
provisions of Section 368 of the Code and to obtain the opinions of counsel
referred to in Sections 6.2(c) and 6.3(c), including the execution of the
letters of representation referred to therein updated as necessary. Sprint and
MCI WorldCom and their respective Subsidiaries shall treat the MCI WorldCom
Common Stock, MCI WorldCom PCS Stock, MCI WorldCom Series FT Common Stock, MCI
WorldCom Series DT Common Stock, MCI WorldCom Series 2 Common
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Stock and MCI WorldCom Series 3 Common Stock (together, the "MCI WorldCom
Relevant Stock") received in the Merger by holders of Sprint Common Stock as
property permitted to be received under Section 354 of the Code without the
recognition of gain. Each of Sprint and MCI WorldCom covenants and agrees to,
and agrees to cause its affiliates to, vigorously and in good faith defend all
challenges to the treatment of the reorganization as described in this Section
5.16, including any such challenge to the treatment of the MCI WorldCom
Relevant Stock as property permitted to be received under Section 354 of the
Code without the recognition of gain. Each of Sprint and MCI WorldCom agrees
that if it becomes aware of any such fact or circumstance that is reasonably
likely to prevent the Merger from qualifying as a reorganization described in
Section 368(a) of the Code, including any such fact or circumstance that is
reasonably likely to prevent the MCI WorldCom Relevant Stock from being treated
as property permitted to be received under Section 354 of the Code without the
recognition of gain, it will promptly notify the other party in writing.
5.17 Assumption Agreement and Supplemental Indentures. Prior to or at the
Effective Time, MCI WorldCom will execute and deliver (a) a written instrument
to Sprint evidencing its obligation to deliver to each holder of a warrant
granted pursuant to one of the Warrant Agreements other securities, cash or
other assets as such holder may be entitled to purchase and the other
obligations under the applicable Warrant Agreement, and (b) a supplemental
indenture to each of the trustees with respect to the indentures named in
Section 5.17 of the Sprint Disclosure Schedule, in form satisfactory to each
such trustee, as required under such indentures.
5.18 Other Actions. Sprint will use reasonable efforts to cooperate with any
request by MCI WorldCom to transfer certain assets of Sprint to any Subsidiary
of Sprint, so long as such transfer(s) (a) would be permitted by applicable
regulations, laws and contracts, (b) would not, individually or in the
aggregate, adversely affect Sprint and (c) would be executed by Sprint at any
time (as determined by Sprint) prior to the Effective Time.
ARTICLE VI
Conditions Precedent
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
obligations of Sprint and MCI WorldCom to effect the Merger are subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Stockholder Approvals. (i) Sprint shall have obtained the Required
Sprint Vote and (ii) MCI WorldCom shall have obtained the Required MCI WorldCom
Vote.
(b) No Injunctions or Restraints; Illegality. No Laws shall have been
adopted or promulgated, and no temporary restraining order, preliminary or
permanent injunction or other order issued by a court or other Governmental
Entity of competent jurisdiction shall be in effect, having the effect of
making the Merger illegal or otherwise prohibiting consummation of the Merger;
provided, however, that the provisions of this Section 6.1(b) shall not be
available to any party whose failure to fulfill its obligations pursuant to
Section 5.3 shall have been the cause of, or shall have resulted in, such order
or injunction.
(c) FCC and Public Utility Commission Approvals. All approvals for the
Merger from the FCC and from the PUCs shall have been obtained other than those
the failure of which to be obtained would not, individually or in the
aggregate, reasonably be expected to materially impair the parties' ability to
achieve the overall benefits expected, as of the date hereof, to be realized
from the consummation of the Merger; provided, however, that the provisions of
this Section 6.1(c) shall not be available to any party whose failure to
fulfill its obligations pursuant to Section 5.3 shall have been the cause of,
or shall have resulted in, such failure.
(d) HSR Act. The waiting period (and any extension thereof) applicable to
the Merger under the HSR Act shall have been terminated or shall have expired;
provided, however, that the provisions of this Section
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6.1(d) shall not be available to any party whose failure to fulfill its
obligations pursuant to Section 5.3 shall have been the cause of, or shall have
resulted in, the failure to obtain such termination or expiration.
(e) EU Antitrust. MCI WorldCom and Sprint shall have received in respect of
the Merger and any matters arising therefrom: confirmation by way of a decision
from the Commission of the European Union under Regulation 4064/89 (with or
without the initiation of proceedings under Article 6(1)(c) thereof) that the
Merger and any matters arising therefrom are compatible with the common market;
provided, however, that the provisions of this Section 6.1(e) shall not be
available to any party whose failure to fulfill its obligations pursuant to
Section 5.3 shall have been the cause of, or shall have resulted in, the
failure to obtain such confirmation.
(f) Nasdaq Listing. The shares of MCI WorldCom Common Stock, MCI WorldCom
Series 1 PCS Stock and MCI WorldCom Series 1 Preferred Stock to be issued in
the Merger shall have been approved for quotation on Nasdaq, subject to
official notice of issuance.
(g) Effectiveness of the Form S-4. The Form S-4 shall have been declared
effective by the SEC under the Securities Act. No stop order suspending the
effectiveness of the Form S-4 shall have been issued by the SEC and no
proceedings for that purpose shall have been initiated or threatened by the
SEC.
6.2 Additional Conditions to Obligations of MCI WorldCom. Other than as set
forth in the Sprint Disclosure Schedule, the obligations of MCI WorldCom to
effect the Merger are subject to the satisfaction of, or waiver by MCI
WorldCom, on or prior to the Closing Date of the following additional
conditions:
(a) Representations and Warranties. (i) Each of the representations and
warranties (other than as set forth in Section 3.1(b)(i), (ii) and (iii)) of
Sprint set forth in this Agreement shall be true and correct on the date of
this Agreement, and as of the Closing Date, as if made at and as of such time
(except to the extent expressly made as of an earlier date, in which case as of
such date), except for changes expressly permitted under Article IV and except
where the failure of such representations and warranties to be so true and
correct (without giving effect to any limitation as to "materiality" or
"Material Adverse Effect" set forth therein), individually or in the aggregate,
does not have, and is not reasonably likely to have, a Material Adverse Effect
on Sprint, and (ii) the representations and warranties of Sprint set forth in
Section 3.1(b)(i), (ii) and (iii) shall be true and correct in all material
respects on the date of this Agreement, and as of the Closing Date, as if made
at and as of such time (except to the extent expressly made as of an earlier
date, in which case as of such date), except for changes expressly permitted
under Article IV. MCI WorldCom shall have received a certificate of the chief
executive officer and the chief financial officer of Sprint to such effect.
(b) Performance of Obligations of Sprint. Sprint shall have performed or
complied in all material respects with all material agreements and covenants
required to be performed by it or complied with under this Agreement at or
prior to the Closing Date. MCI WorldCom shall have received a certificate of
the chief executive officer and the chief financial officer of Sprint to such
effect.
(c) Tax Opinion. MCI WorldCom shall have received from Cravath, Swaine &
Moore, counsel to MCI WorldCom, on the date on which the Form S-4 is declared
effective by the SEC and on the Closing Date, a written opinion dated as of
such date stating that: (i) the Merger will qualify as a "reorganization"
within the meaning of Section 368(a) of the Code, (ii) MCI WorldCom and Sprint
will each be a "party" to that reorganization within the meaning of Section
368(b) of the Code and (iii) the issuance of the MCI WorldCom Relevant Stock to
the holders of the Sprint Common Stock in the Merger will not result in MCI
WorldCom's recognizing an amount of income or gain or being subject to an
amount of tax, in each case that individually or in the aggregate, is
reasonably likely to have a Material Adverse Effect on MCI WorldCom. In
rendering such opinions, counsel to MCI WorldCom shall be entitled to rely upon
representations of officers of MCI WorldCom and Sprint substantially in the
form of Appendices 3 and 4, respectively, and updated as necessary. The
opinions shall be in substantially the same form as Appendix 1.
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(d) No Material Adverse Change. Since the date of this Agreement, there
shall not have been any Material Adverse Change in Sprint.
6.3 Additional Conditions to Obligations of Sprint. The obligations of
Sprint to effect the Merger are subject to the satisfaction of, or waiver by
Sprint, on or prior to the Closing Date of the following additional conditions:
(a) Representations and Warranties. (i) Each of the representations and
warranties (other than as set forth in Section 3.2(b)(i), (ii) and (iii)) of
MCI WorldCom set forth in this Agreement shall be true and correct on the date
of this Agreement and as of the Closing Date, as if made at and as of such time
(except to the extent expressly made as of an earlier date, in which case as of
such date), except for changes expressly permitted under Article IV and except
where the failure of such representations and warranties to be so true and
correct (without giving effect to any limitation as to "materiality" or
"Material Adverse Effect" set forth therein), individually or in the aggregate,
does not have, and is not reasonably likely to have, a Material Adverse Effect
on MCI WorldCom, and (ii) the representations and warranties of MCI WorldCom
set forth in Section 3.2(b)(i), (ii) and (iii) shall be true and correct in all
material respects on the date of this Agreement, and as of the Closing Date, as
if made at and as of such time (except to the extent expressly made as of an
earlier date, in which case as of such date). Sprint shall have received a
certificate of the chief executive officer and the chief financial officer of
MCI WorldCom to such effect.
(b) Performance of Obligations of MCI WorldCom. MCI WorldCom shall have
performed or complied in all material respects with all material agreements and
covenants required to be performed by it or complied with under this Agreement
at or prior to the Closing Date. Sprint shall have received a certificate of
the chief executive officer and the chief financial officer of MCI WorldCom to
such effect.
(c) Tax Opinion. Sprint shall have received from King & Spalding, counsel to
Sprint, on the date on which the Form S-4 is declared effective by the SEC and
on the Closing Date, a written opinion dated as of such date stating that: (i)
the Merger will qualify as a "reorganization" within the meaning of Section
368(a) of the Code, (ii) Sprint and MCI WorldCom will each be a "party" to that
reorganization within the meaning of Section 368(b) of the Code and (iii) the
MCI WorldCom Relevant Stock received in the Merger by holders of Sprint Common
Stock is property permitted to be received under Section 354 of the Code
without the recognition of gain. In rendering such opinions, counsel to Sprint
shall be entitled to rely upon representations of officers of MCI WorldCom and
Sprint substantially in the form of Appendices 3 and 4, respectively, and
updated as necessary. The opinions shall be in substantially the same form as
Appendix 2.
(d) No Material Adverse Change. Since the date of this Agreement, there
shall not have been any Material Adverse Change in MCI WorldCom.
ARTICLE VII
Termination and Amendment
7.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, by action taken or authorized by the Board of Directors of the
terminating party or parties, and except as provided below, whether before or
after approval of the matters presented in connection with the Merger by the
stockholders of Sprint or MCI WorldCom:
(a) By mutual written consent of MCI WorldCom and Sprint, by action of their
respective Boards of Directors;
(b) By either Sprint or MCI WorldCom if the Effective Time shall not have
occurred on or before December 31, 2000 (the "Termination Date"); provided,
however, that the right to terminate this Agreement under this Section 7.1(b)
shall not be available to any party whose failure to fulfill any obligation
under this
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Agreement (including Section 5.3) has caused, or resulted in, the failure of
the Effective Time to occur on or before the Termination Date;
(c) By either Sprint or MCI WorldCom if any Governmental Entity (i) shall
have issued an order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated
by this Agreement, and such order, decree, ruling or other action shall have
become final and nonappealable or (ii) shall have failed to issue an order,
decree or ruling or to take any other action (which order, decree, ruling or
other action the parties shall have used their reasonable best efforts to
obtain, in accordance with Section 5.3), in each case (i) and (ii) which is
necessary to fulfill the conditions set forth in Sections 6.1(c), (d) and (e),
as applicable, and such denial of a request to issue such order, decree, ruling
or take such other action shall have become final and nonappealable; provided,
however, that the right to terminate this Agreement under this Section 7.1(c)
shall not be available to any party whose failure to comply with Section 5.3
has caused or resulted in such action or inaction;
(d) By either Sprint or MCI WorldCom if (i) the approval by the stockholders
of Sprint required for the consummation of the Merger shall not have been
obtained by reason of the failure to obtain the Required Sprint Vote at a duly
held Sprint Stockholders Meeting or at any adjournment or postponement thereof
or (ii) the approval by the shareholders of MCI WorldCom required for the
consummation of the Merger shall not have been obtained by reason of the
failure to obtain the Required MCI WorldCom Vote at a duly held MCI WorldCom
Shareholders Meeting or at any adjournment or postponement thereof;
(e) By Sprint in accordance with Section 5.4(b); provided that, in order for
the termination of this Agreement pursuant to this paragraph (e) to be deemed
effective, Sprint shall have complied with the notice provisions of Section 5.4
and shall have paid the Termination Fee in accordance with Section 5.8(b);
(f) By MCI WorldCom in accordance with Section 5.5(b); provided that, in
order for the termination of this Agreement pursuant to this paragraph (f) to
be deemed effective, MCI WorldCom shall have complied with the notice
provisions of Section 5.5 and shall have paid the Termination Fee in accordance
with Section 5.8(c);
(g) By Sprint, if MCI WorldCom shall have breached or failed to perform any
of its representations, warranties, covenants or other agreements contained in
this Agreement, which breach or failure to perform (A) would give rise to the
failure of a condition set forth in Section 6.3(a) or (b) and (B) has not been
or is incapable of being cured by MCI WorldCom within 45 calendar days after
its receipt of written notice thereof from Sprint;
(h) By MCI WorldCom, if Sprint shall have breached or failed to perform any
of its representations, warranties, covenants or other agreements contained in
this Agreement, which breach or failure to perform (A) would give rise to the
failure of a condition set forth in Section 6.2(a) or (b) and (B) has not been
or is incapable of being cured by Sprint within 45 calendar days after its
receipt of written notice thereof from MCI WorldCom;
(i) By Sprint, in the event that MCI WorldCom takes any action set forth in
Section 5.5(b)(x); or
(j) By MCI WorldCom, in the event that Sprint takes any action set forth in
Section 5.4(b)(x).
Notwithstanding anything else contained in this Agreement, the right to
terminate this Agreement under this Section 7.1 shall not be available to any
party (a) that is in material breach of its obligations hereunder or (b) whose
failure to fulfill its obligations or to comply with its covenants under this
Agreement has been the cause of, or resulted in, the failure to satisfy any
condition to the obligations of either party hereunder.
7.2 Effect of Termination. In the event of termination of this Agreement by
either Sprint or MCI WorldCom as provided in Section 7.1, this Agreement shall
forthwith become void and there shall be no liability or obligation on the part
of MCI WorldCom or Sprint or their respective directors or officers except with
respect to Section 3.1(m), Section 3.2(m), the second sentence of Section 5.2,
Section 5.8, this Section 7.2
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and Article VIII. Termination of this Agreement will not relieve a breaching
party from liability for any willful and material breach by such party of any
of its representations, warranties, covenants or agreements set forth in this
Agreement.
7.3 Amendment. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors, at any time
before or after approval of the matters presented in connection with the Merger
by the stockholders of Sprint and MCI WorldCom, but, after any such approval,
no amendment shall be made which by law or in accordance with the rules of any
relevant stock exchange requires further approval by such stockholders without
such further approval. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
7.4 Extension; Waiver; Consent. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto and (iii) waive
compliance with or give a consent under any of the agreements or conditions
contained herein. Any agreement on the part of a party hereto to any such
extension, waiver or consent shall be valid only if set forth in a written
instrument signed on behalf of such party in its sole discretion. The failure
of any party to this Agreement to assert any of its rights under this Agreement
or otherwise shall not constitute a waiver of those rights.
ARTICLE VIII
General Provisions
8.1 Non-Survival of Representations, Warranties and Agreements. None of the
representations, warranties, covenants and other agreements in this Agreement
or in any instrument delivered pursuant to this Agreement, including any rights
arising out of any breach of such representations, warranties, covenants and
other agreements, shall survive the Effective Time, except for those covenants
and agreements contained herein that by their terms apply or are to be
performed in whole or in part after the Effective Time and this Article VIII.
8.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed duly given (a) on the date of delivery if delivered
personally, or by telecopy or telefacsimile, upon confirmation of receipt, (b)
on the first Business Day following the date of dispatch if delivered by a
recognized next-day courier service, or (c) on the tenth Business Day following
the date of mailing if delivered by registered or certified mail, return
receipt requested, postage prepaid. All notices hereunder shall be delivered as
set forth below, or pursuant to such other instructions as may be designated in
writing by the party to receive such notice:
(a) if to MCI WorldCom, to
MCI WORLDCOM, Inc
1801 Pennsylvania Avenue, NW
Washington, DC 20006
Attention: Michael Salsbury, Esq.
Facsimile No.: 202-887-3353
MCI WORLDCOM, Inc
10777 Sunset Office Drive, Suite 330
St. Louis, MO 63127
Attention: P. Bruce Borghardt, Esq.
Facsimile No.: 314-909-4101
1-40
<PAGE>
with a copy to
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Attention: Robert A. Kindler, Esq.
Robert I. Townsend, III, Esq.
Facsimile No.: 212-474-3700
(b) if to Sprint, to
Sprint Corporation
2330 Shawnee Mission Parkway
Westwood, KS 66205
Attention: J. Richard Devlin, Esq.
Facsimile No.: 913-624-8426
with a copy to
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attention: Bruce N. Hawthorne, Esq.
C. William Baxley, Esq.
Facsimile No.: 404-572-5146
8.3 Interpretation. When a reference is made in this Agreement to Sections,
exhibits or Schedules, such reference shall be to a Section of or Exhibit or
Schedule to this Agreement unless otherwise indicated. The table of contents,
glossary of defined terms and headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation".
8.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that both
parties need not sign the same counterpart.
8.5 Entire Agreement; No Third Party Beneficiaries. (a) This Agreement and
the Confidentiality Agreement constitute the entire agreement and supersede all
prior agreements and understandings, both written and oral, between the parties
with respect to the subject matter hereof.
(b) This Agreement shall be binding upon and inure solely to the benefit of
each party hereto, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other Person any right, benefit or remedy
of any nature whatsoever under or by reason of this Agreement, other than
Section 5.9 (which is intended to be for the benefit of the Persons covered
thereby and may be enforced by such Persons) or as provided in Section 5.7 of
the Sprint Disclosure Schedule.
8.6 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware, except that the Merger shall
be governed by the laws of the State of Kansas and the laws of the State of
Georgia.
8.7 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any law or public policy,
all other terms and provisions of this Agreement shall nevertheless
1-41
<PAGE>
remain in full force and effect. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in an
acceptable manner in order that the transactions contemplated hereby are
consummated as originally contemplated to the greatest extent possible.
8.8 Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto, in whole
or in part (whether by operation of law or otherwise), without the prior
written consent of the other party, and any attempt to make any such
assignment without such consent shall be null and void. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit
of and be enforceable by the parties and their respective successors and
assigns.
8.9 Submission to Jurisdiction; Waivers. Each of the parties hereto (a)
consents to submit itself to the personal jurisdiction of any Delaware state
court or any Federal court located in the State of Delaware in the event any
dispute arises out of or under or relates to this Agreement or any of the
transactions contemplated hereby and agrees, to the extent that such party is
not resident in the State of Delaware, to irrevocably appoint CSC The United
States Corporation Company as its agent for service of process, (b) agrees
that it will not attempt to deny or defeat such personal jurisdiction by
motion or other request for leave from any such court, (c) agrees that it will
not bring any action, suit or proceeding arising out of or under or relating
to this Agreement or any of the transactions contemplated hereby, in any court
other than any Delaware state court or any Federal court located in the State
of Delaware and (d) waives any right to trial by jury with respect to any
action, suit or proceeding arising out of or under or relating to this
Agreement or any of the transactions contemplated hereby. Each of the parties
hereto hereby irrevocably and unconditionally waives any objection to the
laying of venue of any action, suit or proceeding arising out of or under or
relating to this Agreement or any of the transactions contemplated hereby in
any Delaware state court or any Federal court located in the State of
Delaware, and hereby further irrevocably and unconditionally waives and agrees
not to plead or claim in any such court that any such action, suit or
proceeding brought in any such court has been brought in an inconvenient
forum.
8.10 Enforcement. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms. It is accordingly agreed that the
parties shall be entitled to specific performance of the terms hereof, this
being in addition to any other remedy to which they are entitled at law or in
equity.
8.11 Definitions. As used in this Agreement:
(a) "Benefit Plans" means, with respect to any Person, each employee
benefit plan, program, arrangement and contract (including any "employee
benefit plan" (as defined in ERISA) and any bonus, deferred compensation,
stock bonus, stock purchase, restricted stock, stock option, employment,
termination, stay agreement or bonus, change in control and severance plan,
program, arrangement and contract) all of the foregoing in effect on the date
of this Agreement, to which such Person is a party, which is maintained or
contributed to by such Person, or with respect to which such Person could
incur material liability under Section 4069, 4201 or 4212(c) of ERISA.
(b) "Board of Directors" means the Board of Directors of any specified
Person or any committee thereof.
(c) "Business Day" means any day on which banks are not required or
authorized to close in the City of New York.
(d) "Class A Holder" has the meaning ascribed thereto in Sprint's articles
of incorporation.
(e) "Knowledge" of any Person that is not an individual means, with respect
to any specific matter, the actual knowledge of such Person's executive
officers and other officers having primary responsibility for such matter.
1-42
<PAGE>
(f) "Material Adverse Effect" or "Material Adverse Change" means, with
respect to any entity, any adverse change, circumstance or effect that,
individually or in the aggregate with all other adverse changes, circumstances
and effects, is or is reasonably likely to be materially adverse to the
business, financial condition or results of operations of such entity and its
Subsidiaries taken as a whole, other than any change, circumstance or effect
(i) relating to or resulting from the economy or securities markets in general,
(ii) relating to or resulting from the industries in which MCI WorldCom or
Sprint operate and not uniquely relating to MCI WorldCom or Sprint or (iii)
resulting from the announcement or the existence of this Agreement and the
transactions contemplated hereby.
(g) "Material Investment" means (a) as to Sprint, any Person which Sprint
directly or indirectly holds the stock of, or other ownership interest in,
provided that the lesser of the fair market value and the book value of such
stock or interest exceeds $250 million, excluding any Person that is a wholly
owned Subsidiary of Sprint; and (b) as to MCI WorldCom, any Person which MCI
WorldCom directly or indirectly holds the stock of, or other ownership interest
in, provided that the lesser of the fair market value and the book value of
such stock or interest exceeds $250 million, excluding any Person that is a
wholly owned Subsidiary of MCI WorldCom.
(h) "the other party" means, with respect to Sprint, MCI WorldCom and means,
with respect to MCI WorldCom, Sprint.
(i) "Person" means an individual, corporation, limited liability company,
partnership, association, trust, unincorporated organization, other entity or
group (as defined in the Exchange Act).
(j) "Significant Subsidiary" has the meaning ascribed thereto in Rule 1-
02(w) of Regulation S-X of the SEC.
(k) "Subsidiary" when used with respect to any party means any corporation
or other organization, whether incorporated or unincorporated, (i) of which
such party or any other Subsidiary of such party is a general partner
(excluding partnerships, the general partnership interests of which held by
such party or any Subsidiary of such party do not have a majority of the voting
interests in such partnership) or (ii) at least a majority of the securities or
other interests of which having by their terms ordinary voting power to elect a
majority of the Board of Directors or others performing similar functions with
respect to such corporation or other organization is directly or indirectly
owned or controlled by such party or by any one or more of its Subsidiaries, or
by such party and one or more of its Subsidiaries.
(l) "FON Exchange Ratio" means the quotient (rounded to the nearest
1/10,000) determined by dividing $76 by the Average Price; provided that the
FON Exchange Ratio shall not be less than .9400 or greater than 1.2228.
(m) "PCS Exchange Ratio" means .1547.
(n) "Average Price" means the average (rounded to the nearest 1/10,000) of
the volume weighted averages (rounded to the nearest 1/10,000) of the trading
prices of MCI WorldCom Common Stock on The Nasdaq National Market ("Nasdaq"),
as reported by Bloomberg Financial Markets (or such other source as the parties
shall agree in writing), for the 15 trading days randomly selected by lot by
MCI WorldCom and Sprint together from the 30 consecutive trading days ending on
the third trading day immediately preceding the Effective Time.
1-43
<PAGE>
IN WITNESS WHEREOF, MCI WorldCom and Sprint have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the
date first written above.
MCI WorldCom, Inc.,
/s/ Bernard J. Ebbers
by___________________________________
Name: Bernard J. Ebbers
Title: President and Chief
Executive Officer
Sprint Corporation,
/s/ William T. Esrey
by___________________________________
Name: William T. Esrey
Title: Chairman and Chief
Executive Officer
1-44
<PAGE>
ANNEX 1 TO
THE MERGER AGREEMENT
CERTAIN MATTERS RELATING TO SURVIVING CORPORATION
Board of Directors
The By-laws of the Surviving Corporation will provide that the Board of
Directors of the Surviving Corporation will consist of 16 members, 10 of whom
shall be designated by MCI WorldCom and six of whom shall be designated by
Sprint.
If Deutsche Telekom AG and/or France Telecom shall become entitled to
designate one or more directors, the number of members of the Board of
Directors of the Surviving Corporation will be increased by one to accommodate
one Deutsche Telekom AG or France Telecom designee and any additional
director(s) so designated by Deutsche Telekom AG and/or France Telecom shall be
treated as having been designated by Sprint; provided that if Deutsche Telekom
AG and/or France Telecom shall be entitled to designate more than two
directors, MCI WorldCom shall increase the size of the Board of Directors in
order to permit each of MCI WorldCom and Sprint to designate such additional
directors to maintain the same proportion of MCI WorldCom and Sprint designees
on the Board of Directors as described above.
Prior to the Effective Time, each party will designate in writing the
individual directors that it is entitled to designate to the Board of Directors
as provided above.
Tracking Stock Policies; Tax Sharing Agreement
As of the Effective Time, MCI WorldCom shall adopt Tracking Stock Policies
identical to the Sprint Tracking Stock Policies as in effect on the date hereof
and will assume the related Tax Sharing Agreement dated as of November 23,
1998.
MCI WorldCom agrees that, at the Closing, no other policies shall have been
adopted by MCI WorldCom which are inconsistent with such Tracking Stock
Policies or otherwise impair the relative position of the holders of capital
stock as set forth in such Tracking Stock Policies.
MCI WorldCom Shareholder Rights Plan
As of the Effective Time, MCI WorldCom shall modify the terms of the MCI
WorldCom shareholder rights plan in a manner to take into account (i) the
creation of the PCS stock and (ii) the rights of the holders of Sprint Class A
Common Stock set forth in Sprint's shareholder rights plan as in effect on the
date hereof.
1-45
<PAGE>
GLOSSARY OF DEFINED TERMS
<TABLE>
<CAPTION>
Location
Definition of Definition
- ---------- -------------
<S> <C>
Adjusted Option................................................... (S) 5.6(a)
Agreement......................................................... Preamble
Average Price..................................................... (S) 8.11(n)
Benefit Plans..................................................... (S) 8.11(a)
Blue Sky Laws..................................................... (S) 3.1(c)
Board of Directors................................................ (S) 8.11(b)
Business Day...................................................... (S) 8.11(c)
Certificate....................................................... (S) 1.8(c)
Class A Holder.................................................... (S) 8.11(d)
Closing........................................................... (S) 1.2
Closing Date...................................................... (S) 1.2
Code.............................................................. Recitals
Communications Act................................................ (S) 3.1(c)
Confidentiality Agreement......................................... (S) 5.2
DOJ............................................................... (S) 5.3(b)
Effective Time.................................................... (S) 1.3
ERISA............................................................. (S) 3.1(p)
Exchange Act...................................................... (S) 3.1(c)
Exchange Agent.................................................... (S) 2.1
Expenses.......................................................... (S) 5.8(a)
FCC............................................................... (S) 3.1(c)
Fifth Series Preferred Merger Consideration....................... (S) 1.8(b)
First Series Preferred Merger Consideration....................... (S) 1.8(b)
FON Exchange Ratio................................................ (S) 8.11(l)
FON Stock Merger Consideration.................................... (S) 1.8(b)
Form S-4.......................................................... (S) 5.1(a)
GBCC.............................................................. (S) 1.1
Georgia Certificate of Merger..................................... (S) 1.3(b)
Governmental Entity............................................... (S) 3.1(c)
HSR Act........................................................... (S) 3.1(c)
Intellectual Property Rights...................................... (S) 3.1(i)
Joint Proxy Statement/Prospectus.................................. (S) 5.1(a)
Kansas Certificate of Merger...................................... (S) 1.3(a)
KGCC.............................................................. (S) 1.1
Knowledge......................................................... (S) 8.11(e)
Liens............................................................. (S)3.1(b)
Material Adverse Change........................................... (S) 8.11(f)
Material Adverse Effect........................................... (S) 8.11(f)
Material Investment............................................... (S) 8.11(g)
MCI WorldCom...................................................... Preamble
MCI WorldCom Acquisition Agreement................................ (S) 5.5(b)
MCI WorldCom Applicable Period.................................... (S)5.5(a)
MCI WorldCom Capital Stock........................................ (S) 1.8(a)
MCI WorldCom Common Stock......................................... (S) 1.8(b)
MCI WorldCom Common Stock Option Shares........................... (S) 5.6(a)
MCI WorldCom Competing Proposal................................... (S) 5.5(a)
MCI WorldCom Consolidated Group................................... (S) 3.2(p)
MCI WorldCom Disclosure Schedule.................................. (S) 3.2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Location
Definition of Definition
- ---------- -------------
<S> <C>
MCI WorldCom Dissenting Shares.................................... (S) 1.8(f)
MCI WorldCom Filed SEC Reports.................................... (S) 3.2
MCI WorldCom 1998 10-K............................................ (S) 3.2(b)
MCI WorldCom PCS Stock............................................ (S) 1.8(a)
MCI WorldCom Permits.............................................. (S) 3.2(g)
MCI WorldCom Relevant Stock....................................... (S) 5.16
MCI WorldCom Rights............................................... (S) 3.2(b)
MCI WorldCom Rights Agreement..................................... (S) 3.2(b)
MCI WorldCom SEC Reports.......................................... (S) 3.2(d)
MCI WorldCom Series B Preferred Stock............................. (S) 3.2(b)
MCI WorldCom Series C Preferred Stock............................. (S) 3.2(b)
MCI WorldCom Series DT Common Stock............................... (S) 1.8(a)
MCI WorldCom Series FT Common Stock............................... (S) 1.8(a)
MCI WorldCom Series 2 Common Stock................................ (S) 1.8(a)
MCI WorldCom Series 3 Common Stock................................ (S) 1.8(a)
MCI WorldCom Series 1 PCS Stock................................... (S) 1.8(a)
MCI WorldCom Series 2 PCS Stock................................... (S) 1.8(a)
MCI WorldCom Series 3 PCS Stock................................... (S) 1.8(a)
MCI WorldCom Series 1 Preferred Stock............................. (S) 1.8(a)
MCI WorldCom Series 5 Preferred Stock............................. (S) 1.8(a)
MCI WorldCom Series 7 Preferred Stock............................. (S) 1.8(a)
MCI WorldCom Shareholders Meeting................................. (S) 5.1(c)
MCI WorldCom Stock Issuance....................................... (S) 3.2(k)
MCI WorldCom Superior Proposal.................................... (S) 5.5(a)
MCI WorldCom Voting Debt.......................................... (S) 3.2(b)
Merger............................................................ Recitals
Merger Consideration.............................................. (S) 1.8(b)
Nasdaq............................................................ (S) 8.11(n)
NYSE.............................................................. (S) 3.1(c)
PCS Exchange Ratio................................................ (S) 8.11(m)
PCS Stock Merger Consideration.................................... (S) 1.8(b)
Person............................................................ (S) 8.11(i)
Preferred Stock Merger Consideration.............................. (S) 1.8(b)
PUCs.............................................................. (S) 3.1(c)
Regulation 4064/89................................................ (S) 3.1(c)
Regulatory Law.................................................... (S) 5.3(c)
Required Approval................................................. (S) 5.3(a)
Required Consents................................................. (S) 3.1(c)
Required MCI WorldCom Vote........................................ (S) 3.2(k)
Required Sprint Vote.............................................. (S) 3.1(k)
Rule 145.......................................................... (S) 5.15
SEC............................................................... (S) 3.1(d)
Securities Act.................................................... (S) 3.1(c)
Series DT Merger Consideration.................................... (S) 1.8(b)
Series FT Merger Consideration.................................... (S) 1.8(b)
Series 1 FON Merger Consideration................................. (S) 1.8(b)
Series 3 FON Merger Consideration................................. (S) 1.8(b)
Series 1 PCS Merger Consideration................................. (S) 1.8(b)
Series 2 PCS Merger Consideration................................. (S) 1.8(b)
Series 3 PCS Merger Consideration................................. (S) 1.8(b)
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Location
Definition of Definition
- ---------- -------------
<S> <C>
Seventh Series Preferred Merger Consideration..................... (S) 1.8(b)
Significant Subsidiary............................................ (S) 8.11(j)
Sprint............................................................ Preamble
Sprint Acquisition Agreement...................................... (S) 5.4(b)
Sprint Affiliate Letter........................................... (S) 5.15
Sprint Applicable Period.......................................... (S) 5.4(a)
Sprint Capital Stock.............................................. (S) 1.8(b)
Sprint Class A Common Stock....................................... (S) 1.8(b)
Sprint Common Stock............................................... (S) 1.8(b)
Sprint Competing Proposal......................................... (S) 5.4(a)
Sprint Consolidated Group......................................... (S) 3.1(q)
Sprint Conversion Securities...................................... (S) 1.8(b)
Sprint Disclosure Schedule........................................ (S) 3.1
Sprint Dissenting Shares.......................................... (S) 1.8(e)
Sprint Fifth Series Preferred Stock............................... (S) 1.8(b)
Sprint Filed SEC Reports.......................................... (S) 3.1
Sprint First Series Preferred Stock............................... (S) 1.8(b)
Sprint FON Stock.................................................. (S) 1.8(b)
Sprint 1998 10-K.................................................. (S) 3.1(b)
Sprint PCS Stock.................................................. (S) 1.8(b)
Sprint Permits.................................................... (S) 3.1(g)
Sprint Preferred Stock............................................ (S) 1.8(b)
Sprint Rights..................................................... (S) 3.1(b)
Sprint Rights Agreement........................................... (S) 3.1(b)
Sprint SEC Reports................................................ (S) 3.1(d)
Sprint Second Series Preferred Stock.............................. (S) 1.8(b)
Sprint Series DT Common Stock..................................... (S) 1.8(b)
Sprint Series FT Common Stock..................................... (S) 1.8(b)
Sprint Series 1 FON Stock......................................... (S) 1.8(b)
Sprint Series 2 FON Stock......................................... (S) 1.8(b)
Sprint Series 3 FON Stock......................................... (S) 1.8(b)
Sprint Series 1 PCS Stock......................................... (S) 1.8(b)
Sprint Series 2 PCS Stock......................................... (S) 1.8(b)
Sprint Series 3 PCS Stock......................................... (S) 1.8(b)
Sprint Seventh Series Preferred Stock............................. (S) 1.8(b)
Sprint Stock Option Plans......................................... (S) 3.1(b)
Sprint Stock Options.............................................. (S) 3.1(b)
Sprint Stockholders Meeting....................................... (S) 5.1(b)
Sprint Superior Proposal.......................................... (S) 5.4(a)
Sprint Voting Debt................................................ (S) 3.1(b)
Subsidiary........................................................ (S) 8.11(k)
Surviving Corporation............................................. (S) 1.1
taxes............................................................. (S) 3.1(q)
Termination Date.................................................. (S) 7.1(b)
Termination Fee................................................... (S) 5.8(b)
the other party................................................... (S) 8.11(h)
Transition Period................................................. (S) 5.7(a)
U.S. GAAP......................................................... (S) 3.1(d)
Violation......................................................... (S) 3.1(c)
Warrants.......................................................... (S) 3.1(b)
</TABLE>
iii
<PAGE>
ANNEX 2
Amended WorldCom Articles of Incorporation
[To be supplied]
<PAGE>
ANNEX 3
Amended WorldCom Bylaws
[To be supplied]
<PAGE>
ANNEX 4
SalomonSmithBarney
- ----------------------------
A member of citigroup [LOGO]
October 4, 1999
Board of Directors
MCI WORLDCOM, Inc.
500 Clinton Center Drive
Clinton, MS 39056
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to MCI WORLDCOM, Inc. ("MCI WORLDCOM"), of the consideration to be paid
by MCI WORLDCOM in connection with the proposed business combination between
MCI WORLDCOM and Sprint Corporation ("Sprint") pursuant to an Agreement and
Plan of Merger (the "Agreement"), dated as of October 4, 1999, between MCI
WORLDCOM and Sprint. Under the Agreement, Sprint will merge (the "Merger") with
and into MCI WORLDCOM. At the effective time of the Merger and pursuant to the
Merger Agreement, the articles of incorporation of MCI WORLDCOM will be amended
to provide for the creation of the following series of capital stock: (i) Class
A Common Stock, Series FT, par value $2.50 per share (the "MCI WORLDCOM Series
FT Common Stock"); (ii) Class A Common Stock, Series DT, par value $2.50 per
share (the "MCI WORLDCOM Series DT Common Stock"); (iii) Common Stock, Series
2, par value $0.01 per share (the "MCI WORLDCOM Series 2 Common Stock"); (iv)
Common Stock, Series 3, par value $0.01 per share (the "MCI WORLDCOM Series 3
Common Stock"); (v) PCS Common Stock, Series 1, par value $1.00 per share (the
"MCI WORLDCOM Series 1 PCS Stock"); (vi) PCS Common Stock, Series 2, par value
$1.00 per share (the "MCI WORLDCOM Series 2 PCS Stock"); (vii) PCS Common
Stock, Series 3, par value $1.00 per share (the "MCI WORLDCOM Series 3 PCS
Stock" and, together with the MCI WORLDCOM Series 1 PCS Stock and the MCI
WORLDCOM Series 2 PCS Stock, the "MCI WORLDCOM PCS Stock"); (viii) Series 1
Preferred Stock, par value $0.01 per share (the "MCI WORLDCOM Series 1
Preferred Stock"); (ix) Series 5 Preferred Stock, par value $0.01 per share
(the "MCI WORLDCOM Series 5 Preferred Stock"); (x) Series 7 Preferred Stock,
par value $0.01 per share (the "MCI WORLDCOM Series 7 Preferred Stock"); and
(xi) Series 8 Junior Participating Preferred Stock, par value $0.01 per share.
The foregoing series of capital stock, together with the series and classes of
capital stock of MCI WORLDCOM authorized as of the date hereof, are
collectively referred to herein as "MCI WORLDCOM Capital Stock."
In addition, pursuant to the Agreement, at the effective time of the Merger,
(i) each share of Class A Common Stock, par value $2.50 per share, of Sprint
issued and outstanding immediately prior to the Effective Time will be
converted into the right to receive one share of MCI WORLDCOM Series FT Common
Stock; (ii) each share of Class A Common Stock, Series DT, par value $2.50 per
share, of Sprint issued and outstanding immediately prior to the Effective Time
will be converted into the right to receive one share of MCI WORLDCOM Series DT
Common Stock; (iii) each share of Series 1 FON Stock, par value $2.00 per
share, of Sprint issued and outstanding immediately prior to the Effective Time
will be converted into the right to receive that number of shares of common
stock, par value $0.01 per share, of MCI WORLDCOM ("MCI WORLDCOM Common Stock")
equal to the FON Exchange Ratio (as defined below); (iv) each share of Series 3
FON Stock, par value $2.00 per share, of Sprint issued and outstanding
immediately prior to the Effective Time will be converted into the right to
receive a number of shares of MCI WORLDCOM Series 3 Common Stock equal to the
FON Exchange Ratio; (v) each share of Series 1 PCS Stock, par value $1.00 per
4-1
<PAGE>
SalomonSmithBarney
- ----------------------------
A member of citigroup [LOGO]
share, of Sprint issued and outstanding immediately prior to the Effective Time
will be converted into the right to receive (A) one share of MCI WORLDCOM
Series 1 PCS Stock and (B) 0.1547 (the "PCS Exchange Ratio") shares of
MCI WORLDCOM Common Stock (collectively, the "Series 1 PCS Merger
Consideration"); (vi) each share of Series 2 PCS Stock, par value $1.00 per
share, of Sprint issued and outstanding immediately prior to the Effective Time
will be converted into the right to receive (A) one share of MCI WORLDCOM
Series 2 PCS Stock and (B) a number of shares of MCI WORLDCOM Series 2 PCS
Stock equal to the PCS Exchange Ratio (collectively, the "Series 2 PCS Merger
Consideration"); (vii) each share of Series 3 PCS Stock, par value $1.00 per
share, of Sprint issued and outstanding immediately prior to the Effective Time
will be converted into the right to receive (A) one share of MCI WORLDCOM
Series 3 PCS Stock and (B) a number of shares of MCI WORLDCOM Series 3 PCS
Stock equal to the PCS Exchange Ratio (collectively, the "Series 3 PCS Merger
Consideration" and, together with the Series 1 PCS Merger Consideration and the
Series 2 PCS Merger Consideration, the "PCS Stock Merger Consideration");
(viii) each share of Preferred Stock-- First Series, without par value, of
Sprint issued and outstanding immediately prior to the Effective Time will be
converted into the right to receive one share of MCI WORLDCOM Series 1
Preferred Stock; (ix) each share of Preferred Stock--Second Series,
Convertible, without par value, of Sprint shall have been redeemed by Sprint
prior to the Effective Time pursuant to the Agreement; (x) each share of
Preferred Stock--Fifth Series, without par value, of Sprint issued and
outstanding immediately prior to the Effective Time will be converted into the
right to receive one share of MCI WORLDCOM Series 5 Preferred Stock; and (xi)
each share of Preferred Stock--Seventh Series, Convertible, without par value,
of Sprint issued and outstanding immediately prior to the Effective Time will
be converted into the right to receive one share of MCI WORLDCOM Series 7
Preferred Stock. The term "FON Exchange Ratio" means the quotient (rounded to
the nearest 1/10,000) determined by dividing $76 by the average (rounded to the
nearest 1/10,000) of the volume weighted averages (rounded to the nearest
1/10,000) of the trading prices of MCI WORLDCOM Common Stock on The Nasdaq
National Market, as reported by Bloomberg Financial Markets (or such other
source as the parties shall agree in writing), for the 15 trading days randomly
selected by lot by MCI WORLDCOM and Sprint together from the 30 consecutive
trading days ending on the third trading day immediately preceding the
Effective Time; provided that the FON Exchange Ratio shall not be less than
0.9400 or greater than 1.2228.
In connection with rendering our opinion, we have reviewed certain publicly
available information concerning MCI WORLDCOM and Sprint and certain other
financial information concerning MCI WORLDCOM and Sprint, including financial
forecasts and estimates of synergies, that were provided to us by MCI WORLDCOM
and Sprint, respectively. We have discussed the business operations and
financial conditions of MCI WORLDCOM and Sprint as well as other matters we
believe relevant to our inquiry, including matters relating to the obtaining of
regulatory approvals for the Merger, with certain officers and employees of
MCI WORLDCOM and Sprint, respectively. We have also considered such other
information, financial studies, analyses, investigations and financial,
economic and market criteria that we deemed relevant.
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of the financial and other
information (including information relating to the obtaining of regulatory
approvals for the Merger) reviewed by us, and we have not assumed any
responsibility for independent verification of such information. With respect
to the financial forecasts of MCI WORLDCOM and Sprint, we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the respective managements of MCI WORLDCOM
and Sprint as to the future financial performance of MCI WORLDCOM or Sprint,
respectively, and we express no opinion with respect to such forecasts or the
assumptions on which they are best currently available estimates and judgments
of the management of MCI WORLDCOM and Sprint, and we express no opinion with
respect to such estimates or the assumptions on which they are based. We have
not made or obtained or assumed any
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SalomonSmithBarney
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A member of citigroup [LOGO]
responsibility for making or obtaining any independent valuations or appraisals
of any of the assets (including properties and facilities) or liabilities of
MCI WORLDCOM or Sprint.
Our opinion is necessarily based upon conditions as they exist and can be
evaluated on the date hereof. Our opinion as expressed below does not imply any
conclusion as to the likely trading range for any series or class of the MCI
WORLDCOM Capital Stock following the consummation of the Merger which may vary
depending upon, among other factors, changes in interest rates, dividend rates,
market conditions, general economic conditions and other factors that generally
influence the price of securities. Our opinion does not address MCI WORLDCOM's
underlying business decision to effect the Merger. Our opinion is directed only
to the fairness, from a financial point of view, of the FON Exchange Ratio and
the PCS Stock Merger Consideration, taken as a whole, to MCI WORLDCOM and does
not constitute a recommendation concerning how holders of any series or class
of MCI WORLDCOM Capital Stock should vote with respect to the transactions
contemplated by the Agreement. In rendering our opinion, we have assumed that
in the course of obtaining the necessary regulatory approvals for the Merger no
restrictions will be imposed that would have a material adverse effect on the
contemplated benefits of the Merger to MCI WORLDCOM following the Merger.
We have acted as financial advisor to the Board of Directors of MCI WORLDCOM
in connection with the Merger and will receive a fee for our services, part of
which is contingent upon consummation of the Merger. In the ordinary course of
business, we (including our current and future affiliates) may actively trade
the securities of MCI WORLDCOM and Sprint for our own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities. Also, we have previously rendered investment
banking and financial advisory services to MCI WORLDCOM and Sprint for which we
have received customary compensation.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the FON Exchange Ratio and the PCS Stock Merger Consideration,
taken as a whole, is fair to MCI WORLDCOM from a financial point of view.
Very truly yours,
/s/ Salomon Smith Barney Inc.
SALOMON SMITH BARNEY INC.
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ANNEX 5
[LOGO OF WARBURG DILLON READ]
Warburg Dillon Read LLC
299 Park Avenue
New York, NY 10171-0026
Telephone 212 821-4000
www.wdr.com
October 4, 1999
The Board of Directors
Sprint Corporation
2330 Shawnee Mission Parkway
Westwood, Kansas 66205
Dear Members of the Board:
We understand that Sprint Corporation, a Kansas corporation ("Sprint" or the
"Company"), is considering a transaction (the "Transaction") whereby the
Company will be merged with and into MCI WorldCom, Inc., a Georgia corporation
("MCI WorldCom").
The terms of the Agreement and Plan of Merger between MCI WorldCom and the
Company dated as of October 4, 1999 (the "Merger Agreement") provide, among
other things, that: (i) each share of Class A Common Stock, par value $2.50 per
share, of the Company ("Company Series FT Common Stock") will be converted into
the right to receive one share of MCI WorldCom Series FT Common Stock (the
"Series FT Exchange Ratio"); (ii) each share of Class A Common Stock, Series
DT, par value $2.50 per share, of the Company ("Company Series DT Common
Stock") will be converted into the right to receive one share of MCI WorldCom
Series DT Common Stock (the "Series DT Exchange Ratio"); (iii) each share of
Series 1 FON Stock, par value $2.00 per share, of the Company ("Company Series
1 FON Stock") will be converted into the right to receive that number of shares
of common stock, par value $0.01 per share, of MCI WorldCom ("MCI WorldCom
Common Stock") equal to the quotient (rounded to the nearest 1/10,000) of $76
divided by the Average Price (as defined in the Merger Agreement); provided
that this quotient will not be less than 0.9400 or greater than 1.2228 (the
"FON Exchange Ratio"); (iv) each share of Series 3 FON Stock, par value $2.00
per share, of the Company ("Company Series 3 FON Stock") will be converted into
the right to receive a number of shares of MCI WorldCom Series 3 Common Stock
equal to the FON Exchange Ratio; (v) each share of Series 1 PCS Stock, par
value $1.00 per share, of the Company ("Company Series 1 PCS Stock") will be
converted into the right to receive (A) one share of MCI WorldCom Series 1 PCS
Stock and (B) 0.1547 shares of MCI WorldCom Common Stock (collectively, the
"PCS Series 1 Exchange Ratio"); (vi) each share of Series 2 PCS stock, par
value $1.00 per share, of the Company ("Company Series 2 PCS Stock") will be
converted into the right to receive (A) one share of MCI WorldCom Series 2 PCS
Stock and (B) 0.1547 shares of MCI WorldCom Series 2 Common Stock
(collectively, the "PCS Series 2 Exchange Ratio"); and (vii) each share of
Series 3 PCS Stock, par value $1.00 per share, of the Company ("Company Series
3 PCS Stock" and, together with the Company Series 1 PCS Stock and the Company
Series 2 PCS Stock, the "Company PCS Stock") will be converted into the right
to receive (A) one share of MCI WorldCom Series 3 PCS Stock and (B) 0.1547
shares of MCI WorldCom Series 3 Common Stock (collectively, "the PCS Series 3
Exchange Ratio" and together with the PCS Series 1 Exchange Ratio and the PCS
Series 2 Exchange Ratio, the "PCS Exchange Ratio").
The Merger Agreement provides, among other things, that, at the Effective
Time of the Merger, (i) the provisions of the Company's articles of
incorporation relating to the Company's capital stock will be incorporated into
MCI WorldCom's articles of incorporation mutatis mutandis with only those
limited exceptions set forth in Exhibit A thereto, (ii) that MCI WorldCom will
adopt Tracking Stock Policies identical to the Company Tracking Stock Policies
in effect on the date hereof (as such terms are used in Annex 1 to the Merger
Agreement) and (iii) the by-laws of MCI WorldCom will be amended to incorporate
the provisions in the Company's by-laws relating to (A) the Capital Stock
Committee and (B) the rights of the Class A Holders (as such terms are defined
in the Company's by-laws). The terms and conditions of the Transaction are more
fully set forth in the Merger Agreement.
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[LOGO OF WARBURG DILLON READ]
References herein to each "Exchange Ratio" shall mean the Series FT Exchange
Ratio, the Series DT Exchange Ratio, the FON Exchange Ratio and the PCS
Exchange Ratio, references herein to the "Company Common Stock" shall mean,
collectively, the Company Series FT Common Stock, Company Series DT Common
Stock, Company Series 1 FON Stock, Company Series 3 FON Stock, Company Series 1
PCS Stock, Company Series 2 PCS Stock and Company Series 3 PCS Stock and
references herein to the "Merger Consideration" shall mean the shares of
capital stock of MCI WorldCom to be issued to the holders of Company Common
Stock upon conversion of their shares of Company Common Stock pursuant to the
terms of the Merger Agreement.
You have requested our opinion as to the fairness, from a financial point of
view, to the shareholders of the Company of each Exchange Ratio as it relates
to the holders of the relevant series of Company Common Stock and of the Merger
Consideration to the holders of Company Common Stock taken as a whole.
Warburg Dillon Read LLC ("WDR") has acted as financial advisor to the Board
of Directors of the Company in connection with the Transaction and will receive
a fee, a substantial portion of which is payable upon the consummation thereof.
In the past, WDR and its predecessors have provided investment banking services
to the Company and received customary compensation for the rendering of such
services. In the ordinary course of business, WDR, its successors and
affiliates may trade securities of the Company or MCI WorldCom for their own
accounts and, accordingly, may at any time hold a long or short position in
such securities.
Our opinion does not address the Company's underlying business decision to
effect the Transaction or constitute a recommendation to any shareholder of the
Company as to how such shareholder should vote with respect to the Transaction.
At your direction, we have not been asked to, nor do we, offer any opinion as
to the material terms of the Merger Agreement or the form of the Transaction.
In rendering this opinion, we have assumed, with your consent, that the final
executed form of the Merger Agreement will not differ in any material respect
from the draft dated October 3, 1999 that we have examined, and that MCI
WorldCom and the Company will comply with all the material terms of the Merger
Agreement. You have not authorized us to, and we have not, solicited
indications of interest in a business combination with the Company from any
party; however, we did review the terms of a proposal relating to a business
combination between the Company and BellSouth Corporation, as set forth in a
letter from Mr. F. Duane Ackerman, President and Chief Executive Officer of
BellSouth Corporation dated October 2, 1999 as supplemented by Mr. Ackerman's
letter dated October 4, 1999. Our opinion does not address the relative merits
of the Transaction contemplated pursuant to the Merger Agreement as compared to
any alternative business transaction that might be available to the Company.
In arriving at our opinion, we have, among other things: (i) reviewed
certain publicly available business and historical financial information
relating to the Company and MCI WorldCom, (ii) reviewed certain internal
financial information and other data relating to the business and financial
prospects of the Company, including estimates and financial forecasts prepared
by management of the Company, that were provided to us by the Company and not
publicly available, (iii) reviewed certain internal financial information and
other data relating to the business and financial prospects of MCI WorldCom,
including estimates and financial forecasts prepared by the management of MCI
WorldCom and not publicly available, (iv) reviewed estimates of synergies
prepared by the senior management of the Company and MCI WorldCom, (v)
conducted discussions with members of the senior management of the Company and
MCI WorldCom regarding the information and other data relating to the business
and financial prospects of the Company and MCI WorldCom, and the estimates of
synergies, described in (ii), (iii), and (iv) above, (vi) reviewed publicly
available financial and stock market data with respect to certain other
companies in lines of business we believe to be generally comparable to those
of the Company and MCI WorldCom, (vii) compared the financial terms of the
Transaction with the publicly
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[LOGO OF WARBURG DILLON READ]
available financial terms of certain other transactions which we believe to be
generally relevant, (viii) considered certain pro forma effects of the
Transaction on MCI WorldCom's financial statements, (ix) reviewed a draft dated
October 3, 1999 of the Merger Agreement, and (x) conducted such other financial
studies, analyses, and investigations, and considered such other information as
we deemed necessary or appropriate; provided, however, that all of the actions
set forth above were not necessarily undertaken for, or relevant to, our
opinion with respect to each of the Exchange Ratios.
In connection with our review, at your direction, we have not assumed any
responsibility for independent verification for any of the information reviewed
by us for the purpose of this opinion and have, at your direction, relied on
its being complete and accurate in all material respects. In addition, at your
direction, we have not made any independent evaluation or appraisal of any of
the assets or liabilities (contingent or otherwise) of the Company or MCI
WorldCom, nor have we been furnished with any such evaluation or appraisal.
With respect to the financial forecasts and estimates, including synergies,
referred to above, we have assumed, at your direction, that they have been
reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the management of each company as to the future
performance of their respective companies as well as the forecast synergies. In
rendering our opinion, we have assumed, with your consent, that the Transaction
will qualify as a tax-free reorganization.
Our opinion is necessarily based on economic, monetary, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof. It should be understood that, although subsequent developments may
affect this opinion, we do not have any obligation to update, revise or
reaffirm this opinion. Our opinion as expressed below does not imply any
conclusion as to the price or trading range of any series of MCI WorldCom
capital stock following the date of this opinion, which may vary depending on,
among other factors, changes in interest rates, dividend rates, market
conditions, general economic conditions and other factors that generally
influence the price of securities. Our opinion does not address the Company's
underlying business decision to effect the Transaction or the strategic and
operational benefits of the Transaction. Our opinion is directed only to the
fairness, from a financial point of view, of the Exchange Ratios to the holders
of the relevant series of Company Common Stock and of the Merger Consideration
to the holders of Company Common Stock taken as a whole and does not constitute
a recommendation to any holder of Company Common Stock as to how such holder
should vote with respect to the Transaction or whether such holder should
retain or dispose of shares of MCI WorldCom capital stock following
consummation of the Transaction.
In rendering our opinion, we have also assumed that obtaining the necessary
regulatory and governmental approvals for the proposed Transaction will not
significantly delay consummation of the Transaction, and that, in the course of
obtaining such approvals, no requirement or restriction will be imposed that
will have a material adverse effect on the contemplated benefits of the
proposed Transaction.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, (i) the Exchange Ratio relating to each series of Company Common
Stock is fair to the holders of such series from a financial point of view, and
(ii) the Merger Consideration is fair to the holders of Company Common Stock
taken as a whole from a financial point of view.
Very truly yours,
WARBURG DILLON READ LLC
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<PAGE>
ANNEX 6
KANSAS GENERAL CORPORATION CODE
CHAPTER 17. CORPORATIONS
ARTICLE 67. MERGER OR CONSOLIDATION
17-6712. Payment for stock of stockholder objecting to merger or
consolidation; definitions; notice to objecting stockholders; demand for
payment; appraisal and determination of value by district court, when; taxation
of costs; rights of objecting stockholders; status of stock; section
inapplicable to certain shares of stock.
(a) When used in this section, the word "stockholder" means a holder of
record of stock in a stock corporation and also a member of record of a
nonstock corporation; the words "stock" and "share" mean and include what is
ordinarily meant by those words and also membership or membership interest of a
member of a nonstock corporation.
(b) The corporation surviving or resulting from any merger or consolidation,
within 10 days after the effective date of the merger or consolidation, shall
notify each stockholder of any corporation of this state so merging or
consolidating who objected thereto in writing and whose shares either were not
entitled to vote or were not voted in favor of the merger or consolidation, and
who filed such written objection with the corporation before the taking of the
vote on the merger or consolidation, that the merger or consolidation has
become effective. If any such stockholder, within 20 days after the date of
mailing of the notice, shall demand in writing, from the corporation surviving
or resulting from the merger or consolidation, payment of the value of the
stockholder's stock, the surviving or resulting corporation shall pay to the
stockholder, within 30 days after the expiration of the period of 20 days, the
value of the stockholder's stock on the effective date of the merger or
consolidation, exclusive of any element of value arising from the expectation
or accomplishment of the merger or consolidation.
(c) If during a period of 30 days following the period of 20 days provided
for in subsection (b), the corporation and any such stockholder fail to agree
upon the value of such stock, any such stockholder, or the corporation
surviving or resulting from the merger or consolidation, may demand a
determination of the value of the stock of all such stockholders by an
appraiser or appraisers to be appointed by the district court, by filing a
petition with the court within four months after the expiration of the thirty-
day period.
(d) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the corporation, which shall file with the clerk of
such court, within 10 days after such service, a duly verified list containing
the names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the corporation. If the petition shall be filed by the corporation,
the petition shall be accompanied by such duly verified list. The clerk of the
court shall give notice of the time and place fixed for the hearing of such
petition by registered or certified mail to the corporation and to the
stockholders shown upon the list at the addresses therein stated and notice
shall also be given by publishing a notice at least once, at least one week
before the day of the hearing, in a newspaper of general circulation in the
county in which the court is located. The court may direct such additional
publication of notice as it deems advisable. The forms of the notices by mail
and by publication shall be approved by the court.
(e) After the hearing on such petition the court shall determine the
stockholders who have complied with the provisions of this section and become
entitled to the valuation of and payment for their shares, and shall appoint an
appraiser or appraisers to determine such value. Any such appraiser may examine
any of the books and records of the corporation or corporations the stock of
which such appraiser is charged with the duty of valuing, and such appraiser
shall make a determination of the value of the shares upon such investigation
as seems proper to the appraiser. The appraiser or appraisers shall also afford
a reasonable opportunity to the parties interested to submit to the appraiser
or appraisers pertinent evidence on the value of the shares. The appraiser or
appraisers, also, shall have the powers and authority conferred upon masters by
K.S.A. 60-253 and amendments thereto.
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(f) The appraiser or appraisers shall determine the value of the stock of
the stockholders adjudged by the court to be entitled to payment therefor and
shall file a report respecting such value in the office of the clerk of the
court, and notice of the filing of such report shall be given by the clerk of
the court to the parties in interest. Such report shall be subject to
exceptions to be heard before the court both upon the law and facts. The court
by its decree shall determine the value of the stock of the stockholders
entitled to payment therefor and shall direct the payment of such value,
together with interest, if any, as hereinafter provided, to the stockholders
entitled thereto by the surviving or resulting corporation. Upon payment of the
judgment by the surviving or resulting corporation, the clerk of the district
court shall surrender to the corporation the certificates of shares of stock
held by the clerk pursuant to subsection (g). The decree may be enforced as
other judgments of the district court may be enforced, whether such surviving
or resulting corporation be a corporation of this state or of any other state.
(g) At the time of appointing the appraiser or appraisers, the court shall
require the stockholders who hold certificated shares and who demanded payment
for their shares to submit their certificates of stock to the clerk of the
court, to be held by the clerk pending the appraisal proceedings. If any
stockholder fails to comply with such direction, the court shall dismiss the
proceedings as to such stockholder.
(h) The cost of any such appraisal, including a reasonable fee to and the
reasonable expenses of the appraiser, but exclusive of fees of counsel or of
experts retained by any party, shall be determined by the court and taxed upon
the parties to such appraisal or any of them as appears to be equitable, except
that the cost of giving the notice by publication and by registered or
certified mail hereinabove provided for shall be paid by the corporation. The
court, on application of any party in interest, shall determine the amount of
interest, if any, to be paid upon the value of the stock of the stockholders
entitled thereto.
(i) Any stockholder who has demanded payment of the stockholder's stock as
herein provided shall not thereafter be entitled to vote such stock for any
purpose or be entitled to the payment of dividends or other distribution on the
stock, except dividends or other distributions payable to stockholders of
record at a date which is prior to the effective date of the merger or
consolidation, unless the appointment of an appraiser or appraisers shall not
be applied for within the time herein provided, or the proceeding be dismissed
as to such stockholder, or unless such stockholder with the written approval of
the corporation shall deliver to the corporation a written withdrawal of the
stockholder's objections to and an acceptance of the merger or consolidation,
in any of which cases the right of such stockholder to payment for the
stockholder's stock shall cease.
(j) The shares of the surviving or resulting corporation into which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
(k) This section shall not apply to the shares of any class or series of a
class of stock, which, at the record date fixed to determine the stockholders
entitled to receive notice of and to vote at the meeting of stockholders at
which the agreement of merger or consolidation is to be acted on, were either
(1) registered on a national securities exchange or designated as a national
market system security on an interdealer quotation system by the national
association of securities dealers, inc., or (2) held of record by not less than
2,000 stockholders, unless the articles of incorporation of the corporation
issuing such stock shall otherwise provide; nor shall this section apply to any
of the shares of stock of the constituent corporation surviving a merger, if
the merger did not require for its approval the vote of the stockholders of the
surviving corporation, as provided in subsection (f) of K.S.A. 17-6701 and
amendments thereto. This subsection shall not be applicable to the holders of a
class or series of a class of stock of a constituent corporation if under the
terms of a merger of consolidation pursuant to K.S.A. 17-6701 or 17- 6702, and
amendments thereto, such holders are required to accept for such stock anything
except (i) stock or stock and cash in lieu of fractional shares of the
corporation surviving or resulting from such merger or consolidation, or (ii)
stock or stock and cash in lieu of fractional shares of any other corporation,
which at the record date fixed to determine the stockholders entitled to
receive notice of and to vote at the meeting of stockholders at which the
agreement of merger or consolidation is to be acted on, were either registered
on a national securities exchange or held of record by not less than 2,000
stockholders, or (iii) a combination of stock or stock and cash in lieu of
fractional shares as set forth in (i) and (ii) of this subsection.
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ANNEX 7
GEORGIA BUSINESS CORPORATION CODE
CHAPTER 2. BUSINESS CORPORATIONS
ARTICLE 13. DISSENTERS' RIGHTS
PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
14-2-1301. Definitions
As used in this article, the term:
(1) "Beneficial shareholder" means the person who is a beneficial owner
of shares held in a voting trust or by a nominee as the record shareholder.
(2) "Corporate action" means the transaction or other action by the
corporation that creates dissenters' rights under Code Section 14-2-1302.
(3) "Corporation" means the issuer of shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger
or share exchange of that issuer.
(4) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Code Section 14-2-1302 and who exercises that right
when and in the manner required by Code Sections 14-2-1320 through 14-2-
1327.
(5) "Fair value," with respect to a dissenter's shares, means the value
of the shares immediately before the effectuation of the corporate action
to which the dissenter objects, excluding any appreciation or depreciation
in anticipation of the corporate action.
(6) "Interest" means interest from the effective date of the corporate
action until the date of payment, at a rate that is fair and equitable
under all the circumstances.
(7) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee certificate on file
with a corporation.
(8) "Shareholder" means the record shareholder or the beneficial
shareholder.
14-2-1302. Right to dissent
(a) A record shareholder of the corporation is entitled to dissent from, and
obtain payment of the fair value of his shares in the event of, any of the
following corporate actions:
(1) Consummation of a plan of merger to which the corporation is a
party:
(A) If approval of the shareholders of the corporation is required
for the merger by Code Section 14-2-1103 or 14-2-1104 or the articles
of incorporation and the shareholder is entitled to vote on the merger;
or
(B) If the corporation is a subsidiary that is merged with its
parent under Code Section 14-2-1104;
(2) Consummation of a plan of share exchange to which the corporation is
a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(3) Consummation of a sale or exchange of all or substantially all of
the property of the corporation if a shareholder vote is required on the
sale or exchange pursuant to Code Section 14-2-1202, but not including a
sale pursuant to court order or a sale for cash pursuant to a plan by which
all or substantially all of the net proceeds of the sale will be
distributed to the shareholders within one year after the date of sale;
(4) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
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(A) Alters or abolishes a preferential right of the shares;
(B) Creates, alters, or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by dilution
through issuance of shares or other securities with similar voting
rights;
(E) Reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be
acquired for cash under Code Section 14-2-604; or
(F) Cancels, redeems, or repurchases all or part of the shares of
the class; or
(5) Any corporate action taken pursuant to a shareholder vote to the
extent that Article 9 of this chapter, the articles of incorporation,
bylaws, or a resolution of the board of directors provides that voting or
nonvoting shareholders are entitled to dissent and obtain payment for their
shares.
(b) A shareholder entitled to dissent and obtain payment for his shares
under this article may not challenge the corporate action creating his
entitlement unless the corporate action fails to comply with procedural
requirements of this chapter or the articles of incorporation or bylaws of the
corporation or the vote required to obtain approval of the corporate action was
obtained by fraudulent and deceptive means, regardless of whether the
shareholder has exercised dissenter's rights.
(c) Notwithstanding any other provision of this article, there shall be no
right of dissent in favor of the holder of shares of any class or series which,
at the record date fixed to determine the shareholders entitled to receive
notice of and to vote at a meeting at which a plan of merger or share exchange
or a sale or exchange of property or an amendment of the articles of
incorporation is to be acted on, were either listed on a national securities
exchange or held of record by more than 2,000 shareholders, unless:
(1) In the case of a plan of merger or share exchange, the holders of
shares of the class or series are required under the plan of merger or
share exchange to accept for their shares anything except shares of the
surviving corporation or another publicly held corporation which at the
effective date of the merger or share exchange are either listed on a
national securities exchange or held of record by more than 2,000
shareholders, except for scrip or cash payments in lieu of fractional
shares; or
(2) The articles of incorporation or a resolution of the board of
directors approving the transaction provides otherwise.
14-2-1303. Dissent by nominees and beneficial owners
A record shareholder may assert dissenters' rights as to fewer than all the
shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one beneficial shareholder and notifies the
corporation in writing of the name and address of each person on whose behalf
he asserts dissenters' rights. The rights of a partial dissenter under this
Code section are determined as if the shares as to which he dissents and his
other shares were registered in the names of different shareholders.
PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
14-2-1320. Notice of dissenters' rights
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the
meeting notice must state that shareholders are or may be entitled to assert
dissenters' rights under this article and be accompanied by a copy of this
article.
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(b) If corporate action creating dissenters' rights under Code Section 14-2-
1302 is taken without a vote of shareholders, the corporation shall notify in
writing all shareholders entitled to assert dissenters' rights that the action
was taken and send them the dissenters' notice described in Code Section 14-2-
1322 no later than ten days after the corporate action was taken.
14-2-1321. Notice of intent to demand payment
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record
shareholder who wishes to assert dissenters' rights:
(1) Must deliver to the corporation before the vote is taken written
notice of his intent to demand payment for his shares if the proposed
action is effectuated; and
(2) Must not vote his shares in favor of the proposed action.
(b) A record shareholder who does not satisfy the requirements of subsection
(a) of this Code section is not entitled to payment for his shares under this
article.
14-2-1322. Dissenters' notice
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is authorized at a shareholders' meeting, the corporation
shall deliver a written dissenters' notice to all shareholders who satisfied
the requirements of Code Section 14-2-1321.
(b) The dissenters' notice must be sent no later than ten days after the
corporate action was taken and must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(3) Set a date by which the corporation must receive the payment demand,
which date may not be fewer than 30 nor more than 60 days after the date
the notice required in subsection (a) of this Code section is delivered;
and
(4) Be accompanied by a copy of this article.
14-2-1323. Duty to demand payment
(a) A record shareholder sent a dissenters' notice described in Code Section
14-2-1322 must demand payment and deposit his certificates in accordance with
the terms of the notice.
(b) A record shareholder who demands payment and deposits his shares under
subsection (a) of this Code section retains all other rights of a shareholder
until these rights are canceled or modified by the taking of the proposed
corporate action.
(c) A record shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this article.
14-2-1324. Share restrictions
(a) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is taken or the restrictions released under Code Section 14-2-1326.
(b) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until these rights are
canceled or modified by the taking of the proposed corporate action.
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<PAGE>
14-2-1325. Offer of payment
(a) Except as provided in Code Section 14-2-1327, within ten days of the
later of the date the proposed corporate action is taken or receipt of a
payment demand, the corporation shall by notice to each dissenter who complied
with Code Section 14-2-1323 offer to pay to such dissenter the amount the
corporation estimates to be the fair value of his or her shares, plus accrued
interest.
(b) The offer of payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal year
ending not more than 16 months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for
that year, and the latest available interim financial statements, if any;
(2) A statement of the corporation's estimate of the fair value of the
shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under Code
Section 14-2-1327; and
(5) A copy of this article.
(c) If the shareholder accepts the corporation's offer by written notice to
the corporation within 30 days after the corporation's offer or is deemed to
have accepted such offer by failure to respond within said 30 days, payment for
his or her shares shall be made within 60 days after the making of the offer or
the taking of the proposed corporate action, whichever is later.
14-2-1326. Failure to take action
(a) If the corporation does not take the proposed action within 60 days
after the date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If, after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under Code Section 14-2-1322 and repeat the payment demand
procedure.
14-2-1327. Procedure if shareholder dissatisfied with payment or offer
(a) A dissenter may notify the corporation in writing of his own estimate of
the fair value of his shares and amount of interest due, and demand payment of
his estimate of the fair value of his shares and interest due, if:
(1) The dissenter believes that the amount offered under Code Section
14-2-1325 is less than the fair value of his shares or that the interest
due is incorrectly calculated; or
(2) The corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within 60 days after the date set for
demanding payment.
(b) A dissenter waives his or her right to demand payment under this Code
section and is deemed to have accepted the corporation's offer unless he or she
notifies the corporation of his or her demand in writing under subsection (a)
of this Code section within 30 days after the corporation offered payment for
his or her shares, as provided in Code Section 14-2-1325.
(c) If the corporation does not offer payment within the time set forth in
subsection (a) of Code Section 14-2-1325:
(1) The shareholder may demand the information required under subsection
(b) of Code Section 14-2-1325, and the corporation shall provide the
information to the shareholder within ten days after receipt of a written
demand for the information; and
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<PAGE>
(2) The shareholder may at any time, subject to the limitations period
of Code Section 14-2-1332, notify the corporation of his own estimate of
the fair value of his shares and the amount of interest due and demand
payment of his estimate of the fair value of his shares and interest due.
PART 3. JUDICIAL APPRAISAL OF SHARES
14-2-1330. Court action
(a) If a demand for payment under Code Section 14-2-1327 remains unsettled,
the corporation shall commence a proceeding within 60 days after receiving the
payment demand and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding
within the 60 day period, it shall pay each dissenter whose demand remains
unsettled the amount demanded.
(b) The corporation shall commence the proceeding, which shall be a nonjury
equitable valuation proceeding, in the superior court of the county where a
corporation's registered office is located. If the surviving corporation is a
foreign corporation without a registered office in this state, it shall
commence the proceeding in the county in this state where the registered office
of the domestic corporation merged with or whose shares were acquired by the
foreign corporation was located.
(c) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding, which
shall have the effect of an action quasi in rem against their shares. The
corporation shall serve a copy of the petition in the proceeding upon each
dissenting shareholder who is a resident of this state in the manner provided
by law for the service of a summons and complaint, and upon each nonresident
dissenting shareholder either by registered or certified mail or by
publication, or in any other manner permitted by law.
(d) The jurisdiction of the court in which the proceeding is commenced under
subsection (b) of this Code section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers
described in the order appointing them or in any amendment to it. Except as
otherwise provided in this chapter, Chapter 11 of Title 9, known as the
"Georgia Civil Practice Act," applies to any proceeding with respect to
dissenters' rights under this chapter.
(e) Each dissenter made a party to the proceeding is entitled to judgment
for the amount which the court finds to be the fair value of his shares, plus
interest to the date of judgment.
14-2-1331. Court costs and counsel fees
(a) The court in an appraisal proceeding commenced under Code Section 14-2-
1330 shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court, but not
including fees and expenses of attorneys and experts for the respective
parties. The court shall assess the costs against the corporation, except that
the court may assess the costs against all or some of the dissenters, in
amounts the court finds equitable, to the extent the court finds the dissenters
acted arbitrarily, vexatiously, or not in good faith in demanding payment under
Code Section 14-2-1327.
(b) The court may also assess the fees and expenses of attorneys and experts
for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the
requirements of Code Sections 14-2-1320 through 14-2-1327; or
(2) Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses
are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by this article.
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<PAGE>
(c) If the court finds that the services of attorneys for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these attorneys reasonable fees to be paid out of the
amounts awarded the dissenters who were benefited.
14-2-1332. Limitation of actions
No action by any dissenter to enforce dissenters' rights shall be brought
more than three years after the corporate action was taken, regardless of
whether notice of the corporate action and of the right to dissent was given by
the corporation in compliance with the provisions of Code Section 14-2-1320 and
Code Section 14-2-1322.
7-6
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Section 14-2-202(b)(4) of the Georgia Business Corporation Code (the "GBCC")
provides that a corporation's articles of incorporation may include a provision
that eliminates or limits the personal liability of directors for monetary
damages to the corporation or its shareholders for any action taken, or any
failure to take any action, as a director; provided, however, that the Section
does not permit a corporation to eliminate or limit the liability of a director
for appropriating, in violation of his or her duties, any business opportunity
of the corporation, for acts or omissions including intentional misconduct or a
knowing violation of law, receiving from any transaction an improper personal
benefit, or voting for or assenting to an unlawful distribution (whether as a
dividend, stock repurchase or redemption, or otherwise) as provided in Section
14-2-832 of the GBCC. Section 14-2-202(b)(4) also does not eliminate or limit
the rights of MCI WorldCom or any shareholder to seek an injunction or other
nonmonetary relief in the event of a breach of a director's duty to the
corporation and its shareholders. Additionally, Section 14-2-202(b)(4) applies
only to claims against a director arising out of his or her role as a director,
and does not relieve a director from liability arising from his or her role as
an officer or in any other capacity.
The provisions of Article Ten of MCI WorldCom's Second Amended and Restated
Articles of Incorporation, as amended, are similar in all substantive respects
to those contained in Section 14-2-202(b)(4) of the GBCC as outlined above.
Article Ten further provides that the liability of directors of MCI WorldCom
shall be limited to the fullest extent permitted by amendments to Georgia law.
Sections 14-2-850 to 14-2-859, inclusive, of the GBCC govern the
indemnification of directors, officers, employees, and agents. Section 14-2-851
of the GBCC permits indemnification of an individual for liability incurred by
him or her in connection with any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative and
whether formal or informal (including, subject to certain limitations, civil
actions brought as derivative actions by or in the right of MCI WorldCom) in
which the individual is made a party because he or she is or was a director of
MCI WorldCom, or, while a director of MCI WorldCom, such individual is or was
serving at the request of MCI WorldCom, as a director, officer, partner,
trustee, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise.
This Section permits indemnification if the director acted in good faith and
reasonably believed (a) in the case of conduct in his or her official capacity,
that such conduct was in the best interests of the corporation, (b) in all
other cases, that such conduct was at least not opposed to the best interests
of the corporation, and (c) in the case of a criminal proceeding, that he or
she had no reasonable cause to believe his or her conduct was unlawful. If the
required standard of conduct is met, indemnification may include judgments,
settlements, penalties, fines or reasonable expenses (including attorneys'
fees) incurred with respect to a proceeding.
A Georgia corporation may not indemnify a director under Section 14-2-851:
(1) in connection with a proceeding by or in the right of the corporation,
except for reasonable expenses incurred by such director in connection with the
proceeding provided it is determined that such director met the relevant
standard of conduct set forth above, or (2) in connection with any proceeding
with respect to conduct for which such director was adjudged liable on the
basis that he or she received an improper personal benefit, whether or not
involving action in his or her official capacity.
Prior to indemnifying a director under Section 14-2-851 of the GBCC, a
determination must be made that the director has met the relevant standard of
conduct. Such determination must be made under Section 14-2-855 of the GBCC by:
(1) a majority vote of a quorum consisting of disinterested directors; (2) a
duly designated committee of disinterested directors; (3) duly selected special
legal counsel; or (4) a vote of the shareholders, excluding shares owned by or
voted under the control of directors who do not qualify as disinterested
directors.
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<PAGE>
Section 14-2-856 of the GBCC provides that a Georgia corporation may, before
final disposition of a proceeding, advance funds to pay for or reimburse the
reasonable expenses incurred by a director who is a party to a proceeding
because he or she is a director, provided that such director delivers to the
corporation a written affirmation of his or her good faith belief that he or
she met the relevant standard of conduct described in Section 14-2-851 of the
GBCC, and a written undertaking by the director to repay any funds advanced if
it is ultimately determined that such director was not entitled to such
indemnification. Section 14-2-852 of the GBCC provides that directors who are
successful with respect to any claim brought against them, which claim is
brought because they are or were directors of MCI WorldCom, are entitled to
mandatory indemnification against reasonable expenses incurred in connection
therewith.
The GBCC also allows a Georgia corporation to indemnify directors made a
party to a proceeding without regard to the above-referenced limitations, if
authorized by the articles of incorporation or a bylaw, contract, or resolution
duly adopted by a vote of the shareholders of the corporation by a majority of
votes entitled to be cast, excluding shares owned or voted under the control of
the director or directors who are not disinterested, and to advance funds to
pay for or reimburse reasonable expenses incurred in the defense thereof,
subject to restrictions similar to the restrictions described in the preceding
paragraph; provided, however, that the corporation may not indemnify a director
adjudged liable (1) for any appropriation, in violation of his or her duties,
of any business opportunity of MCI WorldCom, (2) for acts or omissions which
involve intentional misconduct or a knowing violation of law, (3) for unlawful
distributions under Section 14-2-832 of the GBCC, or (4) for any transaction in
which the director obtained an improper personal benefit.
Section 14-2-857 of the GBCC provides that an officer of MCI WorldCom (but
not an employee or agent generally) who is not a director has the mandatory
right of indemnification granted to directors under Section 14-2-852, subject
to the same limitations as described above. In addition, MCI WorldCom may, as
provided by either MCI WorldCom's Second Amended and Restated Articles of
Incorporation as amended, MCI WorldCom's Restated Bylaws, general or specific
actions by its board of directors, or by contract, indemnify and advance
expenses to an officer, employee or agent who is not a director to the extent
that such indemnification is consistent with public policy.
The indemnification provisions of Article X of MCI WorldCom's Restated
Bylaws and Article Twelve of MCI WorldCom's Second Amended and Restated
Articles of Incorporation, as amended, are consistent with the foregoing
provisions of the GBCC. However, MCI WorldCom's Second Amended and Restated
Articles of Incorporation, as amended, prohibit indemnification of a director
who did not believe in good faith that his or her actions were in, or not
opposed to, MCI WorldCom's best interests, or to have improperly received a
personal benefit, or in the case of a criminal proceeding, if such director had
reasonable cause his or her conduct was unlawful, or in the case of a
proceeding by or in the right of MCI WorldCom, to which such director was
adjudged liable to MCI WorldCom, unless a court shall determine that the
director is fairly and reasonably entitled to indemnification in view of all
the circumstances. MCI WorldCom's Restated Bylaws extend the indemnification
available to officers under the GBCC to employees and agents.
Item 21(a). Exhibits.
See Exhibit Index.
Item 21(b). Financial Statement Schedules.
All financial statement schedules of MCI WorldCom and Sprint which are
required to be included herein are included in the Annual Report of MCI
WorldCom on Form 10-K for the fiscal year ended December 31, 1998 or the Annual
Report on Form 10-K of Sprint for the fiscal year ended December 31, 1998,
respectively, which are incorporated herein by reference.
Item 22. Undertakings.
(1) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
II-2
<PAGE>
provisions, or otherwise, the registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
(2) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act") (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Exchange Act) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(3) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first-class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(4) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(5) The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers and sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that paragraphs 5(a)(i) and 5(a)(ii) do not apply if
the registration statement is on Form S-3, Form S-8 or Form F-3, and
the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed with or
furnished to the Commission by the registrant pursuant to Section 13 or
15(d) of the Exchange Act that are incorporated by reference in the
registration statement.
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<PAGE>
(b) That for the purposes of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(6) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(7) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (6) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the Registration Statement and will not be used until
such amendment is effective, and that, for purposes of determining any
liability under the Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Clinton, State of
Mississippi, on November 5, 1999.
MCI WORLDCOM, Inc.
/s/ Scott D. Sullivan
By: ________________________________
Scott D. Sullivan
Chief Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Bernard J. Ebbers, Scott D. Sullivan and Charles T. Cannada, and each of them
(with full power to each of them to act alone), his or her true and lawful
attorneys in fact and agents for him or her and on his or her behalf and in his
or her name, place and stead, in any and all capacities to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with exhibits and any and all other documents
filed with respect thereto, with the Securities and Exchange Commission (or any
other governmental or regulatory authority), granting unto said attorneys, and
each of them, full power and authority to do and to perform each and every act
and thing requisite and necessary to be done in and about the premises in order
to effectuate the same as fully to all intents and purposes as he or she might
or could do if personally present, hereby ratifying and confirming all that
said attorneys in fact and agents, or any of them, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Clifford L. Alexander, Jr. Director November 5, 1999
______________________________________
Clifford L. Alexander, Jr.
/s/ James C. Allen Director November 5, 1999
______________________________________
James C. Allen
/s/ Judith Areen Director November 5, 1999
______________________________________
Judith Areen
/s/ Carl J. Aycock Director November 5, 1999
______________________________________
Carl J. Aycock
/s/ Max E. Bobbitt Director November 5, 1999
______________________________________
Max E. Bobbitt
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Bernard J. Ebbers Director, President and November 5, 1999
______________________________________ Chief Executive Officer
Bernard J. Ebbers (Principal Executive
Officer)
/s/ Francesco Galesi Director November 5, 1999
______________________________________
Francesco Galesi
/s/ Stiles A. Kellett, Jr. Director November 5, 1999
______________________________________
Stiles A. Kellett, Jr.
/s/ Gordon S. Macklin Director November 5, 1999
______________________________________
Gordon S. Macklin
/s/ John A. Porter Director November 5, 1999
______________________________________
John A. Porter
/s/ Timothy F. Price Director November 5, 1999
______________________________________
Timothy F. Price
/s/ Bert C. Roberts, Jr. Chairman of the Board November 5, 1999
______________________________________
Bert C. Roberts, Jr.
/s/ John W. Sidgmore Director November 5, 1999
______________________________________
John W. Sidgmore
/s/ Scott D. Sullivan Director and Chief November 5, 1999
______________________________________ Financial Officer
Scott D. Sullivan (Principal Financial
Officer and Principal
Accounting Officer)
/s/ Lawrence C. Tucker Director November 5, 1999
______________________________________
Lawrence C. Tucker
Director
______________________________________
Juan Villalonga
</TABLE>
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<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
2.1 Agreement and Plan of Merger between MCI WORLDCOM, Inc. ("MCI
WorldCom") and Sprint Corporation ("Sprint") dated as of October
4, 1999 (attached as Annex 1 to the proxy statement/prospectus
included in this Registration Statement)
4.1 Second Amended and Restated Articles of Incorporation of MCI
WorldCom (including preferred stock designations), as amended as
of October 1, 1999 (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 (filed October 1, 1999)
(Registration No. 333-85919))
4.2 Restated Bylaws of MCI WorldCom (incorporated herein by reference
to Exhibit 3.2 to MCI WorldCom's Current Report on Form 8-K dated
September 14, 1998) (filed September 29, 1998) (File No. 0-11258))
4.3 Rights Agreement dated as of August 25, 1996 between MCI WorldCom
and The Bank of New York, as rights agent, which includes the form
of Certificate of Designations, setting forth the terms of the
Series 3 Junior Participating Preferred Stock, par value $.01 per
share, of MCI WorldCom, as Exhibit A, the form of Rights
Certificate as Exhibit B and the Summary of Preferred Stock
Purchase Rights as Exhibit C (incorporated herein by reference to
Exhibit 4 to MCI WorldCom's Current Report on Form 8-K dated
August 26, 1996 (as amended) (File No. 0-11258))
4.4 Amendment No. 1 To Rights Agreement dated as of May 22, 1997 by
and between MCI WorldCom and The Bank of New York, as Rights Agent
(incorporated herein by reference to Exhibit 4.2 to MCI WorldCom's
Current Report on Form 8-K dated May 22, 1997 (filed June 6, 1997)
(File No. 0-11258))
4.5 Form of Indenture between MCI WorldCom and a trustee to be
designated later relating to 4.5% Convertible Subordinated
Debentures due 2003 (incorporated herein by reference to Exhibit
4.6 to MCI WorldCom's Registration Statement on Form S-4 (filed
August 26, 1999) (Registration No. 333-85919))
5.1 Legality Opinion of MCI WorldCom Counsel
8.1* Tax Opinion of King & Spalding
8.2* Tax Opinion of Cravath, Swaine & Moore
12.1 Computation of Ratio of Earnings to Combined Fixed Charges and
Preference Dividends
12.2 Computation of Ratio of Earnings to Fixed Charges
23.1 Consent of Arthur Andersen LLP
23.2 Consent of KPMG LLP
23.3 Consent of Arthur Andersen LLP
23.4 Consent of PricewaterhouseCoopers LLP
23.5 Consent of Ernst & Young LLP
23.6 Consent of Deloitte & Touche LLP
23.7 Consent of MCI WorldCom Counsel (included in Exhibit 5.1)
23.8 Consent of Cravath, Swaine & Moore (included in Exhibit 8.2)
23.9 Consent of King & Spalding (included in Exhibit 8.1)
23.10 Consent of Warburg Dillon Read LLC
23.11 Consent of Salomon Smith Barney Inc.
24.1 Power of Attorney (included in Signature Page)
99.1* Form of Proxy for Sprint special meeting
99.2* Form of Proxy for MCI WorldCom special meeting
</TABLE>
- --------
* To be filed by amendment.
<PAGE>
EXHIBIT 5.1
November 5, 1999
Board of Directors of
MCI WORLDCOM, Inc.
500 Clinton Center Drive
Clinton, Mississippi 39056
Ladies and Gentlemen:
I am the General Counsel--Corporate Development of MCI WORLDCOM, Inc., a
Georgia corporation (the "Company"), and am familiar with the Registration
Statement on Form S-4 (the "Registration Statement"; capitalized terms used
herein without definitions have the meanings ascribed thereto on the cover page
of the Registration Statement) to be filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act"), relating to the merger (the "Merger") of Sprint Corporation,
a Kansas corporation ("Sprint"), with and into the Company, and to the
registration under the Securities Act of (i) a maximum of 982,823,287 shares of
WorldCom Common Stock and associated preferred stock purchase rights, (ii) a
maximum of 37,107,358 shares of WorldCom Series 2 Common Stock and associated
preferred stock purchase rights, (iii) a maximum of 109,767,108 shares of
WorldCom Series 3 Common Stock and associated preferred stock purchase rights,
(iv) a maximum of 236,257,694 shares of WorldCom Series 1 PCS Stock and
associated preferred stock purchase rights, (v) a maximum of 239,866,570 shares
of WorldCom Series 2 PCS Stock and associated preferred stock purchase rights,
(vi) a maximum of 13,089,418 shares of WorldCom Series 3 PCS Stock and
associated preferred stock purchase rights, (vii) a maximum of 43,118,018
shares of WorldCom Series FT Common Stock and associated preferred stock
purchase rights, (viii) a maximum of 43,118,018 shares of WorldCom Series DT
Common Stock and associated preferred stock purchase rights, (ix) a maximum of
95 shares of WorldCom Series 5 Preferred Stock, (x) a maximum of 246,766 shares
of WorldCom Series 7 Preferred Stock and (xi) such additional shares of
WorldCom capital stock, and associated preferred stock purchase rights, as may
be issuable in the merger in respect of shares of Sprint capital stock that may
have converted prior to the merger into other classes or series of Sprint
capital stock as described in the footnotes to the cover page of the
Registration Statement (all of the foregoing WorldCom securities are
collectively referred to herein as the "WorldCom Capital Stock").
In connection herewith, I have examined and relied without investigation as
to matters of fact upon the Registration Statement, including the proxy
statement/prospectus contained therein, the Second Amended and Restated
Articles of Incorporation, as amended, and the Restated Bylaws of the Company,
certificates, statements and results of inquiries of public officials and
officers and representatives of the Company, and such other documents,
corporate records, opinions and instruments as I have deemed necessary or
appropriate to enable me to render the opinions expressed below. I have assumed
the genuineness of all signatures appearing on documents examined by me, the
legal competence and capacity of each person that executed documents, the
authenticity of documents submitted to me as originals and the conformity to
authentic original documents of all documents submitted to me as certified or
photostatic copies. I have also assumed the due authorization, execution and
delivery of all documents.
Based upon the foregoing, in reliance thereon and subject to the exceptions,
qualifications and limitations stated herein and the effectiveness of the
Registration Statement under the Securities Act, I am of the following
opinions:
1. The Company is a corporation validly existing under the laws of the
State of Georgia.
2. When the conditions to consummation of transactions contemplated by
the Agreement and Plan of Merger dated as of October 4, 1999, between the
Company and Sprint (the "Merger Agreement") shall have been satisfied or
waived and the shares of WorldCom Capital Stock to be issued in connection
with the Merger shall have been issued in accordance with the terms of the
Merger Agreement, then the shares of WorldCom Capital Stock issuable in the
Merger will be validly issued, fully paid and non-assessable.
<PAGE>
This opinion is not rendered with respect to any laws other than the latest
codification of the Georgia Business Corporation Code (the "GBCC") available to
me. I note that the Merger Agreement provides that it shall be governed by, and
construed in accordance with, the laws of the State of Delaware, except that
the Merger shall be governed by the laws of the State of Kansas and the laws of
the State of Georgia. In rendering the opinions expressed herein I have assumed
that such matters are governed exclusively by the GBCC and I express no opinion
as to which law any court construing the Merger Agreement would apply. This
opinion has not been prepared by an attorney admitted to practice in Delaware,
Georgia or Kansas.
I hereby consent to the filing of this opinion as Exhibit 5.1 to the
aforesaid Registration Statement. I also consent to your filing copies of this
opinion as an exhibit to the Registration Statement with agencies of such
states as you deem necessary in the course of complying with the laws of such
states regarding the offering and sale of the securities referred to herein. In
giving this consent, I do not admit that I am in the category of persons whose
consent is required under Section 7 of the Securities Act or the rules and
regulations of the Commission.
Very truly yours,
/s/ P. Bruce Borghardt
-------------------------------------
P. Bruce Borghardt
General Counsel--Corporate
Development
<PAGE>
Exhibit 12.1
MCI WORLDCOM, INC.
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERENCE DIVIDENDS
(IN MILLIONS)
<TABLE>
<CAPTION>
Year Ended December 31, Six Months
------------------------------------ Ended
1994 1995 1996 1997 1998 June 30, 1999
---- ------ ------- ------ ------- ------------- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Pretax income (loss)
from continuing
operations............. $(51) $ 428 $(2,103) $ 663 $(1,664) $2,799
Minority interests in
losses of consolidated
affiliates............. -- -- -- -- -- (20)
Fixed charges, net of
capitalized interest
and preference
dividends.............. 60 272 274 442 716 562
---- ------ ------- ------ ------- ------
Earnings............... $ 9 $ 700 $(1,829) $1,105 $ (948) $3,341
==== ====== ======= ====== ======= ======
Fixed Charges:
Interest cost........... $ 49 $ 258 $ 262 $ 483 $ 873 $ 639
Amortization of
financing costs........ 2 3 2 -- 10 8
Interest factor of rent
expense................ 10 16 19 47 78 66
Preference dividends.... 45 53 2 42 51 51
---- ------ ------- ------ ------- ------
Fixed charges.......... $106 $ 330 $ 285 $ 572 $ 1,012 $ 764
==== ====== ======= ====== ======= ======
Deficiency of earnings
to combined fixed
charges and preference
dividends.............. $(97) $ -- $(2,114) $ -- $(1,960) $ --
==== ====== ======= ====== ======= ======
Ratio of earnings to
combined fixed charges
and preference
dividends.............. -- 2.12:1 -- 1.93:1 -- 4.37:1
==== ====== ======= ====== ======= ======
</TABLE>
<PAGE>
Exhibit 12.2
MCI WORLDCOM, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN MILLIONS)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------ Six Months Ended
1994 1995 1996 1997 1998 June 30, 1999
---- ------ ------- ------ ------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Pretax income (loss)
from continuing
operations............. $(51) $ 428 $(2,103) $ 663 $(1,664) $2,799
Minority interests in
losses of consolidated
affiliates............. -- -- -- -- -- (20)
Fixed charges, net of
capitalized interest... 60 272 274 442 716 562
---- ------ ------- ------ ------- ------
Earnings.............. $ 9 $ 700 $(1,829) $1,105 $ (948) $3,341
==== ====== ======= ====== ======= ======
Fixed Charges:
Interest cost........... $ 49 $ 258 $ 262 $ 483 $ 873 $ 639
Amortization of
financing costs........ 2 3 2 -- 10 8
Interest factor of rent
expense................ 10 16 19 47 78 66
---- ------ ------- ------ ------- ------
Fixed charges......... $ 61 $ 277 $ 283 $ 530 $ 961 $ 713
==== ====== ======= ====== ======= ======
Deficiency of earnings
to fixed charges....... $(52) $ -- $(2,112) $ -- $(1,909) $ --
==== ====== ======= ====== ======= ======
Ratio of earnings to
fixed charges.......... -- 2.53:1 -- 2.08:1 -- 4.69:1
==== ====== ======= ====== ======= ======
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement on Form S-4, to be filed on or around
November 5, 1999, of our report dated February 10, 1999, and November 4, 1999
with respect to Note 18, included in MCI WORLDCOM, Inc.'s Form 10-K for the
year ended December 31, 1998, as updated by MCI WORLDCOM, Inc.'s Current Report
on Form 8-K filed on November 5, 1999, and to all references to our Firm
included in this registration statement.
Arthur Andersen LLP
Jackson, Mississippi
November 5, 1999
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Shareholders
MCI WORLDCOM, Inc.
We consent to incorporation by reference in the registration statement on
Form S-4 of MCI WORLDCOM, Inc. of our report dated February 18, 1998, relating
to the consolidated balance sheet of Brooks Fiber Properties, Inc. and
subsidiaries as of December 31, 1997, and the related consolidated statements
of operations, changes in shareholders' equity, and cash flows for each of the
years in the two-year period ended December 31, 1997, which report appears in
MCI WORLDCOM, Inc.'s Form 8-K dated November 5, 1999 and to the reference to
our firm in this registration statement under the heading "Experts."
KPMG LLP
St. Louis, Missouri
November 5, 1999
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement on Form S-4, to be filed on or around
November 5, 1999, of our reports dated February 20, 1997, on the Consolidated
Financial Statements of MFS Communications Company, Inc. included in MCI
WORLDCOM, Inc.'s Current Report on Form 8-K dated August 25, 1996, as amended
by Form 8-K/A filed on December 19, 1997, and to all references to our Firm
included in this registration statement.
Arthur Andersen LLP
Omaha, Nebraska,
November 5, 1999
<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of MCI WORLDCOM, Inc. of our report dated April 9, 1998
related to the consolidated financial statements of MCI Communications
Corporation as of December 31, 1997 and 1996 and for the three years ended
December 31, 1997, which appears in MCI WORLDCOM, Inc.'s Current Report on Form
8-K/A-3 dated November 9, 1997 (filed May 28, 1998). We also consent to the
references to us under the headings "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
Washington, D.C.
November 5, 1999
<PAGE>
Exhibit 23.5
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Joint Proxy Statement/Prospectus of MCI WORLDCOM, Inc. and Sprint Corporation
that is made a part of the Registration Statement (Form S-4) of MCI WORLDCOM,
Inc. for the registration of shares of its common stock and to the
incorporation by reference therein of our reports dated February 2, 1999, with
respect to the consolidated financial statements and schedule of Sprint
Corporation and the combined financial statements and schedules of the Sprint
FON Group and the Sprint PCS Group included in Sprint Corporation's Annual
Report (Form 10-K) for the year ended December 31, 1998, filed with the
Securities and Exchange Commission.
Ernst & Young LLP
Kansas City, Missouri
November 4, 1999
<PAGE>
Exhibit 23.6
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement
on Form S-4 of MCI WORLDCOM, Inc. of our report dated February 2, 1999, on the
consolidated financial statements of Sprint Spectrum Holding Company, L.P. and
subsidiaries and the related financial statement schedule, appearing in the
Annual Report on Form 10-K of Sprint Corporation for the year ended December
31, 1998, and to the references to us under the heading "Experts" in the Joint
Proxy Statement/Prospectus which is part of this Registration Statement.
Deloitte & Touche LLP
Kansas City, Missouri
November 4, 1999
<PAGE>
Exhibit 23.10
CONSENT OF WARBURG DILLON READ LLC
We hereby consent to the use of Annex 4 containing our opinion letter dated
October 4, 1999 to the Board of Directors of Sprint Corporation (the "Company")
in the Joint Proxy Statement/Prospectus constituting a part of the Registration
Statement on Form S-4 relating to the proposed combination of the Company and
MCI WORLDCOM, Inc. and to the references to our firm in such Joint Proxy
Statement/Prospectus. In giving this consent, we do not admit that we come
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission promulgated thereunder.
Warburg Dillon Read LLC
/s/ F. Davis Terry
By __________________________________
Managing Director
/s/ Dominic Lester
By __________________________________
Director
<PAGE>
Exhibit 23.11
CONSENT OF SALOMON SMITH BARNEY INC.
We hereby consent to the use of Annex 3 containing our opinion letter dated
October 4, 1999 to the Board of Directors of MCI WORLDCOM, Inc. (the "Company")
in the Joint Proxy Statement/Prospectus constituting a part of the Registration
Statement on Form S-4 relating to the proposed combination of the Company and
Sprint Corporation and to the references to our firm in such Joint Proxy
Statement/Prospectus. In giving this consent, we do not admit that we come
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission promulgated thereunder.
Salomon Smith Barney Inc.
/s/ Salomon Smith Barney
By __________________________________
